**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-QSB**





x **Quarterly
      Report Under Section 13 or 15(** **d** **)
      of the Securities Exchange Act of 1934.**


**For
      the Quarterly Period and Nine Months Ended August 31, 2006**


**or**


o **Transition
      Report Under Section 13 or 15(d) of the Securities Exchange Act of
      1934.**


**For
      the Transition Period From ____________________ To
      __________________**





**Commission
      File Number: 000-51007**





**NANOSENSORS,
      INC.**


(Exact
      name of small business issuer as specified in its charter)





**Nevada**
            **200452700**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer Identification No.)**1800
                Wyatt Drive, Suite #2**
              **Santa
                Clara, CA**
            **95054**(Address
                of principal executive offices)
            (Zip
                Code)




**Issuer’s
      telephone number: (408) 855-0051**





**N/A**


(Former
      Name, Former Address and Former Fiscal Year, if Changes


Since
      Last Report)





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




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). o Yes T No





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date.





Class
            
            Outstanding
                at October 16 , 2006Common
                Stock, $0.001 par value per share
            
            332,226,698
                shares





Transitional
      Small Business Disclosure Format (check one):   o Yes T No





-1-


**NANOSENSORS,
      INC.**





**INDEX**


Page(s)**PART
                  I. FINANCIAL INFORMATION****ITEM****1****.****CONDENSED
                  FINANCIAL STATEMENTS**
              
              3Balance
                  Sheets -August
                  31, 2006 (unaudited) and November 30, 2005
              
              3Statements
                  of Operations for the Period from date of inception to August 31,
                  2006 and
                  the nine and three month periods endedAugust
                  31, 2006 and August 31, 2005 (unaudited)
              
              4Statements
                  of Cash Flows for the Period from date of inception to August 31,
                  2006 and
                  the nine month periods ended August 31,2006
                  and August 31, 2005 (unaudited)
              
              5Statement
                  of Shareholders’ Equity for the Period from the date of inception to
                  August 31, 2006 (unaudited)
              
              6Notes
                  to Financial Statements (unaudited)
              
              7**ITEM****2****.****MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS**17**ITEM****3****.****CONTROLS
                  AND PROCEDURES**
              
              21**PART
                  II. OTHER INFORMATION****ITEM****1****.****LEGAL
                  PROCEEDINGS**
              
              22**ITEM****2****.****CHANGES
                  IN SECURITIES**
              
              22**ITEM****3****.****DEFAULTS
                  UPON SENIOR SECURITIES**
              
              23**ITEM****4****.****SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS**
              
              23**ITEM****5****.****OTHER
                  INFORMATION**
              
              23**ITEM****6****.****EXHIBITS**
              
              24Signatures
              
              25Certifications


-2-


**PART
      I. FINANCIAL INFORMATION**


**ITEM
      1. FINANCIAL STATEMENTS**





**NANOSENSORS,
      INC.**


**(A
      Development Stage Company)**


**CONDENSED
      BALANCE SHEETS**


**August
                  31, 2006**
              
              **November
                  30, 2005****(Unaudited)****ASSETS****CURRENT
                  ASSETS:**Cash
              
              $
              290,474
              
              $
              191,940Cash
                  held in escrow
              
              
              915,000
              
              
              -Other
                  current assets
              
              
              26,007
              
              
              -**TOTAL
                  CURRENT ASSETS**
              
              
              1,231,481
              
              
              191,940**PROPERTY
                  AND EQUIPMENT - net of accumulated****depreciation
                  of $4,467 and $3,200, respectively**
              
              
              4,865
              
              
              4,800**OTHER
                  ASSETS:**Website
                  development - net of amortization
              
              
              3,750
              
              
              -Deposit
              
              
              3,000
              
              
              3,0006,750
              
              
              3,000**TOTAL
                  ASSETS**
              
              $
              1,243,096
              
              $
              199,740**LIABILITIES
                  AND SHAREHOLDERS' DEFICIT****CURRENT
                  LIABILITIES:**Accounts
                  payable and accrued expenses
              
              $
              178,892
              
              $
              246,830Accounts
                  payable - related party
              
              
              37,500
              
              
              163,757Liability
                  from warrants issued
              
              
              4,772,970
              
              
              -Accrued
                  employee benefits
              
              
              1,269
              
              
              -Client
                  escrow funds
              
              
              915,000
              
              
              -**TOTAL
                  CURRENT LIABILITIES**
              
              
              5,905,631
              
              
              410,587**COMMITMENTS
                  AND CONTINGENCIES****SHAREHOLDERS'
                  DEFICIT:**Common
                  stock, $.001 par value; 500,000,000 shares authorized; 301,945,645
                  and
                  205,025,000 shares issued and outstanding in 2006 and 2005,
                  respectively
              
              
              301,946
              
              
              205,025Additional
                  paid-in capital
              
              
              722,364
              
              
              659,752Deficit
                  accumulated during the development stage
              
              
              (5,686,845
              )
              
              (1,075,624
              )(4,662,535
              )
              
              (210,847
              )**TOTAL
                  LIABILITIES AND SHAREHOLDERS' DEFICIT**
              
              $
              1,243,096
              
              $
              199,740


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




-3-


**NANOSENSORS,
      INC.**


**(A
      Development Stage Company)**


**STATEMENTS
      OF OPERATIONS**


**(Unaudited)**


**For
                  the Cumulative****Period
                  from Inception****(December**
              
              
              **Nine
                  Months**
              
              
              **Nine
                  Months**
              
              
              **Three
                  Months**
              
              
              **Three
                  Months****23,
                  2003) to**
              
              
              **Ended**
              
              
              **Ended**
              
              
              **Ended**
              
              
              **Ended****August
                  31, 2006**
              
              
              **August
                  31, 2006**
              
              
              **August
                  31, 2005**
              
              
              **August
                  31, 2006**
              
              
              **August
                  31, 2005****NET
                  SALES**
              
              $
              11,688
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -**COSTS
                  AND EXPENSES:**General
                  and Administrative Expense
              
              
              812,570
              
              
              
              318,865
              
              
              
              57,981
              
              
              
              190,052
              
              
              
              29,794Research
                  and Development
              
              
              507,650
              
              
              
              30,200
              
              
              
              101,788
              
              
              
              30,200
              
              
              
              -Depreciation
                  and Amortization
              
              
              38,968
              
              
              
              2,517
              
              
              
              15,450
              
              
              
              884
              
              
              
              5,150Write-off
                  of Licences
              
              
              61,750
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -**TOTAL
                  COSTS AND EXPENSES**
              
              
              1,420,938
              
              
              
              351,582
              
              
              
              175,219
              
              
              
              221,136
              
              
              
              34,944**LOSS
                  FROM OPERATIONS**
              
              
              (1,409,250
              )
              
              
              (351,582
              )
              
              
              (175,219
              )
              
              
              (221,136
              )
              
              
              (34,944
              )**OTHER
                  INCOME(EXPENSE)**Expense
                  related to fair value of warrant liability, net
              
              
              (4,241,344
              )
              
              
              (4,241,344
              )
              
              
              -
              
              
              
              (2,737,107
              )
              
              
              -Interest
                  Expense
              
              
              (40,104
              )
              
              
              (21,500
              )
              
              
              -
              
              
              
              (21,500
              )
              
              
              -Interest
                  Income
              
              
              3,853
              
              
              
              3,205
              
              
              
              4
              
              
              
              3,170
              
              
              
              -**LOSS
                  BEFORE INCOME TAXES**
              
              
              (5,686,845
              )
              
              
              (4,611,221
              )
              
              
              (175,215
              )
              
              
              (2,976,573
              )
              
              
              (34,944
              )Income
                  Tax Expense
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -**NET
                  LOSS**
              
              $
              (5,686,845
              )
              
              $
              (4,611,221
              )
              
              $
              (175,215
              )
              
              $
              (2,976,573
              )
              
              $
              (34,944
              )**BASIC
                  AND DILUTED NET LOSS****PER
                  SHARE**
              
              
              
              
              
              $
              (0.02
              )
              
              $
              (0.00
              )
              
              $
              (0.01
              )
              
              $
              (0.00
              )**WEIGHTED
                  AVERAGE NUMBER OF****COMMON
                  SHARES OUTSTANDING**
              
              
              
              
              
              
              233,941,005
              
              
              
              202,431,930
              
              
              
              287,800,929
              
              
              
              202,525,000





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




-4-


**NANOSENSORS,
      INC.**


**(A
      Development Stage Company)**


**STATEMENTS
      OF CASH FLOWS**


**(Unaudited)**





For
                the Cumulative Period fromInception
              (December
                23, 2003)
            
            Nine
                Months Ended
            
            Nine
                Months Endedto
                August 31, 2006
            
            to
                August 31, 2006
            
            to
                August 31, 2005**CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                Loss
            
            $
            (5,686,845
            )
            $
            (4,611,221
            )
            $
            (175,215
            )Adjustment
                to reconcile net loss to net cashutilized
                in operating activities:Depreciation
                and amortization
            
            
            38,967
            
            
            2,517
            
            
            15,450Expense
                related to fair value of warrant liability
            
            
            4,241,344
            
            
            4,241,344
            
            
            -Write-off
                of licenses
            
            
            61,750
            
            
            -
            
            
            -Stock
                based compensation & warrants issued
            
            
            38,583
            
            
            38,583
            
            
            -Issuance
                of common stock for expenses
            
            
            12,902
            
            
            -
            
            
            -Change
                in operating assets and operating liabilities:Prepaid
                expenses and other assets
            
            
            (26,007
            )
            
            (26,007
            )
            
            -Accrued
                payroll and employee benefits
            
            
            1,269
            
            
            1,269
            
            
            -Accounts
                payable and accrued expenses
            
            
            340,392
            
            
            (194,195
            )
            
            109,107**Net
                cash (used) by operating activities**
            
            
            (977,645
            )
            
            (547,710
            )
            
            (50,658
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                of equipment
            
            
            (9,332
            )
            
            (1,332
            )
            
            -Purchase
                of license
            
            
            (90,000
            )
            
            -
            
            
            -Website
                development costs
            
            
            (5,000
            )
            
            (5,000
            )
            
            -Deposit
            
            
            (3,000
            )
            
            -
            
            
            -**Net
                cash (used) in investment activities**
            
            
            (107,332
            )
            
            (6,332
            )
            
            -**CASH
                FLOW FROM FINANCING ACTIVITIES:**Net
                proceeds from issuance of common stock
            
            
            1,375,451
            
            
            652,576
            
            
            30,000Advances
                from officers
            
            
            -
            
            
            -
            
            
            7,100**Net
                cash provided by financing activities**
            
            
            1,375,451
            
            
            652,576
            
            
            37,100**NET
                INCREASE (DECREASE) IN CASH**
            
            
            290,474
            
            
            98,534
            
            
            (13,558
            )Cash
                at beginning of period
            
            
            -
            
            
            191,940
            
            
            13,558**CASH
                AT END OF PERIOD**
            
            $
            290,474
            
            $
            290,474
            
            $
            -**SUPPLEMENTAL
                CASH FLOW INFORMATION:****Cash
                paid during the period for:**Interest
            
            $
            18,604
            
            $
            -
            
            $
            -**NON-CASH
                FINANCING ACTIVITIES:**Cashless
                exercise of warrants into common stock
            
            
            14,071
            
            
            14,071
            
            
            -Warrant
                liability charged to additional paid-in capital
            
            
            531,626
            
            
            531,626
            
            
            -Dividend
                expense on modification of warrants
            
            
            162,300
            
            
            162,300
            
            
            -








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




-5-


**NANOSENSORS,
      INC.**


**(A
      Development Stage Company)**


**STATEMENT
      OF SHAREHOLDERS’ EQUITY**


**(Unaudited)**


DeficitAccumulatedAdditional
              
              During
                  thePaid
                  - in
              
              DevelopmentShares
              
              Amount
              
              Capital
              
              Stage
              
              
              Total**BALANCE
                  AT DECEMBER 23, 2003 ( INCEPTION)**
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              
              $
              -Issuance
                  of common stock for license at $.001
              
              
              50,000,000
              
              
              50,000
              
              
              (45,000
              )
              
              -
              
              
              
              5,000Issuance
                  of common stock for services and expenses
              
              
              114,500,000
              
              
              114,500
              
              
              (103,050
              )
              
              -
              
              
              
              11,450at
                  $.001 per shareIssuance
                  of common stock for cash at $.05 per share
              
              
              95,000
              
              
              95
              
              
              380
              
              
              -
              
              
              
              475Issuance
                  of common stock for cash at $.20 per share-
              
              
              27,500,000
              
              
              27,500
              
              
              435,500
              
              
              -
              
              
              
              463,000net
                  of issuance costsIssuance
                  of common stock for note receivable - at
              
              
              880,000
              
              
              880
              
              
              3,520
              
              
              -
              
              
              
              4,400$.05
                  per share - paid in June 2004Issuance
                  of common stock for payment of debt
              
              
              6,200,000
              
              
              6,200
              
              
              117,800
              
              
              -
              
              
              
              124,000at
                  $.20 per shareIssuance
                  of common stock for expenses at $.0078 per share
              
              
              1,850,000
              
              
              1,850
              
              
              (398
              )
              
              -
              
              
              
              1,452Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (741,499
              )
              
              
              (741,499
              )**BALANCE
                  AS OF NOVEMBER 30, 2004**
              
              
              201,025,000
              
              
              201,025
              
              
              408,752
              
              
              (741,499
              )
              
              
              (131,722
              )Issuance
                  of common stock for cash at $.20 per share
              
              
              1,500,000
              
              
              1,500
              
              
              28,500
              
              
              -
              
              
              
              30,000Issuance
                  of common stock for cash at $1.00 per share, net
              
              
              2,500,000
              
              
              2,500
              
              
              222,500
              
              
              -
              
              
              
              225,000of
                  issuance costsNet
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (334,125
              )
              
              
              (334,125
              )**BALANCE
                  AS OF NOVEMBER 30, 2005**
              
              
              205,025,000
              
              
              205,025
              
              
              659,752
              
              
              (1,075,624
              )
              
              
              (210,847
              )Issuance
                  of common stock for cash at $.25 per share
              
              
              500,000
              
              
              500
              
              
              12,000
              
              
              
              
              
              
              12,500Issuance
                  of common stock for cash at $.30 per share
              
              
              900,000
              
              
              900
              
              
              26,100
              
              
              
              
              
              
              27,000Net
                  Loss (unaudited)
              
              
              -
              
              
              -
              
              
              -
              
              
              (92,665
              )
              
              
              (92,665
              )**BALANCE
                  AS OF February 28, 2006 (unaudited)**
              
              
              206,425,000
              
              
              206,425
              
              
              697,852
              
              
              (1,168,289
              )
              
              
              (264,012
              )Issuance
                  of common stock for cash at $.01 per sharenet
                  of fees and fair value of warrant liability
              
              
              16,000,000
              
              
              16,000
              
              
              -
              
              
              -
              
              
              
              16,000Cashless
                  exercise of 2,250,000 warrants into commonstock
              
              
              1,800,000
              
              
              1,800
              
              
              (1,800
              )
              
              -
              
              
              
              -Dividends
                  expensed on modification of warrants - $66,750
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              -Net
                  Loss (unaudited)
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,541,983
              )
              
              
              (1,541,983
              )**BALANCE
                  AS OF MAY 31, 2006 (unaudited)**
              
              
              224,225,000
              
              
              224,225
              
              
              696,052
              
              
              (2,710,272
              )
              
              
              (1,789,995
              )Issuance
                  of common stock for cash at $.01 per sharenet
                  of fees and fair value of warrant liability
              
              
              65,450,000
              
              
              65,450
              
              
              -
              
              
              -
              
              
              
              65,450Cashless
                  exercise of 14,150,000 warrants into commonstock
              
              
              12,270,645
              
              
              12,271
              
              
              (12,271
              )
              
              -
              
              
              
              -Stock
                  based compensation and warrant expense
              
              
              -
              
              
              -
              
              
              38,583
              
              
              -
              
              
              
              38,583Dividends
                  expensed on modification of warrants - $95,550
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              -Net
                  Loss (unaudited)
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,976,573
              )
              
              
              (2,976,573
              )**BALANCE
                  AS OF AUGUST 31, 2006 (unaudited)**
              
              
              301,945,645
              
              $
              301,946
              
              $
              722,364
              
              $
              (5,686,845
              )
              
              $
              (4,662,535
              )







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


-6-


**NANOSENSORS,
      INC.**


**(A
      Development Stage Company)**


**NOTES
      TO FINANCIAL STATEMENTS**


**August
      31, 2006**


**(Unaudited)**




1.
                  ORGANIZATION:





The
      Company was incorporated under the laws of the State of Nevada on December
      23,
      2003 with authorized common stock of 500,000,000 shares at $.001 par value.





The
      Company was organized for the purpose of the development and marketing of
      sensors to detect explosives, chemicals, and biological agents. The Company
      is
      in the development stage and has not started any significant commercial
      operations.





The
      Company has elected November 30 as its fiscal year end.


2.
                    SUMMARY
                        OF SIGNIFICANT ACCOUNTING POLICIES:





*Basis
      of Presentation*





The
      interim financial information, as of August 31, 2006 and for the nine and
      three-month periods ended August 31, 2006 and 2005 and for the cumulative period
      from inception (December 23, 2003) to August 31, 2006, has been prepared without
      audit, pursuant to the rules and regulations of the Securities and Exchange
      Commission (the "SEC"). Certain information and footnote disclosures normally
      included in financial statements prepared in accordance with generally accepted
      accounting principles have been condensed or omitted pursuant to such rules
      and
      regulations, although we believe that the disclosures made are adequate to
      provide for fair presentation. These financial statements should be read in
      conjunction with the financial statements and the notes thereto, included in
      the
      Company's Annual Report on Form 10-KSB for the fiscal year ended November 30,
      2005, previously filed with the SEC.





In
      the
      opinion of management, all adjustments (which include normal recurring
      adjustments) necessary to present a fair statement of financial position as
      of
      August 31, 2006, and results of operations, statement of shareholders’ deficit
      and cash flows for the nine and three months ended August 31, 2006 and 2005,
      and
      for the cumulative period from inception (December 23, 2003) to August 31,
      2006
      as applicable, have been made. The results of operations for the three and
      nine
      months ended August 31, 2006 are not necessarily indicative of the operating
      results for the full fiscal year or any future periods.





The
      Company effected a 10:1 stock split as of January 5, 2006. The Financial
      Statements presented here for the periods prior to this date have been restated
      to give effect to this stock split as if the split occurred at the date of
      inception.





*Basic
      and Diluted Net Income (Loss) Per Share*





The
      Company presents “basic” and, if applicable, “diluted” earnings per common share
      pursuant to the provisions of Statement of Financial Accounting Standards No.
      128, “Earnings per Share” (“SFAS 128”) and certain other financial accounting
      pronouncements. Basic earnings per common share are calculated by dividing
      net
      income by the weighted average number of common shares outstanding during each
      period. The calculation of diluted earnings per common share is similar to
      that
      of basic earnings per common share, except that the denominator is increased
      to
      include the number of additional common shares that would have been outstanding
      if all potentially dilutive common shares, such as those issuable upon the
      exercise of warrants, were issued during the period. Due to a
      net loss for all periods presented, the effect of warrants in the calculation
      of
      diluted loss per share is anti-dilutive and has been excluded. Outstanding
      warrants as of August 31, 2006 and 2005 aggregated 147,265,000 and 58,325,000,
      respectively. All per
      common share calculation reflect the 10:1 stock split made effective as of
      January 5, 2006.




-7-


3.
                  WARRANT
                      DERIVATIVE LIABILITY & STOCK BASED COMPENSATION:





*Warrants
      Issued to Investor and Agents*




The
      Company evaluates its warrants or other contracts to determine if those
      contracts or embedded components of those contracts qualify as derivatives
      to be
      separately accounted for under Statement of Financial Accounting Standards
      133
“Accounting for Derivative Instruments and Hedging Activities” (“FAS
      133”) and related interpretations including EITF  00-19 “Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock” (“EITF 00-19”).  If the warrant is determined to be a
      derivative, the fair value of the warrant is marked-to-market each balance
      sheet
      date and recorded as a liability. The change in fair value of the warrant is
      recorded in the Statement of Operations as other income or expense. Upon
      conversion or exercise of a derivative instrument, the instrument is marked
      to
      fair value at the conversion date and then that fair value is reclassified
      to
      equity. Equity instruments that are initially classified as equity that become
      subject to reclassification under FAS 133 are reclassified to liability at
      the
      fair value of the instrument on the reclassification date. In the event that
      the
      warrants are determined to be equity, no value is assigned for financial
      reporting purposes.




The
      valuation of the warrant liability is based on a Black Scholes model and may
      vary significantly, based on factors such as the exercise price, remaining
      time
      left to exercise the warrants, recent volatility (change) in the price of
      Company’s common stock, risk free interest rate and the market price of the
      Company’s common stock.




*Stock-Based
      Compensation*




**Accounting
      for Employee Awards:**




The
      Company will be asking its stockholders to adopt an Equity Incentive Plan at
      its
      upcoming meeting of shareholders. The NanoSensors 2006 Equity Incentive Plan
      (the “2006 Incentive Plan”) will permit the Company to provide a broad range of
      stock awards to its employees, directors and consultants. If approved by the
      Company’s shareholders, the 2006 Incentive Plan will serve as the Company’s
      primary equity incentive plan for its employees, consultants and directors.
      The
      Board of Directors unanimously approved the 2006 Incentive Plan on August 3,
      2006, subject to stockholder approval at the 2006 Annual Meeting.




The
      Company will account for all employee awards in accordance with the recognition
      and measurement provisions of Statement of Financial Accounting Standards No.
      123 (revised 2004), Share-Based Payment ("FAS 123(R)"), which replaces SFAS
      No.
      123, Accounting for Stock-Based Compensation ("FAS 123"), and supersedes
      Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock
      Issued to Employees, and related interpretations. FAS 123(R) requires
      compensation costs related to share-based payment transactions, including
      employee stock options, to be recognized in the financial statements. In
      addition, the Company will utilize the guidance set forth within Securities
      and
      Exchange Commission ("SEC") Staff Accounting Bulletin No. 107, which provides
      the Staff's views regarding the interaction between FAS 123(R) and certain
      SEC
      rules and regulations and provides interpretations with respect to the valuation
      of share-based payments for public companies.




**Accounting
      for Non-employee Awards:**




The
      Company accounts for options and warrants granted to its non-employee
      consultants and non-employee registered representatives using the fair value
      cost in accordance with FAS 123 and EITF No. 96-18. The adoption of FAS 123(R)
      and SAB 107 as of March 1, 2006 had no material impact on the accounting for
      non-employee awards. The Company continues to consider the additional guidance
      set forth in EITF Issue No. 96-18 ("EITF 96-18"), “Accounting for Equity
      Instruments That Are Issued to Other Than Employees”.




Stock-based
      compensation expense related to NanoSensors’ share-based compensation
      arrangements is being recorded as a component of general and administrative
      expense and research and development expense in accordance with the guidance
      of
      Staff Accounting Bulletin 107, Topic 14, paragraph F, *Classification
      of Compensation Expense Associated with Share-Based Payment
      Arrangements* .




-8-




Stock
      based compensation expense related to non-employee stock options and warrants
      recognized in the operating results for the three and nine months ended August
      31, 2006 and 2005, and for the period from December 23, 2003 (inception),
      through August 31, 2006 can be summarized as follow:





**Three Months Ended August 
                31, 2006**
            
            **Nine
                Months Ended  August 31, 2006**
            
            **Inception**
              **through****Stock based compensation expense**
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005**
            
            **August
                31,  2006**Non-employee
                — research and development
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0Non-employee
                — general and administrative
            
            
            17,083
            
            
            0
            
            
            17,083
            
            
            0
            
            
            17,083Subtotal
                non-employee stock option and warrant grants
            
            
            17,083
            
            
            0
            
            
            17,083
            
            
            0
            
            
            17,083Total
                stock based compensation expense
            
            $
            17,083
            
            $
            0
            
            $$
            17,083
            
            $
            0
            
            $
            17,083







**Non-operating
                expense**Interest
                Expense
            
            $
            21,500
            
            $
            0
            
            $$
            21,500
            
            $
            0
            
            $
            21,500





The
      weighted average estimated fair value of non-employee stock options and warrants
      granted in the three and nine months ended August 31, 2006 was $0.054. The
      fair
      value of options and warrants at the date of grant was estimated using the
      Black-Scholes option pricing model. The expected volatility is based upon
      historical volatility of our stock and other contributing factors. The expected
      term is the contractual term of the options and warrants.




The
      assumptions made in calculating the fair values of non-employee options and
      warrants are as follows:





**Three
                and Nine  Months Ended August 31, 2006**Expected
                volatility
            
            
            188
            %Expected
                dividend yield
            
            
            0
            %Risk-free
                interest rate
            
            
            4.70
            %Expected
                term (in years)
            
            
            5




The
      following table represents all our stock options and warrants granted,
      exercised, and forfeited during the three months ended as of August 31 of
      2006.




**Weighted****Weighted**
            
            **Average****Average**
            
            **Remaining****Stock Options
                and Warrants******
            
            **Number**
            
            **Exe**rcise Price
            
            **Contractual**
            
            **Aggregate****of Shares**
            
            **per Share**
            
            **Term**
            
            **Intrinsic Value**Outstanding
              at December 1, 2005
            
            
            0
            
            
            0Granted
            
            
            6,000,000
            
            $
            0.043Exercised
            
            
            0
            
            
            0Outstanding
                at August 31, 2006
            
            
            6,000,000
            
            $
            0.043
            
            
            1.9
                yrs
            
            $
            6,000Exercisable
                at August 31, 2006
            
            
            458,332
            
            $
            0.043
            
            
            1.9
                yrs
            
            $
            1,375





-9-


4.
                SHAREHOLDERS’
                      EQUITY:


*Private
      Placement*





On
      May
      11, 2006 the Company commenced a private offering of its securities consisting
      of shares of Common stock and Common Stock Purchase Warrants. The terms and
      conditions of various agreements provide for certain key features related to
      this offering, which are briefly summarized as follows:





The
      Securities Purchase Agreement provides that each unit is at $.01 with a minimum
      investment of $50,000. Each unit entitles the investor to one common share
      (par
      value of $.001) and one warrant (“Investor Warrant”). The offering is for
      1,000,000 units with an additional 750,000 units as oversubscription amount.
      Pursuant to this agreement, the Company agreed that 60% of the gross proceeds
      will remain in escrow until the registration statement contemplated by
      the Registration Rights Agreement is declared effective by the
      Securities and Exchange Commission and the Company obtains shareholder approval
      to increase its authorized capital. Investor Warrants are exercisable at $0.04
      per share for a period of five years from the date of issuance. Investor
      Warrants have provision for cashless exercise at the option of the holder,
      redemption features at the option of the Company, transfer restrictions,
      registration rights and exercise limitations. The agreement also provides for
      appointment to its Board of Directors (the “Board”) of one independent director
      nominated for election by the purchasers of a majority of the Units subscribed
      for and nomination of such individual for reelection to the Board for at least
      two subsequent years.





The
      Company is required to pay to a Selling Agent, under a Selling Agent Agreement,
      a 10% commission on gross proceeds received by the Company and a 3%
      non-accountable expense reimbursement. The 10% commission is initially payable
      only on the non-escrowed funds and on the escrowed funds it is payable when
      they
      are released to the Company. Also, the Company is required to issue to the
      Selling Agent, warrants (“Agent Warrant”) equal to 20% of the total number of
      shares sold in the private placement. Each Agent Warrant is to be issued to
      the
      Selling Agent for $.0001 and the warrant is exercisable into one common share
      and one warrant at $.01 each. The additional warrant is further convertible
      into
      common shares at $.01 each. Both warrants are exercisable for five years. The
      terms of the Agent Warrants are generally similar to Investor Warrants, except
      for initial payment of $.0001 for each Agent Warrant compared to none for an
      Investor Warrant; exercise price of $.01 compared to $.04; consideration is
      one
      common share and one warrant for each Agent Warrant as compared to just one
      common share for the Investor Warrant and the Agent Warrants also have a
      cashless exercise at any time. The Investor Warrants have a cashless exercise,
      if after 180 days following the final closing of the offering, an effective
      registration statement is not available for the resale of all of the warrant
      shares to be issued against the warrant.





The
      Registration Rights Agreement provides for preparing and filing with the SEC
      a
      Registration Statement covering the resale of all Registrable Securities not
      already covered by an existing and effective Registration Statement for an
      offering to be made on a continuous basis pursuant to Rule 415. Each of the
      following events of non-compliance, (i) late filing of a Registration Statement,
      (ii) the Registration Statement is not declared effective by SEC prior to the
      100 th day or
      120 th day (as
      the case may be) or (iii) if after the effective date, the Registration
      Statement ceases to be effective for any reason, would result in a penalty
      of 2%
      per month of purchase price paid by each Investor up to a maximum of 6 months
      for each penalty event. The Company at its option may, instead of cash may
      issue
      shares for the 2% penalty based on the five-day average of closing bid price
      of
      the Company’s Common Stock for five trading days immediately preceding the
      penalty event.





In
      June
      2006, the Company completed this private placement of units and raised total
      gross proceeds of $1,729,500 from the sale of a
      total
      number of units consisting of 172,950,000 shares of common stock and five-year
      investor warrants to purchase 172,950,000 shares of common stock at
      an
      exercise price of $0.04 per share.  Each
      unit
      was sold at a price of $50,000. Of
      this
      amount, as of August 31, 2006, $915,000 is being retained in escrow.  Accordingly,
      the aggregate offering proceeds released to the Company was $814,500 (as of
      August 31, 2006), and the net proceeds to the Company, after payment of expenses
      and commissions, was approximately $613,000. The Company intends to use the
      offering proceeds for working capital and payment of accrued
      compensation. The
      Company has paid (as of August 31, 2006) $81,450 to the selling agents and
      issued 16,290,000 Agent Warrants to the selling agents. Each warrant is
      exercisable into one share common stock and one common stock purchase warrant
      (which, on a fully-diluted basis, would result in the issuance of an aggregate
      of 32,580,000 shares of common stock upon exercise).




-10-





The
      Company has issued, as of August 31, 2006, an aggregate of 81,450,000 shares
      of
      common stock and warrants to purchase 81,450,000 shares of common stock to
      the
      investors and will issue an additional 91,500,000 shares of common stock and
      warrants to purchase 91,500,000 shares of common stock to the investors upon
      our
      satisfaction of the post-closing covenants. In addition, assuming the Company
      is
      able to satisfy these post-closing covenants, it will issue an additional
      18,300,000 Unit Warrants to the selling agents (which, on a fully-diluted basis,
      would result in the issuance of an aggregate of 36,600,000 shares of common
      stock upon exercise) and pay commissions to the selling agents of $91,500 upon
      the release of the remaining funds from escrow.





The
      Company has accounted for the warrants issued to the investors and agent as
      follows: Under provisions of Statement of Financial Accounting Standards No.
      133, Accounting for Derivative Instruments and Hedging Activities, an embedded
      conversion option should be bifurcated and accounted for separately as a
      derivative instrument, unless the specific requirements for equity
      classification of the embedded conversion option, as stated in EITF 00-19:
      Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company's Own Stock (“EITF 00-19”) are met. EITF 00-19 provides
      that an equity classification is appropriate if the settlement criteria set
      forth therein for such classification are met and that the additional conditions
      necessary for equity classification, set forth therein, are also met. Since
      the
      liquidated damages under the Registration Rights Agreement could in some cases
      exceed a reasonable discount for delivering unregistered shares these warrants
      have been classified as a liability until the earlier of the date the warrants
      are exercised or expire, as required per paragraphs 14 to 18 of EITF 00-19.
      Further, in accordance with EITF 00-19, the Company has allocated a portion
      of
      the offering proceeds to the warrants based on their fair value.





The
      Company values the warrants under the Black Scholes option-pricing model with
      the following assumptions: an expected life equal to the contractual term of
      the
      warrants (five years); no dividends; a risk free rate of return ranging from
      4.93% to 5.22%, which equals the five-year yield on Treasury bonds at constant
      (or fixed) maturity; and volatility of between 186% and 201%. The warrants
      issued during the prior quarter to investors and the Selling Agent (16,000,000
      and 3,200,000, respectively) were initially valued on the date of issue at
      $1,590,400, which has been recorded as a debit to additional paid in capital
      to
      the extent of the net proceeds of $86,163 and the excess of $1,504,237 has
      been
      expensed in the statement of operations. The warrants issued during the current
      quarter to investors and the Selling Agent (65,450,000 and 13,090,000,
      respectively) were initially valued on the date of issue at $5,510,120, which
      has been recorded as a debit to additional paid in capital to the extent of
      the
      net proceeds of $445,463 and the excess of $5,064,657 has been expensed in
      the
      statement of operations.




EITF
      00-19 requires that the Company revalue the warrants as a derivative instrument
      periodically to compute the value in connection with changes in the underlying
      stock price and other assumptions, with the change in value recorded as interest
      expense or interest income. Upon the earlier of the warrant exercise or the
      expiration date, the warrant liability will be reclassified into shareholders’
equity. Until that time, the warrant liability will be recorded at fair value
      based on the methodology described above. Changes in the fair value during
      each
      period will be recorded as other income or other expense. Liquidated damages
      under the registration rights agreement will be expensed as incurred and will
      be
      included in non-operating expenses. As of August 31, 2006, the 81,450,000
      (including 16,000,000 issued during the quarter ended May 31, 2006) Investor
      Warrants and the 16,290,000 (including 3,200,000 issued during the quarter
      ended
      May 31, 2006) Agent Warrants were revalued and the change in fair value of
      these
      warrants from $7,100,520 to $4,772,970 or $2,327,550 has been recorded as
      reduction of expense related to fair value of warrant liability in the current
      quarter.





As
      described in greater detail in Item 5 of Part II of this Quarterly Report on
      Form 10-QSB, as of October 12, 2006, subsequent to the balance sheet date,
      an
      additional $200,000 of gross proceeds was released to the Company from
      escrow.





The
      securities sold in the Offering have not been registered under the Securities
      Act of 1933, as amended, and were offered and sold in reliance upon the
      exemption from registration set forth in Section 4(2) thereof and Regulation
      D,
      promulgated under the Securities Act. The Company believes that the investors
      and the selling agent are “accredited investors,” as such term is defined in
      Rule 501(a) promulgated under the Securities Act.




-11-





*Exercise
      of Warrants*





The
      Company reported on May 9, 2006, that it intended to reduce the exercise price
      on all of its outstanding Class A Warrants. On May 31, 2006 the Company sent
      a
      notice to all holders of outstanding Class A Warrants notifying them that it
      has
      reduced the exercise price on all outstanding Class A Warrants, of which there
      were 26,600,000 outstanding, to $0.01 for a period of 30 days. During the
      quarter ended August 31, 2006, holders of 13,650,000 warrants exercised their
      warrants and the Company issued an aggregate of 11,884,281 shares of common
      stock. The Company recorded this as modification of the warrant and the
      resulting difference of $95,550 between the fair value of the warrant
      immediately prior to modification and the fair value of the modified warrant
      as
      of date of exercise, was recorded as dividend expense. Due to an accumulated
      deficit, the dividend expense of $95,550 was recorded against additional paid-in
      capital instead of retained earnings resulting in no impact on additional
      paid-in capital. In addition, during the current quarter, a holder of 500,000
      Bridge warrants exercised them on a cashless basis at an exercise price of
      $0.025. The Company issued 386,364 shares of common stock to the Bridge warrant
      holder. The cashless exercises were recorded by accounting for the issue of
      12,270,645 shares at the par value in “common stock” with an offset to
“Additional Paid in Capital”.





During
      the quarter ended May 31, 2006, the Company reduced the exercise price on
      750,000 and 1,500,000 warrants held by one investor from $.02 and $.03
      respectively to $.01 if these were exercised within 30 days and on a cashless
      basis. The investor exercised the warrants at the reduced price on a cashless
      basis and the Company issued a total of 1,800,000 shares of common stock. The
      Company recorded this as modification of the warrant and the resulting
      difference of $66,750 between the fair value of the warrant immediately prior
      to
      modification and the fair value of the modified warrant on the date of exercise
      was recorded as dividend expense. Due to an accumulated deficit, the dividend
      expense of $66,750 was recorded against additional paid-in capital instead
      of
      retained earnings resulting in no impact on additional paid-in capital. The
      cashless exercise was recorded by accounting for the issue of 1.8 million shares
      at the par value in “common stock” with an offset to “Additional Paid in
      Capital”.




These
      transactions were consummated in reliance upon the exemption from registration
      set forth in Section 4(2) of the Securities Act of 1933, as
      amended.





5.
            RELATED
                PARTY TRANSACTIONS:





During
      the year ended November 30, 2005, the Chairman and Chief Executive Officer
      of
      the Company made advances to the Company in the aggregate amount of $9,658.
      These advances are non-interest bearing and are payable upon demand. These
      have
      been since paid in 2006. As of the end of this quarter, accounts and advances
      payable to related parties only consist of consulting fees payable to Dr. Ted
      Wong in the amount of $37,500 (See Note 7. Employment Agreements Dr. Ted Wong
      and Part II, Item 1. Legal Proceedings Dr. Matthew Zuckerman).





6.
            GOING
                CONCERN:





The
      Company has incurred recurring operating losses in each of the periods since
      Inception (December 23, 2003) to August 31, 2006 aggregating
      $1,409,250 **** and
      has a
      working capital deficit of $4,674,150 as of August 31, 2006. Excluding the
      liability for warrants accounted as a derivative, the net working capital is
      $98,820. The recurring operating losses are due to the Company being in the
      development stage, and that it has yet to establish commercial operations.
      The
      Company has no cash flows from revenues and has been spending available cash
      on
      research and development activities and administrative costs.





The
      Company will need additional capital for its future planned activity and for
      payment of its current liabilities, which raises substantial doubt about its
      ability to continue as a going concern. Continuation of the Company as a going
      concern is dependent upon sales, the exercising of outstanding warrants, and
      the
      proceeds from additional common stock offerings or debt financings. The net
      proceeds from these sources are expected to meet the Company’s need for the
      coming year.





If
      the
      Company does not obtain additional capital from these sources, other funds
      will
      be needed in order to produce other products currently in development. If
      additional funds are required earlier than anticipated there can be no assurance
      that the Company will be able to obtain such funds from financial institutions,
      government funding, the exercise of the warrants, and otherwise on a basis
      deemed acceptable.




-12-


7.
            COMMITMENTS
                AND CONTINGENCIES:





*Office
      Lease*





The
      Company leases office space in Santa Clara, California under an operating lease,
      with a two year commitment expiring February 29, 2008. The monthly payments
      of
      base rent plus operating expenses totaled $24,122 for the nine months ended
      on
      August 31, 2006 and $7,718 for the three months ended on August 31, 2006. The
      Company’s remaining obligations under this lease are $47,923 for the period from
      September 1, 2006 to February 28, 2008.





*Michigan
      State License Agreement*





The
      Company entered into a technology license agreement with Michigan State
      University effective as of August 21, 2006. Pursuant to this license agreement,
      the Company was granted the exclusive world-wide right, subject to certain
      contractually-defined limitations, to use the licensed technology and rights
      for
      commercial purposes in the field of detecting certain selected bacteria. The
      licensed technology and rights are for a nanoporous silicon-based
      electrochemical DNA biosensor platform that the Company intends to deploy in
      biosensor devices. The Company also obtained the right to expand the scope
      of
      the licensed rights to utilize the licensed technology for additional fields
      of
      use. The license agreement has a term of 15 years or the duration of the patent
      rights licensed, whichever is longer. In consideration of the licenses granted,
      the Company agreed to pay the licensor an up-front cash license fee and will
      pay
      royalties based on a percentage of the adjusted gross sales derived from
      commercial applications of the licensed technologies. The Company is required
      to
      pay a minimum royalty payments of $10,000 per year commencing in calendar year
      2008 through 2012. These minimum royalty payments increase after 2012 as
      specified in the agreement. These annual minimum fees, may be offset by the
      earned royalties. The licensor has the right to terminate the license agreement
      or render the license non-exclusive after three years from the effective date
      if
      the Company has not commenced the commercialization of the licensed technology
      or is not demonstrably engaged in a research, development, manufacturing,
      marketing or sublicensing program directed toward such end. The licensor may
      also exercise such rights in the event the Company does not cure a material
      default of its obligations under the license agreement.





*Employment
      Agreements*




During
      the quarter ended August 31, 2006, the Company entered into three year
      employment agreements with Ted Wong, Chairman and Chief Executive Officer,
      and
      Joshua Moser, Vice President and Chief Operating Officer.





Agreement
      with Ted Wong





The
      Company will pay Mr. Wong an annual base salary of $144,000 under the employment
      agreement and a signing bonus of $40,000. In addition, the Company agrees to
      pay
      Mr. Wong a performance bonus of up to a maximum of $50,000 in the event he
      achieves certain milestones defined in the employment agreement.





In
      connection with his entering into the employment agreement, the Company awarded
      Mr. Wong two grants of options, both of which are subject to the approval of
      the
      Company's stockholders, of an equity compensation plan to be presented to them
      at the Company's next stockholders meeting. The initial grant consisted of
      options to purchase 5,000,000 shares of common stock, all of which shall vest
      on
      the six month anniversary of the effective date of the employment agreement.
      The
      second grant consists of options to purchase 13,000,000 shares of common stock,
      which shall vest in equal monthly installments commencing on the six month
      anniversary date of the employment agreement. Both options shall be exercisable
      for a period of ten years at a per share exercise price equal to the closing
      price of the Company's common stock on the effective date of the employment
      agreement. Furthermore, all of the options granted to Mr. Wong will become
      immediately vested and exercisable in accordance with, and subject to, the
      terms
      and conditions of such plan, in the event of a change of control of the Company
      or if Mr. Wong is terminated without cause.





If
      the
      Company terminates Mr. Wong's employment without "cause" (as defined in the
      employment agreement), he is entitled to a severance payment of his base salary,
      at the rate then in effect, for a period of six months. If Mr. Wong's employment
      is terminated by the Company for "cause", he (a) would not be entitled to any
      further compensation or benefits and (b) would not be entitled to any additional
      rights or vesting with respect to the stock options following the date of
      termination.




-13-





Agreement
      with Josh Moser





The
      Company will pay Mr. Moser an annual base salary of $120,000 under the
      employment agreement.





In
      connection with his entering into the employment agreement, the Company awarded
      Mr. Moser two grants of options, both of which are subject to the approval
      of
      the Company's stockholders of an equity compensation plan to be presented to
      them at the Company's next stockholders meeting. The initial grant consisted
      of
      options to purchase 4,000,000 shares of common stock, all of which shall vest
      on
      the six month anniversary of the effective date of the employment agreement.
      The
      second grant consists of options to purchase 10,200,000 shares of common stock,
      which shall vest in equal monthly installments commencing on the six month
      anniversary date of the employment agreement. Both options shall be exercisable
      for a period of ten years at a per share exercise price equal to the closing
      price of the Company's common stock on the effective date of the employment
      agreement. Furthermore, all of the options granted to Mr. Moser will become
      immediately vested and exercisable in accordance with, and subject to, the
      terms
      and conditions of such plan, in the event of a change of control of the Company
      or if Mr. Moser is terminated without cause.





If
      the
      Company terminates Mr. Moser's employment without "cause" (as defined in the
      employment agreement), he is entitled to a severance payment of his base salary,
      at the rate then in effect, for a period of six months. If Mr. Moser's
      employment is terminated by the Company for "cause", he (a) would not be
      entitled to any further compensation or benefits and (b) would not be entitled
      to any additional rights or vesting with respect to the stock options following
      the date of termination.




*Technical
      Advisory Board*





During
      the quarter ended August 31, 2006, the Company entered into consulting
      agreements with five technical consultants. Under the terms of these consulting
      agreements the Company will pay each individual $1,500 per month and issue
      each
      consultant warrants exercisable for 1,000,000 shares of its common stock at
      a
      per share exercise price based on the Company’s closing price per share on the
      date each consulting agreement was executed. These warrants vest on a monthly
      basis over a twenty-four month period. The Company can terminate these
      agreements, without cause, by providing two months notice. If the Company
      terminates these agreements within twenty-four months, then the unvested
      warrants are cancelled. (See Note 3 for accounting of these warrants). These
      warrants were issued in reliance upon the exemption from registration set forth
      in Section 4(2) of the Securities Act of 1933, as amended and the
      securities were issued without any form of general solicitation or general
      advertising .








The
      following table lists the future payments required on the Company’s commitments
      at August 31, 2006:





**OBLIGATIONS**
            
            **Total**
            
            **Less
                than**
              **1
                Year**
            
            **1-3
                Years**Office
                Lease
            
            $
            47,920
            
            $
            7,718
            
            $
            40,202Technology
                Licenses
            
            $
            10,000
            
            $
            -
            
            $
            10,000Employment
                Agreements
            
            $
            792,000
            
            $
            264,000
            
            $
            528,000Technical
                Advisory Board
            
            $
            165,000
            
            $
            90,000
            
            $
            75,000Total
                Obligations
            
            $
            1,014,920
            
            $
            361,718
            
            $
            653,202




-14-


8.
            SIGNIFICANT
                EVENTS:





*Settlement
      Agreement and General Release*





The
      Company has recorded a total liability of $119,500 for services rendered by
      three consultants for the period from March 2004 to February 2005. During the
      current quarter, the Company settled with these consultants for a total amount
      of $56,500 to be paid in two installments. The first installment of $29,750
      was
      paid during the current quarter and the balance amount is payable from the
      proceeds of the moneys held in escrow, when released (see under Private
      Placement in this Note).





The
      excess accrual of $63,000 between the recorded amount and settled amount of
      the
      liability was recorded as a credit to “general and administrative expense” in
      the quarter ending May 31, 2006 as a change in estimate based on the subsequent
      settlement in the current quarter.





*Non-Executive
      Compensation Plan*





In
      July
      2006, the Company adopted a compensation plan for non-executive members of
      its
      board of directors. Under the terms of this arrangement, each non-executive
      member of the Company’s board of directors shall be paid an annual retainer of
      $18,000, payable in equal quarterly installments of $4,500; provided, however,
      that for the initial quarter in which a non-executive director commences service
      on the board, such director shall receive a prorated fee for such quarter based
      on the date such service commences, as follows: (a) if service commences during
      the first month of such fiscal quarter the fee for such quarter shall be $4,500;
      (b) if service commences during the second month of such fiscal quarter, the
      fee
      for such quarter shall be $3,000; and if service commences during the third
      month of such fiscal quarter, the fee for such quarter shall be $1,500.





In
      addition, subject to the approval of the Company’s stockholders’, effective on
      July 7, 2006, each non-executive director shall be awarded, on the date such
      person commences service as a director, an option to purchase 2,000,000 shares
      of the Company’s common stock, exercisable for a period of ten years at a price
      per share equal to the closing price of the Company’s common stock on the date
      of grant and which options shall vest as follows: 50% on the first anniversary
      of the date that the individual commences service as a member of the board
      with
      the remaining 50% vesting on the second anniversary of such date. In addition,
      but also subject to shareholder approval, each non-executive director will
      also
      be entitled to receive an annual formula grant of options for each year of
      service on our board equal to the quotient obtained by dividing the annual
      cash
      retainer paid to a non-employee director during such fiscal year (not including
      any additional fees which may be paid for service as a member of Chairman of
      any
      committee of the Board of Directors) by the fair market value of the shares
      on
      the grant date ( *pro
      rata* in the
      case the director served for less than the entire year prior to such grant
      date).





*New
      Director*





In
      July
      2006, the Company’s board of directors appointed Robert Baron as a non-executive
      member of its board of directors.








9.
            SUBSEQUENT
                EVENTS:





*Second
      Notice to Class A Warrant Holders and Exercise of Class A
      Warrants*





On
      or
      around September 7, 2006, subsequent to the quarter end, the Company sent a
      notice to all holders of its outstanding Class A Warrants notifying them that
      the Company has reduced the exercise price on all of its Class A Warrants,
      of
      which there were 12,950,000 outstanding, to $0.01 for a period of 45 days.
      At
      the end of such 45 day period, the exercise price of the Class A Warrants will
      reset to its current price of $0.03 per share. The dividend expense, if any,
      on
      account of reduction of the exercise price of the warrants will be accounted
      in
      the next quarter. Subsequent to the end of quarter ended August 31, 2006,
      holders of all of the remaining Class A Warrants have exercised their warrants
      on a cashless basis and the Company issued an aggregate of 10,281,053 shares
      of
      Common Stock to such holders. These transactions were consummated in reliance
      upon the exemption from registration set forth in Section 4(2) of the Securities
      Act of 1933, as amended.




-15-





*Pohang
      University License Agreement*





Subsequent
      to the quarter end, the Company entered into a technology license agreement
      with
      Pohang University of Science and Technology effective as of September 11, 2006.
      Pursuant to this license agreement, the Company was granted the exclusive
      world-wide right, subject to certain contractually-defined limitations, to
      use
      the licensed technology and rights for commercial purposes in the field of
      use
      of detecting targeted agents for Homeland Security and Environmental Protection
      Agency applications. The licensed technology and rights relate to the
      development of carbon nanotube sensor platforms that the Company intends to
      deploy in sensor devices. The license agreement has a term of 15 years or the
      duration of the patent rights licensed, whichever is longer. In consideration
      of
      the licenses granted, the Company agreed to pay the licensor an up-front cash
      license fee and will pay royalties based on a percentage of the adjusted gross
      sales derived from commercial applications of the licensed technologies.
      Commencing in 2008 and for the duration of the term of the agreement, the
      Company will be obligated to pay the licensor an annual minimum fee, which
      fee
      may be offset by the earned royalties. The licensor has the right to terminate
      the license agreement or render the license non-exclusive after three years
      from
      the effective date if the Company has not commenced the commercialization of
      the
      licensed technology or is not demonstrably engaged in a research, development,
      manufacturing, marketing or sublicensing program directed toward such end.
      The
      licensor may also exercise such rights in the event the Company does not cure
      a
      material default of its obligations under the license agreement.





*Release
      of Additional Funds from Escrow*





Effective
      October 12, 2006, the holders of $200,000 of units sold in the Company’s recent
      private placement agreed to waive the escrow conditions applicable to such
      units
      and released $200,000 of funds from escrow to us as of such date. Accordingly,
      we issued these holders an aggregate of 20,000,000 shares of common stock and
      warrants to purchase 20,000,000 shares of common stock exercisable for a period
      of five years at a per share exercise price of $0.04. In addition, we paid
      additional commissions of $20,000 to the selling agents in the private placement
      and issued them 4,000,000 Agent Warrants. Each
      Agent Warrant is to be issued to the Selling Agent for $.0001 and the warrant
      is
      exercisable into one common share and one warrant at $.01 each. The additional
      warrant is further convertible into common shares at $.01 each. Both warrants
      are exercisable for five years.




-16-


**FACTORS
      THAT MAY AFFECT FUTURE RESULTS**





*This
      report contains forward-looking statements within the meaning of Section 27A
      of
      the Securities Act of 1933, as amended, and Section 21E of the Securities
      Exchange Act of 1934, as amended. These forward-looking statements include,
      but
      are not limited to, statements concerning our plans to continue development
      of
      our current product candidates; address certain markets; engage third-party
      manufacturers; and evaluate additional product candidates for subsequent
      commercial development. In some cases, these statements may be identified by
      terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of
      such terms and other comparable terminology. Although we believe that the
      expectations reflected in the forward-looking statements contained herein are
      reasonable, we cannot guarantee future results, levels of activity, performance
      or achievements. These statements involve known and unknown risks and
      uncertainties that may cause our or our industry’s results, levels of activity,
      performance or achievements to be materially different from those expressed
      or
      implied by forward-looking statements. Factors that may cause or contribute
      to
      such differences include, among other things, those discussed under the captions
      “Business,” “Risk Factors” and “Management’s Discussion and Analysis-Plan of
      Operation” in our reports and registration statements filed with the Securities
      and Exchange Commission.*




Unless
      the context requires otherwise, references in this Quarterly Report to
“NanoSensors”, “the Company”, “we”, “our” and “us” refer to NanoSensors, Inc.





**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**





*Management’s
      Discussion and Analysis of Financial Condition and Results of Operations should
      be read together with our financial statements and related notes included
      elsewhere in this Quarterly Report on Form 10-QSB. This Quarterly Report on
      Form
      10-QSB, including the following discussion, contains trend analysis and other
      forward-looking statements within the safe harbor provisions of the Private
      Securities Litigation Reform Act of 1995. Any statements in this Quarterly
      Report on Form 10-QSB that are not statements of historical facts are
      forward-looking statements. These forward-looking statements are based on a
      number of assumptions and involve risks and uncertainties. Actual results may
      differ materially from those set forth in such forward-looking statements as
      a
      result of factors set forth elsewhere in this Quarterly Report on Form 10-QSB.
      All share and per share data in this section, as well as in the entire report,
      unless otherwise noted, give retroactive effect to the 10 for 1 forward split
      declared by us on January 12, 2006.*





**Critical
      Accounting Policies**





In
      December 2001, the Securities and Exchange Commission requested that all
      registrants discuss their “critical accounting policies” in management’s
      discussion and analysis of financial condition and results of operations. The
      SEC indicated that a “critical accounting policy” is one that is both important
      to the portrayal of the company’s financial condition and results and that
      requires management’s most difficult, subjective or complex judgments. Such
      judgments are often the result of a need to make estimates about the effect
      of
      matters that are inherently uncertain. NanoSensors’ believes that other than the
      adoption of SFAS No. 123 (revised 2004,) “Share-Based Payment and the accounting
      policy related to Warrants and Freestanding Derivative Financial Instruments:,
      there have been no significant changes during the nine months ended August
      31,
      2006 to the items that were disclosed as our significant accounting policies
      in
      Note 2 of our Annual Report on Form 10-KSB for November 30, 2005. We currently
      believe the following accounting policies to be critical:





*Development
      Stage Company*





NanoSensors
      is considered to be in the development stage as defined in Statement of
      Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by
      Development Stage Enterprises.” NanoSensors has devoted substantially all of its
      efforts to business planning, research and development, recruiting management
      and technical staff, acquiring operating assets and raising capital.





*Start-up
      Costs*





In
      accordance with the American Institute of Certified Public Accountants Statement
      of Position 98-5, “Reporting on the Costs of Start-up Activities”, we expense
      all costs incurred in connection with the start-up and organization of
      NanoSensors.




-17-





*Research
      and Development*





Research
      and development costs are related primarily to our developing early prototypes.
      Research and development costs are expensed as incurred.





*Income
      Taxes*





The
      income tax benefit is computed on the pretax loss based on current tax law.
      Deferred income taxes are recognized for the tax consequences in future years
      of
      differences between the tax basis of assets and liabilities and their financial
      reporting amounts at each year-end based on enacted tax laws and statutory
      tax
      rates. No benefit is reflected for the nine and three-months ended August 31,
      2006 due to the uncertainty of its future use.





*Accounting
      for Warrants and Freestanding Derivative Financial Instruments*





NanoSensors
      evaluates its warrants and other contracts to determine if those contracts
      or
      embedded components of those contracts qualify as derivatives to be separately
      accounted for under Statement of Financial Accounting Standards 133 “Accounting
      for Derivative Instruments and Hedging Activities” (“FAS 133”) and related
      interpretations including EITF 00-19 “Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”
(“EITF 00-19”).  If the warrant is determined to be a derivative, the fair
      value of the warrants is marked-to-market each balance sheet date and recorded
      as a liability. The change in fair value of the warrants is recorded in the
      Statement of Operations as other income or expense. Upon conversion or exercise
      of a derivative instrument, the instrument is marked to fair value at the
      conversion date and then that fair value is reclassified to equity. Equity
      instruments that are initially classified as equity that become subject to
      reclassification under FAS 133 are reclassified to liability at the fair value
      of the instrument on the reclassification date. In the event that the warrants
      are determined to be equity, no value is assigned for financial reporting
      purposes.





The
      valuation of the warrant liability is based on a Black Scholes model, and may
      vary significantly based on factors such as the exercise price, remaining time
      left to exercise the warrants, recent volatility (change) in the price of our
      common stock, risk free interest rate and the market price of our common stock.





*Non-employee
      Compensation*





NanoSensors
      measures compensation expense for its non-employee stock-based compensation
      under FASB 123 and the Financial Accounting Standards Board (FASB) Emerging
      Issues Task Force (EITF) Issue No. 96-18, "Accounting for Equity Instruments
      that are Issued to Other Than Employees for Acquiring, or in Conjunction with
      Selling, Goods or Services". The fair value of the options and warrants issued
      is used to measure the transaction, as this is more reliable than the fair
      value
      of the services received. The fair value is measured as the value of the options
      and warrants on the earlier of the date that the commitment for performance
      by
      the counterparty has been reached or the counterparty's performance is complete.
      The fair value of the equity instrument is charged directly to compensation
      expense and credited to additional paid-in capital.





The
      valuation of the options and warrants is based on a Black Scholes model, and
      may
      vary significantly based on factors such as the exercise price, remaining time
      left to exercise the warrants, recent volatility (change) in the price of our
      common stock, risk free interest rate and the market price of our common stock
      on the date of vesting.





*Stock
      Based Compensation: Employees & Directors*





Effective
      March 1, 2006, NanoSensors adopted the fair value recognition provisions of
      SFAS
      No. 123 (Revised 2004), “Share-Based Payment,”. The fair value of stock
      options granted is determined using the Black-Scholes option-pricing formula
      and
      a single option award approach. This fair value is then amortized on a
      straight-line basis over the requisite service periods of the awards, which
      is
      generally the vesting period. NanoSensors
      has granted options to employees and directors during the quarter ended August
      31, 2006, which are subject to shareholder approval. These options will be
      accounted for when approved. See Note 3 to the financial statements. Except
      for
      these options, NanoSensors has not granted any other options to its employees
      or
      directors.




-18-





**Results
      of Operations for the Three Months Ended August 31, 2006 as Compared to the
      Three Months Ended August 31, 2005.**





For
      the
      three months ended August 31, 2006 and August 31, 2005, we did not have sales.
      We are still in the development stage. During the three months ended August
      31,
      2006, our total costs and expenses increased 532% to $221,136, whereas for
      the
      three months ended August 31, 2005, we recorded total costs and expenses of
      $34,944. Our increase in total costs and expenses primarily resulted from
      consulting fees paid to our Technical Advisory Board, Dr. Ted Wong, and one
      other consultant, along with the license fee we paid to Michigan State
      University, and increases in legal and accounting fees.





Research
      and development expenses for the three months ended August 31, 2006, increased
      to $30,200, whereas for the three months ended August 31, 2005, we did not
      record any expenses. All research and development costs are expensed as
      incurred. They are primarily incurred in connection with technology development.





Depreciation
      and amortization expense for the three month periods ended August 31, 2006
      and
      August 31, 2005 were $884 and $5,150 respectively, and mainly related to the
      license granted by our former Chief Scientist (the “Axiom License”) in 2005.
      There was no amortization expense related to the Axiom License in 2006 as the
      value of the license was written off during 2005.





Other
      Income and Expense for the three month period ended August 31, 2006 was
      $(2,755,437), whereas for the three months ended August 31, 2005, we did not
      record any Other Income and Expense. We recorded $2,737,107 as expense related
      to the fair value of liability of the warrants we issued to investors and
      placement agents (See Note 4 to Financial Statements). For the three month
      period ended August 31, 2006 we had Interest Income of $3,170 whereas for the
      three months ended August 31, 2005, we did not record any Interest Income.
      For
      the three month period ended on August 31, 2006 we incurred Interest Expense
      of
      $21,500 in connection with 500,000 warrants we issued to the investor from
      our
      November 2005 private offering (See Part II. Other Information, Item 2. Warrant
      Issuances). We issued these warrants pursuant to the liquidated damages penalty
      provision of the subscription agreement entered into between us and the
      investor. For the three months ended August 31, 2005 we did not incur any
      interest expense.





**Results
      of Operations for the Nine Months Ended August 31, 2006 as Compared to the
      Nine
      Months Ended August 31, 2005.**





For
      the
      nine months ended August 31, 2006 and August 31, 2005, we did not have sales.
      We
      are still in the development stage. During the nine months ended August 31,
      2006, our total costs and expenses increased 101 % to $351,582, whereas for
      the
      nine months ended August 31, 2005, we recorded total costs and expenses of
      $175,219. The majority of our costs and expenses for the nine months ended
      August 31, 2006, resulted from consulting fees paid to our Technical Advisory
      Board, Dr. Ted Wong and one other consultant, along with the license fee we
      paid
      to Michigan State University, and increases in legal and accounting fees. For
      the nine months ended August 31, 2005 the majority of our expenses were for
      research and development.





Research
      and development expenses for the nine months ended August 31 2006 was $30,200,
      as compared with $101,788 for the nine months ended August 31, 2005. All
      research and development costs are expensed as incurred. We anticipate that
      we
      will increase our research and development spending over the next two quarters
      in light of receipt of additional funds from the private financing described
      below.





Depreciation
      and amortization expense for both the nine month periods ended August 31, 2006
      and August 31, 2005 were $2,517 and $15,450 respectively, and mainly related
      to
      the Axiom License in 2005. There was no amortization expense related to the
      Axiom License in 2006 as the value of the license was written off during
      2005





Other
      Income and (Expense) for the nine month period ended August 31, 2006 was
      $(4,259,639), whereas for the nine months ended August 31, 2005, we did not
      record any Other Expense. We recorded $4,241,344 as expense related to the
      fair
      value of liability of the warrants we issued to investors and placement agents
      (See Note 4 to Financial Statements). During the nine months ended August 31,
      2006 and August 31, 2005 we had Interest Income of $3,205 and $4, respectively.
      For the nine month period ended on August 31, 2006 we incurred Interest Expense
      of $21,500 in connection with 500,000 warrants we issued to the investor from
      our November 2005 private offering. (See Part II. Other Information, Item 2.
      Warrant Issuances). We issued these warrants pursuant to the liquidated damages
      penalty provision of the subscription agreement entered into between us and
      the
      investor. We did not incur any interest expense for the nine months ended August
      31, 2005.




-19-





**Liquidity
      and Capital Resources at August 31, 2006**





We
      do not
      have an operating line of credit from a financial institution and consequently
      relied on financing from investors to support our operations. As of August
      31,
      2006, we had unrestricted cash on hand of $290,474, as compared with $191,940
      on
      deposit at November 30, 2005.





The
      following is a summary of our cash flows from operating, investing, and
      financing activities for the periods presented:


***Nine
                months ended August 31,*****2006**
            
            **2005****Operating
                activities**
            
            $
            (547,710
            )
            $
            (50,658
            )**Investing
                activities**
            
            
            (6,332
            )
            
            0.00**Financing
                activities**
            
            
            652,576
            
            
            37,100**Net
                effect on cash**
            
            $
            98,534
            
            $
            (13,558
            )








Our
      operations have been limited in light of our need for additional financing. On
      November 10, 2005, we closed on an offering of 250,000 units, or an aggregate
      of
      $250,000, with each Unit consisting of ten shares of common stock, par value
      $.001 and one five year warrant expiring on November 30, 2010, to purchase
      ten
      shares of Common Stock at an exercise price of $.225 per share. As consideration
      for acting as financial consultant to us in this offering, Meyers Associates,
      L.P. received a lump sum financial advisory fee of $10,000 plus reimbursement
      of
      certain reasonable expenses in lieu of any and all other compensation which
      had
      been due under the Placement Agent Agreement dated April 2004. The $225,000
      of
      net proceeds are being used for working capital including the Chief Executive
      Officer’s salary and payment of certain past due accounts payable.





During
      the quarter ended February 28, 2006, we issued 500,000 shares of common stock
      on
      the exercise of warrants at $0.025 per share for proceeds of $12,500, and
      another 900,000 shares of common stock on the exercise of warrants at $0.03
      per
      share for proceeds of $27,000.





Our
      available funds resulted from a private placement of units that commenced on
      May
      11, 2006. In June 2006, we completed this private placement and raised gross
      proceeds of $1,729,500 from the sale of a total number of units consisting
      of
      172,950,000 shares of common stock and five-year warrants to purchase
      172,950,000 shares of common stock at an exercise price of $0.04 per share.
      Each
      unit was sold at a price of $50,000. As of August 31, 2006, however, $915,000
      was being retained in escrow until we satisfy certain post-closing covenants,
      including the effectiveness of its registration statement which was filed on
      August 1, 2006 and obtaining shareholder approval to increase our authorized
      capitalization. Accordingly, as of August 31, 2006, the aggregate offering
      proceeds released to us was $814,500, and the net proceeds to us, after payment
      of expenses and commissions, was approximately $613,000. (Please see the
      discussion provided in Note 4 to the financial statements included with this
      Quarterly Report and Item 2 of Part II of this Quarterly Report on Form 10-QSB
      for additional information regarding this financing.) As described in greater
      detail in Item 5 of Part II of this Quarterly Report on Form 10-QSB, as of
      October 12, 2006, an additional $200,000 of gross proceeds was released to
      us
      from escrow.





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the settlement of liabilities
      and commitments in the normal course of business. We recognized a net loss
      of
      $334,125 for Fiscal 2005 and a net loss of $  2,976,573
      and $4,611,221 **** for
      the
      three and nine month period ended August 31, 2006. Excluding the amount of
      the
      change in Fair Value of Warrant Liabilities, we had a net loss of $239,466
      and
      $369,877, respectively. The Auditor’s Report in our Annual Report on Form 10-KSB
      for the year ended November 30, 2005 includes an explanatory paragraph which
      states that due to history of operating losses, as we have not yet commenced
      commercial operations and based on our needs for additional funds in Fiscal
      2006
      for our planned activity and to service debt, there is a substantial doubt
      about
      our ability to continue as a going concern. See Note 2 of Notes to 2005
      Financial Statements.




-20-





We
      suspended most of our operations during Fiscal 2005 until we were able to obtain
      additional financing of $250,000 in November 2005. Management believes that
      after closing its most recent private placement, that commenced on May 11,
      2006,
      it has sufficient funds on hand to incur its current level of general and
      administrative expenses to enable the company to pursue its business strategy.
      However, as described in detail below, based on our current unrestricted cash
      balance, we believe that we will only be able to satisfy working capital
      requirements for the next two months without any revenues and/or the release
      of
      the balance of the proceeds from our private placement ($915,000) currently
      held
      in escrow.





We
      had a
      working capital deficit of $218,647 at November 30, 2005 and $4,674,150 at
      August 31, 2006. Excluding the liability for warrants accounted for as a
      derivative, our net working capital is $98,820 at August 31, 2006. We have
      funded our business throughout the development stage primarily through equity
      and convertible debt investments from accredited investors.





To
      date,
      we have not invested in derivative securities or any other financial instruments
      that involve a high level of complexity or risk. We plan to invest any excess
      cash in investment grade interest bearing securities.





**Plan
      of Operation**





Including
      the funds raised in our recent private placement, we believe that we will meet
      working capital requirements with the cash on hand as of August 31, 2006 for
      only the next two months without any revenues and/or the release of the proceeds
      ($915,000) currently held in escrow in connection with our most recent private
      placement (see Note 4 to Financial Statements). Effective October 12, 2006,
      the
      holders of $200,000 of units sold in our recent private placement agreed to
      waive the escrow conditions and release $200,000 of funds from escrow to us.
      We
      will need to raise additional funds from debt or equity funding sources in
      order
      to produce other products currently in development. Furthermore, we also intend
      to seek financing from U.S. government agencies, such as Department of Homeland
      Security and Defense Advanced Research Projects Agency (DARPA). Management
      believes that contractors and systems integrators to the government may be
      sources of funding in exchange for obtaining marketing rights from us for these
      sensor technologies so that other companies may bear the cost of product
      development, marketing, manufacturing and sales. If additional funds are
      required earlier than anticipated or in any event, there can be no assurance
      that we will be able to obtain such funds, if at all, and on a basis deemed
      acceptable to us.





We
      expect
      that our operating and administrative expenses will increase, primarily in
      travel, salary and fees paid to outside consultants and professional service
      firms. The increased travel will be required as we increase our efforts to
      develop marketable products. Accordingly, si nce
      the
      closing of our recent private placement, we have begun to increase our levels
      of
      operations in order to acquire technology assets and to increase our product
      research and development activities. As previously reported, we have established
      a technology advisory board in order to assist us in identifying patented or
      patent-pending technologies at universities and government laboratories. We
      have
      also recently retained marketing and technical consultants to assist us in
      our
      product and market development activities.





Further,
      we have recently entered into technology license agreements with Michigan State
      University and Pohang University of Science and Technology in order to acquire
      rights to technology that we expect to deploy in commercial sensor devices
      based
      on nanoporous silicon and carbon nanotube platforms. We are currently engaged
      in
      product design and testing activities concerning these recently licensed
      technologies. Pursuant to these license agreements, we agreed to pay each of
      the
      licensors an up-front cash fee of $20,000 and will pay these licensors royalties
      of 5% of the adjusted gross sales derived from commercial applications of the
      licensed technologies. In addition, commencing in 2008, we will be obligated
      to
      pay each of the licensors an annual minimum payment of $10,000, which obligation
      increases during the term of the agreement up to a maximum of $30,000, which
      payment may be offset by the earned royalties.





Except
      for our office lease and employment agreements (see Note 7 to Financial
      Statements) we do not have any significant commitments for capital expenditures
      other than the royalty obligations discussed above. ****  In
      view
      of our early stage of development, there is no assurance that we will perform
      in
      accordance with our plan of operation, or that we will continue as a going
      concern or that we will ultimately achieve profitable operations.





**ITEM
      3. CONTROLS AND PROCEDURES**





*Disclosure
      Controls*





Management,
      including our President, Chief Executive Officer and Chief Financial Officer,
      has evaluated the effectiveness of our disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the
      period covered by this report. Based upon that evaluation, the President, Chief
      Executive Officer and Chief Financial Officer concluded that the disclosure
      controls and procedures were effective to provide reasonable assurance that
      information required to be disclosed in the reports that we file and submit
      under the Exchange Act is (i) recorded, processed, summarized and reported
      as
      and when required and (ii) accumulated and communicated to our management,
      including our principal executive officer and principal financial officer,
      as
      appropriate to allow timely discussions regarding disclosure. In designing
      and
      evaluating the disclosure controls and procedures, management recognized that
      any controls and procedures, no matter how well designed and operated, can
      provide only reasonable assurance of achieving the desired control objectives,
      and management is required to apply its judgment in evaluating the cost-benefit
      relationship of possible controls and procedures.




-21-




*Internal
      Controls*




During
      the quarter ended August 31, 2006, we entered into an employment agreement
      with
      Josh Moser to serve as our Vice President and Chief Operating Officer and also
      appointed Robert Baron to serve on our board of directors. We believe that
      the
      addition of these individuals to our management structure will improve our
      internal control over financial reporting by providing additional oversight
      of
      our operations and independence on our board. We will continue to implement
      additional measures in response to specific accounting and reporting weaknesses,
      including further personnel and organizational changes to improve supervision
      and increased training for finance and accounting personnel. Except for the
      improvements described above, there have been no other changes in the internal
      control over financial reporting during the quarter ended August 31, 2006 that
      have materially affected, or are reasonably likely to materially affect, our
      internal control over financial reporting.




We
      do not
      expect that internal controls over financial reporting will prevent all errors
      or all instances of fraud. A control system, no matter how well designed and
      operated, can provide only reasonable, not absolute, assurance that the control
      system’s objectives will be met. Further, the design of a control system must
      reflect the fact that there are resource constraints, and the benefits of
      controls must be considered relative to their costs. Because of the inherent
      limitations in all control systems, no evaluation of controls can provide
      absolute assurance that all control issues and instances of fraud, if any,
      within its company have been detected. These inherent limitations include the
      realities that judgments in decision-making can be faulty, and that breakdowns
      can occur because of simple error or mistake. Controls can also be circumvented
      by the individual acts of some persons, by collusion of two or more people,
      or
      by management override of the controls. The design of any system of controls
      is
      based in part upon certain assumptions about the likelihood of future events,
      and any design may not succeed in achieving its stated goals under all potential
      future conditions. Over time, controls may become inadequate because of changes
      in conditions or deterioration in the degree of compliance with policies or
      procedures. Because of the inherent limitation of a cost-effective control
      system, misstatements due to error or fraud may occur and not be detected.





**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS.**





Except
      as
      set forth below, we are not a party to any legal proceedings.





On
      March
      15, 2006, NanoSensors, Inc. commenced a commercial arbitration before the
      American Arbitration Association against Mathew Zuckerman, a co-founder, former
      Chief Scientist and officer of the company and his affiliated consulting firm
      Axiom Corporation (collectively, “Zuckerman”). Pursuant to a license agreement
      entered into between us and Zuckerman, NanoSensors was granted an exclusive
      worldwide perpetual license to Zuckerman’s technology. Notwithstanding the
      parties’ termination of a Consulting Agreement entered into between them in
      March 2005, the perpetual License Agreement remained in effect and we retained
      all rights to the technology. NanoSensors has commenced the arbitration
      proceeding to seek injunctive relief barring future violations of the License
      Agreement, disgorgement of all NanoSensors stock previously issued to Zuckerman,
      monetary damages of $5 million and disgorgement of all fees earned by Zuckerman
      from dealings with third parties using the license. The parties entered into
      a
      Settlement Agreement and Release on April 20, 2006. Under the terms of this
      Settlement Agreement and Release, we agreed to pay Zuckerman $32,391 for
      consulting fees previously owed. On July 25, 2006 we paid Zuckerman
      $32,391.





In
      addition, we may be subject to other claims and litigation arising in the
      ordinary course of business. Our management considers that any liability from
      any reasonably foreseeable disposition of such other claims and litigation,
      individually or in the aggregate, would not have a material adverse effect
      on
      our consolidated financial position, results of operations or cash flows.




-22-





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**





*Warrant
      Issuances*





During
      the quarter ended August 31, 2006, we issued warrants exercisable for 1,000,000
      shares of our common stock to each of the five consultants that we appointed
      to
      our technical advisory board, and to a consultant we engaged to provide us
      with
      internal accounting services. The warrants are exercisable for a period of
      five
      years at a per share exercise price based on our closing price per share on
      the
      date each agreement was executed. These warrants vest on a monthly basis over
      a
      twenty-four month period. These
      warrants were issued in reliance upon the exemption from registration set forth
      in Section 4(2) of the Securities Act of 1933, as amended and the
      securities were issued without any form of general solicitation or general
      advertising .





During
      the quarter ended August 31, 2006, we issued warrants to purchase 500,000 shares
      of our common stock to the investor in our November 2005 financing pursuant
      to
      the liquidated damages penalty provision of the subscription agreement entered
      into between us and the investor. The warrants are exercisable at a per share
      exercise price of $0.01 and are exercisable for a period of five years. These
      warrants were issued in reliance upon the exemption from registration set forth
      in Section 4(2) of the Securities Act of 1933, as amended and the
      securities were issued without any form of general solicitation or general
      advertising .





Subsequent
      to our quarter end, we issued warrants exercisable for 2,000,000 shares of
      our
      common stock to Accrescent
      Research to assist in the development of marketing and business
      strategies .
      These
      warrants are exercisable at a per share exercise price based on our closing
      price per share on the date that the consultant was engaged and vest on a
      monthly basis over a twenty-four month period. These
      warrants were issued in reliance upon the exemption from registration set forth
      in Section 4(2) of the Securities Act of 1933, as amended and the
      securities were issued without any form of general solicitation or general
      advertising .





*Warrant
      Exercises*





During
      the quarter ended August 31, 2006, holders of 13,650,000 Class A warrants
      exercised those securities, on a cashless basis, at reduced exercise price
      of
      $0.01, pursuant to which we issued a total of 11,884,281 shares of common stock.
      In addition, a holder of 500,000 Bridge warrants exercised securities on a
      cashless basis, at an exercise price of $0.025, pursuant to which we issued
      a
      total of 386,364 shares of common stock. These transactions were consummated
      in
      reliance upon the exemption from registration set forth in Section 4(2) of
      the
      Securities Act of 1933, as amended.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES.**





None





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





None





**ITEM
      5. OTHER INFORMATION.**





*Warrant
      Exercises*





Subsequent
      to the end of the quarter ended August 31, 2006, holders of an aggregate of
      12,950,000 Class A warrants exercised those securities, on a cashless basis,
      at
      an exercise price of $0.01, pursuant to which the Company issued a total of
      10,281,053 shares of common stock. These transactions were consummated in
      reliance upon the exemption from registration set forth in Section 4(2) of
      the
      Securities Act of 1933, as amended.





*Release
      of Funds from Escrow*





Effective
      October 12, 2006, the holders of $200,000 of units sold in our recent private
      placement agreed to waive the escrow conditions applicable to such units and
      released $200,000 of funds from escrow to us as of such date. Accordingly,
      we
      issued these holders an aggregate of 20,000,000 shares of common stock and
      warrants to purchase 20,000,000 shares of common stock exercisable for a period
      of five years at a per share exercise price of $0.04. In addition, we paid
      additional commissions of $20,000 to the selling agents in the private placement
      and issued them unit purchase warrants to purchase 4,000,000 units of our
      securities, consisting of 4,000,000 shares of common stock and 4,000,000
      warrants. The unit purchase warrants are exercisable for a period of five years
      at a per unit exercise price of $0.01.




-23-





**ITEM
      6. EXHIBITS.**





The
      following exhibits are filed herewith or incorporated by reference.





Incorporated
                by ReferenceExhibitNumber
            
            Exhibit
                Description
            
            Form
            
            Dated
            
            Exhibit
            
            FiledHerewith4.1
            
            Form
                of Investor Warrant issued in connection with the sale of the Units
                in
                Private Placement
            
            8-K
            
            6/28/06
            
            4.14.2
            
            Form
                of Agent Warrant issued in connection with the sale of the Units
                in
                Private Placement
            
            8-K
            
            6/28/06
            
            4.210.1
            
            Form
                of Securities Purchase Agreement between NanoSensors, Inc. and Investors
            
            8-K
            
            6/28/06
            
            10.110.2
            
            Form
                of Registration Rights Agreement between NanoSensors, Inc. and
                Investors
            
            8-K
            
            6/28/06
            
            10.210.3
            
            Technology
                License Agreement with Michigan State University
            
            
            
            
            
            
            
            X10.4
            
            Technology
                License Agreement with Pohang University of Science and
                Technology
            
            
            
            
            
            
            
            X31.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002
            
            
            
            
            
            
            
            X32.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.
            
            
            
            
            
            
            
            X





-24-


**SIGNATURES**





In
      accordance with Section 13 and 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized, on this October 19, 2006.




**NanoSensors,
                Inc.**By:
            /s/ Ted
              WongTed
                WongPresident,
                Chief Executive Officer and
              Chief
                Financial Officer







-25-