United
      States Securities and Exchange Commission


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 September 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. 6
                Chandler,
                  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 November 11, 2006Common
                  stock, $0.001 par value
              26,234,653The
                  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
              14Item
                  3. Controls and Procedures
              28PART
                  II OTHER INFORMATION
              29Item
                  6.Exhibits and Reports on Form 8-K
              29SIGNATURES
              30











i


**PART
      I.**  **FINANCIAL
      INFORMATION**





**Item
      1.**   **Financial
      Statements (Unaudited)**








**DND
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEET**


**SEPTEMBER
      30, 2006**


**(UNAUDITED)**





ASSETSCURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              173,945Accounts
                  receivable, net
              
              
              482,684Inventories,
                  net
              
              
              1,032,854Prepaid
                  expenses
              
              
              57,406Total
                  current assets
              
              
              1,746,889PROPERTY
                  AND EQUIPMENT, Net of accumulated depreciation
              
              
              113,601LICENSE
                  AGREEMENTS, Net of accumulated amortization
              
              
              89,286OTHER
              
              
              21,816TOTAL
                  ASSETS
              
              $
              1,971,592LIABILITIES
                  AND STOCKHOLDERS' DEFICITCURRENT
                  LIABILITIES:Notes
                  payable, current portion
              
              $
              1,131,133Capital
                  leases payable, current portion
              
              
              15,727Accounts
                  payable and accrued expenses
              
              
              1,964,773Deposits
                  from customers
              
              
              482,053Payables,
                  Lam Research Corporation
              
              
              3,555,317License
                  and royalty payable, Axcelis
              
              
              2,363,472Amounts
                  due to related party
              
              
              321,393Total
                  current liabilities
              
              
              9,833,868LONG
                  TERM LIABILITIES:Capital
                  leases payable, long term portion
              
              
              13,967STOCKHOLDERS'
                  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
              
              
              (10,289,273
              )Total
                  stockholders' deficit
              
              
              (7,876,243
              )TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT
              
              $
              1,971,592




See
      accompanying notes.





1





**DND
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**FOR
      THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
      2005**


**(UNAUDITED)**





**Three
                  Months**
              
              **Nine
                  Months****2006**
              
              **2005**
              
              **2006**
              
              **2005**REVENUE:Systems
                  and chillers
              
              $
              710,967
              
              $
              1,495,749
              
              $
              2,814,589
              
              $
              5,320,466Parts,
                  assemblies and consumables
              
              
              743,793
              
              
              944,310
              
              
              2,644,506
              
              
              3,642,209Field
                  service and training
              
              
              46,248
              
              
              33,987
              
              
              125,366
              
              
              138,966Total
                  revenue
              
              
              1,501,008
              
              
              2,474,046
              
              
              5,584,461
              
              
              9,101,641OPERATING
                  EXPENSES:Cost
                  of revenues
              
              
              1,185,114
              
              
              2,044,447
              
              
              4,076,438
              
              
              6,396,194Reserve
                  for slow movingand
                  obsolete inventory
              
              
              79,371
              
              
              127,343
              
              
              60,456
              
              
              160,914Research
                  and development
              
              
              50,369
              
              
              44,905
              
              
              177,769
              
              
              111,313Sales
                  and marketing
              
              
              334,682
              
              
              842,637
              
              
              1,191,988
              
              
              1,884,004General
                  and administrative
              
              
              295,316
              
              
              436,629
              
              
              1,122,893
              
              
              1,369,017Total
                  operating expenses
              
              
              1,944,852
              
              
              3,495,961
              
              
              6,629,544
              
              
              9,921,442LOSS
                  FROM OPERATIONS
              
              
              (443,844
              )
              
              (1,021,915
              )
              
              (1,045,083
              )
              
              (819,801
              )OTHER
                  INCOME (EXPENSE):Gain
                  on sale of assets
              
              
              29,046
              
              
              0
              
              
              29,046
              
              
              0Gain
                  on settlement of debt
              
              
              0
              
              
              0
              
              
              0
              
              
              17,500Interest
                  expense
              
              
              (107,951
              )
              
              (131,670
              )
              
              (321,555
              )
              
              (302,666
              )OTHER
                  INCOME (EXPENSE)
              
              
              (78,905
              )
              
              (131,670
              )
              
              (292,509
              )
              
              (285,166
              )Loss
                  before incometax
                  expense
              
              
              (522,749
              )
              
              (1,153,585
              )
              
              (1,337,592
              )
              
              (1,104,967
              )INCOME
                  TAX
              
              
              0
              
              
              0
              
              
              800
              
              
              800NET
                  LOSS
              
              $
              (522,749
              )
              $
              (1,153,585
              )
              $
              (1,338,392
              )
              $
              (1,105,767
              )





See
      accompanying notes.


2


**DND
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED**


**FOR
      THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
      2005**


**(UNAUDITED)**





**Three
                Months**
            
            **Nine
                Months****2006**
            
            **2005**
            
            **2006**
            
            **2005**NET
                LOSS PER COMMON SHARE:Basic
                and diluted
            
            $
            (.02
            )
            $
            (.04
            )
            $
            (.05
            )
            $
            (.04
            )WEIGHTED
                AVERAGE NUMBER OF COMMON SHARES OUTSTANDING AND
                SUBSCRIBED:Basic
                and diluted
            
            
            26,234,653
            
            
            26,121,066
            
            
            26,234,653
            
            
            24,667,546








See
      accompanying notes.


3


**DND
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2006**


**(UNAUDITED)**





Common
                Stock
            
            Paid-In
                Capital
            
            Accumulated
                Deficit
            
            TotalShares
            
            AmountBALANCE,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
            
            
            (1,338,392
            )
            
            (1,338,392
            )BALANCE,SEPTEMBER
                30, 2006
            
            
            26,234,653
            
            $
            26,235
            
            $
            2,386,795
            
            $
            (10,289,273
            )
            $
            (7,876,243
            )





See
      accompanying notes.
















4


**DND
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**


**(UNAUDITED)**





**2006**
            
            **2005**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (1,338,392
            )
            $
            (1,105,767
            )Adjustments
                to reconcile net loss to net cash provided by operating
                activities:Depreciation
                and Amortization
            
            
            46,280
            
            
            131,894Amortization
                of licenses
            
            
            17,418
            
            
            414,797Issuance
                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
            
            
            60,456
            
            
            0Gain
                on sale of assets
            
            
            (29,046
            )
            
            0Gain
                on settlement of debt
            
            
            0
            
            
            (17,500
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            960,737
            
            
            1,198,734Inventories
            
            
            697,553
            
            
            (802,740
            )Prepaid
                expenses and other assets
            
            
            52,116
            
            
            (109,209
            )Accounts
                payable and accrued expenses
            
            
            (88,035
            )
            
            (415,699
            )Deposits
                from customers
            
            
            49,281
            
            
            816,209Amounts
                due to related party
            
            
            (125,884
            )
            
            16,420Net
                cash provided by operating activities
            
            
            402,268
            
            
            127,139CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of property and equipment
            
            
            0
            
            
            (11,242
            )Proceeds
                from the sale of assets
            
            
            29,046
            
            
            0Net
                cash (used) provided by investing activities
            
            
            29,046
            
            
            (11,242
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Exercise
                of common stock options
            
            
            0
            
            
            34,750Proceeds
                from debt
            
            
            0
            
            
            525,000Proceeds
                from debt, related party
            
            
            40,000
            
            
            125,000Principal
                payments on long-term debt
            
            
            (545,917
            )
            
            (959,364
            )Principal
                payments on debt, related parties
            
            
            (143,750
            )
            
            0Net
                cash (used) by financing activities
            
            
            (649,667
            )
            
            (274,614
            )NET
                (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (218,353
            )
            
            (158,717
            )CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            392,298
            
            
            316,488CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            173,945
            
            $
            157,771





**(Continued)**








5


**DND
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (CONTINUED)**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**


**(UNAUDITED)**





**2006**
            
            **2005**SUPPLEMENTARY
                DISCLOSURE OFCASH
                FLOW INFORMATION:Cash
                paid for interest
            
            $
            102,929
            
            $
            173,120Cash
                paid for taxes
            
            $
            0
            
            $
            0SCHEDULE
                OF NON-CASH INVESTINGAND
                FINANCING ACTIVITIES:Common
                stock issued for accrued and current periodexpenses
            
            $
            0
            
            $
            323,500







See
      accompanying notes.











6





**DND
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      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 nine months ended September 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 $1,338,000
      through September 30, 2006 and a loss of approximately $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 nine months ended September
      30,
      2006 are down approximately 39% from the prior year, the Company has negative
      working capital of approximately $8,000,000, 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 long-standing contract disputes between Aspect and Lam . **  ** Management believes
      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. The going concern and pending
      litigation with Lam have impacted our sales as certain of our customers are
      now
      reluctant to order systems from us, believing that there is a risk that any
      deposit may be lost if we are unable to continue operations. This circumstance
      greatly hampers our ability to capitalize on the opportunities of a growing
      market. 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.




7


**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").




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,
      and the Arista and Arista Dual platforms. 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 4,375,883 **** shares
      and 2,352,314 shares for the nine months ended September 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 September 30, 2006, the Company had one customer
      whose balance exceeded 10% of gross accounts receivable, at 11%.




**Significant
      Customers -** For
      the
      nine months ended September 30, 2006, the Company had one customer whose
      revenues exceeded 10% of total revenues (18%). For the nine months ended
      September 30, 2005, the Company had one customer whose revenues exceeded 10%
      of
      total revenues (19%). Revenues in 2006 and 2005 outside the United States
      include  Europe
      17% and 6%, and Asia 8% and 44%, respectively.




**Significant
      Suppliers** - For
      the nine months ended September 30, 2006 and 2005, approximately 5% 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.






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
      September 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 nine months ended September 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 nine months ended
      September 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 nine months ended September 30, 2005:


Net
                  (loss):As
                  reported
              
              $
              (1,105,767
              )Proforma
              
              $
              (1,139,531
              )Net
                  Income per common stock share:Basic
                  and diluted:As
                  reported
              
              $
              (.04
              )Proforma
              
              $
              (.05
              )





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
            
            $
            509,750Allowance
                for doubtful accounts
            
            
            (27,066
            )Net
                accounts receivable
            
            $
            482,684




3.  INVENTORIES




A
      summary
      of inventories is as follows:




Parts
                and materials
            
            $
            2,694,027Work-in-process
            
            
            514,445Allowance
                for obsolescence
            
            
            (2,175,618
            )Net
                inventories
            
            $
            1,032,854






4.  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. 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 trade names Arista and Arista
      Dual.
      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.




10




The
      license and royalty payable at September 30, 2006 consisted of the
      following:




License
                payable
            
            $
            1,555,618Royalty
                payable
            
            
            807,854Total
                license and royalty payable
            
            $
            2,363,472




Following
      is a summary of the payment schedule for the license and royalty
      payable:




April
                1, 2005
            
            $
            293,983July
                1, 2005
            
            
            333,309October
                1, 2005
            
            
            228,007January
                1, 2006
            
            
            66,711April
                1, 2006
            
            
            490,045July
                1, 2006
            
            
            218,497October
                1, 2006
            
            
            225,408January
                1, 2007
            
            
            290,013April
                1, 2007
            
            
            217,499Total
                license and royalty payable
            
            $
            2,363,472




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.




5.
      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 ($1,971,592 as of September 30, 2006) and
                has been
                guaranteed by Doug Dixon, Chairman and CEO, and the Company.
            
            $
            604,283On
                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.
            
            
            237,500Unsecured
                demand note due to an individual with interest accruing at
                7%
            
            
            289,350Total
            
            $
            1,131,133







11




6.  ACCOUNTS
      PAYABLE AND ACCRUED EXPENSES




A
      summary
      of accounts payable and accrued expenses is as follows:


Trade
                accounts payable
            
            $
            831,536Accrued
                commissions
            
            
            154,716Accrued
                payroll
            
            
            195,171Product
                warranty provision
            
            
            292,741Accrued
                interest
            
            
            481,184Sales
                and state income taxes payable
            
            
            9,425Total
                Accounts Payable and Accrued Expenses
            
            $
            1,964,773




7.  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.




A
      summary
      of the option activity for the nine months ended September 30, 2006 and 2005,
      pursuant to the terms of the DND Technologies, Inc. 2003 Stock Option Plan
      is as
      follows:




2006
            
            2005Weighted
                Average
            
            
            
            Weighted
                AverageOptions
                outstanding at beginning of the period
            
            
            3,915,883
            
            $
            .05
            
            
            4,234,226
            
            $
            .06Granted
            
            
            600,000
            
            $
            .04
            
            
            635,000
            
            $
            .17Exercised
            
            
            -0-
            
            $
            .00
            
            
            (579,175
            )
            $
            .06Cancelled
                and expired
            
            
            (440,000
            )
            $
            .04
            
            
            (179,168
            )
            $
            .06Options
                outstanding at end of the period
            
            
            4,075,883
            
            
            
            
            
            4,110,883




4,375,883
      options are exercisable at September 30, 2006 (includes 300,000 options that
      were cancelled at September 30, 2006, but can be exercised for a period of
      six
      months after cancellation).




12




Information
      regarding stock options outstanding as of September 30, 2006 is as
      follows:




Price
            $
                .05Weighted
                average exercise price
            $
                .07Weighted
                average remaining contractual life
            7
                years 4 months




8.  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 nine months ended September 30, 2006, the Company made contributions
      in the amount of $38,746.




9.  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.




10.  SUBSEQUENT
      EVENTS




As
      a cost
      savings measure, the Company incurred an approximately 30% reduction in
      force during this quarter, with the Texas operation being significantly reduced
      in scope of work and staffing. The actual number of staff reductions in both
      Texas and Arizona was approximately the same.




13




**Item
      2.**  **Management's
      Discussion and Analysis**




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, and the Arista and Arista Dual
      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.


The
        going
        concern and pending litigation with Lam have impacted our sales, as certain
        of
        our customers are now reluctant to order systems from us, believing that
        there
        is a risk that any deposit may be lost if we are unable to continue operations.
        This circumstance greatly hampers our ability to capitalize on the opportunities
        of a growing market. Even though our cash flow problems caused by significant
        indebtedness have hampered our ability to meet sales demands, until this
        quarter
        ended September 30, 2006 we had 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 2006
        if our
        cash flow difficulties had not limited our ability to meet customer
        expectations. Our backlog of orders as of October 31, 2006 was approximately
        $1.5 million. Nevertheless, we expect that demand for products that are
        produced by companies such as ASI will continue to grow unless a significant
        and
        prolonged downturn occurs in the semiconductor industry in the future.


System
      sales require large up-front expenditures. As a result, we are challenged by
      the
      difficulties of cash flow management as we strive to meet the demands of custom
      orders, our debt obligations and expense commitments. Our ongoing efforts to
      continuously improve our production and reporting systems are aimed at assisting
      in this effort. Each new revenue opportunity is accompanied by the related
      problem of attaining sufficient cash to purchase the necessary parts to
      achieve success. 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, obstructing our ability to
      capture additional revenue 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. In
      addition, we have experienced a reduction in orders for system sales as these
      orders require a significant up-front deposit from customers and some customers
      have been reluctant to place an order given our going concern issues and pending
      litigation with Lam, as they feel their deposit may be at risk.




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.






14




**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 $1,338,000
      through September 30, 2006 with sales down approximately 39% from the nine
      months ended September 30, 2005, has negative working capital of approximately
      $8,000,000, and is in default on its payments on the majority of its term debt.
      In addition, during the nine months ended September 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 disputes 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 . The
      going
      concern and pending litigation with Lam have impacted our sales, as certain
      of
      our customers are now reluctant to order systems from us, believing that there
      is a risk that any deposit may be lost if we are unable to continue operations.
      This circumstance greatly hampers our ability to capitalize on the opportunities
      of a growing market.  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, a continuation of
      meticulous cash flow management, aggressive cost reductions, and aggressive
      pursuit 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.




15
 
  **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.




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 nine months ended
      September 30, 2006.




16


*The
      Three Months Ended September 30, 2006 Compared To The Three Months Ended
      September 30, 2005.*




**Selected
      Financial Information**




**Three
                Months Ended****09/30/2006**
            
            **09/30/2005**
            
            **Increase**
              **(Decrease)**Statements
                of OperationsTotal
                Revenue
            
            $
            1,501,008
            
            $
            2,474,046
            
            $
            (973,038
            )Cost
                of Revenue:Costs
                of revenues
            
            
            1,185,114
            
            
            2,044,447
            
            
            (859,333
            )Reserve
                for slow moving andobsolete
                inventory
            
            
            79,371
            
            
            127,343
            
            
            (47,972
            )Research
                and development
            
            
            50,369
            
            
            44,905
            
            
            5,464Sales
                and marketing, includinglicensing
                fees, royalties andcommissions
            
            
            334,682
            
            
            842,637
            
            
            (507,955
            )General
                and administrative
            
            
            295,316
            
            
            436,629
            
            
            (141,313
            )Total
                Operating Expenses
            
            
            1,944,852
            
            
            3,495,961
            
            
            (1,551,109
            )(Loss)
                from Operations
            
            
            (443,844
            )
            
            (1,021,915
            )
            
            (578,071
            )Other
                Income (Expense):Gain
                on disposal of assets
            
            
            29,046
            
            
            0
            
            
            29,046Interest
                Expense
            
            
            (107,951
            )
            
            (131,670
            )
            
            23,719(Loss)
                Before Income Tax Expense
            
            
            (522,749
            )
            
            (1,153,585
            )
            
            630,836Income
                Tax Expense
            
            
            0
            
            
            0
            
            
            0Net
                Income (Loss)
            
            $
            (522,749
            )
            $
            (1,153,585
            )
            $
            630,836Net
                Income Per ShareBasic
            
            
            (0.02
            )
            
            (0.04
            )
            
            (0.02
            )Diluted
            
            
            N/A
            
            
            N/A
            
            
            N/A




**Results
      of Operations**




Our
      revenue decrease of $973,038, or 39%, to $1,501,008 in the three months ended
      September 30, 2006 from $2,474,046 in the three months ended September 30,
      2005,
      was primarily due to a decrease in sales from systems/chiller sales of $784,782
      and from our parts, assemblies, and consumables category of $200,517 offset
      by
      an increase in sales from our field service and training of $12,261. The 52%
      decrease in systems and chiller sales is due to two less systems shipping in
      the
      third quarter of 2006 and the 2006 average sales price per system being lower
      by
      approximately $74,000. The
      going
      concern has impacted our sales as certain customers are now reluctant to order
      systems from us as systems require a significant up-front deposit and some
      customers believe that there is a risk that any deposit may be lost if we are
      unable to continue operations. The
      21%
      decrease in parts, assemblies, and consumables is due to our tight cash flow
      situation and the funding needs for system sales. For example, 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:




17


**Three
                Months Ended****September
                30, 2006**
            
            **September
                30, 2005**
            
            **Increase**
              **(Decrease)**Systems
                and chillers
            
            $
            710,967
            
            $
            1,495,749
            
            $
            (784,782
            )Parts,
                assemblies and consumables
            
            
            743,793
            
            
            944,310
            
            
            (200,517
            )Field
                service and training
            
            
            46,248
            
            
            33,987
            
            
            12,261Total
                Revenue
            
            $
            1,501,008
            
            $
            2,474,046
            
            $
            (973,038
            )




**Cost
      of Revenues**




Our
      dollar amount of cost of revenues decreased $859,333 or 42%, to $1,185,114
      in
      2006 from $2,044,447 in 2005. This decrease is a direct reflection of the 39%
      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 September 30, 2006, we recorded a $79,371 increase
      to
      the reserve due to an analysis of inventory items. In the three months ended
      September 30, 2005, we recorded a $127,343 increase in our reserve due to an
      analysis of inventory items **.**




**Research
      and Development**




Research
      and development costs increased $5,464, or 12%, to $50,369 in the three months
      ended September 30, 2006 from $44,905 in the three months ended September 30,
      2005. The increase is primarily related to increases in payroll and employee
      benefits in the amount of $4,243 due to the addition of 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 $507,955 or 60% to $334,682 in the three months ended
      September 30, 2006 from $842,637 in the three months ended September 30, 2005.
      This decrease is primarily due to: a) the decreased sales, as mentioned above,
      which resulted in our Axcelis license and royalty expense decreasing $272,546
      or
      55%, to $222,856 for the three months ended September 30, 2006 as compared
      to
      $495,402 for the three months ended September 30, 2005, b) we also experienced
      a
      decrease in our commission expense of $59,802 or 72%, to $23,816 for the three
      months ended September 30, 2006 as compared to $83,618 for the three months
      ended September 30, 2005, c) there was also a decrease in payroll and employee
      benefits in the amount of $36,794 or 31% to $82,623 during the three months
      ended September 30, 2006 from $119,417 during the three months ended September
      30, 2005, and d) a decrease of $130,888 in our Lam royalty expense.






18


**General
      and Administrative**




**Three
                Months Ended****09/30/2006**
            
            **09/30/2005**
            
            **Increase**
              **(Decrease)**General
                and AdministrativeSalaries
                and wages
            
            $
            149,909
            
            $
            289,066
            
            $
            (139,157
            )Professional
                fees
            
            
            36,939
            
            
            37,174
            
            
            (235
            )Occupancy
                Expense, less amount allocated to Cost of Revenue
            
            
            43,162
            
            
            54,135
            
            
            (10,973
            )Depreciation
                Expense, less amount allocated to Cost of Revenue
            
            
            (201
            )
            
            28,679
            
            
            (28,880
            )Other
                general and administrative expenses
            
            
            65,507
            
            
            27,575
            
            
            37,932Total
                General and Administrative
            
            $
            295,316
            
            $
            436,629
            
            $
            (141,313
            )




Salaries
      and wages decreased $139,157 or 48% to $149,909 in the three months ended
      September 30, 2006 as compared to $289,066 in the three months ended September
      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 decreased $235 or 1%, to $36,939 in 2006 from $37,174 in 2005.




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. Management will likely close
      our Texas facility before year end, but lease payments will remain an obligation
      of the Company unless another tenant assumes them.




Depreciation
      expense decreased $28,880 or 100%, to $(201) in 2006 from $28,679 in 2005 due
      to
      several assets becoming fully depreciated during 2005.




Other
      general and administrative expenses increased $37,932 or 138%, to $65,507 in
      2006 from $27,575 in 2005. This increase is primarily due to increases of $4,104
      of loan fees due to the renegotiation of the Merrill Lynch agreement, a $12,218
      increase in computer hardware and software expenses, and $50,000 due to a third
      quarter 2005 gain (from the reversal of accrued accounts payable determined
      no
      longer valid) which did not reoccur in 2006. These increases were offset by
      reductions from travel and entertainment expenses ($12,543) and Cornell loan
      fee
      amortization ($16,816).




**Gain
      on Disposal of Assets**




During
      the three months ended September 30, 2006, we sold assets from our Texas
      location that were no longer necessary to our day to day operations. These
      assets were fully depreciated, therefore, the cash received during the sale,
      $29,046 represents a gain on sale.




19




**Interest
      Expense**




Interest
      expense for the three months ended September 30, 2006 ($107,951) decreased
      over
      the comparable period of 2005 ($131,670) by $23,719 or 18% due primarily to
      the
      repayment of loans originally acquired during the third quarter of
      2005.




**Net
      Income (Loss)**




As
      a
      result of the foregoing, we had a net loss of $522,749 for the three months
      ended September 30, 2006, compared to a net loss of $1,153,585 for the three
      months ended September 30, 2005.




*The
      Nine Months Ended September 30, 2006 Compared To The Nine Months Ended September
      30, 2005.*




**Selected
      Financial Information**




**Nine
                Months Ended****09/30/2006**
            
            **09/30/2005**
            
            **Increase**
              **(Decrease)**Statements
                of OperationsTotal
                Revenue
            
            $
            5,584,461
            
            $
            9,101,641
            
            $
            (3,517,180
            )Operating
                Expenses:Costs
                of revenues
            
            
            4,076,438
            
            
            6,396,194
            
            
            (2,319,756
            )Reserve
                for slow moving andobsolete
                inventory
            
            
            60,456
            
            
            160,914
            
            
            (100,458
            )Research
                and development
            
            
            177,769
            
            
            111,313
            
            
            66,456Sales
                and marketing
            
            
            1,191,988
            
            
            1,884,004
            
            
            (692,016
            )General
                and administrative
            
            
            1,122,893
            
            
            1,369,017
            
            
            (246,124
            )Total
                Operating Expenses
            
            
            6,629,544
            
            
            9,921,442
            
            
            (3,291,
                898
            )Income
                (Loss) from Operations
            
            
            (1,045,083
            )
            
            (819,801
            )
            
            225,282Other
                Income (Expense):Gain
                on disposal of assets
            
            
            29,046
            
            
            0
            
            
            29,046Gain
                on settlement of debt
            
            
            0
            
            
            17,500
            
            
            (17,500
            )Interest
                Expense
            
            
            (321,555
            )
            
            (302,666
            )
            
            18,889Income
                (Loss) Before Income Tax Expense
            
            
            (1,337,592
            )
            
            (1,104,967
            )
            
            232,625Income
                Tax Expense
            
            
            800
            
            
            800
            
            
            0Net
                Income (Loss)
            
            $
            (1,338,392
            )
            $
            (1,105,767
            )
            $
            232,625Net
                Income Per ShareBasic
            
            
            (.05
            )
            
            (.04
            )
            
            (.01
            )Diluted
            
            
            N/A
            
            
            .00
            
            
            N/A




**Results
      of Operations**




Our
      revenue decrease of $3,517,180, or 39%, from $9,101,641 in the nine months
      ended
      September 30, 2005 to $5,584,461 in the nine months ended September 30, 2006,
      was due to a reduction in systems and chiller sales in the amount of $2,505,877
      and a decrease in sales from our parts, assemblies, and consumables category
      in
      the amount of $997,703. System sales are down due to 2006 having five 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. The
      going
      concern and pending litigation with Lam have impacted our sales, as certain
      of
      our customers are now reluctant to order systems from us, believing that there
      is a risk that any deposit may be lost if we are unable to continue operations.
      This circumstance greatly hampers our ability to capitalize on the opportunities
      of a growing market. The
      decrease in parts, assemblies, and consumables sales is primarily due to our
      tight cash flow situation and the increased funding needs for system sales.
      For
      example, 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:




20


**Nine
                Months Ended****September
                30, 2006**
            
            **September
                30, 2005**
            
            **Increase**
              **(Decrease)**Systems
                and chillers
            
            $
            2,814,589
            
            $
            5,320,466
            
            $
            (2,505,877
            )Parts,
                assemblies and consumables
            
            
            2,644,506
            
            
            3,642,209
            
            
            (997,703
            )Field
                service and training
            
            
            125,366
            
            
            138,966
            
            
            (13,600
            )$
            5,584,461
            
            $
            9,101,641
            
            $
            (3,517,180
            )




**Cost
      of Revenues**




Our
      cost
      of revenues decreased $2,319,756 or 36% from $6,396,194 in the nine months
      ended
      September 30, 2005 to $4,076,438 in the nine months ended September 30, 2006.
      This decrease is directly related to the 39% decrease in total revenue for
      the
      nine months ended September 30, 2006. Our cost of revenues as a percentage
      of
      revenues for the nine months ended September 30, 2006 was 73% as compared to
      70%
      for the nine months ended September 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 nine months of 2006, we recorded a $60,456 increase
      to the reserve due to an analysis of inventory items. In the nine months ended
      September 30, 2005, we recorded a $160,914 increase in our reserve.




**Research
      and Development**




Research
      and development costs increased $66,456 or 60%, to $177,769 in the nine months
      ended September 30, 2006 from $111,313 in the nine months ended September 30,
      2005. The increase is primarily related to increases in payroll and employee
      benefits in the amount of $60,157 and an increase of $6,299 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 $692,016 or 37% to $1,191,988 in the nine months
      ended
      September 30, 2006 from $1,884,004 in the nine months ended September 30, 2005.
      This decrease is primarily due to: a) the decrease in Lam royalty expense of
      $392,663, b) a decrease in commissions in the amount of $155,767 or 54% to
      $130,758 from $286,525 during 2005 as a direct result of decreased sales, c)
      a
      decrease of $51,844 or 7% to $748,991 in Axcelis license and royalty expense
      during the nine months ended September 30, 2006 from $800,835 during the nine
      months ended September 30, 2005 as the sales of this product line decreased,
      and
      d) a decrease in payroll and employee benefits in the amount of
      $75,418.




21




**General
      and Administrative**




**Nine
                Months Ended****09/30/2006**
            
            **09/30/2005**
            
            **Increase**
              **(Decrease)**General
                and AdministrativeSalaries
                and wages
            
            $
            520,348
            
            $
            818,577
            
            $
            (298,229
            )Professional
                fees
            
            
            257,756
            
            
            154,454
            
            
            103,302Occupancy
                Expense, less amount allocated to Cost of Revenue
            
            
            137,199
            
            
            153,511
            
            
            (16,312
            )Depreciation
                Expense, less amount allocated to Cost of Revenue
            
            
            8,652
            
            
            86,771
            
            
            (78,119
            )Other
                general and administrative expenses
            
            
            198,938
            
            
            155,704
            
            
            43,234Total
                General and Administrative
            
            $
            1,122,893
            
            $
            1,369,017
            
            $
            (246,124
            )




Salaries
      and wages decreased $298,229 or 36% to $520,348 in the nine months ended
      September 30, 2006 as compared to $818,577 in the nine months ended September
      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 $103,302 or 67%, to $257,756 in 2006 from $154,454 in 2005,
      primarily due to 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. Management will likely close
      our Texas facility before year end, but lease payments will remain an obligation
      of the Company unless another tenant assumes them.




Depreciation
      expense decreased $78,119 or 90%, to $8,652 in 2006 from $86,771 in 2005 due
      to
      several assets becoming fully depreciated during the 2005.




Other
      general and administrative expenses increased $43,234 or 28%, to $198,938 in
      2006 from $155,704 in 2005. This increase is primarily due to the issuance
      of
      stock to our board of directors for services rendered ($19,620), loan fees
      due
      to the renegotiation of the Merrill Lynch agreement ($4,104), increased computer
      hardware/software expenses ($14,603), and a decrease in general and
      administrative other income from 2005 ($84,464). This $122,791 increase is
      offset by reductions due to general and administrative travel and entertainment
      expense ($16,831), lower Cornell loan fee amortization expense ($10,421),
      reduced office equipment/supplies ($16,525, lower pre-employment expenses
      ($7,874) and other decreased general and administrative expenses ($25,649).




**Gain
      on Disposal of Assets**




During
      the nine months ended September 30, 2006, we sold assets from our Texas location
      that were no longer necessary to our day to day operations. These assets were
      fully depreciated, therefore, the cash received during the sale of $29,046
      represents a gain on sale.




22


**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 nine months ended September 30, 2006 ($321,555) has increased
      over the comparable period of 2005 ($302,666) by $18,889 or 6% due primarily
      to
      the new loans acquired in the fourth quarter of 2005.




**Net
      Income (Loss )**




Primarily
      as a result of the foregoing we had net loss of $1,338,392 for the nine months
      ended September 30, 2006, compared to a net loss of $1,105,767 for the nine
      months ended September 30, 2005.




**Capital
      Resources**




**Nine
                Months Ended**Working
                Capital
            
            **09/30/2006**
            
            **09/30/2005**
            
            **Favorable
                (Unfavorable)**Current
                Assets
            
            $
            1,746,889
            
            $
            5,577,070
            
            $
            (3,830,181
            )Current
                Liabilities
            
            $
            (9,833,868
            )
            $
            (11,805,645
            )
            $
            1,971,777Deficit
                Working Capital
            
            $
            (8,086,979
            )
            $
            (6,228,575
            )
            $
            (1,858,404
            )Long-term
                Debt
            
            $
            (13,967
            )
            $
            (12,313
            )
            $
            (1,654
            )Stockholders'
                (Deficit)
            
            $
            (7,876,243
            )
            $
            (3,102,876
            )
            $
            (4,773,367
            )




As
      of
      September 30, 2006, we were in default of our payment terms on our Lam debt,
      which comprises 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 $2,363,472 that is owed to Axcelis for
      license and royalty fees.  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 $1,029,000 was past due as of September 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 confident 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.





23


** 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 began operating under a forbearance agreement that allows for
      continued monthly repayment of the Merrill Lynch loan. The amount outstanding
      under this agreement was $604,283 at September 30, 2006. The 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.




**Statements
      of Cash Flows Selected Information**




**Nine
                Months Ended****09/30/06**
            
            **09/30/05**Net
                Cash Provided (Used) By:Operating
                Activities
            
            $
            402,268
            
            $
            127,139Investing
                Activities
            
            
            29,046
            
            
            (11,242
            )Financing
                Activities
            
            $
            (649,667
            )
            $
            (274,614
            )




**Operating
      Activities**




For
      the
      nine months ended September 30, 2006, cash provided by operating activities
      of
      $402,268 was primarily attributed to a decrease in accounts receivable in the
      amount of $960,737, a $697,553 decrease in inventories as well as an increase
      of
      $49,281 in customer deposits.. These amounts were offset by our net loss of
      $1,338,392, and a reduction in our accounts payable and accrued expenses of
      $88,035. During the nine months ended September 30, 2006 our non-cash
      reconciling items included depreciation and amortization expense of $46,280
      and
      $17,418, respectively, and the issuance of stock options for director
      compensation in the amount of $19,620. We also recorded $80,164 of legal
      expenses and late fees related to our loan with Merrill Lynch through the
      issuance of debt.




For
      the
      nine months ended September 30, 2005, cash provided by operating activities
      of
      $127,139 was primarily attributed to a decrease in accounts receivable in the
      amount of $1,198,734 as well as $816,209 received as customer deposits. These
      amounts were offset by our net loss of $1,105,767, our increase in inventories
      and prepaid expenses and other assets in the amount of $802,740 and $109,209,
      respectively. We also reduced our accounts payable and accrued expenses by
      $415,699.




**Investing
      Activities**




During
      the nine months ended September 30, 2006, we received $29,046 from the sale
      of
      assets sold from our Texas location. During the nine months ended September
      30,
      2005 cash was used by investing activities for purchases of equipment in the
      amount of $11,242.




We
      currently have no material commitments for capital expenditures.




**Financing
      Activities**




Financing
      activities in the nine months ended September 30, 2006 used $649,667 in cash
      flows as compared to $274,614 used in the nine months ended September 30, 2005.




In
      the
      nine months ended September 30, 2006, $545,917 and $143,750 was used for the
      repayment of long-term debt and related party debt, respectively, as compared
      to
      $959,364 and $-0- in the nine months ended September 30, 2005 in which we also
      received $34,750 from the exercise of common stock options, and $525,000 and
      $125,000 from the issuance of debt and the issuance of debt, related party,
      respectively.




24


**Liquidity
      and Capital Resources**




Although
      sales for the nine months ended September 30, 2006 were down from September
      30,
      2005 by $3,517,180, our sales backlog at October 31, 2006 was approximately
      $1.5
      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 September 30, 2006, $62,500 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 debt to Merrill Lynch Business Financial Services, Inc. ("Merrill
      Lynch") had a balance of $604,283 as of September 30, 2006, and is currently
      being repaid under a forebearance agreement that 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 debt is guaranteed by the Company and Douglas
      Dixon, our Chief Executive Officer, and is secured by a first lien on our total
      assets. The Company is current on its required payments under this forbearance
      agreement as of the date of this report.




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 $1,746,000
      has
      been expensed and $1,443,000 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%. The balance
      to be paid on this is $743,000.




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 $112,000 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%. The
      balance to be paid on this is $61,000.




We
      entered into an Asset Sale and License Agreement with Lam, dated November 8,
      2002, which was amended on June 25, 2004. As of November 13, 2006, we continued
      to remain past due on certain payments to both Lam and Axcelis. Past due
      payments to Lam totaled approximately $1,029,000 as of September 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 for the amended agreement from Lam. During
      the second quarter of 2006, the Company filed a lawsuit against Lam as a result
      of long-standing contract disputes between Aspect and Lam . **  ** Management
      believes 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, management believes that our liquidity would improve.
      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.






25


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. The Company is current on
      its
      required payments under the new agreement as of the date of this
      report.




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. This
      note was repaid in July 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. This note was repaid
      in August 2006.




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
      September 30, 2006, the majority of this debt is comprised of approximately
      $3,600,000 owed to Lam and $2,363,000 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 September 30, 2006, we had $173,945 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. Our cash flow has been further impacted by a reluctance on
      the
      part of some customers to place system orders because of our deposit
      requirements. Due to ongoing litigation with Lam and our going concern issues,
      some customers feel that any deposit would be at risk if we were unable to
      continue operations.






26




**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.*




**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.**




·
            The
                going concern and ongoing litigation with Lam have impacted our sales
                as
                certain customers are now reluctant to order systems from us as systems
                require a significant up-front deposit and some customers believe
                that
                there is a risk that any deposit may be lost if we are unable to
                continue
                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 ultimately be 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 $1,631,000 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
                Merrill Lynch debt 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.





27


·
            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.





·
            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.





28


**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, 2006, our management received a letter from
      the
      Company's independent auditors on May 10, 2006 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 four issues: 1) Our subsidiary's Vice President
      of Operations is now reviewing all standard unit cost changes to prevent
      adjustments to the valuation of inventory items without proper approval. In
      addition, with the transfer of Texas accounting transactions to Arizona, the
      software package which allowed negative inventory balances to occur in the
      past
      has been discontinued. 2) 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 will continue to monitor our financial
      data
      very closely through the use of various trended subsidiary reports, statements,
      and a detailed and departmentalized chart of accounts to ensure all transactions
      are properly recorded. 3) Although our commission accrual process remains the
      same, increased emphasis will be placed on the review of the existing systems
      group gross profit report which details commission expense by system. 4) Upper
      management will increase their communication of any unusual transactions and
      subsequent events to the personnel responsible for financial accounting and
      disclosure to ensure the proper accounting and disclosure on a timely basis.




**PART
      II - OTHER INFORMATION**




**ITEM
      6. EXHIBITS AND REPORTS ON FORM 8-K**




Exhibits:




31.1  Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive Officer




31.2  Rule
      13a-14(a)/15d-14(a) Certification of Principal Financial Officer




32  Section
      1350 Certifications




29


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:
      November 13, 2006





DND
      TECHNOLOGIES, INC., a Nevada corporation




By  /s/
      Douglas N. Dixon


Douglas
      N. Dixon, Chief Executive Officer




By/s/
      G.
      Dennis Key


G.
      Dennis
      Key, Chief Financial Officer





30