U NITED S TATES S ECURITIES
          AND E XCHANGE C OMMISSION
 Washington,
        D.C. 20549
  FORM
        10-QSB
  Quarterly
        Report of Small Business Issuers under Section 13 or 15(d) of the Securities
        Exchange Act of 1934 for the quarterly period ended June 30, 2006
  Commission
        File No. 333-42936
  **DND
        Technologies, Inc.**
 (Exact
        name of registrant as specified in its charter)
  Nevada
                (State
                  or other jurisdiction of incorporation or
                organization)
              84-1405298
                (I.R.S.
                  Employer Identification No.)375
                  E. Elliot Rd., Bldg. 6Chandler,
                  Arizona
                (Address
                  of principal executive offices)
              85225
                (Zip
                  Code)Issuer's
                  telephone number, including area code:(480)
                  892-7020______________________________________________________________
                (Former
                  name, former address, and former fiscal year, if changed since
                  last
                  report)The
                  issuer has (1) filed all reports required to be filed by Section
                  13 or
                  15(d) of the Exchange Act during the past 12 months (or for such
                  shorter
                  period that the registrant was required to file such reports),
                  and (2)
                  been subject to such filing requirements for the past 90 days.
                
                The
                  registrant is not a shell company (as defined in Rule 12b-2 of
                  the
                  Exchange Act).Number
                  of shares outstanding of each of the issuer's classes of common
                  equity:Class
              Outstanding
                  as of August 10, 2006Common
                  stock, $0.001 par value
              26,234,653
 The
          issuer is not using the Transitional Small Business Disclosure format.
 **DND
        TECHNOLOGIES, INC.**
 
 **Table
        of Contents**
 
 PagePART
                  I FINANCIAL INFORMATION
              
              1Item
                  1. Consolidated Unaudited Financial Statements
              
              1Condensed
                  Consolidated Unaudited Balance Sheet
              
              1Condensed
                  Consolidated Unaudited Statements of Operations
              
              2Condensed
                  Consolidated Unaudited Statements of Stockholders' Deficit
              
              4Condensed
                  Consolidated Unaudited Statements of Cash Flows
              
              5Notes
                  to Condensed Consolidated Unaudited Financial Statements
              
              7Item
                  2. Management's Discussion and Analysis
              
              16Item
                  3. Controls and Procedures
              
              29PART
                  II OTHER INFORMATION
              
              30Item
                  6. Exhibits and Reports on Form 8-K
              
              30SIGNATURES
              
              31
  
  **PART
        I.**  **FINANCIAL
        INFORMATION**
 
 **Item
        1.**  **Financial
        Statements (Unaudited)**
 
 **DND
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEET**
 **JUNE
        30, 2006**
 **(UNAUDITED)**
 
 ASSETSCURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              132,036Accounts
                  receivable, net
              
              
              1,064,982Inventories,
                  net
              
              
              1,228,911Prepaid
                  expenses
              
              
              50,701Total
                  current assets
              
              
              2,476,630PROPERTY
                  AND EQUIPMENT, Net of accumulated depreciation
              
              
              124,817LICENSE
                  AGREEMENTS, Net of accumulated amortization
              
              
              94,643OTHER
              
              
              21,816TOTAL
                  ASSETS
              
              $
              2,717,906LIABILITIES
                  AND STOCKHOLDERS' DEFICITCURRENT
                  LIABILITIES:Notes
                  payable, current portion
              
              $
              1,243,506Capital
                  leases payable, current portion
              
              
              12,003Accounts
                  payable and accrued expenses
              
              
              2,009,256Deposits
                  from customers
              
              
              618,654Payables,
                  Lam Research Corporation
              
              
              3,555,317License
                  and royalty payable, Axcelis
              
              
              2,145,973Amounts
                  due to related party
              
              
              466,771Total
                  current liabilities
              
              
              10,051,480LONG
                  TERM LIABILITIES:Capital
                  leases payable, long term portion
              
              
              19,920STOCKHOLDERS'
                  DEFICIT:Preferred
                  stock, par value, $.001 per share;authorized,
                  10,000,000 shares;issued
                  and outstanding, -0- shares
              
              
              —Common
                  stock, par value, $.001 per share;authorized,
                  50,000,000 shares;issued
                  and outstanding, 26,234,653 shares
              
              
              26,235Paid-in
                  capital
              
              
              2,386,795Accumulated
                  deficit
              
              
              (9,766,524
              )Total
                  stockholders' deficit
              
              
              (7,353,494
              )TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT
              
              $
              2,717,906
 
 See
        accompanying notes.
 
 1
 
 **DND
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **FOR
        THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005**
 **(UNAUDITED)**
 
 **Three
                  Months**
              
              **Six
                  Months****2006**
              
              **2005**
              
              **2006**
              
              **2005**REVENUE:Systems
                  and chillers
              
              $
              1,162,755
              
              $
              991,216
              
              $
              2,103,622
              
              $
              3,824,717Parts,
                  assemblies and consumables
              
              
              884,992
              
              
              1,187,926
              
              
              1,900,713
              
              
              2,697,899Field
                  service and training
              
              
              47,336
              
              
              88,118
              
              
              79,118
              
              
              104,979Total
                  revenue
              
              
              2,095,083
              
              
              2,267,260
              
              
              4,083,453
              
              
              6,627,595OPERATING
                  EXPENSES:Cost
                  of revenues
              
              
              1,515,970
              
              
              1,629,608
              
              
              2,891,324
              
              
              4,351,747Reserve
                  for slow movingand
                  obsolete inventory
              
              
              3,721
              
              
              (94,438
              )
              
              (18,915
              )
              
              33,571Research
                  and development
              
              
              64,570
              
              
              45,281
              
              
              127,400
              
              
              66,408Sales
                  and marketing
              
              
              459,356
              
              
              393,913
              
              
              857,306
              
              
              1,041,367General
                  and administrative
              
              
              350,009
              
              
              451,774
              
              
              827,577
              
              
              932,388Total
                  operating expenses
              
              
              2,393,626
              
              
              2,426,138
              
              
              4,684,692
              
              
              6,425,481INCOME
                  (LOSS) FROM OPERATIONS
              
              
              (298,543
              )
              
              (158,878
              )
              
              (601,239
              )
              
              202,114OTHER
                  INCOME (EXPENSE):Gain
                  on settlement of debt
              
              
              0
              
              
              0
              
              
              0
              
              
              17,500Interest
                  expense
              
              
              (99,277
              )
              
              (87,119
              )
              
              (213,604
              )
              
              (170,996
              )OTHER
                  INCOME (EXPENSE)
              
              
              (99,277
              )
              
              (87,119
              )
              
              (213,604
              )
              
              (153,496
              )Income
                  (loss) before incometax
                  expense
              
              
              (397,820
              )
              
              (245,997
              )
              
              (814,843
              )
              
              48,618INCOME
                  TAX
              
              
              0
              
              
              0
              
              
              800
              
              
              800NET
                  INCOME (LOSS)
              
              $
              (397,820
              )
              $
              (245,997
              )
              $
              (815,643
              )
              $
              47,818
  See
        accompanying notes.
  2
  **DND
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED**
 **FOR
        THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005**
 **(UNAUDITED)**
 
 **Three
                  Months**
              
              **Six
                  Months****2006**
              
              **2005**
              
              **2006**
              
              **2005**NET
                  INCOME PER COMMON SHARE:Basic
              
              $
              (.02
              )
              $
              (.01
              )
              $
              (.03
              )
              $
              .00Diluted
              
              $
              N/A
              
              $
              N/A
              
              $
              N/A
              
              $
              .00WEIGHTED
                  AVERAGE NUMBER OF COMMON SHARES OUTSTANDING AND
                  SUBSCRIBED:Basic
              
              
              26,234,653
              
              
              24,598,263
              
              
              26,234,653
              
              
              23,928,740Diluted
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              27,597,320
  See
        accompanying notes.
 
 3
  **DND
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2006**
 **(UNAUDITED)**
 
 **Common
                  Stock**
              ****
              
              ****
              **Accumulated**
              ****
              
              ********
              ****
              **Shares**
              ****
              **Amount**
              ****
              **Paid-In
                  Capital**
              ****
              **Deficit**
              ****
              **Total**BALANCE,JANUARY
                  1, 2006
              
              
              26,234,653
              
              $
              26,235
              
              $
              2,367,175
              
              $
              (8,950,881
              )
              $
              (6,557,471
              )ISSUANCE
                  OF STOCK OPTIONS FOR DIRECTOR COMPENSATION
              
              
              0
              
              
              0
              
              
              19,620
              
              
              0
              
              
              19,620NET
                  (LOSS)
              
              
              0
              
              
              0
              
              
              0
              
              
              (815,643
              )
              
              (815,643
              )BALANCE,JUNE
                  30, 2006
              
              
              26,234,653
              
              $
              26,235
              
              $
              2,386,795
              
              $
              (9,766,524
              )
              $
              (7,353,494
              )
 
 See
        accompanying notes.
  4
  **DND
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005**
 **(UNAUDITED)**
 
 **2006**
              
              **2005**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income (loss)
              
              $
              (815,643
              )
              $
              47,818Adjustments
                  to reconcile net income (loss) to net cash provided by operating
                  activities:Depreciation
                  and Amortization
              
              
              35,064
              
              
              89,716Amortization
                  of licenses
              
              
              12,061
              
              
              276,530Issuance
                  of stock options for director compensation
              
              
              19,620
              
              
              0Legal
                  expenses and late fees paid by the issuance of debt
              
              
              80,164
              
              
              0Provision
                  for slow moving and obsolete inventories
              
              
              0
              
              
              33,571Gain
                  on settlement of debt
              
              
              0
              
              
              (17,500
              )Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              378,439
              
              
              1,105,130Inventories
              
              
              561,952
              
              
              (402,043
              )Prepaid
                  expenses and other assets
              
              
              58,821
              
              
              (118,170
              )Accounts
                  payable and accrued expenses
              
              
              (261,051
              )
              
              (1,410,807
              )Deposits
                  from customers
              
              
              185,882
              
              
              672,834Amounts
                  due to related parties
              
              
              (74,256
              )
              
              5,819Net
                  cash provided by operating activities
              
              
              181,053
              
              
              282,898CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchases
                  of property and equipment
              
              
              0
              
              
              (6,242
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Exercise
                  of common stock options
              
              
              0
              
              
              26,500Proceeds
                  from debt, related party
              
              
              40,000
              
              
              0Principal
                  payments on long-term debt
              
              
              (431,315
              )
              
              (466,639
              )Principal
                  payments on debt, related party
              
              
              (50,000
              )
              
              0Net
                  cash (used) by financing activities
              
              
              (441,315
              )
              
              (440,139
              )NET
                  (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              (260,262
              )
              
              (163,483
              )CASH
                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD
              
              
              392,298
              
              
              316,488CASH
                  AND CASH EQUIVALENTS, END OF PERIOD
              
              $
              132,036
              
              $
              153,005
 
 **(Continued)**
  5
  **DND
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS (CONTINUED)**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005**
 **(UNAUDITED)**
 
 **2006**
              
              **2005**SUPPLEMENTARY
                  DISCLOSURE OFCASH
                  FLOW INFORMATION:Cash
                  paid for interest
              
              $
              81,415
              
              $
              106,521Cash
                  paid for taxes
              
              $
              0
              
              $
              0SCHEDULE
                  OF NON-CASH INVESTINGAND
                  FINANCING ACTIVITIES:Common
                  stock issued for accrued and current periodexpenses
              
              $
              0
              
              $
              250,000
  See
        accompanying notes.
  6
  **DND
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2006**
 **(UNUADITED)**
  1.  GENERAL
  **Presentation** - The
        interim consolidated financial statements of DND Technologies, Inc. and
        Subsidiaries (the "Company") are condensed and do not include some of the
        information necessary to obtain a complete understanding of the financial
        data.
        Management believes that all adjustments, consisting of normal recurring
        adjustments, which are, in the opinion of management , necessary
        for a fair presentation of results have been included in the unaudited
        consolidated financial statements for the interim period presented. Operating
        results for the six months ended June 30, 2006 are not necessarily indicative
        of
        the results that may be expected for the year ended December 31, 2006.
        Accordingly, your attention is directed to footnote disclosures found in
        the
        December 31, 2005 Annual Report and particularly to Note 1, which includes
        a
        summary of significant accounting policies.
 
 These
        financial statements are presented on the basis that the Company is a going
        concern. Going concern contemplates the realization of assets and the
        satisfaction of liabilities in the normal course of business over a reasonable
        length of time. The Company has incurred a loss of approximately $816,000
        through June 30, 2006 and a loss of $4,600,000 (which includes a $2,705,013
        charge for impairment of the Lam license agreement) in the year ended December
        31, 2005. Revenues for the six months ended June 30, 2006 are down approximately
        38% from the prior year, the Company has negative working capital of
        approximately $7,600,000, and is in default on the majority of its term debt.
        In
        addition, on March 6, 2006, the Company received a notice of termination
        of its
        license agreement with Lam Research Corporation (“Lam”). The termination of the
        license agreement is not expected to have a material impact on future sales.
        The
        parts purchased pursuant to the Lam Agreement are not typically purchased
        from
        Lam, but from certain of the Company's other vendors. The parts that the
        Company
        historically has purchased directly from Lam are for the support of Rainbow
        and
        TCP products, which are not covered by the Lam Agreement. However, when the
        Company initially entered into the license agreement with Lam, being a
        Lam-approved supplier of certain equipment helped the Company establish
        relationships with certain customers. If Lam enters into a similar arrangement
        with a new company, it is possible that this could have a material impact
        on
        future sales to the extent the new Lam-approved supplier is able to persuade
        the
        Company's existing customers to change suppliers; however, management believes
        that its relationships with its customers are strong enough to minimize this
        risk. Lam recently entered the refurbishing market directly, which has had
        some
        impact on the Company’s revenue. During
        the second quarter of 2006, the Company filed a lawsuit against Lam as a
        result
        of a long-standing contract dispute between Aspect and Lam . ** Management
        is convinced that the complaint
        is justified, and that
        the
        Company has suffered substantial damages. Recently,
        the lawsuit was removed to federal court and Lam has filed a motion to dismiss,
        challenging the adequacy of the non-contract causes of action. The Company
        is
        vigorously opposing the motion to dismiss. These
        factors raise substantial doubt as to the Company’s ability to continue as a
        going concern. The consolidated financial statements do not include any
        adjustments relating to the recoverability and classification of recorded
        asset
        amounts or the amounts and classification of liabilities that might be necessary
        should the Company be unable to continue as a going concern. The Company's
        continuation as a going concern is dependent upon its ability to generate
        sufficient cash flow to meet its obligations on a timely basis, to obtain
        additional financing or refinancing as may be required, satisfactorily
        settlement of the Lam lawsuit, and ultimately to attain successful
        operations.
  **Nature
        of Business and History of Company** - DND
        Technologies, Inc. (the "Company") was organized on May 9, 1997, under the
        laws
        of the state of Nevada. The Company operates as a holding company for subsidiary
        acquisitions. The Company's operating subsidiary is Aspect Systems, Inc.
        (located in Arizona and Texas; hereinafter referred to as "ASI").
  7
  ASI
        also
        owns 100% of ASI Team Asia Ltd. ASI Team Asia Ltd. is inactive and has no
        significant assets or liabilities and has not had any revenue or
        expenses.
  ASI
        is a
        supplier of semiconductor manufacturing equipment and also supplies complete
        after market support of the aforementioned equipment, which currently includes
        Lam AutoEtch, Rainbow, and TCP plasma etch systems, plus a variety of plasma
        etch and strip products manufactured on the ASI MX-1 and ASI MX-10 platforms
        (formerly Matrix System One and Ten), and the Arista and Arista Dual platforms
        (formerly Matrix Bobcat and Cheetah). Elements of support include spare
        parts and
        assemblies, and various engineering services.
  **Principles
        of Consolidation** - The
        consolidated financial statements include the accounts of DND Technologies,
        Inc.
        and its wholly-owned subsidiaries ASI and ASI Team Asia Ltd. All material
        inter-company accounts and transactions have been eliminated.
  **Net
        Income (Loss) Per Share -** Basic
        income (loss) per common share is computed by dividing net income available
        to
        common stockholders by the weighted-average number of common shares outstanding
        during the period. Diluted income per common share is computed by dividing
        net
        income available to common stockholders by the weighted-average number of
        common
        shares outstanding plus an assumed increase in common shares outstanding
        for
        potentially dilutive securities, which consist of options. Potentially dilutive
        shares are excluded from the computation in loss periods, as their effect
        would
        be anti-dilutive. The dilutive effect of options to acquire common stock
        is
        measured using the treasury stock method. The dilutive effect of potentially
        issuable securities was -0- **** shares
        and 3,668,580 **** shares
        for the six months ended June 30, 2006 and 2005, respectively.
  **Concentration
        of Risk** -
        Financial instruments that potentially subject the Company to concentrations
        of
        credit risk consist principally of cash and trade accounts receivable.
  The
        Company places its temporary cash investments in reputable financial
        institutions.
  Concentration
        of credit risk with respect to trade receivables is limited due to the large
        number of customers comprising the Company's customer base and their dispersion
        across different geographic areas. The Company routinely assesses the financial
        strength of its customers. At June 30, 2006, the Company had two customers
        whose
        balances exceeded 10% of gross accounts receivable, comprising 37% and 14%,
        respectively. (See Note 15)
  **Significant
        Customers -** For
        the
        six months ended June 30, 2006, the Company had two customers whose revenues
        exceeded 10% of total revenues (13% and 20%). For the six months ended June
        30,
        2005, the Company had one customer whose revenues exceeded 10% of total revenues
        at 33% of total revenues. Revenues in 2006 and 2005 outside the United States
        include  Europe
        20% and 5%, and Asia 8% and 43%, respectively.
  **Significant
        Suppliers** - For
        the six months ended June 30, 2006 and 2005, approximately 7% and
        19% **,** respectively, of gross inventory purchases were purchased from Lam Research
        Corporation (“Lam”). During March 2006, the Company received a notice of
        termination of its license agreement with Lam. However, the parts purchased
        pursuant to the Lam Agreement are not typically purchased from Lam, but from
        certain of the Company's other vendors. The parts that the Company historically
        has purchased directly from Lam are for the support of Rainbow and TCP products,
        which are not covered by the Lam Agreement. Therefore, the Company may continue
        to have significant purchases of inventory from Lam.
  8
 **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 certain estimates and assumptions that affect the reported
        amounts and timing of revenues and expenses, the reported amounts and
        classification of assets and liabilities, and disclosures of contingent assets
        and liabilities. These estimates and assumptions are based on the Company’s
        historical results as well as management’s future expectations. The Company’s
        actual results could vary materially from management’s estimates and
        assumptions.
  **Disclosure
        About Fair Value of Financial Instruments** - The
        Company estimates that the fair value of all financial instruments as of
        June
        30, 2006, as defined by FASB 107, does not differ materially from the aggregate
        carrying values of its financial instruments recorded in the accompanying
        consolidated balance sheet. The estimated fair value amounts have been
        determined by the Company using available market information and appropriate
        valuation methodologies. Considerable judgment is required in interpreting
        market data to develop the estimates of fair value, and accordingly, the
        estimates are not necessarily indicative of the amounts that the Company
        could
        realize in a current market exchange.
  **Stock
        Based Compensation** -  Effective
        January 1, 2006, the Company adopted Statement of Financial Accounting
        Standards (“SFAS”) No. 123(R), “Share-Based Payment: An Amendment of FASB
        Statements No. 123 and 95” using the modified prospective method. Under
        this method, compensation cost is recognized on or after the effective date
        for
        the portion of outstanding awards, for which the requisite service has not
        yet
        been rendered, based on the grant date fair value of those awards. Prior
        to
        January 1, 2006, the Company accounted for employee stock options using the
        intrinsic value method in accordance with Accounting Principles Board (“APB”)
        Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to
        Employees,” and adopted the disclosure only alternative of SFAS No. 123.
        For stock-based awards issued on or after January 1, 2006, the Company
        recognizes the compensation cost on a straight-line basis over the requisite
        service period for the entire award. Measurement and attribution of compensation
        cost for awards that are unvested as of the effective date of
        SFAS No. 123(R) are based on the same estimate of the grant-date or
        modification-date fair value and the same attribution method used previously
        under SFAS No. 12. During the six months ended June 30, 2006, the
        Company issued 600,000 options to purchase the Company’s common stock to four
        members of the Company’s Board of Directors. For the six months ended June 30,
        2006, the Company recorded an expense of $19,620 relating to the estimated
        fair
        value of the stock options using the Black-Scholes option-pricing
        model.
  The
        Black-Scholes option-pricing model was developed for use in estimating the
        fair
        value of traded options, which have no vesting restrictions and are fully
        transferable. In addition, option valuation models require the input of highly
        subjective assumptions including the expected stock price volatility. Because
        the Company's stock options and warrants have characteristics different from
        those of traded options, and because changes in the subjective input assumptions
        can materially affect the fair value estimate, in management's opinion, the
        existing models do not necessarily provide a reliable single measure of the
        fair
        value of such stock options.
  In
        accordance with SFAS No. 148, and as required by SFAS 123(R), the required
        pro forma disclosure, for periods prior to adoption of SFAS 123(R), is shown
        below for the six months ended June 30, 2005:
  Net
                  income:As
                  reported
              
              $
              47,818Proforma
              
              $
              31,629Net
                  Income per common stock share:Basic:As
                  reported
              
              $
              .00Proforma
              
              $
              .00Diluted:As
                  reported
              
              $
              .00Proforma
              
              $
              .00
 
 9
  **Recently
        Issued Accounting Pronouncements** -
  There
        are
        no accounting standards with pending adoptions that have any applicability
        to
        the Company.
 
 **Reclassifications** -
        Certain 2005 amounts have been reclassified to conform to 2006
        presentations.
  2.  ACCOUNTS
        RECEIVABLE
  A
        summary
        of accounts receivable is as follows:
  Accounts
                  receivable
              
              $
              1,091,822Allowance
                  for doubtful accounts
              
              
              (26,840
              )Net
                  accounts receivable
              
              $
              1,064,982
  3.  INVENTORIES
  A
        summary
        of inventories is as follows:
  Parts
                  and materials
              
              $
              2,821,959Work-in-process
              
              
              504,527Allowance
                  for obsolescence
              
              
              (2,097,575
              )Net
                  inventories
              
              $
              1,228,911
  4.  PROPERTY
        AND EQUIPMENT
  Property
        and equipment and accumulated depreciation at June 30, 2006 consist
        of:
  Office
                  furniture, fixtures and equipment
              
              $
              364,981Leasehold
                  improvements
              
              
              444,669Machinery
                  and equipment
              
              
              369,944Laboratory
                  tools
              
              
              35,843Software
              
              
              10,0001,225,437Less
                  accumulated depreciation
              
              
              (1,100,620
              )Total
                  property and equipment
              
              $
              124,817
  5.  LICENSE
        AGREEMENT AND PAYABLES, LAM RESEARCH CORPORATION
  In
        November 2002, ASI entered into an asset purchase and licensing agreement
        with
        Lam. Under the agreement, ASI purchased approximately $2.1 million of inventory
        from Lam and entered into a licensing agreement requiring payments totaling
        $5,376,000 (payable in 96 equal monthly installments of $56,000). ASI recorded
        the payable after imputing interest at 6%.
  10
 On
        June
        25, 2004, the Company signed an amendment to the November 2002 Asset Purchase
        and License Agreement with Lam that calls for payments on the inventory
        purchases. The spares inventory payment plan calls for 30 monthly installment
        payments of $28,220 beginning August 1, 2004 and ending January 1, 2007 with
        an
        additional payment of $90,000 that was due and paid on September 30, 2004.
        An
        additional inventory transfer of $65,000 took place in August 2004 and was
        added
        to this outstanding balance. The product group inventory payment plan calls
        for
        18 monthly installments of $9,404 beginning August 1, 2004 and ending January
        1,
        2006.
  Future
        minimum payments under the agreements are as follows:
  **Inventory**
              ****
              **License**December
                  31, 2006
              
              $
              385,666
              
              $
              669,435December
                  31, 2007
              
              
              28,220
              
              
              538,324December
                  31, 2008
              
              
              —
              
              
              571,527December
                  31, 2009
              
              
              —
              
              
              606,777December
                  31, 2010
              
              
              —
              
              
              755,368$
              413,886
              
              $
              3,141,431
  The
        Company is currently in default on its payments; accordingly, the full amount
        has been classified as current in the consolidated balance sheet. The November
        2005 through June 2006 inventory payments in the amount of approximately
        $254,000 and the September 2005 through June 2006 license payments totaling
        $560,000 have not been paid. During March 2006, the Company was notified
        that
        Lam was terminating the agreement. As a result, the Company recognized a
        full
        impairment if the license agreement in the amount of $2,705,013 at December
        31,
        2005.
  During
        the second quarter of 2006, the Company filed a lawsuit against Lam as a
        result
        of a long-standing contract dispute between Aspect and Lam . ** Management
        is convinced that the complaint
        is justified, and that the
        Company has suffered substantial damages. Recently,
        the lawsuit was removed to federal court and Lam has filed a motion to dismiss,
        challenging the adequacy of the non-contract causes of action. The Company
        is
        vigorously opposing the motion to dismiss.
  6.  LICENSE
        AND ROYALTY PAYABLE, AXCELIS TECHNOLOGIES, INC.
  In
        November 2003, the Company entered into an agreement with Axcelis acquiring
        an
        exclusive license to all future manufacturing, sales, service, and parts
        support
        for certain dry strip semi-conductor manufacturing equipment now marketed
        under
        the ASI trade names MX-1 and MX-10 (formerly Matrix System One and System
        Ten).
        The agreement provides for the one time payment of a license fee of $150,000
        plus 18% of net revenues (from these sales) per quarter until a $2,750,000
        fee
        has been paid and a declining royalty (from 10% down to 2%) on related sales
        through December 31, 2010.
  In
        August
        2004, the Company entered into an additional agreement with Axcelis acquiring
        an
        exclusive license to manufacture, sell and provide services and parts support
        for certain reactive ion etch semiconductor manufacturing equipment for wafer
        sized up to 200mm now marketed under the ASI tradename Arista and Arista
        Dual
        (formerly Matrix Bobcat and Cheetah). The agreement provides for a quarterly
        payment equal to 18% of net revenues from the sale of this product by the
        Company, beginning with the fourth quarter of 2004 and ending December 31,
        2011,
        or until $750,000 (the license fee) has been paid, whichever occurs first,
        and
        payment of a declining royalty (from 10% down to 2%) on related sales over
        a
        period of time that ends December 31, 2011.
  11
  The
        license and royalty payable at June 30, 2006 consisted of the
        following:
  License
                  payable
              
              $
              1,405,042Royalty
                  payable
              
              
              740,931Total
                  license and royalty payable
              
              $
              2,145,973
  Of
        this
        amount, $293,983 was due April 1, 2005, $333,309 was due July 1, 2005, $228,007
        was due October 1, 2005, $66,711 was due January 1, 2006, $490,045 was due
        April
        1, 2006, $218,497 was due July 1, 2006, $225,408 will be due on October 1,
        2006
        and $290,013 will be due January 1, 2007. Although the Company’s current tight
        cash flow prevented these payments from being made, management has assured
        Axcelis that the delinquent payments will be made as soon as possible and
        management has no reason to believe as of the date of this filing that Axcelis
        will terminate either of its agreements with the Company.
  7. NOTES
        PAYABLE
  The
                  Company's term loan dated May 14, 2004 to Merrill Lynch was renegotiated
                  during July 2006. Under the new agreement, the Company is required
                  to make
                  8 monthly payments, commencing August 1, 2006, in the amount of
                  $24,958
                  plus interest (at prime + 4%), and a final balloon payment is due
                  March
                  31, 2007. The loan continues to be secured by a first lien on the
                  Company's total assets ($2,717,906 as of June 30, 2006) and has
                  been
                  guaranteed by Doug Dixon, Chairman and CEO, and the Company.
              
              $
              679,156On
                  July 22, 2005 the Company entered into a Bridge Loan Agreement
                  with
                  Cornell Capital Partners LP (“Cornell”). The loan calls for interest at
                  12%. On May 1, 2006 the loan was renegotiated, under the new agreement,
                  the Company is required to make 12 monthly payments, commencing
                  May 1,
                  2006, in the amount of $12,500 to Cornell and a final balloon payment
                  in
                  the amount of $204,107 on May 1, 2007.
              
              
              275,000Unsecured
                  demand note due to an individual with interest accruing at
                  7%
              
              
              289,350Total
              
              $
              1,243,506
  8.  ACCOUNTS
        PAYABLE AND ACCRUED EXPENSES
  A
        summary
        of accounts payable and accrued expenses is as follows:
  Trade
                  accounts payable
              
              $
              839,109Accrued
                  commissions
              
              
              236,208Accrued
                  payroll
              
              
              178,517Product
                  warranty provision
              
              
              330,865Accrued
                  interest
              
              
              416,003Sales
                  and state income taxes payable
              
              
              8,554Total
                  Accounts Payable and Accrued Expenses
              
              $
              2,009,256
  12
 9.  RELATED
        PARTY TRANSACTIONS
  Amounts
        Due to Related Party
  The
        Company has the following amounts due to its Chairman and CEO at June 30,
        2006;
        the amounts due to the Chairman are delinquent and payable on
        demand:
  Notes
                  payable at 7.0%
              
              $
              120,000Note
                  payable plus interest and late fee due October 24, 2005 (see Note
                  15)
              
              
              53,750Accrued
                  interest on notes payable
              
              
              77,425Accrued
                  salaries
              
              
              172,663Total
                  Amount Due To Chairman
              
              $
              423,838
 
 On
        April
        25, 2006, the Company received $40,000 from one of the Company’s employees under
        a promissory note. The note calls for interest in the amount of $4,000 and
        the
        principal balance to be due no later than July 25, 2006. At June 30, 2006,
        the
        following amounts were due to this employee (see Note 15):
 
 Note
                  payable
              
              $
              40,000Accrued
                  interest on note payable
              
              
              2,933Total
                  Amount Due To Employee
              
              $
              42,933Total
                  Amount Due To Related Parties
              
              $
              466,771
  10.  GAIN
        ON
        SETTLEMENT OF DEBT
  In
        February 2005, the Company issued 100,000 shares of common stock for payment
        of
        approximately $15,000 of legal services received during the year ended December
        31, 2004. These shares had an aggregate fair value of $20,500; as such we
        recorded the shares at the full market value and a $5,500 loss on settlement
        of
        debt. This loss was offset by a $23,000 gain resulting from the forgiveness
        of
        accrued interest expense after the Company made the final $100,000 payment
        on an
        unsecured note payable.
  11.  EMPLOYEE
        STOCK OPTIONS
  On
        August
        11, 2003, the Board of Directors and stockholders approved the DND Technologies,
        Inc. 2003 Stock Option Plan, which permits the Board of Directors to grant,
        for
        a ten year period, options to purchase up to 5,000,000 shares of its common
        stock to directors, employees and consultants. The Plan is administered by
        the
        Board of Directors. The administrators have the authority and discretion,
        subject to the provisions of the Plan, to select persons to whom stock options
        will be granted, to designate the number of shares to be covered by each
        option,
        to specify the type of consideration to be paid, and to establish all other
        terms and conditions of each option. Options granted under the Plan will
        not
        have a term that exceeds ten years from date of grant. The
        stock
        subject to the Plan and issuable upon exercise of options granted under the
        Plan
        are shares of the Company's common stock, $.001 par value, which may be either
        unissued or treasury shares. The exercise price is no less than 100% of the
        fair
        market value of the shares at the date of the grant of the options, as specified
        by the Board of Directors. As
        of
        December 31, 2005 all vesting periods were accelerated and all options are
        fully
        vested.
  On
        June
        15, 2005, the Board of Directors and stockholders approved the DND Technologies,
        Inc. 2005 Stock Option Plan, which permits the Board of Directors to grant,
        for
        a ten year period, options to purchase up to 3,000,000 shares of its common
        stock to directors, employees and consultants. The Plan is administered by
        the
        Board of Directors. The administrators have the authority and discretion,
        subject to the provisions of the Plan, to select persons to whom stock options
        will be granted, to designate the number of shares to be covered by each
        option,
        to specify the type of consideration to be paid, and to establish all other
        terms and conditions of each option. Options granted under the Plan will
        not
        have a term that exceeds ten years from date of grant. The stock subject
        to the
        Plan and issuable upon exercise of options granted under the Plan are shares
        of
        the Company's common stock, $.001 par value, which may be either unissued
        or
        treasury shares. The exercise price is no less than 100% of the fair market
        value of the shares at the date of the grant of the options, as specified
        by the
        Board of Directors.
  13
  A
        summary
        of the option activity for the six months ended June 30, 2006 and 2005, pursuant
        to the terms of the DND Technologies, Inc. 2003 Stock Option Plan is as
        follows:
  **2006**
              ****
              **2005**
              ********
              ****
              ****
              ****
              **Weighted
                  Average**
              ****
              ****
              ****
              **Weighted
                  Average**Options
                  outstanding at beginning of the period
              
              
              3,915,883
              
              $
              .05
              
              
              4,234,226
              
              $
              .06Granted
              
              
              600,000
              
              $
              .04
              
              
              635,000
              
              $
              .17Exercised
              
              
              -0-
              
              $
              .07
              
              
              (441,675
              )
              $
              .06Cancelled
                  and expired
              
              
              (190,000
              )
              $
              .07
              
              
              (133,501
              )
              $
              .06Options
                  outstanding at end of the period
              
              
              4,325,883
              
              
              
              
              
              4,294,050
  4,515,883
        options are exercisable at June 30, 2006 (includes 140,000 options that were
        cancelled at June 30, 2006, but can be exercised for a period of six months
        after cancellation).
  Information
        regarding stock options outstanding as of June 30, 2006 is as
        follows:
  Price
              
              $
              .05Weighted
                  average exercise price
              
              $
              .07Weighted
                  average remaining contractual life
              
              
              7
                  years 7 months
  13.  401(k)
        PLAN
  In
        January 2005, the Company sponsored a qualified defined contribution benefit
        plan covering substantially all employees. Under this plan, employees may
        contribute a percentage of their annual compensation to the plan up to certain
        maximums, as defined by the plan and by the Internal Revenue Service (“IRS”).
        Currently, the Company matches a percentage of employee contributions in
        cash.
        During the six months ended June 30, 2006, the Company made contributions
        in the
        amount of $25,077.
  14.  MANAGEMENT
        PLANS
  Management’s
        plan to eliminate the going concern situation include, but are not limited
        to,
        the renegotiation of payment terms on the Axcelis payable, improved cash
        flow
        management, aggressive cost reductions, satisfactorily settlement of the
        Lam
        lawsuit, and the creation of additional sales and profits across its product
        lines.
  14
  15.  SUBSEQUENT
        EVENTS
  Due
        to
        customer payments received in July 2006, the large receivable percentages
        for
        two customers noted under Note 1. “Concentration of Risk” are now at 4% and 0%
        respectively.
 
 The
        $53,750 note payable due to the Company Chairman and CEO listed under Note
        9.
“Related Party Transactions” was fully repaid in July 2006.
 
 Also
        under Note 9. “Related Party Transactions” the balance due to a Company employee
        was also fully repaid in August 2006.
 
 During
        July 2006, we finalized a new agreement for repayment of the Merrill Lynch
        loan.
        The new agreement calls for principal payments in the amount of $24,958 plus
        interest, at 4% plus prime, through March 1, 2007 with all remaining principal
        and interest due on or before March 31, 2007. The new agreement also calls
        for
        the subordination of any notes payable to Mr. Doug N. Dixon and Mr. Lynn
        Brewer,
        until such time that the debt due to Merrill Lynch is paid in full.
 15
  ITEM2.  **M** **ANAGEMENT'S** **D** **ISCUSSION
        AND** **A** **NALYSIS**
  Aspect
        Systems, Inc., a wholly-owned subsidiary of DND Technologies, Inc. is
        a
        global provider of specialized equipment, parts and support services to the
        semiconductor industry. ASI is the original equipment manufacturer of Advanced
        AutoEtch equipment previously designed and manufactured by Lam Research. Through
        exclusive license agreements negotiated with Axcelis Technologies, ASI has
        also
        become the original equipment manufacturer of plasma etch and strip products
        manufactured on the ASI MX-1 and ASI MX-10 (formerly Matrix System One and
        Ten),
        and the Arista and Arista Dual (formerly Matrix Bobcat and Cheetah) platforms.
        Additionally, ASI offers new
        and
        refurbished support products including a
        wide array
        of
        sub-assemblies, both consumable and non-consumable repair and process related
        parts, and remanufactured temperature control units that
        are
        designed to maintain critical operating temperatures for the plasma systems.
        Engineering and training services are also made available to its international
        customer base. The most significant portion of ASI revenue, however, is derived
        from the marketing and sale of remanufactured Rainbow and TCP plasma etch
        systems and the ASI MX and Arista system products. ASI has a website located
        at www.aspectsys.com .
        Information on this website is not a part of this report.
  Even
        though our cash flow problems caused by significant indebtedness have hampered
        our ability to meet demand, we have experienced a significant increase in
        market
        demand for our subsidiary's products during the past two years. The global
        expansion of chip production companies into emerging parts of the world with
        lower labor costs, particularly China, has caused all semiconductor companies
        to
        examine more closely how to reduce costs, including through the extended
        use of
        tool sets. This shift toward ways to reduce costs has lent itself to, and
        our
        management believes it will continue to lend itself to, increasing demand
        for
        the products of companies such as ASI. In 2004 we achieved record revenues,
        and
        management believes we could have matched these revenues in 2005 and into
        2006
        if our cash flow difficulties had not limited our ability to produce our
        products. Nevertheless we expect demand for our products to continue to grow
        unless a significant and prolonged downturn occurs in the semiconductor industry
        in the future. Our backlog of orders as of July 31, 2006 was approximately
        $2.9
        million.
  As
        we
        experience increased system sales, which normally require large up-front
        payments, we strive to manage our cash flow in order to meet the demands
        of
        custom orders, our debt obligations and expense commitments. Our plan of
        continuously improving our production and reporting systems will aid in this
        effort. With expanding revenue comes the related problem of attaining sufficient
        cash flow to purchase the required parts to assemble our systems. Our business
        periodically faces significant ongoing cash flow issues particularly when
        we
        receive substantial orders because of the amount of time between our purchase
        of
        parts, assembly and delivery of products and payment for those products.
        When
        equipment orders are postponed or payment from customers is delayed, we are
        forced to defer repayment of obligations to creditors or service providers
        and
        forego additional sales opportunities. We
        continue to pursue various financing alternatives but have not been successful
        in obtaining badly needed capital. As a result, our cash flow shortage has
        caused us to suffer significant shipping delays and loss of revenues from
        orders
        we could not fill on a timely basis.
  Management's
        discussion and analysis of financial condition and results of operations
        are
        based upon the Company's financial statements. These statements have been
        prepared in accordance with accounting principles generally accepted in the
        United States. These principles require management to make certain estimates,
        judgments and assumptions that affect the reported amounts of assets,
        liabilities, revenues and expenses, and related disclosure of contingent
        assets
        and liabilities. On an on going basis, we evaluate our estimates based on
        historical experience and various other assumptions that are believed to
        be
        reasonable under the circumstances, the results of which form the basis for
        making judgments about the carrying values of assets and liabilities that
        are
        not readily apparent from other sources. Actual results may differ from these
        estimates under different assumptions or conditions.
  16
 **Critical
        Accounting Policies and Estimates**
  In
        consultation with our Board of Directors, we have identified four accounting
        principles that we believe are key to an understanding of our financial
        statements. These important accounting policies require management's most
        difficult, subjective judgments.
  **1.**  **Going
        Concern**
  These
        consolidated financial statements are presented on the basis that the Company
        is
        a going concern. Going concern contemplates the realization of assets and
        the
        satisfaction of liabilities in the normal course of business over a reasonable
        length of time. The Company has incurred a loss of approximately $816,000
        through June 30, 2006 with sales down approximately 38% from the prior period,
        has negative working capital of approximately $7,600,000, and is in default
        on
        its payments on the majority of its term debt. In addition, during the six
        months ended June 30, 2006, the Company received a notice of termination
        of its
        license agreement with Lam. The termination of the license agreement is not
        expected to have a material impact on future sales, however, when the Company
        initially entered into the license agreement with Lam, being a Lam-approved
        supplier of certain equipment helped the Company establish relationships
        with
        certain customers. If Lam enters into a similar arrangement with a new company,
        it is possible that this could have a material impact on future sales to
        the
        extent the new Lam-approved supplier is able to persuade the Company's existing
        customers to change suppliers; however, management believes that its
        relationships with its customers are strong enough to minimize this risk.
        Lam
        recently entered the refurbishing market directly, which has had some impact
        on
        the Company’s revenue. During
        the second quarter of 2006, the Company filed a lawsuit against Lam as a
        result
        of a long-standing contract dispute between Aspect and Lam . ** Management
        is convinced that the complaint
        is justified, and that the
        Company has suffered substantial damages. Recently,
        the lawsuit was removed to federal court and Lam has filed a motion to dismiss,
        challenging the adequacy of the non-contract causes of action. The Company
        is
        vigorously opposing the motion to dismiss .
        These
        factors raise substantial doubt as to the Company’s ability to continue as a
        going concern.
  Management’s
        plans to eliminate the going concern situation include, but are not limited
        to,
        the renegotiation of payment terms on the Axcelis debt, improved cash flow
        management, aggressive cost reductions, and the creation of additional sales
        and
        profits across its product lines. In addition, management believes that it
        will
        be able to significantly reduce, or eliminate, its payables to Lam based
        on the
        outcome of the pending litigation, but there is no assurance that this will
        occur.
  **2.**  **Inventory**
  Inventory
        is valued at the lower of cost or market. Cost includes raw materials, freight,
        labor and manufacturing overhead. Inventory with no sales or usage within
        the
        prior 12 months is considered obsolete and inventory on hand, in excess of
        a
        12-month supply, is considered excessive and slow-moving and, accordingly,
        fully
        reserved. We review our inventory reserves on a quarterly basis and adjust
        them
        for the full carrying value of obsolete, excessive and slow-moving inventory.
  **3.**  **Revenue
        Recognition**
  The
        Company recognizes revenue when persuasive evidence of an arrangement exists,
        title transfer has occurred, the price is fixed or readily determinable,
        and
        collectibility is probable. Sales are recorded net of sales discounts. The
        Company recognizes revenue in accordance with Staff Accounting Bulletin No.
        104,
        "Revenue Recognition," ("SAB 104"). Our revenues are recorded under two
        categories:
  Product
        sales - The Company recognizes revenue from product sales when the goods
        are
        shipped and title passes to its customers.
  17
  Service
        income - The Company recognizes revenue from service income when services
        are
        performed.
  **4.** **Impairment
        of Long-Lived Assets**
 
 The
        Company continually reviews the recoverability of the carrying value of
        long-lived assets using the methodology prescribed in Statement of Financial
        Accounting Standards (SFAS) 144, "Accounting for the Impairment and Disposal
        of
        Long-Lived Assets." The Company also reviews long-lived assets and the related
        intangible assets for impairment whenever events or changes in circumstances
        indicate that the carrying value of such assets may not be recoverable. Upon
        such an occurrence, recoverability of these assets is determined by comparing
        the forecasted undiscounted net cash flows to which the assets relate, to
        the
        carrying amount. If the asset is determined to be unable to recover its carrying
        value, then intangible assets, if any, are written down first, followed by
        the
        other long-lived assets to fair value. Fair value is determined based on
        discounted cash flows, appraised values or management's estimates, depending
        on
        the nature of the assets. No impairment was recognized in the period ended
        June
        30, 2006.
  *The
        Three Months Ended June 30, 2006 Compared To The Three Months Ended June
        30,
        2005.*
  **Selected
        Financial Information**
  **Three
                  Months Ended**
              
              **Increase****06/30/2006**
              
              **06/30/2005**
              
              **(Decrease)**Statements
                  of OperationsTotal
                  Revenue
              
              $
              2,095,083
              
              $
              2,267,260
              
              $
              (172,177
              )Cost
                  of Revenue:Costs
                  of revenues
              
              
              1,515,970
              
              
              1,629,608
              
              
              (113,638
              )Reserve
                  for slow moving andobsolete
                  inventory
              
              
              3,721
              
              
              (94,438
              )
              
              98,159Research
                  and development
              
              
              64,570
              
              
              45,281
              
              
              19,289Sales
                  and marketing, including
                licensing
                  fees, royalties and
                commissions
              
              
              459,356
              
              
              393,913
              
              
              65,443General
                  and administrative
              
              
              350,009
              
              
              451,774
              
              
              (101,765
              )Total
                  Operating Expenses
              
              
              2,393,626
              
              
              2,426,138
              
              
              (32,512
              )(Loss)
                  from Operations
              
              
              (298,543
              )
              
              (158,878
              )
              
              (139,665
              )Other
                  Income (Expense):Interest
                  Expense
              
              
              (99,277
              )
              
              (87,119
              )
              
              (12,158
              )(Loss)
                  Before Income Tax Expense
              
              
              (397,820
              )
              
              (245,997
              )
              
              (151,823
              )Income
                  Tax Expense
              
              
              0
              
              
              0
              
              
              0Net
                  Income
              
              $
              (397,820
              )
              $
              (245,997
              )
              $
              (151,823
              )Net
                  Income Per ShareBasic
              
              
              (0.02
              )
              
              (0.01
              )
              
              (0.01
              )Diluted
              
              
              N/A
              
              
              N/A
              
              
              N/A
  **Results
        of Operations**
  Our
        revenue decrease of $172,177, or 8%, to $2,095,083 in the three months ended
        June 30, 2006 from $2,267,260 in the three months ended June 30, 2005, was
        primarily due to a decrease in sales from our parts, assemblies, and consumables
        category of $302,934 offset by an increase in systems/chiller sales of $171,539.
        Due to our tight cash flow situation and the increased funding needs for
        system
        sales, we have had to defer some parts, assemblies, and consumables purchases,
        and therefore the related sales, to future periods. Our sales break down
        by
        segment is as follows:
  18
 **Three
                  Months Ended**
              
              **Increase****June
                  30, 2006**
              
              **June
                  30, 2005**
              
              **(Decrease)**Systems
                  and chillers
              
              $
              1,162,755
              
              $
              991,216
              
              $
              171,539Parts,
                  assemblies and consumables
              
              
              884,992
              
              
              1,187,926
              
              
              (302,934
              )Field
                  service and training
              
              
              47,336
              
              
              88,118
              
              
              (40,782
              )$
              2,095,083
              
              $
              2,267,260
              
              $
              (172,177
              )
  **Cost
        of Revenues**
  Our
        dollar amount of cost of revenues decreased $113,638 or 7%, to $1,515,970
        in
        2006 from $1,629,608 in 2005. This decrease is a direct reflection of the
        8%
        decrease in sales during the same period.
  **Reserve
        for Slow Moving and Obsolete Inventory**
  Our
        reserve for slow moving and obsolete inventory is the change in our analysis
        of
        the need for a slow moving and obsolete inventory reserve. Based on our analysis
        in the three months ended June 30, 2006, we recorded a $3,721 increase to
        the
        reserve due to an analysis of inventory items. In the three months ended
        June
        30, 2005, we recorded a $94,438 decrease in our reserve due to an analysis
        of
        inventory items **.**
  **Research
        and Development**
  Research
        and development costs increased $19,289, or 43%, to $64,570 in the three
        months
        ended June 30, 2006 from $45,281 in the three months ended June 30, 2005.
        The
        increase is primarily related to increases in payroll and employee benefits
        in
        the amount of $26,389, an increase in product development of $14,144, and
        a
        decrease of $19,389 related to prior year research and development expense
        on
        the NCS (Nitrogen Clean System) product line. Although we have added another
        person to our R&D department to increase development of our own parts, we
        normally do not incur significant research and development expenses.
  **Sales
        and Marketing**
  Sales
        and
        marketing costs increased $65,443 or 17% to $459,356 in the three months
        ended
        June 30, 2006 from $393,913 in the three months ended June 30, 2005. This
        increase is due to the increase in our Axcelis license and royalty expense
        of
        $223,303 or 310% to $295,371 during the three months ended June 30, 2006
        from
        $72,068 during the three months ended June 30, 2005 as our sales of these
        products increased by approximately $959,000. This increase is offset by a
        decrease in payroll and employee benefits in the amount of $25,595 or 21%
        to
        $97,991 during the three months ended June 30, 2006 from $123,586 during
        the
        three months ended June 30, 2005 and a decrease of $130,888 in our Lam royalty
        expense.
  19
 **General
        and Administrative**
  **Three
                  Months Ended**
              
              **Increase****06/30/2006**
              
              **06/30/2005**
              
              **(Decrease)**General
                  and AdministrativeSalaries
                  and wages
              
              $
              176,453
              
              $
              264,548
              
              $
              (88,095
              )Professional
                  fees
              
              
              73,616
              
              
              45,009
              
              
              28,607Occupancy
                  Expense, less amount allocated to Cost of Revenue
              
              
              46,255
              
              
              45,439
              
              
              816Depreciation
                  Expense, less amount allocated to Cost of Revenue
              
              
              3,724
              
              
              29,017
              
              
              (25,293
              )Other
                  general and administrative expenses
              
              
              49,961
              
              
              67,761
              
              
              (17,800
              )Total
                  General and Administrative
              
              $
              350,009
              
              $
              451,774
              
              $
              (101,765
              )
  Salaries
        and wages decreased $88,095 or 33% to $176,453 in the three months ended
        June
        30, 2006 as compared to $264,548 in the three months ended June 30, 2005.
        This
        decrease is primarily the result of a decrease in general and administrative
        headcount and management’s decision to not immediately replace these employees.
  Professional
        fees increased $28,607 or 64%, to $73,616 in 2006 from $45,009 in 2005,
        primarily due to additional work on our required filings and amounts owed
        to
        Merrill Lynch for legal fees relating to our term loan agreement default
        and
        extension proceedings.
  Occupancy
        expense represents our costs to lease, occupy, and maintain our leased
        facilities in Arizona and Texas. These costs, which consist primarily of
        rent,
        repair and maintenance, utilities, security, insurance and janitorial services,
        are allocated between cost of revenue and operating expenses based upon the
        square footage utilized by each category.
  Depreciation
        expense decreased $25,293 or 87%, to $3,724 in 2006 from $29,017 in 2005
        due to
        several assets becoming fully depreciated during 2005.
  Other
        general and administrative expenses decreased $17,800 or 26%, to $49,961
        in 2006
        from $67,761 in 2005. This decrease is a result of our efforts to reduce
        incidental expenses wherever possible in order to manage our tight cash
        flow.
  **Interest
        Expense**
  Interest
        expense for the three months ended June 30, 2006 ($99,277) has increased
        over
        the comparable period of 2005 ($87,119) by $12,158 or 14% due primarily to
        the
        new loans acquired in the fourth quarter of 2005.
  **Net
        Income (Loss)**
  As
        a
        result of the foregoing, we had a net loss of $397,820 for the three months
        ended June 30, 2006, compared to a net loss of $245,997 for the three months
        ended June 30, 2005.
  *The
        Six Months Ended June 30, 2006 Compared To The Six Months Ended June 30,
        2005.*
  20
  **Selected
        Financial Information**
  **Six
                  Months Ended**
              
              **Increase****06/30/2006**
              
              **06/30/2005**
              
              **(Decrease)**Statements
                  of OperationsTotal
                  Revenue
              
              $
              4,083,453
              
              $
              6,627,595
              
              $
              (2,544,142
              )Operating
                  Expenses:Costs
                  of revenues
              
              
              2,891,324
              
              
              4,351,747
              
              
              (1,460,423
              )Reserve
                  for slow moving andobsolete
                  inventory
              
              
              (18,915
              )
              
              33,571
              
              
              (52,486
              )Research
                  and development
              
              
              127,400
              
              
              66,408
              
              
              60,992Sales
                  and marketing
              
              
              857,306
              
              
              1,041,367
              
              
              (184,061
              )General
                  and administrative
              
              
              827,577
              
              
              932,388
              
              
              (104,811
              )Total
                  Operating Expenses
              
              
              4,684,692
              
              
              6,425,481
              
              
              (1,740,789
              )Income
                  (Loss) from Operations
              
              
              (601,239
              )
              
              202,114
              
              
              (803,353
              )Other
                  Income (Expense):Gain
                  on settlement of debt
              
              
              0
              
              
              17,500
              
              
              (17,500
              )Interest
                  Expense
              
              
              (213,604
              )
              
              (170,996
              )
              
              (42,608
              )Income
                  (Loss) Before Income Tax Expense
              
              
              (814,843
              )
              
              46,618
              
              
              (861,461
              )Income
                  Tax Expense
              
              
              800
              
              
              800
              
              
              0Net
                  Income
              
              $
              (815,643
              )
              $
              47,818
              
              $
              (863,461
              )Net
                  Income Per ShareBasic
              
              
              (.03
              )
              
              .00
              
              
              (.03
              )Diluted
              
              
              N/A
              
              
              .00
              
              
              N/A
  **Results
        of Operations**
  Our
        revenue decrease of $2,544,142, or 38%, from $6,627,595 in the six months
        ended
        June 30, 2005 to $4,083,453 in the six months ended June 30, 2006, was due
        to a
        reduction in systems and chiller sales in the amount of $1,721,095 and a
        decrease in sales from our parts, assemblies, and consumables category in
        the
        amount of $797,186. System sales are down due to 2006 having three less system
        sales than 2005 and a change in the product mix which resulted in a lower
        per
        unit sales price during 2006. The reduction in the number of systems sold
        was
        due to a combination of our inability to take new orders due to cash flow
        problems and delays in filling orders. Due to our tight cash flow situation
        and
        the increased funding needs for system sales, we have had to defer some parts,
        assemblies, and consumables purchases, and therefore the related sales, to
        future periods. Our sales break down by segment is as follows:
  **Six
                  Months Ended**
              
              **Increase****June
                  30, 2006**
              
              **June
                  30, 2005**
              
              **Decrease**Systems
                  and chillers
              
              $
              2,103,622
              
              $
              3,824,717
              
              $
              (1,721,095
              )Parts,
                  assemblies and consumables
              
              
              1,900,713
              
              
              2,697,899
              
              
              (797,186
              )Field
                  service and training
              
              
              79,118
              
              
              104,979
              
              
              (25,861
              )$
              4,083,453
              
              $
              6,627,595
              
              $
              (2,544,142
              )
  21
 **Cost
        of Revenues**
  Our
        cost
        of revenues decreased $1,460,423 or 34% from $3,824,717 in the six months
        ended
        June 30, 2005 to $2,103,622 in the six months ended June 30, 2006. This decrease
        is directly related to the 38% decrease in total revenue for the six months
        ended June 30, 2005. Our cost of revenues as a percentage of revenues for
        the
        six months ended June 30, 2006 was 71% as compared to 66% for the six months
        ended June 30, 2005.
  **Cost
        of Revenues - Reserve for Slow Moving and Obsolete
        Inventory**
  Our
        cost
        of revenues - reserve for slow moving and obsolete inventory is the change
        in
        our analysis of the need for a slow-moving and obsolete inventory reserve.
        Based
        on our analysis in the first six months of 2006, we recorded an $18,915 decrease
        to the reserve due to an analysis of inventory items. In the six months ended
        June 30, 2005, we recorded a $33,571 increase in our reserve.
  **Research
        and Development**
  Research
        and development costs increased $60,992 or 92%, to $127,400 in the six months
        ended June 30, 2006 from $66,408 in the six months ended June 30, 2005. The
        increase is primarily related to increases in payroll and employee benefits
        in
        the amount of $55,914 and an increase of $7,341 related to outside engineering
        and in-house expenses for product development. Although we have added another
        person to our R&D department to increase development of our own parts, we
        normally do not incur significant research and development expenses.
  **Sales
        and Marketing**
  Sales
        and
        marketing costs decreased $184,061 or 18% to $857,306 in the six months ended
        June 30, 2006 from $1,041,367 in the six months ended June 30, 2005. This
        decrease is primarily due to the decrease in Lam royalty expense of $261,775
        along with a decrease in commissions in the amount of $95,965 or 47% to $106,941
        from $202,907 during 2005 as a direct result of decreased sales. These decreases
        were offset by an increase of $220,704 or 72% to $526,136 in Axcelis license
        and
        royalty expense during the six months ended June 30, 2006 from $305,432 during
        the six months ended June 30, 2005 as the sales of this product line
        increased.
  **General
        and Administrative**
  **Six
                  Months Ended**
              
              **Increase****06/30/2006**
              
              **06/30/2005**
              
              **(Decrease)**General
                  and AdministrativeSalaries
                  and wages
              
              $
              390,379
              
              $
              527,235
              
              $
              (136,856
              )Professional
                  fees
              
              
              227,219
              
              
              117,280
              
              
              109,939Occupancy
                  Expense, less amount allocated to Cost of Revenue
              
              
              90,016
              
              
              96,369
              
              
              (6,353
              )Depreciation
                  Expense, less amount allocated to Cost of Revenue
              
              
              8,853
              
              
              58,092
              
              
              (49,239
              )Other
                  general and administrative expenses
              
              
              111,110
              
              
              133,412
              
              
              (22,302
              )Total
                  General and Administrative
              
              $
              827,577
              
              $
              932,388
              
              $
              (104,811
              )
  Salaries
        and wages decreased $136,856 or 26% to $390,379 in the six months ended June
        30,
        2006 as compared to $527,235 in the six months ended June 30, 2005. This
        decrease is primarily the result of a decrease in general and administrative
        headcount and management’s decision to not immediately replace these employees.
  22
 Professional
        fees increased $109,939 or 94%, to $227,219 in 2006 from $117,280 in 2005,
        primarily due to additional work on our required filings and amounts owed
        to
        Merrill Lynch for legal fees relating to our term loan agreement default
        and
        extension proceedings.
  Occupancy
        expense represents our costs to lease, occupy, and maintain our leased
        facilities in Arizona and Texas. These costs, which consist primarily of
        rent,
        repair and maintenance, utilities, security, insurance and janitorial services,
        are allocated between cost of revenue and operating expenses based upon the
        square footage utilized by each category.
  Depreciation
        expense decreased $49,239 or 85%, to $8,853 in 2006 from $58,092 in 2005
        due to
        several assets becoming fully depreciated during the 2005.
  Other
        general and administrative expenses decreased $22,302 or 17%, to $111,110
        in
        2006 from $133,412 in 2005. Although we cannot be certain this decrease will
        continue, we are reducing incidental expenses wherever possible in order to
        manage our tight cash flow.
  **Gain
        on Settlement of Debt**
  In
        February 2005, the Company issued 100,000 shares of common stock for payment
        of
        approximately $15,000 of legal services received during the year ended December
        31, 2004. The shares had an aggregate fair value of $20,500; accordingly,
        we
        recorded a $5,500 loss on settlement of debt. This loss was offset by a $23,000
        gain resulting from the forgiveness of accrued interest expense after we
        made
        the final $100,000 payment on an unsecured note payable.
  **Interest
        Expense**
  Interest
        expense for the six months ended June 30, 2006 ($213,604) has increased over
        the
        comparable period of 2005 ($170,996) by $42,608 or 25% due primarily to the
        new
        loans acquired in the fourth quarter of 2005.
  **Net
        Income**
  Primarily
        as a result of the foregoing we had net loss of $815,643 for the six months
        ended June 30, 2006, compared to a net income of $47,818 for the six months
        ended June 30, 2005.
  **Capital
        Resources**
  **Six
                  Months Ended**
              
              **Favorable****Working
                  Capital**
              
              **06/30/2006**
              
              **06/30/2005**
              
              **(Unfavorable)**Current
                  Assets
              
              $
              2,476,630
              
              $
              5,240,599
              
              $
              (2,763,969
              )Current
                  Liabilities
              
              $
              (10,051,480
              )
              $
              (10,500,058
              )
              $
              448,578Deficit
                  Working Capital
              
              $
              (7,574,850
              )
              $
              (5,259,459
              )
              $
              (2,315,391
              )Long-term
                  Debt
              
              $
              (19,920
              )
              $
              (11,539
              )
              $
              (8,381
              )Stockholders'
                  (Deficit)
              
              $
              (7,353,494
              )
              $
              (1,957,541
              )
              $
              (5,395,953
              )
  23
 As
        of
        June 30, 2006, we were in default of our payment terms on the majority of
        our
        term debt. As a result, the approximately $2.5 million of term debt due beyond
        twelve months was classified as current in the consolidated balance
        sheet.
  Included
        in current liabilities is a total of $2,145,973 that is owed to Axcelis for
        license and royalty fees. Of this amount, $293,983 was due April 1, 2005,
        $333,309 was due July 1, 2005, $228,007 was due October 1, 2005, $66,711
        was due
        January 1, 2006, $490,045 was due April 1, 2006, $218,497 was due July 1,
        2006,
        $225,408 will be due October 1, 2006 and $290,013 will be due January 1,
        2007.
        Also included in current liabilities is a total of $3,555,317 in inventory
        payments and license and royalty fees owed to Lam. Of this amount, approximately
        $814,000 was past due as of June 30, 2006, and the remainder is future payments
        which were classified as current due to these past due payments. Although
        our current tight cash flow has prevented these payments from being made,
        we
        have assured Axcelis that our delinquent payments will be made as soon as
        possible and management has no reason to believe as of the date of this filing
        that Axcelis will terminate any of its agreements with the Company. However,
        on
        March 6, 2006, ASI received a termination notice from Lam. During
        the second quarter of 2006, the Company filed a lawsuit against Lam as a
        result
        of a long-standing contract dispute between Aspect and Lam . ** Management
        is convinced that the complaint
        is justified, and that
        the
        Company has suffered substantial damages. Recently,
        the lawsuit was removed to federal court and Lam has filed a motion to dismiss,
        challenging the adequacy of the non-contract causes of action. The Company
        is
        vigorously opposing the motion to dismiss.
 
 ** On
        May 1,
        2006, we received an agreement from Cornell Capital to extend the repayment
        terms of their bridge loan agreement. Under the new agreement, we are required
        to make 12 monthly payments, commencing May 1, 2006, in the amount of $12,500
        to
        Cornell and a final balloon payment in the amount of $204,107 on May 1,
        2007.
  During
        July 2006, we finalized a new agreement for repayment of the Merrill Lynch
        loan.
        The new agreement has not yet been executed by Merrill Lynch, but management
        believes it is final and has begun making payments under it. The amount
        outstanding under this agreement was $679,156 at June 30, 2006. The new
        agreement calls for principal payments in the amount of $24,958 plus interest,
        at prime plus 4%, through March 1, 2007 with all remaining principal and
        interest due on or before March 31, 2007. The new agreement also calls for
        the
        subordination or any notes payable to Mr. Doug N. Dixon and Mr. Lynn Brewer,
        until such time that the debt due to Merrill Lynch is paid in full.
  **Statements
        of Cash Flows Selected Information**
  **Six
                  Months Ended****06/30/06**
              
              **06/30/05**Net
                  Cash Provided (Used) By:Operating
                  Activities
              
              $
              181,053
              
              $
              282,898Investing
                  Activities
              
              
              -0-
              
              
              (6,242
              )Financing
                  Activities
              
              
              (441,315
              )
              
              (440,139
              )
  **Operating
        Activities**
  For
        the
        six months ended June 30, 2006, cash provided by operating activities of
        $181,053 was primarily attributed to a decrease in accounts receivable in
        the
        amount of $378,439, a $561,952 decrease in inventories as well as an increase
        of
        $185,882 in customer deposits and a $515,421 increase in the Axcelis license
        and
        royalty accrual. These amounts were offset by our net loss of $815,643, and
        a
        reduction in our accounts payable and accrued expenses of $776,472. During
        the
        six months ended June 30, 2006 our non-cash reconciling items included
        depreciation and amortization expense of $35,064 and $12,061, respectively
        and
        the issuance of stock options for director compensation in the amount of
        $19,620. We also paid $80,164 of legal expenses and late fees related to
        our
        loan with Merrill Lynch through the issuance of debt.
  24
 For
        the
        six months ended June 30, 2005, cash provided by operating activities of
        $282,898 was primarily attributed to net income of $47,818, a decrease in
        accounts receivable of $1,105,130 (resulting from collections on significant
        shipments made in the quarter ended December 31, 2004) and an increase in
        deposits from customers of $672,834. These amounts were offset by an increase
        in
        inventories of $402,043, prepaid expenses and other assets of $118,170, and
        a
        decrease in accounts payable and accrued expenses of $1,410,807.
  **Investing
        Activities**
  During
        the six months ended June 30, 2006 and 2005, cash was used by investing
        activities for purchases of equipment in the amounts of $-0- and $6,242,
        respectively.
  We
        currently have no material commitments for capital expenditures.
  **Financing
        Activities**
  Financing
        activities in the six months ended June 30, 2006 used $441,315 in cash flows
        as
        compared to $440,139 used in the six months ended June 30, 2005.
  In
        the
        six months ended June 30, 2006, $431,315 and $50,000 was used for the repayment
        of long-term debt and related party debt, respectively, as compared to $466,639
        in the six months ended June 30, 2005 in which we also received $26,500 from
        the
        exercise of common stock options.
  **Liquidity
        and Capital Resources**
  Although
        sales for the six months ended June 30, 2006 were down from June 30, 2005
        by
        $2,544,142, our sales backlog at June 30, 2006 was approximately $2.7 million.
        To date, we have financed our business with cash from our operating activities,
        a bank line of credit that has been restructured into a term loan, a loan
        for
        $200,000 (which was paid in full in March 2005), two additional term loans
        totaling $525,000 (of which one for $225,000 was paid in January 2006 and
        as of
        June 30, 2006, $25,000 has been paid on the other), and a $125,000 loan from
        a
        related party (which was fully repaid in July 2006). Our subsidiary's
        restructured term loan (the "New Loan") with Merrill Lynch Business Financial
        Services, Inc. ("Merrill Lynch") had a balance of $679,156 as of June 30,
        2006,
        requires payments over a term of 8 months at an interest rate of the prime
        rate
        plus four percent (4%) with a balloon payment in March 2007. The New Loan
        is
        guaranteed by the Company and Douglas Dixon, our Chief Executive Officer,
        and is
        secured by a first lien on our total assets. In addition, the New Loan calls
        for
        the subordination or any notes payable to Mr. Doug N. Dixon and Mr. Lynn
        Brewer,
        until such time that the debt due to Merrill Lynch is paid in full.
  Our
        Asset
        Sale and License Agreement with Lam, dated November 8, 2002, granted us a
        non-exclusive license to several of Lam's patents and other intellectual
        property, which enables us to sell, import, repair and distribute products
        using
        this licensed intellectual property. To date, we have purchased approximately
        $2.2 million in product under this agreement, and we are required to pay
        approximately $5.3 million over the term (of which approximately $3.1 million
        remains to be paid) as a fee for the licensed intellectual property. Monthly
        payments of the license fee are $56,000 and the final payment is due March
        15,
        2011.
  On
        June
        25, 2004, the Company signed an amendment to the November 2002 Asset Purchase
        and License Agreement with Lam, which, among other things, restructured the
        terms of payment for the inventory purchases made as a part of the original
        agreement. Under the new terms, we were required to pay a revised balance
        of
        $871,596 for the original inventory purchases in 30 equal installment payments
        of $28,220, which began on August 1, 2004 and end January 1, 2007, with an
        additional payment of $90,000 that was due and paid on September 30, 2004.
        An
        additional inventory transfer of $65,000 took place in August 2004, and was
        added to this outstanding balance for a total of $936,596.
  25
 In
        November 2003, we entered into an agreement with Axcelis and acquired an
        exclusive license to all future manufacturing, sales, service, and parts
        support
        for certain dry strip semiconductor manufacturing equipment now marketed
        under
        the trade names MX-1 and MX-10 (formerly Matrix System One and System Ten).
        This
        agreement provides for the one time payment of a license fee of $150,000
        plus
        18% of net revenues (from these sales) per quarter until a $2,750,000 license
        fee has been paid. Of the $2,750,000 license fee, approximately $1,598,000
        has
        been expensed and $1,296,000 of the expensed amount remains to be paid. This
        agreement also calls for a royalty fee to be paid on all related sales through
        December 31, 2010 on a declining calendar schedule from 10% to 2%.
  On
        August
        2, 2004, we entered into an additional agreement with Axcelis acquiring an
        exclusive license to manufacture, sell and provide services and parts support
        for certain reactive ion etch semiconductor manufacturing equipment for wafer
        sizes up to 200mm now marketed under the ASI trade name Arista and Arista
        Dual
        (formerly Matrix Bobcat and Cheetah). This agreement provides for a quarterly
        payment equal to 18% of net revenues from the sale of this product by the
        Company, beginning with the fourth quarter of 2004 and ending December 31,
        2011,
        or until $750,000 (the license fee) has been paid, whichever occurs first.
        Of
        the $750,000 license fee, approximately $109,000 has been expensed and the
        full
        amount remains to be paid. **** This
        agreement also calls for a royalty fee to be paid on all related sales through
        December 31, 2011 on a declining calendar schedule from 10% down to 2%.
  As
        of
        July 25, 2006, we continued to remain past due on certain payments to both
        Lam
        and Axcelis. Past due payments to Lam totaled approximately $814,000 as of
        June
        30, 2006, and past due payments to Axcelis totaled $1,630,552 on that date.
        Although our current tight cash flow has prevented these payments from being
        made, we have assured Axcelis that our delinquent payments will be made as
        soon
        as possible and management has no reason to believe as of the date of this
        filing that Axcelis will terminate any of its agreements with the Company.
        However, on March 6, 2006, ASI received a termination notice from Lam. During
        the second quarter of 2006, the Company filed a lawsuit against Lam as a
        result
        of a long-standing contract dispute between Aspect and Lam . ** Management
        is convinced that the complaint
        is justified, and that the
        Company has suffered substantial damages. Recently,
        the lawsuit was removed to federal court and Lam has filed a motion to dismiss,
        challenging the adequacy of the non-contract causes of action. The Company
        is
        vigorously opposing the motion to dismiss. Management believes that Lam is in breach of this agreement, and as a result
        is
        seeking to write off the remaining amounts owed to Lam. If the Company is
        able
        to write off all or a significant portion of the approximately $3.6 million
        due
        under the agreement, our liquidity would improve significantly. However,
        there
        is no assurance that we will be successful in the litigation, or that we
        will be
        ultimately able to write off all or part of the associated debt. On August
        1,
        2006, Lam notified ASI by letter that it would no longer sell spare parts
        to ASI
        due to the pending litigation. Management believes that the impact of this
        will
        be minimal, as most spare parts can be obtained from sources other than Lam,
        but
        there are a few spare parts that can only be obtained from Lam.
  On
        July
        22, 2005, we entered into a promissory note with Cornell Capital for $300,000.
        The loan originally called for interest to accrue at 12% with payments in
        the
        amount of $20,000 to be made weekly beginning October 21, 2005 with the final
        payment of $34,121 due on January 27, 2006. On May 1, 2006, we received an
        agreement from Cornell to extend the repayment terms of the bridge loan
        agreement. Under the new agreement, we are required to make 12 monthly payments,
        commencing May 1, 2006, in the amount of $12,500 to Cornell and a final balloon
        payment in the amount of $204,107 on May 1, 2007.
  On
        August
        24, 2005 we entered into a promissory note with our Chief Executive Officer,
        Mr.
        Dixon, and received $125,000. The loan had an interest fee of $12,500, was
        due
        October 24, 2005 and was secured by a lien on the inventories and accounts
        receivable of ASI that was subordinate to the lien held by Merrill Lynch.
        In
        July 2006, this loan repayment was completed.
  26
 On
        August
        25, 2005 we entered into a promissory note with Mr. Lynn Brewer and received
        $225,000. The loan had an interest fee of $22,500 and was due October 24,
        2005.
        The note was secured by 3,000,000 shares of our common stock, owned by our
        Chief
        Executive Officer, Mr. Dixon. This note was repaid in January 2006.
  On
        April
        25, 2006, the Company received $40,000 from one of the Company’s employees under
        a promissory note. The note called for interest in the amount of $4,000 and
        the
        principal balance, to be due no later than July 25, 2006. During August 2006,
        this note was repaid.
  The
        Company's current tight cash flow and our lawsuit filed against Lam have
        prevented us from making required payments on the majority of our debt. As
        of
        June 30, 2006, the majority of this is comprised of approximately $3,600,000
        owed to Lam and $2,100,000 owed to Axcelis.
  Our
        future cash requirements and the adequacy of available funds will depend
        on many
        factors, including the pace at which we expand our business generally, and
        our
        inventory in particular, the general state of the economy, which impacts
        the
        amount of money that may be spent for computer related purchases, and
        maintaining sufficient gross profit margins to service our substantial
        indebtedness. As of June 30, 2006, we had $132,036 in cash on hand. Our amount
        of cash on hand can vary significantly from day-to-day due to the nature
        of our
        business, which consists of significant cash expenditures to purchase the
        parts
        and components needed to assemble the systems that comprise the majority
        of our
        revenues and an often significant delay between these expenditures and payment
        from our customers for the systems, which does not occur until after delivery.
        As a result, we manage our cash flow closely to meet our required production
        shipping dates, debt obligations and expense commitments, and will continue
        to
        do so until we have either established a cash reserve large enough to self
        finance the cost of producing systems in advance of receiving any payments
        or
        have outside financing to accomplish the same result. Our debt obligations
        remain a priority in our cash flow planning, and we do not have plans or
        commitments for significant capital expenditures in the near future.
  **CAUTIONARY
        NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS**
  *The
        Company's Form 10-KSB, any Form 10-QSB or any Form 8-K of the Company or
        any
        other written or oral statements made by or on behalf of the Company may
        contain
        forward-looking statements which reflect the Company's current views with
        respect to future events and financial performance. The words "believe,"
        "expect," "anticipate," "intends," "estimate," "forecast," "project," and
        similar expressions identify forward-looking statements. All statements other
        than statements of historical fact are statements that could be deemed
        forward-looking statements, including any statements of the plans, strategies
        and objectives of management for future operations; any statements concerning
        proposed new products, services, developments or industry rankings; any
        statements regarding future economic conditions or performance; any statements
        of belief; and any statements of assumptions underlying any of the
        foregoing.*  *Such
        "forward-looking statements" are subject to risks and uncertainties set forth
        from time to time in the Company's SEC reports and are generally set forth
        below
        and particularly discussed in the Company's Form 10-KSB for the year ended
        December 31, 2005.*
  *Readers
        are cautioned not to place undue reliance on such forward-looking statements
        as
        they speak only of the Company's views as of the date the statement was made.
        The Company undertakes no obligation to publicly update or revise any
        forward-looking statements, whether as a result of new information, future
        events or otherwise.*
  27
 **Risk
        Factors**
  **You
        should consider the following discussion of risks as well as other information
        regarding our operations. The risks and uncertainties described below are
        not
        the only ones. Additional risks and uncertainties not presently known to
        us or
        that we currently deem immaterial also may impair our business operations.**
  ·
            Lam
                has terminated its agreement with us and we have filed suit against
                Lam.
                There is no assurance that we will be successful in the litigation,
                or
                that we will be ultimately able to write off all or part of the associated
                debt. 
 ·
            We
                are in default on approximately $3,600,000 due to Lam and there can
                be no
                assurance that we will not have to pay all or part of this
                amount. 
 ·
            We
                are past due on approximately $2,100,000 in payments to Axcelis.
                While
                Axcelis has to date been willing to provide us with additional time
                to
                make payments, Axcelis could terminate our license agreements with
                it upon
                ninety days written notice. We would have that notice period in which
                to
                make the past due payments and avoid termination. Management is exploring
                payment options, which may include use of funds from operations or
                funds
                from other sources. 
 ·
            Our
                term loan with Merrill Lynch is secured by a first lien on all of
                our
                assets. 
 ·
            In
                the past, our auditors have identified certain weaknesses in our
                internal
                control over financial reporting and we have taken and are continuing
                to
                take specific steps to address these issues. 
 ·
            Future
                sales of common stock by Cornell Capital Partners and its affiliates
                may
                adversely affect our stock price. 
 ·
            We
                depend on Dennis Key, our CFO and CEO of ASI, and his relationships
                within
                the semiconductor industry. His loss would seriously disrupt our
                operations. Our CEO, Douglas Dixon, is gradually decreasing his
                involvement with the Company in anticipation of retirement. We anticipate
                that Mr. Key will continue to maintain Mr. Dixon's relationships
                within
                the semiconductor industry. 
 ·
            Demand
                for our products is subject to cyclical downturns in the semiconductor
                industry. 
 ·
            We
                are subject to the risks associated with the intensely competitive
                and
                capital-intensive nature of the semiconductor industry, and we may
                not be
                able to compete effectively in markets where our competitors have
                more
                resources. 
 ·
            We
                are subject to risks relating to product concentration and lack of
                product
                revenue diversification. 
 ·
            The
                semiconductor industry is based on rapidly changing technology, and
                we
                rely primarily on our licensors to develop products our customers
                find
                satisfactory. 
 ·
            We
                may experience supply shortages, which would adversely affect our
                ability
                to meet customer demands. 
 ·
            We
                are exposed to the risks of operating a global
                business. 
 28
 ·
            We
                are subject to risks relating to lengthy sales cycles, which may
                require
                the expenditure of substantial funds and management
                effort. 
 ·
            We
                are exposed to risks associated with a highly concentrated customer
                base. 
 ·
            We
                are exposed to risks associated with our acquisition strategy. 
 ·
            Our
                independent accountants have expressed uncertainty about our ability
                to
                continue as a going concern. 
 ·
            Our
                ability to raise additional financing is
                uncertain. 
 ·
            Environmental,
                health and safety laws may restrict our operations, particularly
                within
                the European Union. 
 ·
            There
                is a limited market for our common stock. 
 ·
            Our
                common stock is subject to penny stock regulation. 
 ·
            We
                are subject to increasing costs of compliance with the Sarbanes-Oxley
                Act
                of 2002 and must maintain high margins to pay for these ongoing expenses
                required of public companies. 
 **ITEM
        3.**  **CONTROLS
        AND PROCEDURES**
  (a)  Under
        the
        supervision and with the participation of our management, including our
        principal executive officer and principal financial officer, we conducted
        an
        evaluation of the design and operation of our disclosure controls and
        procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c)
        promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
        Act"), as of June 30, 2006. Based on that evaluation, our principal executive
        officer and our principal financial officer concluded that the design and
        operation of our disclosure controls and procedures were effective in timely
        alerting them to material information required to be included in the Company's
        periodic reports filed with the SEC under the Exchange Act. The design of
        any
        system of controls is based in part upon certain assumptions about the
        likelihood of future events, and there can be no assurance that any design
        will
        succeed in achieving its stated goals under all potential future conditions,
        regardless of how remote.
  (b)  There
        have been no changes in our internal control over financial reporting identified
        in connection with the evaluation that occurred during the last fiscal quarter
        that have materially affected, or that are reasonably likely to materially
        affect, our internal control over financial reporting. However, as disclosed
        in
        our Form 10-QSB filed on May 16, 2005, our management received a letter from
        the
        Company's independent auditors on May 10, 2005 that identified certain
        weaknesses in our internal control over financial reporting. Our management
        is
        in the process of implementing changes to our internal control over financial
        reporting to address primarily two issues. Our subsidiary's new Vice President
        of Operations, hired in July 2005, is exploring ways to improve how we use
        our
        inventory accounting software to prevent adjustments to the valuation of
        items
        without proper approval or identification that a change has been made and
        to
        improve the tracking of our inventory at foreign locations. As the Company’s
        inventory at foreign locations has decreased significantly in the past several
        months, tracking and monitoring of this inventory has improved. Due to our
        limited accounting headcount, which is sometimes typical of smaller companies,
        and which impacts our ability to segregate duties to some degree, we monitor
        our
        financial data very closely through the use of various trended subsidiary
        reports, statements, and a detailed and departmentalized chart of
        accounts.
  29
  **PART
        II - OTHER INFORMATION**
  **ITEM
        6. EXHIBITS AND REPORTS ON FORM 8-K**
  (a)  Exhibits:
  10.26
              
              Forbearance
                  Agreement, dated July 17, 2006 by and among Merrill Lynch Business
                  Financial Services, Inc., the Company, Aspect Systems, Inc. and
                  Douglas N.
                  Dixon31.1
              
              Rule
                  13a-14(a)/15d-14(a) Certification of Principal Executive
                  Officer31.2
              
              Rule
                  13a-14(a)/15d-14(a) Certification of Principal Financial
                  Officer32
              
              Section
                  1350 Certifications
  (b)  Reports
        on Form 8-K:
  On
        June
        13, 2006, the Company filed a Current Report on Form 8-K disclosing the
        termination of its agreement with Lam Research Corp. and its filing of a
        complaint against Lam.
 30
  SIGNATURES
 
 In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
  Dated:
                  August 11, 2006DND
                  TECHNOLOGIES, INC., a Nevada corporationBy
              /s/
                Douglas N. DixonDouglas
                N. Dixon, Chief Executive
                Officer  By
              /s/
                G.
                Dennis KeyG.
                  Dennis Key, Chief Financial Officer
 
 31