DND (DNDT) 10QSB Quarterly report (small business)

United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-QSB

Quarterly Report of Small Business Issuers under Section 13 or 15(d) of the Securities Exchange Act of 1934

for the Quarterly Period Ended March 31, 2007

Commission File No. 000-51752

DND Technologies, Inc.

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)	84-1405298 (I.R.S. Employer Identification No.)
375 E. Elliot Rd., Bldg. 6 Chandler, Arizona (Address of principal executive offices)	85225 (Zip Code)
Issuer's telephone number, including area code: (480) 892-7020
_________________________________________________________________ (Former name, former address, and former fiscal year, if changed since last report)
The issuer has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) been subject to such filing requirements for the past 90 days. The registrant is not a shell company (as defined in Rule 12b-2 of the Exchange Act).
Number of shares outstanding of each of the issuer's classes of common equity:
Class	Outstanding as of June 25, 2007
Common stock, $0.001 par value	26,234,653
The issuer is not using the Transitional Small Business Disclosure format.

DND TECHNOLOGIES, INC.

Table of Contents

	Page
PART I FINANCIAL INFORMATION	1
Item 1. Consolidated Unaudited Financial Statements	1
Condensed Consolidated Unaudited Balance Sheet	1
Condensed Consolidated Unaudited Statements of Operations	2
Condensed Consolidated Unaudited Statements of Stockholders’ Deficit	3
Condensed Consolidated Unaudited Statements of Cash Flows	4
Notes to Condensed Consolidated Unaudited Financial Statements	5
Item 2. Management's Discussion and Analysis	10
Item 3. Controls and Procedures	20
PART II OTHER INFORMATION	21
Item 5. Other Information	21
Item 6. Exhibits	21
SIGNATURES	22

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements (Unaudited)

DND TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31,
2007	December 31,
(Unaudited)	2006

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	46,238		$	6,206
Accounts receivable, net		259,650			463,307
Inventories, net		464,190			317,677
Prepaid expenses		38,083			31,748
Total current assets		808,161			818,938
PROPERTY AND EQUIPMENT, Net of accumulated depreciation		93,152			103,153
LICENSE AGREEMENTS, Net of accumulated amortization		78,572			83,929
OTHER		21,816			21,816
TOTAL ASSETS	$	1,001,701		$	1,027,836
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable, current portion	$	968,844		$	1,081,176
Capital leases payable, current portion		15,003			14,183
Accounts payable and accrued expenses		1,747,111			1,805,972
Deposits from customers		424,475			115,353
Payables, Lam Research Corporation		3,555,317			3,555,317
License and royalty payable, Axcelis		2,629,049			2,598,523
Amounts due to related party		235,043			276,802
Total current liabilities		9,574,842			9,447,326
LONG TERM LIABILITIES:
Capital leases payable, long term portion		8,277			11,211
STOCKHOLDERS' DEFICIT:
Preferred stock, par value, $.001 per share;
authorized, 10,000,000 shares;
issued and outstanding, -0- shares		-			-
Common stock, par value, $.001 per share;
authorized, 50,000,000 shares;
issued and outstanding, 26,234,653 shares		26,235			26,235
Paid-in capital		2,393,680			2,386,795
Accumulated deficit		(11,001,333	)		(10,843,731	)
Total stockholders' deficit		(8,581,418	)		(8,430,701	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	1,001,701		$	1,027,836

See accompanying notes.

1

DND TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

UNAUDITED

	2007			2006
REVENUE:
Systems and chillers	$	216,883		$	940,867
Parts, assemblies and consumables		388,571			1,015,721
Field service and training		14,594			31,782
Total revenue		620,048			1,988,370
OPERATING EXPENSES:
Cost of revenues		420,661			1,375,354
Reserve for slow moving and obsolete inventory		(69,011	)		(22,636	)
Research and development		32,578			62,830
Sales and marketing, including license fees,
royalties and commissions		90,793			397,950
General and administrative		278,885			477,568
Total operating expenses		753,906			2,291,066
INCOME (LOSS) FROM OPERATIONS		(133,858	)		(302,696	)
OTHER INCOME (EXPENSE):
Interest expense		(23,744	)		(114,327	)
OTHER INCOME (EXPENSE)		(23,744	)		(114,327	)
Income (loss) before income tax expense		(157,602	)		(417,023	)
INCOME TAX					800
NET INCOME (LOSS)	$	(157,602	)	$	(417,823	)
NET INCOME (LOSS) PER COMMON SHARE:
Basic and diluted	$	(.01	)	$	(.02	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING AND SUBSCRIBED:
Basic and diluted		26,234,653			26,234,653

See accompanying notes.

2

DND TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE THREE MONTHS ENDED MARCH 31, 2007

UNAUDITED

	Common Stock				Paid-In Capital		Accumulated Deficit			Total
	Shares		Amount
BALANCE,  JANUARY 1, 2007		26,234,653	$	26,235	$	2,386,795	$	(10,843,731	)	$	(8,430,701	)
ISSUANCE OF STOCK  OPTIONS FOR DIRECTOR COMPENSATION		-		-		6,885		-			6,885
NET (LOSS)								(157,602	)		(157,602	)
BALANCE,  MARCH 31, 2007		26,234,653	$	26,235	$	2,393,680	$	(11,001,333	)	$	(8,581,418	)

See accompanying notes.

3

DND TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

UNAUDITED

	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)	$	(157,602	)	$	(417,823	)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation and Amortization		10,001			18,214
Amortization of licenses		5,357			6,704
Issuance of stock options for director compensation		6,885			19,620
Legal expenses and late fees paid by the issuance of debt		0			80,164
Changes in operating assets and liabilities:
Accounts receivable		203,657			330,467
Inventories		(146,512	)		289,794
Prepaid expenses and other assets		(6,336	)		(101,792	)
Accounts payable and accrued expenses		(28,335	)		(418,991	)
Deposits from customers		309,122			318,749
Amounts due to related parties		(41,759	)		(38,841	)
Net cash provided by operating activities		154,478			86,265
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt		(114,446	)		(302,735	)
Principal payments on debt, related party		0			(21,250	)
Net cash used by financing activities		(114,446	)		(323,985	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		40,032			(237,720	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		6,206			392,298
CASH AND CASH EQUIVALENTS, END OF YEAR	$	46,238		$	154,578

SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	20,760	$	52,768
Cash paid for taxes	$	0	$	0

See accompanying notes.

4

DND TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

UNAUDITED

1. GENERAL

Basis of Presentation andPrinciples of Consolidation - The interim consolidated financial statements of DND Technologies, Inc. and Subsidiaries (the "Company") are condensed and do not include some of the information necessary to obtain a complete understanding of the financial data. Management believes that all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results have been included in the unaudited consolidated financial statements for the interim period presented. Operating results for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007. Accordingly, your attention is directed to footnote disclosures found in the December 31, 2006 Annual Report and particularly to Note 1, which includes a summary of significant accounting policies.

These financial statements are presented on the basis that the Company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company has incurred a loss of approximately $158,000 for the three months ended March 31, 2007. Revenues for the three months ended March 31, 2007 are down approximately 69% from the prior year; the Company has negative working capital of approximately $8,800,000, and is in default on the majority of its term debt. In addition, on March 6, 2006, the Company received a notice of termination of its license agreement with Lam Research Corporation (“Lam”). The termination of the license agreement has impacted sales somewhat but management does not expect the termination to have a long term material impact on sales. The parts purchased pursuant to the Lam Agreement are not typically purchased from Lam, but from certain of the Company's other vendors. The parts that the Company historically purchased directly from Lam are for the support of Rainbow and TCP products, which were not covered by the Lam Agreement. Earlier, Lam entered the refurbishing market directly, which has had some impact on the Company’s revenue. The Company’s most significant cause of revenue reduction during this year, however, is defined by the action which was taken by the Company against Lam. During the second quarter of 2006, the Company filed a lawsuit against Lam as a result of long-standing contract disputes between Aspect and Lam.Management is confident that the complaint is justified, and that the Company has suffered substantial damages.  The lawsuit was removed to federal court and a trial date set in December 2007. The Company’s going concern issue and pending litigation with Lam have impacted the Company’s sales, as certain of the Company’s customers are now reluctant to order systems, believing that there is a risk that any deposit may be lost if the Company is unable to continue operations. This circumstance greatly hampers the Company’s ability to capitalize on the opportunities of a growing market. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or refinancing as may be required, settlement of the Lam lawsuit on terms favorable to the Company, and ultimately to attain profitable operations.

The consolidated financial statements include the accounts of DND Technologies, Inc. and its wholly-owned subsidiaries ASI and ASI Team Asia Ltd. All material inter-company accounts and transactions have been eliminated.

5

Nature of Business and History of Company - DND Technologies, Inc. (the "Company") was organized on May 9, 1997, under the laws of the state of Nevada. The Company operates as a holding company for subsidiary acquisitions. The Company's operating subsidiary is Aspect Systems, Inc. (located in Arizona and Texas; hereinafter referred to as "ASI").

ASI also owns 100% of ASI Team Asia Ltd. ASI Team Asia Ltd. is inactive and has no significant assets or liabilities and has not had any revenue or expenses.

ASI is a supplier of semiconductor manufacturing equipment and also supplies complete after market support of the aforementioned equipment, which currently includes Advanced AutoEtch, Rainbow, and TCP plasma etch systems, plus a variety of plasma etch and strip products manufactured on the ASI MX-1 and ASI MX-10 platforms (formerly Matrix System One and Ten), and the Arista and Arista Dual platforms (formerly Matrix Bobcat and Cheetah). Elements of support include spare parts and assemblies, and various engineering services.

Net Income (Loss) Per Share - Basic income (loss) per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted income per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding plus an assumed increase in common shares outstanding for potentially dilutive securities, which consist of options. Potentially dilutive shares are excluded from the computation in loss periods, as their effect would be anti-dilutive. The dilutive effect of options to acquire common stock is measured using the treasury stock method. The dilutive effect of potentially issuable securities was 4,075,883 shares and 4,639,216 shares for the three months ended March 31, 2007 and 2006, respectively.

Concentration of Risk - Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable.

Concentration of credit risk with respect to trade receivables is limited due to the large number of customers comprising the Company's customer base and their dispersion across different geographic areas. The Company routinely assesses the financial strength of its customers. At March 31, 2007, the Company had three customers whose balances exceeded 10% of gross accounts receivable, at 17%, 14% and 11%, respectively.

Significant Customers - For the three months ended March 31, 2007, the Company had one customer whose revenues exceeded 10% of total revenues (28%). For the three months ended March 31, 2006, the Company had three customers whose revenues exceeded 10% of total revenues (21%, 14% and 11%). Revenues in 2007 and 2006 outside the United States includeEurope 10% and 9%, and Asia 7% and 7%, respectively.

Significant Suppliers - For the three months ended March 31, 2007 and 2006, approximately 0% and 7%, respectively, of gross inventory purchases were purchased from Lam Research Corporation (“Lam”). On March 6, 2006, the Company received a notice of termination of its license agreement with Lam. However, the parts purchased pursuant to the Lam Agreement are not typically purchased from Lam, but from certain of the Company's other vendors. The parts that the Company historically has purchased directly from Lam are for the support of Rainbow and TCP products, which were not covered by the Lam Agreement. On August 1, 2006, Lam notified ASI by letter that it would no longer sell spare parts to ASI due to the pending litigation.

Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and disclosures of contingent assets and liabilities. These estimates and assumptions are based on the Company’s historical results as well as management’s future expectations. The Company’s actual results could vary materially from management’s estimates and assumptions.

6

Disclosure About Fair Value of Financial Instruments - The Company estimates that the fair value of all financial instruments as of March 31, 2007, as defined by FASB 107, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying consolidated balance sheet. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

Recently Issued Accounting Pronouncements - In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 also includes an amendment to SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” which applies to all entities with available-for-sale and trading securities. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company is assessing the impact of SFAS No. 159 and has not determined whether it will have a material impact on its results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” The Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements, and does not require any new fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. The Statement is effective for the fiscal years beginning after November 15, 2007. The Company is assessing SFAS No. 157 and has not determined the impact the adoption of SFAS No. 157 will have on its results of operations or financial position.

Reclassifications - Certain 2006 amounts have been reclassified to conform to 2007 presentations.

2. ACCOUNTS RECEIVABLE

A summary of accounts receivable and allowance for doubtful accounts is as follows:

Accounts receivable	$	286,716
Allowance for doubtful accounts		(27,066	)
Net accounts receivable	$	259,650

7

3. INVENTORIES

A summary of inventories and allowance for obsolescence is as follows:

Parts and materials	$	2,435,800
Work-in-process		106,249
Allowance for obsolescence		(2,077,859	)
Net inventories	$	464,190

4. LICENSE AGREEMENT AND PAYABLES, LAM RESEARCH CORPORATION

The Company is currently in default on its payments due to Lam Research Corporation (“Lam”); accordingly, the full amount has been classified as a current liability in the consolidated balance sheet. On March 6, 2006, the Company was notified that Lam had terminated the agreement. During the second quarter of 2006, the Company filed a lawsuit against Lam as a result of long-standing contract disputes between Aspect and Lam.Management is convinced that the complaint is justified, and that the Company has suffered substantial damages.  The lawsuit was removed to federal court and a trial date set for December 2007. As a result, the Company recognized a full impairment of the license agreement in the amount of $2,705,013 at December 31, 2005. The Company’s going concern issue and pending litigation with Lam have impacted the Company’s sales, as certain of the Company’s customers are now reluctant to order systems from the Company, believing that there is a risk that any deposit may be lost if the Company is unable to continue operations. This circumstance greatly hampers the Company’s ability to capitalize on the opportunities of a growing market.

5. LICENSE AND ROYALTY PAYABLE, AXCELIS TECHNOLOGIES, INC.

In November 2003, the Company entered into an agreement with Axcelis acquiring an exclusive license to all future manufacturing, sales, service, and parts support for certain dry strip semi-conductor manufacturing equipment now marketed under the ASI trade names MX-1 and MX-10 (formerly Matrix System One and System Ten). The agreement provides for the one time payment of a license fee of $150,000 plus 18% of net revenues (from these sales) per quarter until a $2,750,000 fee has been paid and a declining royalty (from 10% down to 2%) on related sales through December 31, 2010.

In August 2004, the Company entered into an additional agreement with Axcelis acquiring an exclusive license to manufacture, sell and provide services and parts support for certain reactive ion etch semiconductor manufacturing equipment for wafer sized up to 200mm now marketed under the ASI trade name Arista and Arista Dual (formerly Matrix Bobcat and Cheetah). The agreement provides for a quarterly payment equal to 18% of net revenues from the sale of this product by the Company, beginning with the fourth quarter of 2004 and ending December 31, 2011, or until $750,000 (the license fee) has been paid, whichever occurs first, and payment of a declining royalty (from 10% down to 2%) on related sales over a period of time that ends December 31, 2011.

The Company is currently in default on its payments; accordingly, the full amount has been classified as a current liability in the consolidated balance sheet.

6. NOTES PAYABLE

The Company's term loan dated May 14, 2004 to Merrill Lynch was renegotiated during July 2006 and again during March 2007. Under the new agreement, the Company is required to make monthly payments, commencing March 2007, in the amount of $24,958 plus interest (at prime + 4%), and a final balloon payment is due April 30, 2007. The loan continues to be secured by a first lien on the Company's total assets ($1,001,701 as of March 31, 2007) and has been guaranteed by Doug Dixon, Chairman and CEO, and the Company.	$	479,494
On July 22, 2005 the Company entered into a Bridge Loan Agreement with Cornell Capital Partners LP (“Cornell”). The loan calls for interest at 12%. On May 1, 2006 the loan was renegotiated, under the new agreement, the Company is required to make 12 monthly payments, commencing May 1, 2006, in the amount of $12,500 to Cornell and a final balloon payment in the amount of $204,107 on May 1, 2007.		200,000
Unsecured demand note due to an individual with interest accruing at 7%		289,350
Total	$	968,844

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

Trade accounts payable	$	666,393
Accrued commissions		120,976
Accrued payroll		181,867
Product warranty provision		203,589
Accrued interest		556,476
Sales and state income taxes payable		17,810
Total Accounts Payable and Accrued Expenses	$	1,747,111

8. MANAGEMENT PLANS

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or refinancing as may be required, and ultimately to attain profitable operations.

Management’s plan to eliminate the going concern situation include, but are not limited to, the renegotiation of payment terms on the Axcelis payable, improved cash flow management, aggressive cost reductions, settlement of the Lam lawsuit on terms favorable to the Company, and the creation of additional sales and profits across its product lines.

8

9. SUBSEQUENT EVENTS

During March 2007, the remaining two employees at the Company’s Texas location were moved to consulting status and are paid on an as needed basis.

During April 2007, the Company became delinquent in rental payments at its Texas location. As such, the landlord is withholding entrance to the location and inventory until such time that the rental payments are current. The inventory in the Texas location is substantially reserved for in our allowance for obsolescence.

During April 2007, three key members of management agreed to defer their salary indefinitely, and another key member of management has agreed to temporarily suspend repayment of debt owed to him by the Company, in order to allow the Company the use of the funds for operational needs.

The Company was unable to pay the final balloon payments due to Cornell and Merrill Lynch as indicated in Note 6. As of the filing date of this report, the Company has not received any demand for payment from either lender.

9

Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

Aspect Systems, Inc., a wholly-owned subsidiary of DND Technologies, Inc., is a global provider of specialized equipment, parts and support services to the semiconductor industry. ASI is the original equipment manufacturer of Advanced AutoEtch equipment previously designed and manufactured by Lam Research Corp. Through exclusive license agreements negotiated with Axcelis Technologies, ASI has also become the original equipment manufacturer of plasma etch and strip products manufactured on the ASI MX-1 and ASI MX-10 (formerly Matrix System One and Ten), and the Arista and Arista Dual (formerly Matrix Bobcat and Cheetah) platforms. Additionally, ASI offers new and refurbished support products including a wide array of sub-assemblies, both consumable and non-consumable repair and process related parts, and remanufactured temperature control units that are designed to maintain critical operating temperatures for the plasma systems. Engineering and training services are also made available to its international customer base. The most significant portion of ASI revenue, however, is normally derived from the marketing and sale of remanufactured Rainbow and TCP plasma etch systems and the ASI MX and Arista system products. ASI has a website located at www.aspectsys.com. Information on this website is not a part of this report.

Even though our cash flow problems caused by significant indebtedness have hampered our ability to fill sales orders, we have observed a significant increase in market demand for our subsidiary's products during the past two years. The global expansion of chip production companies into emerging parts of the world with lower labor costs, particularly China, has caused all semiconductor companies to examine more closely how to reduce costs, including through the extended use of tool sets. This shift toward ways to reduce costs has lent itself to, and our management believes it will continue to lend itself to, increasing demand for the products of companies such as ASI. In 2004 we achieved record revenues, and management believes we could have matched, or exceeded, these revenues in 2005 and into 2006 if our cash flow difficulties had not limited our ability to produce our products. Nevertheless we expect demand for our products to grow unless a significant and prolonged downturn occurs in the semiconductor industry in the future. Our backlog of orders as of March 31, 2007 was approximately $1.3 million.

We continue to strive to manage our cash flow in order to meet the demands of custom orders, debt obligations and expense commitments. Our plan of continuously improving our production and reporting systems will aid in this effort. With expanding revenue comes the related problem of attaining sufficient cash flow to purchase the required parts to assemble our systems. Our business periodically faces significant ongoing cash flow issues particularly when we receive substantial orders because of the amount of time between our purchase of parts, assembly and delivery of products and payment for those products. When equipment orders are postponed or payment from customers is delayed, we are forced to defer repayment of obligations to creditors or service providers and forego additional sales opportunities. We continue to pursue various financing alternatives but have not been successful in obtaining badly needed capital. As a result, our cash flow shortage has caused us to suffer significant shipping delays and loss of revenues from orders we could not fill on a timely basis.

Management's discussion and analysis of financial condition and results of operations are based upon the Company's financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States. These principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on going basis, we evaluate our estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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Critical Accounting Policies and Estimates

In consultation with our Board of Directors, we have identified five accounting principles that we believe are key to an understanding of our financial statements. These important accounting policies require management's most difficult, subjective judgments.

1. Going Concern

These consolidated financial statements are presented on the basis that the Company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company has incurred a loss of approximately $158,000 through March 31, 2007 with sales down approximately 69% from the prior period, has negative working capital of approximately $8,800,000, and is in default on its payments on the majority of its term debt. In addition, on March 6, 2006, the Company received a notice of termination of its license agreement with Lam. Lam has also entered the refurbishing market directly, which has had some impact on the Company’s revenue. Our most significant cause of revenue reduction during this year, however, has resulted from the action which was taken by the Company against Lam. During the second quarter of 2006, the Company filed a lawsuit against Lam as a result of long-standing contract disputes between Aspect and Lam.Management is convinced that the complaint is justified, and that the Company has suffered substantial damages.  The lawsuit was removed to federal court, depositions are scheduled to occur in July 2007, and a trial date has been set in December 2007. The Company's going concern issue and pending litigation with Lam have impacted our sales, as certain of our customers are now reluctant to order systems from us, believing that there is a risk that any deposit may be lost if we are unable to continue operations. This circumstance greatly hampers our ability to capitalize on the opportunities of a growing market. These factors raise substantial doubt as to the Company’s ability to continue as a going concern.

Management’s plans to eliminate the going concern situation include, but are not limited to, the renegotiation of payment terms on the Axcelis debt, improved cash flow management, aggressive cost reductions, and the creation of additional sales and profits across its product lines. In addition, management believes that it will be able to significantly reduce, or eliminate, its payables to Lam based on the outcome of the pending litigation, but there is no assurance that this will occur.

2. Inventory

Inventory is valued at the lower of cost or market. Cost includes raw materials, freight, labor and manufacturing overhead. Inventory with no sales or usage within the prior 12 months and inventory on hand, in excess of a 12-month supply, is considered excessive and slow-moving and, accordingly, fully reserved. We review our inventory reserves on a quarterly basis and adjust them for the full carrying value of obsolete, excessive and slow-moving inventory.

3. License Agreements

The Company has license agreements, which are being amortized using the straight-line method over the life of the contracts with Axcelis Technologies, Inc. ("Axcelis") (7 years).

4. Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable, and collectibility is probable. Sales are recorded net of sales discounts. The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition," ("SAB 104"). Our revenues are recorded under two categories:

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Product sales - The Company recognizes revenue from product sales when the goods are shipped and title passes to its customers.

Service income - The Company recognizes revenue from service income when services are performed.

5. Impairment of Long-Lived Assets

The Company continually reviews the recoverability of the carrying value of long-lived assets using the methodology prescribed in Statement of Financial Accounting Standards (SFAS) 144, "Accounting for the Impairment and Disposal of Long-Lived Assets." The Company also reviews long-lived assets and the related intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Upon such an occurrence, recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows to which the assets relate, to the carrying amount. If the asset is determined to be unable to recover its carrying value, then intangible assets, if any, are written down first, followed by the other long-lived assets to fair value. Fair value is determined based on discounted cash flows, appraised values or management's estimates, depending on the nature of the assets. No impairment was recognized in the three months ended March 31, 2007.

Three Months Ended March 31, 2007 Compared To Three Months Ended March 31, 2006.

Selected Financial Information

	Three Months Ended
	03/31/2007			03/31/2006			Increase (Decrease)
Statements of Operations
Total Revenue	$	620,048		$	1,988,370		$	(1,368,322	)
Cost of Revenue:
Costs of revenues		420,661			1,375,354			(954,693	)
Reserve for slow moving and
obsolete inventory		(69,011	)		(22,636	)		(46,375	)
Research and development		32,578			62,830			(30,252	)
Sales and marketing, including licensing fees, royalties and commissions		90,793			397,950			(307,157	)
General and administrative		278,885			477,568			(198,683	)
Total Operating Expenses		753,906			2,291,066			(1,537,160	)
Income (Loss) from Operations		(133,858	)		(302,696	)		168,838
Other Income (Expense):
Interest Expense		(23,744	)		(114,327	)		90,583
Income (Loss) Before Income Tax Expense		(157,602	)		(417,023	)		259,421
Income Tax Expense		0			800			(800	)
Net Income (Loss)	$	(157,602	)	$	(417,823	)	$	260,221
Net Income (Loss) Per Share
Basic and diluted		(0.01	)		(0.02	)		0.01

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Results of Operations

Our revenue decrease of $1,368,322, or 69%, to $620,048 in the three months ended March 31, 2007 from $1,988,370 in the three months ended March 31, 2006, was primarily due to a decrease in systems/chiller sales of $723,984 and a decrease in the parts, assemblies, and consumables category of $627,150. System sales are down due to the first three months of 2007 having three less system sales than the same period in 2006 and a change in the product mix which resulted in a lower per unit sales price during the first quarter of 2007. The reduction in the number of systems sold was due to a combination of our inability to take new orders due to cash flow problems and delays in filling orders. The decrease in parts, assemblies, and consumables sales is primarily due to our tight cash flow situation and the increased funding needs for system sales. For example, we have had to defer some parts, assemblies, and consumables purchases, and therefore the related sales, to future periods. Our sales break down by segment is as follows:

	March 31, 2007		March 31, 2006		Increase (Decrease)
Systems and chillers	$	216,883	$	940,867	$	(723,984	)
Parts, assemblies and consumables		388,571		1,015,721		(627,150	)
Field service and training		14,594		31,782		(17,188	)
	$	620,048	$	1,988,370	$	(1,368,322	)

Cost of Revenues

Our cost of revenues decreased $954,693 or 69% to $420,661 in the three months ended March 31, 2007 from $1,375,354 in the three months ended March 31, 2006. This decrease is directly related to the 69% decrease in total revenue for the three months ended March 31, 2007. Our cost of revenues as a percentage of revenues for the three months ended March 31, 2007 and 2006 was 68% and 69%, respectively.

Reserve for Slow Moving and Obsolete Inventory

Our reserve for slow moving and obsolete inventory is the change in our analysis of the need for a slow moving and obsolete inventory reserve. Based on our analysis in the three months ended March 31, 2007, we recorded a $69,011 decrease to the reserve due to an analysis of inventory items. In the three months ended March 31, 2006, we recorded a $22,636 decrease to the reserve due to an analysis of inventory items.

Research and Development

Research and development costs decreased $30,252 or 48%, to $32,578 in the three months ended March 31, 2007 from $62,830 in the three months ended March 31, 2006. The decrease is primarily related to $15,241 of product development expenses incurred in 2006. We normally do not incur significant research and development expenses.

Sales and Marketing

Sales and marketing costs decreased $307,157 to $90,793 in the three months ended March 31, 2007 from $397,950 in the three months ended March 31, 2006. This decrease is due to: a) the absence of outside commission expenses during the three months ended March 31, 2007 (these costs were $45,040 during the three months ended March 31, 2006), b) a decrease in payroll and employee benefits in the amount of $71,033 or 61% to $46,612 during the three months ended March 31, 2007 from $117,645 during the three months ended March 31, 2006 as headcount decreased, and c) a decrease of $194,882 to $35,883 in the Axcelis royalty and license expense during the three months ended March 31, 2007 from $230,765 during the three months ended March 31, 2006 which was due to the reduction in sales of Axcelis products.

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General and Administrative

	Three Months Ended
	03/31/2007		03/31/2006		Increase (Decrease)
General and Administrative
Salaries and wages	$	107,391	$	193,986	$	(86,595	)
Professional fees		72,899		147,208		(74,309	)
Occupancy Expense, less amount allocated to Cost of Revenue		59,519		45,751		13,768
Issuance of stock options for director compensation		6,885		19,620		(12,735	)
Depreciation, less amount allocated to Cost of Revenue		513		5,128		(4,615	)
Other general and administrative expenses		31,678		65,875		(34,197	)
Total General and Administrative	$	278,885	$	477,568	$	(198,683	)

Salaries and wages decreased $86,595 or 45% to $107,391 in the three months ended March 31, 2007 as compared to $193,986 in the three months ended March 31, 2006. This decrease is primarily the result of a decrease in general and administrative headcount and management’s decision to not immediately replace the employees.

Professional fees decreased $74,309 or 50%, to $72,899 in the three months ended March 31, 2007 from $147,208 in the three months ended March 31, 2006, primarily due to delayed payments associated with our quarterly filings in the first quarter of 2007 and a reduction in legal expenses associated with the Lam lawsuit as a result of the negotiated contingent legal fee which was agreed upon for this litigation.

Depreciation expense decreased in the three months ended March 31, 2007 primarily due to certain assets becoming fully depreciated and/or retired.

Occupancy expense represents our costs to lease, occupy, and maintain our leased facilities in Arizona and Texas.  These costs, which consist primarily of rent, repair and maintenance, utilities, security, insurance and janitorial services, are allocated between cost of revenue and operating expenses based upon the square footage utilized by each category. Occupancy costs increased due to an adjustment of our common area maintenance expenses at our Texas facility.

Other general and administrative expenses decreased $34,197 or 52%, to $31,678 in the three months ended March 31, 2007 from $65,875 in the three months ended March 31, 2006. The decreased expenses are primarily attributable to decreased expenses related to a smaller employee base during the three months ended March 31, 2007.

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Interest Expense

Interest expense for the three months ended March 31, 2007 ($23,744) has decreased over the comparable period of 2006 ($114,327) by $90,583 due primarily to the repayment of certain loans.

Net Income (Loss)

As a result of the foregoing, we had a net loss of $157,602 for the three months ended March 31, 2007, compared to a net loss of $417,823 for the three months ended March 31, 2006.

Capital Resources

	Three Months Ended
Working Capital	03/31/2007			03/31/2006			Favorable  (Unfavorable)
Current Assets	$	808,161		$	2,979,915		$	(2,171,754	)
Current Liabilities		(9,574,842	)		(10,175,792	)		600,950
Deficit Working Capital	$	(8,766,681	)	$	(7,195,877	)	$	(1,570,804	)
Long-term Debt	$	(8,277	)	$	(23,280	)	$	15,003
Stockholders' (Deficit)	$	(8,581,418	)	$	(6,955,674	)	$	(1,625,744	)

During the three months ended March 31, 2007 and 2006, we were in default of our payment terms on the majority of our term debt. As a result, the approximately $2.5 million of term debt due beyond twelve months was classified as a current liability in the March 31, 2007 consolidated balance sheet.

Included in current liabilities is a total of $2,629,049 that is owed to Axcelis for license and royalty fees.  Also included in current liabilities is a total of $3,555,317 in inventory payments and license and royalty fees owed to Lam. On March 6, 2006, ASI received a termination notice from Lam. During the second quarter of 2006, the Company filed a lawsuit against Lam as a result of long-standing contract disputes between Aspect and Lam.Management is confident that the complaint is justified, and that the Company has suffered substantial damages.  The lawsuit has been removed to federal court and a trial date has been set for December 2007.

On May 1, 2006, we received an agreement from Cornell Capital to extend the repayment terms of their bridge loan agreement. Under the new agreement, we were required to make 12 monthly payments, commencing May 1, 2006, in the amount of $12,500 to Cornell and a final balloon payment in the amount of $204,107 on May 1, 2007. We have not made certain of these required payments nor have we made the balloon payment that was due on May 1, 2007. We are still delinquent, but we continue to make payments as we are able and management intends to continue to make the past due monthly payments in the belief that Cornell will remain patient and willing to work with us toward the eventual satisfaction of this debt, but there can be no assurance that Cornell will not seek immediate repayment of all past due amounts.

The Company's term loan dated May 14, 2004 to Merrill Lynch was renegotiated as a forbearance agreement during March 2007. Under the new agreement, the Company was required to make monthly payments, commencing March 2007, in the amount of $24,958 plus interest (at prime + 4%), and a final balloon payment was due April 30, 2007. The loan continues to be secured by a first lien on the Company's total assets ($808,161 as of March 31, 2007) and has been guaranteed by Doug Dixon, Chairman and CEO, and the Company. We did not make the required balloon payment that was due on April 30, 2007 but continue to make monthly principal payments each month in an amount equal to the monthly payments required under the forbearance agreement. We are in discussions with Merrill Lynch which management believes will result in a further extension of the forbearance agreement for an as yet undefined period into the future, but there can be no assurance that this will occur.

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Statements of Cash Flows Select Information

	Three Months Ended
	03/31/2007			03/31/2006
Net Cash Provided (Used) By:
Operating Activities	$	154,478		$	86,265
Investing Activities		-0-			-0-
Financing Activities		(144,446	)		(323,985	)

Operating Activities

For the three months ended March 31, 2007, cash provided by operating activities of $154,478 was primarily attributed to net loss from operations of $(204,078) offset by a decrease in accounts receivable of $203,657 and an increase in customer deposits of $309,122. These amounts were partially offset by an increase in inventory of $146,512.

For the three months ended March 31, 2006, cash provided by operating activities of $86,265 was primarily attributed to a decrease in accounts receivable in the amount of $330,467, a $289,794 decrease in inventories as well as an increase of $318,749 in customer deposits. These amounts were offset by our net loss of $417,823, our increase of prepaid expenses and other assets in the amount of $101,792, and a reduction in our accounts payable and accrued expenses of $418,991. During the three months ended March 31, 2006, our non-cash reconciling items included depreciation and amortization expense of $18,214 and $6,704, respectively and the issuance of stock options for director compensation in the amount of $19,620. We also paid $80,164 of legal expenses and late fees through the issuance of debt.

Investing Activities

During the three months ended March 31, 2007 and 2006, no cash was used by investing activities.

We currently have no material commitments for capital expenditures.

Financing Activities

Financing activities in the three months ended March 31, 2007 used $114,446 in cash flows as compared to a provision of $323,985 in the three months ended March 31, 2006.

During the three months ended March 31, 2007, we made principal payments in the amount of $114,446 on our long-term debt.

In the three months ended March 31, 2006, $302,735 and $21,250 was used for the repayment of long-term debt and related party debt, respectively.

Liquidity and Capital Resources

To date, we have financed our business with cash from our operating activities, a bank line of credit that has been restructured into a term loan, a loan for $200,000 (which was repaid in March 2005), two additional term loans totaling $525,000 (of which one for $225,000 was paid in January 2006 and as of March 31, 2007, $100,000 has been paid on the other), a $125,000 loan from a related party (which was repaid in July 2006) and three loans totaling $80,000 from a related party (all were taken and repaid in 2006). The Company's term loan dated May 14, 2004 to Merrill Lynch had a balance of $479,494 as of March 31, 2007, and was renegotiated as a forbearance agreement during March 2007. Under the new agreement, the Company was required to make monthly payments, commencing March 2007, in the amount of $24,958 plus interest (at prime + 4%), and a final balloon payment was due April 30, 2007. The loan continues to be secured by a first lien on the Company's total assets ($808,161 as of March 31, 2007) and has been guaranteed by Doug Dixon, Chairman and CEO, and the Company. We did not make the required balloon payment that was due on April 30, 2007 but continue to make monthly principal payments each month in an amount equal to the monthly payments required under the forbearance agreement. We are in discussions with Merrill Lynch which management believes will result in a further extension of the forbearance agreement for an as yet undefined period into the future, but there can be no assurance that this will occur.

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On November 8, 2002, we entered into a non-exclusive license for several of Lam’s patents and other intellectual property, which was later amended on June 25, 2004. The Company and Lam are in mutual default on this agreement and no payments have been made to Lam since 2005.

In November 2003, we entered into an agreement with Axcelis and acquired an exclusive license to all future manufacturing, sales, service, and parts support for certain dry strip semiconductor manufacturing equipment now marketed under the trade names MX-1 and MX-10 (formerly Matrix System One and System Ten). This agreement provides for the one time payment of a license fee of $150,000 plus 18% of net revenues (from these sales) per quarter until a $2,750,000 license fee has been paid. Of the $2,750,000 license fee, approximately $1,927,000 has been expensed and $1,624,000 of the expensed amount remains to be paid. This agreement also calls for a royalty fee to be paid on all related sales through December 31, 2010 on a declining calendar schedule from 10% to 2%; the balance to be paid on this is approximately $823,000.

On August 2, 2004, we entered into an additional agreement with Axcelis acquiring an exclusive license to manufacture, sell and provide services and parts support for certain reactive ion etch semiconductor manufacturing equipment for wafer sizes up to 200mm now marketed under the ASI trade name Arista and Arista Dual (formerly Matrix Bobcat and Cheetah). This agreement provides for a quarterly payment equal to 18% of net revenues from the sale of this product by the Company, beginning with the fourth quarter of 2004 and ending December 31, 2011, or until $750,000 (the license fee) has been paid, whichever occurs first. Of the $750,000 license fee, approximately $117,000 has been expensed and the full amount remains to be paid.This agreement also calls for a royalty fee to be paid on all related sales through December 31, 2011 on a declining calendar schedule from 10% down to 2%; the balance to be paid on this is approximately $64,000.

As of March 31, 2007, we continued to remain past due on certain payments to both Lam and Axcelis. Past due payments to Lam totaled approximately $1,478,000 as of March 31, 2007, and past due payments to Axcelis totaled approximately $2,146,000 on that date. Although our current tight cash flow has prevented these payments from being made, we have assured Axcelis that our delinquent payments will be made as soon as possible and management has no reason to believe as of the date of this filing that Axcelis will terminate any of its agreements with the Company. The Company is in litigation with Lam and management believes that Lam is in breach of its non-exclusive license agreement, and as a result, is seeking to write off the remaining amounts owed to Lam. If the Company is able to write off all or a significant portion of the approximately $3.6 million due under this Agreement, our liquidity would improve. However, there is no assurance that we will be successful in the litigation, or that we will be ultimately able to write off all or part of the associated debt. On August 1, 2006, Lam notified ASI by letter that it would no longer sell spare parts to ASI due to the pending litigation. Management believes that the impact of this will be minimal, as most spare parts can be obtained from sources other than Lam, but there are a few spare parts that can only be obtained from Lam.

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On July 22, 2005, we entered into a promissory note with Cornell Capital for $300,000. The loan originally called for interest to accrue at 12% with payments in the amount of $20,000 to be made weekly beginning October 21, 2005 and with the final payment of $34,121 due on January 27, 2006. On May 1, 2006, we received an agreement from Cornell to extend the repayment terms of the bridge loan agreement. Under the new agreement, we are required to make 12 monthly payments, commencing May 1, 2006, in the amount of $12,500 to Cornell and a final balloon payment in the amount of $204,107 on May 1, 2007. We have not made certain of these required payments nor have we made the balloon payment that was due on May 1, 2007. We are still delinquent, but we continue to make payments as we are able and management intends to continue to make the past due monthly payments in the belief that Cornell will remain patient and willing to work with us toward the eventual satisfaction of this debt, but there can be no assurance that Cornell will not seek immediate repayment of all past due amounts.

The Company's current tight cash flow and the previously stated effects of the lawsuit filed against Lam have prevented us from making required payments on the majority of our debt. As of March 31, 2007, our total debt of approximately $7,200,000 is comprised of approximately $3,600,000 owed to Lam, $2,600,000 owed to Axcelis, $480,000 owed to Merrill Lynch, $200,000 owed to Cornell Capital Partners and $289,000 owed to a related party.

Our future cash requirements and the adequacy of available funds will depend on many factors, including the pace at which we expand our business generally, and our inventory in particular, the general state of the economy, which impacts the amount of money that may be spent for computer related purchases, and maintaining sufficient gross profit margins to service our substantial indebtedness. As of March 31, 2007, we had $46,238 in cash on hand.   Our amount of cash on hand can vary significantly from day-to-day due to the nature of our business, which consists of significant cash expenditures to purchase the parts and components needed to assemble the systems that comprise the majority of our revenues and an often significant delay between these expenditures and payment from our customers for the systems, which does not occur until after delivery. As a result, we manage our cash flow closely to meet our required production shipping dates, debt obligations and expense commitments, and will continue to do so until we have either established a cash reserve large enough to self finance the cost of producing systems in advance of receiving any payments or have outside financing to accomplish the same result. Our debt obligations remain a priority in our cash flow planning, and we do not have plans or commitments for significant capital expenditures in the near future.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

The Company's Form 10-KSB, any Form 10-QSB or any Form 8-K of the Company or any other written or oral statements made by or on behalf of the Company may contain forward-looking statements which reflect the Company's current views with respect to future events and financial performance. The words "believe," "expect," "anticipate," "intends," "estimate," "forecast," "project," and similar expressions identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services, developments or industry rankings; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.Such "forward-looking statements" are subject to risks and uncertainties set forth from time to time in the Company's SEC reports and are generally set forth below and particularly discussed in the Company's Form 10-KSB for the year ended December 31, 2006.

Readers are cautioned not to place undue reliance on such forward-looking statements as they speak only of the Company's views as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Risk Factors

You should consider the following discussion of risks as well as other information regarding our operations. The risks and uncertainties described below are not the only ones. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

·   Lam has terminated its agreement with us and we have filed suit against Lam. There is no assurance that we will be successful in the litigation, or that we will ultimately be able to write off all or part of the associated debt. We are in default on approximately $3,600,000 due to Lam and there can be no assurance that we will not have to pay all or part of this amount.

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

·   We were past due on approximately $2,146,000 in payments to Axcelis as of March 31, 2007. While Axcelis has to date been willing to provide us with additional time to make payments, Axcelis could terminate our license agreements with it upon ninety days written notice. We would have that notice period in which to make the past due payments and avoid termination, although management believes it is unlikely that we could become current on our obligations within 90 days.

·   We are in default on our term loan with Merrill Lynch, which is secured by a first lien on all of our assets.

·   We are in default on our promissory note to Cornell Capital Partners.

·   Our auditors have identified certain weaknesses in our internal control over financial reporting.

·   Future sales of common stock by Cornell Capital Partners and its affiliates may adversely affect our stock price.

·   We depend on Dennis Key, our CFO and CEO of ASI, and his relationships within the semiconductor industry. His loss would seriously disrupt our operations. Our CEO, Douglas Dixon, is gradually decreasing his involvement with the Company in anticipation of retirement. We anticipate that Mr. Key will continue to maintain Mr. Dixon's relationships within the semiconductor industry.

·   Demand for our products is subject to cyclical downturns in the semiconductor industry.

·   We are subject to the risks associated with the intensely competitive and capital-intensive nature of the semiconductor industry, and we may not be able to compete effectively in markets where our competitors have more resources.

·   We are subject to risks relating to product concentration and lack of product revenue diversification.

·   The semiconductor industry is based on rapidly changing technology, and we rely primarily on our licensors to develop products our customers find satisfactory.

·   We may experience supply shortages, which would adversely affect our ability to meet customer demands.

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·   We are exposed to the risks of operating a global business.

·   We are subject to risks relating to lengthy sales cycles, which may require the expenditure of substantial funds and management effort.

·   We are exposed to risks associated with a highly concentrated customer base.

·   Our independent accountants have expressed uncertainty about our ability to continue as a going concern.

·   Our ability to raise additional financing is uncertain.

·   Environmental, health and safety laws may restrict our operations, particularly within the European Union.

·   There is a limited market for our common stock.

·   Our common stock is subject to penny stock regulation.

·   We are subject to increasing costs of compliance with the Sarbanes-Oxley Act of 2002 and must maintain high margins to pay for these ongoing expenses required of public companies.

ITEM 3.CONTROLS AND PROCEDURES

(a)Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the design and operation of our disclosure controls and procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of March 31, 2007. Based on that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including its chief executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Although the evaluation did not detect any material weaknesses in the Company’s system of internal accounting controls over financial reporting, management identified certain significant deficiencies with respect to inadequate reconciliation of certain financial statement accounts and a lack of sufficient review of those accounts and related journal entries. The Company is addressing its staffing levels and its reconciliation and review process and will make recommendations to the Board in the second quarter of 2007.

Notwithstanding management’s assessment that our internal control over financial reporting was ineffective as of March 31, 2007 and the significant deficiencies described above, management believes that the financial statements included in this Quarterly Report on Form 10-QSB correctly present our financial condition, results of operations and cash flows for the quarters covered thereby in all material respects.

(b)There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during the last fiscal quarter that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. However, as disclosed in our Form 10-QSB filed on May 16, 2006, our management received a letter from the Company's independent auditors on May 10, 2006 that identified certain weaknesses in our internal control over financial reporting to address primarily four issues: 1) Our subsidiary’s Vice President of Operations is now reviewing all standard unit cost changes to prevent adjustments to the valuation of inventory items without proper approval. In addition, with the transfer of Texas accounting transactions to Arizona, the software package which allowed negative inventory balances to occur in the past has been discontinued. 2) Due to our limited accounting headcount, which is sometimes typical of smaller companies, and which impacts our ability to segregate duties to some degree, we will continue to monitor our financial data very closely through the use of various trended subsidiary reports, statements, and a detailed and departmentalized chart of accounts to ensure all transactions are properly recorded. 3) Although our commission accrual process remains the same, increased emphasis will be placed on the review of the existing systems group gross profit report which details commission expense by system. 4) Upper management will increase their communication of any unusual transactions and subsequent events to the personnel responsible for financial accounting and disclosure to ensure the proper accounting and disclosure on a timely basis.

20

Beginning with the Company’s first fiscal year ending after December 15, 2007, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to include management's report on our internal control over financial reporting in our Annual Report on Form 10-KSB. The internal control report must contain (1) a statement of management's responsibility for establishing and maintaining adequate internal control over our financial reporting, (2) a statement identifying the framework used by management to conduct the required evaluation of the effectiveness of our internal control over financial reporting, and (3) management's assessment of the effectiveness of our internal control over financial reporting as of the end of our most recent fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. For the year ended December 31, 2008,  a statement that our registered independent public accounting firm has issued an attestation report on management's assessment of our internal control over financial reporting will be required.

In order to achieve compliance with Section 404 within the prescribed period, management is planning to commence a Section 404 compliance project to assess the adequacy of our internal control over financial reporting, remediate any control deficiencies that may be identified, validate through testing that controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. At this time, management is assessing the proper parameters of a Section 404 compliance project in light of emerging guidance from the SEC on such parameters.

PART II - OTHER INFORMATION

ITEM 5. OTHER INFORMATION

On May 1, 2007, Ronny Baker, the Company's Controller and principal accounting officer, retired and Karl Jackson was appointed Controller and took over Mr. Baker's responsibilities as the Company's principal accounting officer. Prior to being appointed Controller, Mr. Jackson was the Accounting Manager of Aspect Systems, Inc., a position he held from May 2004 until May 2007. Prior to joining ASI and since May 2000, Mr. Jackson served as Controller of Eason & Waller Manufacturing. Mr. Jackson holds a B.S. in Accounting from Arizona State University and an MBA from Golden Gate University.

ITEM 6. EXHIBITS

Exhibits:

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

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

32Section 1350 Certifications

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DND TECHNOLOGIES, INC., a Nevada corporation
Date: June 27, 2007	By:	/s/ Douglas N. Dixon
		Title Douglas N. Dixon, Chief Executive Officer

By:	/s/ G. Dennis Key
	G. Dennis Key, Chief Financial Officer

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