**U.
        S. Securities and Exchange Commission**
 Washington,
        D. C. 20549
  **FORM
        10-QSB**
  **[X]
        QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
        SECURITIES**
 **EXCHANGE
        ACT OF 1934**
  For
        the
        quarterly period ended March 31, 2006
  **[
        ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
        ACT**
  For
        the
        transition period from to
  *Commission
        File No. 000-26695*
  MICHELEX
          CORPORATION
 (Name
          of
          Small Business Issuer in its Charter)
  UTAH
              
              87-0636107(State
                  or Other Jurisdiction of
              
              (I.R.S.
                  Employer I.D. No.)incorporation
                  or organization)
  Outer
        Willow Street
 Massena,
        New York 13662
 (Address
        of Principal Executive offices)
  Issuer's
        Telephone Number: (315) 769-6616
  **APPLICABLE
        ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**
 **PROCEEDINGS
        DURING THE PRECEDING FIVE YEARS**
  Not
        applicable.
  Check
        whether the registrant filed all documents and reports required to be filed
        by
        Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
        under a plan confirmed by a court.
 Yes
o No
o
 
 **APPLICABLE
        ONLY TO CORPORATE ISSUERS**
  State
        the
        number of shares outstanding of each of the Registrant's classes of common
        stock, as of the latest practicable date:
  November
        13, 2006
  105,871,037
  
  **PART
        I - FINANCIAL INFORMATION**
 **Item
        1. Financial Statements.**
  The
        Financial Statements of the Registrant required to be filed with this 10-QSB
        Quarterly Report were prepared by management, and commence on the following
        page, together with Related Notes. In the opinion of management, the Financial
        Statements fairly present the financial condition of the Registrant for the
        periods then ended.
  2
 
 **MICHELEX
        CORPORATION**
 **Index
        to Financial Statements**
 Consolidated
                    Balance Sheets
                
                
                F-2
                    - F-3Consolidated
                    Statements of Operations
                
                
                F-4Consolidated
                    Statements of Cash Flows
                
                
                F-5Notes
                    to Consolidated Financial Statements
                
                
                F-6
                    - F-12
 The
          unaudited condensed consolidated financial statements presented herein
          have been
          prepared in accordance with the instructions to Form 10-QSB and do not
          include
          all the information and disclosures required by U.S. Generally Accepted
          Accounting Principles. Therefore, these financial statements should be
          read in
          conjunction with the consolidated financial statements and related footnotes
          included in the Company’s Form 10-KSB for the year ended December 31, 2005.
          These financial statements reflect all adjustments that are, in opinion
          of
          management, necessary to fairly state the results for the interim periods
          reported. Certain amounts from the prior period have been reclassified
          to be
          consistent with the current period presentation.
 **NONE
            REVIEW BY AUDITORS**
  Seligson
            & Giannattasio, LLP auditor
            for the Company, (the “Auditor”) did not review the 10Q for the Quarter ended
            March 31, 2006
  The
            audit
            report of Seligson
            & Giannattasio, LLP for
            the
            years ended December 31, 2004 and December 31, 2005
            contained a modification expressing substantial doubt about Michelex,
            Corp’s ability
            to continue as a going concern.
  The
            board
            of directors or an audit or similar committee of the board of directors
            acknowledged the inability as a matter of time for the auditors to review
            the
            financial statements .
  During
            the fiscal years ended Dec 31, 2004 and Dec 31, 2005 and the subsequent
            period
            from March 31, 2006,
            June 30, 2006 nor September 30, 2006 there were no disagreements with
            the
            accountant, whether or not resolved, on any matter of accounting
            principles or practices, financial statement disclosure, or auditing
            scope or
            procedure, which, if not
            resolved to the former accountant's satisfaction, would have caused it
            to make
            reference to the subject matter
            of
            the disagreement(s) in connection the periods 2004 and 2005 and any subsequent
            period preceding.
  The
            Company did not consult with Seligson & Giannattasio, LLP during its fiscal
            years ending Dec
            31,
            2004 and Dec 31, 2005 on the application of accounting principles to
            as
            specified transaction, the type
            of
            opinion that may be rendered on the Company's financial statements, any
            accounting, auditing or financial
            reporting issue, or any item that was either the subject of a disagreement
            or a
            reportable event as defined
            in item 304 of Regulation S- K.
  The
            Company has provided Seligson
            & Giannattasio, LLP with
            a
            copy of the disclosures contained
            in this filing. The 10-QSB filing will be restated once the auditors
            review it
            if they determine it to be necessary.
  The
            Company has
            retained Seligson
            & Giannattasio, LLP to perform
            our 2006 audit and statements and to review the quarterly filings.
  The
            Company is
            responsible for the adequacy and accuracy of disclosure in this filing,
            and SEC
            staff comments or changes
            to disclosure in response to staff comments do not foreclose the Commission
            from
            taking any action
            with respect to the filing and Michelex may not assert staff comments
            as a
            defense in any proceeding initiated
            by the Commission or any person under the federal securities laws of
            the United
            States.
 F-1
  **MICHELEX
        CORPORATION**
 **AND
        SUBSIDIARY**
 **CONSOLIDATED
        BALANCE**




March
                  31,
              
              December
                  31,2006
              
              2005ASSETSCurrent
                  assets:Cash
              
              $
              10,413
              
              $
              16,217Accounts
                  receivable, net
              
              
              783,461
              
              
              650,471Accounts
                  receivable related party
              
              
              14,482
              
              
              14,582Inventory,
                  net
              
              
              645,460
              
              
              726,724Restricted
                  cash
              
              
              7,458
              
              
              20,598Prepaid
                  expenses and income taxes
              
              
              164,847
              
              
              301,245Total
                  current assets
              
              
              1,626,121
              
              
              1,729,837Fixed
                  assets net of accumulated depreciationand
                  amortization of $19,877,552 and$19,799,098, respectively
              
              
              5,216,268
              
              
              5,380,114Other
                  assets:Land
                  and building held for investment
              
              
              119,500
              
              
              119,500Loans
                  receivable related party
              
              
              265,245
              
              
              215,245Other
                  assets
              
              
              92,876
              
              
              83,707Total
                  assets
              
              $
              7,320,010
              
              $
              7,528,403


See
        notes
        to consolidated financial statements
  F-2
   **MICHELEX
        CORPORATION**
 **AND
        SUBSIDIARY**
 **CONSOLIDATED
        BALANCE SHEETS**
   March
                    31,
                
                December
                    31,2006
                
                2005LIABILITIES
                    AND SHAREHOLDERS' EQUITYCurrent
                    liabilities:Note
                    payable to bank
                
                $
                145,607
                
                $
                153,709Current
                    portion of long-term debt
                
                
                1,868,736
                
                
                1,666,310Current
                    portion of capital leases
                
                
                106,402
                
                
                89,176Convertible
                    debenture
                
                
                1,179,566
                
                
                1,258,246Accounts
                    payable
                
                
                2,625,000
                
                
                2,646,359Accrued
                    expenses
                
                
                1,199,527
                
                
                1,009,544Payroll
                    taxes payable
                
                
                217,475
                
                
                236,031Total
                    current liabilities
                
                
                7,342,313
                
                
                7,059,375Other
                    liabilities:Long-term
                    debt less current maturities
                
                
                3,852,376
                
                
                4,058,125Note
                    payable officers
                
                
                420,526
                
                
                123,395Capital
                    leases less current maturities
                
                
                128,088
                
                
                145,314Note
                    payable related parties
                
                
                7,119Total
                    liabilities
                
                
                11,750,422
                
                
                11,386,209Commitments
                    and contingenciesShareholders'
                    equityCommon
                    stock - no par value,1,000,000,000
                    shares authorized,67,121,037
                    and 70,447,309 sharesissued
                    and outstanding, respectively
                
                
                67,121
                
                
                70,447Additional
                    paid-in-capital
                
                
                2,320,280
                
                
                2,316,953Retained
                    earnings
                
                
                (6,817,813
                )
                
                (6,245,206
                )Total
                    shareholders' equity
                
                
                (4,430,412
                )
                
                (3,857,806
                )Total
                    liabilities and shareholders' equity
                
                $
                7,320,010
                
                $
                7,528,403
  See
        notes
        to consolidated financial statements
   F-3
 
 **MICHELEX
        CORPORATION**
 **AND
        SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 Three
        Months Ended
  March
                    31,
                
                March
                    31,2006
                
                2005(unaudited)
                
                (unaudited)Net
                    sales-unrelatedparties
                
                
                424,961
                
                
                2,414,916Net
                    sales-related parties
                
                
                2,175
                
                
                15,969Net
                    sales
                
                
                427,136
                
                
                2,430,885Cost
                    of goods sold
                
                
                241,315
                
                
                1,823,521Gross
                    profit
                
                
                185,821
                
                
                607,364Operating
                    expenses:Selling
                    and shipping
                
                
                26,329
                
                
                53,127General
                    and administrative
                
                
                387,364
                
                
                1,265,596Depreciation
                
                
                163,847
                
                
                256,789Total
                    operating expenses
                
                
                577,540
                
                
                1,575,512(Loss)
                    income before otherincome
                    (expense) and incometaxes
                
                
                (391,719
                )
                
                (968,148
                )Other
                    income (expense):Other
                    income
                
                
                4,171
                
                
                11,188Interest
                    expense
                
                
                (239,423
                )
                
                (365,066
                )Net
                    income from rentalproperties
                
                
                54,363
                
                
                (273
                )Other
                    income (expenses)
                
                
                (180,889
                )
                
                (354,151
                )Loss
                    before income taxes
                
                
                (572,608
                )
                
                (1,322,299
                )Income
                    tax (benefit)
                
                
                --
                
                
                100Net
                  loss
                  beforediscontinued
                    operations
                
                
                (572,608
                )
                
                (1,322,399
                )Net
                  loss
                  fromdiscontinued
                    operations
                
                
                --
                
                
                (104,522
                )Net
                    (loss) income
                
                
                (572,608
                )
                
                (1,426,921
                )Weighted
                    shares outstanding:Basic
                
                
                67,800,585
                
                
                63,887,608Diluted
                
                
                67,800,585
                
                
                63,887,608
 
 Basic
        and
        diluted (loss) per share:
 Loss
        per
        share $ (.01) $(.02)
 
 See
        notes
        to consolidated financial statements
  F-4
  
 **MICHELEX
        CORPORATION**
 **AND
        SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 
  Three
                    Months Ended
                
                Three
                    Months EndedMarch
                    31,
                
                March
                    31,2006
                
                2005(Unaudited)
                
                (Unaudited)CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    loss
                
                $
                (572,608
                )
                $
                (1,318,815
                )Adjustments
                    to reconcile net income (loss)to
                    net cash provided by operating activities:Depreciation
                    and amortization
                
                
                163,846
                
                
                263,643Shares
                    issued for services
                
                
                8,503
                
                
                --Beneficial
                    Conversion Feature
                
                
                (78,680
                )
                
                --CHANGES
                    IN OPERATING ASSETS AND LIABILITIES:Accounts
                    receivable
                
                
                (132,990
                )
                
                162,194Note
                    Receivable
                
                
                (50,001
                )
                
                --Inventory
                
                
                81,264
                
                
                82,657Restricted
                    Cash
                
                
                (13,141
                )
                
                --Prepaid
                    expenses and taxes
                
                
                135,719
                
                
                183,321Other
                    assets
                
                
                (9,168
                )
                
                (421
                )Accounts
                    payable
                
                
                (21,360
                )
                
                365,249Accrued
                    expenses and taxes
                
                
                189,983
                
                
                (148,324
                )NET
                    CASH FLOWS FROM OPERATING ACTIVITIES
                
                
                (298,633
                )
                
                (410,496
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Acquisition
                    of fixed assets
                
                
                --
                
                
                (10,479
                )Proceeds
                    from sale of equipment
                
                
                --
                
                
                --NET
                    CASH FLOWS FROM INVESTING ACTIVITIES
                
                
                --
                
                
                (10,479
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Repayment
                    of long-term debt
                
                
                (11,423
                )
                
                (213,968
                )Net
                    borrowings from demand notes payable
                
                
                --
                
                
                1,000,000Proceeds
                    from long-term debt
                
                
                --
                
                
                (352,339
                )Borrowings
                    from related parties
                
                
                304,251
                
                
                10,770Proceeds
                    from issuance of common stock
                
                
                --
                
                
                --NET
                    CASH FLOWS BY FINANCING ACTIVITIES
                
                
                292,828
                
                
                444,463NET
                    DECREASE IN CASH
                
                
                (5,805
                )
                
                23,488CASH
                    AT BEGINNING OF PERIOD
                
                
                16,217
                
                
                26,027CASH
                    AT END OF PERIOD
                
                $
                10,412
                
                $
                49,515SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION:Income
                    taxes paid
                
                $
                --
                
                $
                380Interest
                    paid
                
                $
                52,036
                
                $
                223,844NON-CASH
                    INVESTING AND FINANCING ACTIVITIES:Compensation
                    Expense through issuanceof
                    common stock
                
                $
                448
                
                $
                --
 
 See
        notes
        to consolidated financial statements
  F-5
   **MICHELEX
        CORPORATION**
 **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 March
        31,
        2006
  **NOTE
        1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES**
  In
        the
        opinion of management, the accompanying financial statements of Michelex
        Corporation ("Michelex") contain all adjustments necessary to present fairly
        the
        Company's financial position as of March 31, 2006 and December 31, 2005,
        the
        results of operations and cash flows for the periods ended March 31, 2006
        and
        2005.
  The
        results of operations for the periods ended March 31, 2006 and 2005 are not
        necessarily indicative of the results to be expected for the full
        year.
  Except
        as
        stated below, the accounting policies followed by the Company are set forth
        in
        Note 1 to the Company's financial statements included in its Annual Report
        on
        Form 10-KSB for the fiscal year ended December 31, 2005.
 
 **NOTE
        2 - COMMITMENTS**
 
 During
        the 2003 fiscal year, Michele Audio Corporation of America (the “Company”)
        entered into a Consulting Agreement with Investor Relations Services, Inc.,
        a
        Delaware corporation whose address is 120 Flagler Avenue, New Smyrna Beach,
        Florida and simultaneously a Personal Services Agreement with Mr. Charles
        Arnold
        located at 2 Spur Lane, Rolling Hills, California. The agreements were effective
        June 1, 2003 and they both expire on May 31, 2004. The agreements called
        for
        certain services, which are enumerated in the agreements, to be provided
        by Mr.
        Arnold and Investor Relations Services for the benefit of the Company. As
        compensation for these services the Company agreed to issue both Investor
        Relations Services and Mr. Arnold preferred shares of stock in Michele Audio
        Corporation of America. Additionally, the preferred shares were to have
        conversion rights allowing Mr. Arnold and Investor Relations Services, Inc.
        each
        to convert their preferred shares to 4.9% undiluted of the common stock issued
        and outstanding following the first round of financing after the Company
        became
        a public entity. It was further agreed the stock when issued would be restricted
        pursuant to Rule 144.
 
 In
        March
        of 2004 Mr. Arnold and Investor Relations Services filed for arbitration,
        as
        called for in the agreements, against Michelex Corporation claiming they
        have
        not been compensated as called for in the agreements. In November 2005, the
        Company received notice of the settlement of the arbitration. Pursuant to
        the
        settlement, the Company is required to pay an aggregate of approximately
        $290,000 for damages, interest, legal and administrative fees. At December
        31,
        2005, there is an accrued expense for this settlement payment.
 
 Commitment
        to Acquire Equipment
 
 In
        October 2004, the Company agreed to acquire approximately $270,000 of
        manufacturing equipment. In connection with this agreement, the Company made
        a
        deposit toward the purchase of the equipment totaling $16,240. As of December
        31, 2004, the Company was attempting to secure the financing necessary to
        complete the acquisition. In May 2005, the agreement to purchase the equipment
        was terminated as a result of the Company’s inability to obtain the required
        financing. The Company reported a loss at that time of the total amount of
        the
        deposit.
 
 Subpoena
        From Securities and Exchanges Commission
 
 In
        January 2006, the Company received a subpoena from the Securities and Exchanges
        Commission (“SEC”) as part of an investigation the SEC is conducting into
        trading in certain over the counter stocks. The Company has not been notified
        that the SEC is conducting a formal or informal investigation into the
        Company.
 
 Investor
        Relations Agreement
 
 In
        March
        2006, the Company entered into an investor relations agreement. Pursuant
        the
        investor relations firm would provide public relations and investor relations
        services for a six month period for a fee of $125,000. The Company had the
        option at the end of the six month period to renew the agreement for an
        additional six months for a fee of $75,000. The Company made payments under
        the
        contract totaling $45,000 prior to the cancellation of the
        contract.
  Issuance
        of Shares to Employees
 
 In
        March
        2006, the Company issued 477,500 shares of common stock to
        employees.
  F-6
  **MICHELEX
        CORPORATION**
 **AND
        SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 MARCH
        31,
        2006
 
 **NOTE
        3 - ACCOUNT RECEIVABLE PURCHASE AGREEMENT**
 
 In
        May
        2005, the Company entered into a one (1) year account receivable purchase
        agreement with Commercial Capital Lending, LLC (“CCL”). Pursuant to the
        agreement, CCL agrees to purchase up to 80% of the eligible accounts receivable
        from the Company. The Company may be required to repurchase accounts sold
        to CCL
        under certain conditions. The Company is required to pay interest at the
        rate of
        prime plus one percent on 80% of the face amount of the accounts purchased.
        In
        addition, the Company is required to pay a servicing fee totaling .6% (six
        tenths of one percent) of the net face amount of the open receivables for
        each
        15 days the account is open. The agreement, among other provisions, is secured
        by all personal property excluding inventory and equipment.
 
 **NOTE
        4 - SALE-LEASEBACK OF EQUIPMENT RELATED PARTY**
 
 In
        April
        and May 2005, the Company transferred certain equipment in exchange for the
        repayment of the existing debt on the equipment to a corporation controlled
        by
        the brother of one of the Company’s officers. The Company subsequently leased
        back the equipment. Pursuant to the two separate two-year lease agreements,
        the
        Company is required to make monthly payments totaling $3,000 and $2,000 per
        month, respectively. The Company has not made any of the required lease payments
        pursuant to the agreement.
 
 In
        May
        2006, the Company entered into a sale leaseback agreement with an unrelated
        third party. Pursuant to the agreement, the Company sold certain of its assets
        for $1,200,000. As a condition of the agreement, the Company agreed to lease
        the
        assets pursuant to a five year lease at a rental of $19,583 per month plus
        an
        additional rent factor equal to the 6.5% over the prime rate of the unpaid
        remaining rental. The Company has the additional option to purchase the assets
        anytime after the first twelve months for an amount equal to the remaining
        unpaid lease payments plus $117,500.
  F-7
  **MICHELEX
        CORPORATION**
 **AND
        SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 March
        31,
        2006
 
 **NOTE
        5 - MORTGAGE - RELATED PARTY**
 
 In
        May
        2005, the Company entered into a secured convertible debenture for $150,000
        with
        the brother of one of the officer/directors. The debenture incurs interest
        at
        the rate of 8% per annum and is payable in monthly installments including
        interest totaling $3,041 through June 2010. The mortgage is secured by one
        of
        the Company’s properties as well as the home of the officer/director. The
        Company has not made the required payments under the mortgage. The Company
        has
        recorded a beneficial conversion feature totaling $50,000, which was recorded
        as
        a discount on the debentures and was being amortized over the term of the
        related debenture as additional interest expense.
 
 In
        June
        2006, the note and accrued interest was converted into 8,100,000 shares of
        the
        Company’s common stock. At that time, the remaining beneficial conversion
        feature will be expensed.
 
 **NOTE
        6 - CAPITAL LEASE ON EQUIPMENT**
 
 Franklin
        Funding, Inc.
  In
        May
        2005, the Company entered into a lease for equipment under capital lease
        arrangements with Franklin Funding, Inc. Pursuant to the lease, among other
        provisions, the lessor retains actual title to the leased property until
        the
        termination of the lease, at which time the property can be purchased for
        one
        dollar.
 
 The
        lease
        dated May 17, 2005 is for certain equipment located in the Salt Lake City
        facilities. The term of the lease is forty months with monthly payments of
        $7,755 which is equal to the cost to amortize $250,000 over the lease term
        at an
        interest rate of approximately 17% per annum.
 
 The
        Company had obtained the lease and related underlying equipment through an
        assumption agreement with one of the Company’s vendors. The vendor declared
        bankruptcy in 2006. Pursuant to a settlement agreement in June 2006 with
        Franklin Funding, The Company gave up possession of the equipment and cancelled
        the lease with Franklin Funding.
  Heller
        Financial Leasing, Inc.
 
 The
        Company leases equipment under capital lease arrangements with Heller Financial.
        The terms and amounts are described below. Pursuant to the lease, the lessor
        retains actual title to the leased property until the termination of the
        lease,
        at which time the property can be purchased for one dollar.
 
 The
        leases dated August 9, 1999 are for thirteen Nissei injection mold machines.
        The
        term of the leases is sixty months with monthly payments of $27,362 which
        is
        equal to the cost to amortize $1,323,850 over a 5-year period at an interest
        rate of 8% per annum.
 
 St.
        Lawrence County Industrial Development Agency.
 
 The
        Company leases a building and land located on Lot 16 in the Massena Industrial
        Park from the St. Lawrence County Industrial Development Agency. Pursuant
        to the
        lease, the lessor retains actual title to the leased property until the
        termination of the lease, at which time the property can be purchased for
        one
        dollar. The lease dated November 6, 1998 is for 84 monthly payments of $4,431
        beginning November 1998.
 
 The
        Company leases a second building in the Massena Industrial Park from the
        St.
        Lawrence County Industrial Development Agency. Pursuant to the lease, the
        lessor
        retains actual title to the leased property until the termination of the
        lease,
        at which time the property can be purchased for one dollar. The lease dated
        October 30, 2003 is for 96 monthly payments of $724 beginning November 1,
        2003.
 
 US
        Bancorp Leasing
 
 The
        Company leases Sumitomo injection molding machines under capital lease
        arrangements with US Bancorp Leasing. The Lease, dated September 11, 2001,
        is
        for 48 months with monthly payments of $10,012, which is equal to the cost
        to
        amortize $420,490 over a four-year period at an interest rate of 6.125% per
        annum. Pursuant to the leases the lessor retains actual title to the leased
        property until the termination of the lease, at which time the property can
        be
        purchased for one dollar.
 
 F-8
 
 **MICHELEX
        CORPORATION**
 **AND
        SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 March
        31,
        2006
 
 **NOTE
        6 - CAPITAL LEASE ON EQUIPMENT (continued)**
 
 Buyout
        of capital leases
 
 In
        July
        2005, the Company entered into an agreement with the St. Lawrence County
        Industrial Development Agency (“St. Lawrence IDA”) whereby the Company
        relinquished its use of one of the properties located in the Massena industrial
        park. The Company leased this property under an operating lease. Although
        the
        Company was not notified it was in default at the time the agreement, the
        Company was late in the payment of several of the monthly lease payments.
        Pursuant to this agreement, in exchange for allowing the Company to terminate
        its obligations under the operating lease for the above property, the St.
        Lawrence IDA issued credits to the Company in satisfaction of capital leases
        for
        two other properties also located in the Massena Industrial Park. The remaining
        principle balances at December 31, 2004 due on these capital leases totaled
        approximately $150,000. The total amount of the credits has been reflected
        as a
        lease buyout and included as a component of other income.
 
 In
        December 2005, the Company entered into an agreement with the St. Lawrence
        IDA
        whereby the Company relinquished its use of one of the properties located
        in the
        Massena industrial park. The Company leased this property under a capital
        lease.
        The Company was late in the payment of several of the monthly lease payments
        on
        this and a lease on another property administered by the St. Lawrence IDA.
        Pursuant to this agreement, in exchange for allowing the Company to terminate
        its obligations under the lease for the above property, the St. Lawrence
        IDA
        issued credits to the Company in satisfaction of the capital leases for another
        property also located in the Massena Industrial Park. The total amount of
        the
        credits has been reflected as a lease buyout and included as a component
        of gain
        (loss) on sale of assets.
 
 **NOTE
        7 - CONVERTIBLE DEBENTURES**
 
 5%
        Convertible Debentures
 
 During
        the quarter ended September 30, 2004 and through October 1, 2004, the Company
        issued $503,250 of 5% Convertible Debentures ("5% Debentures"). The 5%
        Debentures require the Company to issue non-restricted shares of the Company's
        common stock within 41 days of funding at a conversion price of $.17 per
        share.
        In the event non-restricted shares of the Company's common stock is not issued
        within the 41 days, then each debenture holder is entitled to 3 shares of
        restricted stock for each share of non-restricted shares required under the
        conversion provisions of the debenture. Additionally, if the Company fails
        to
        deliver non-restricted shares of the Company's common stock to the debenture
        holders within one (1) year after the first closing date, the Company shall
        be
        required to deliver additional shares of restricted stock in sufficient
        quantities to guarantee the holders a 45% return on their investment. The
        Private Placement Memorandum further grants the Placement Agent the right
        of
        first refusal on all subsequent offerings by the Company for a period of
        2
        years. The Company aggregated net proceeds of $408,865 from the offering.
        The
        Company has recorded a beneficial conversion feature totaling $270,981, which
        was recorded as a discount on the debenture and had been amortized over the
        term
        of the debenture. At December 31, 2004, the entire beneficial conversion
        feature
        had been amortized to interest expense.
 
 12%
        Convertible Debentures
 
 The
        Company issued 12% Secured Convertible Debentures (“Convertible Debentures”)
        totaling $300,000 and $150,000 respectively. The Convertible Debentures will
        be
        due in September 2005 and may be prepaid in whole at any time after giving
        20
        days advance notice. The holders of the Convertible Debentures may elect
        at any
        time to convert the principle balance due into shares of the Company’s common
        stock at the lesser of $.1875 per share or 75% of the current market price
        at
        conversion. The Convertible Debentures are secured by a second security interest
        in all the Company’s assets. In November 2004, $300,000 of the Convertible
        Debentures were converted into 1,600,000 shares of the Company’s common stock
        (4,800,000 shares after the 3 for 1 stock split). In January 2005, the remaining
        $150,000 in Convertible Debentures were converted into 2,400,000 shares of
        the
        Company’s common stock (after giving effect to the 3 for 1 stock split). The
        Company recorded a beneficial conversion feature totaling $100,000 and $50,000,
        respectively, which were recorded as a discount on the debentures and amortized
        over the term of the related debenture. In November 2004, as a result of
        the
        conversion of one of the debentures, the balance of the beneficial conversion
        feature was expensed to interest expense. In January 2005, the remaining
        debentures were converted into common stock and the remaining beneficial
        conversion feature was expensed to interest expense.
 
 F-9
  **MICHELEX
        CORPORATION**
 **AND
        SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 March
        31,
        2006
 
 **NOTE
        7-CONVERTIBLE DEBENTURES (continued)**
 
 Hindsight
        Debenture
 
 In
        January 2005, the Company through its Hindsight Records, Inc, subsidiary
        closed
        on an aggregate of $1,000,000 5% Secured Convertible Debenture. The debentures
        are due December 29, 2006. The debenture is secured by the assets of Hindsight.
        The debentures are convertible at any time at the lesser of the price of
        the
        stock on the date of the closing or 75% of the price of the stock for the
        5
        trading days prior to the date of the conversion. The Company has recorded
        a
        beneficial conversion feature totaling $333,333, which has been recorded
        as a
        discount on the debentures and is being amortized over the term of the related
        debenture. During the first quarter of 2005, $351,000 of the debentures were
        converted into 8,893,215 shares of the Company’s common stock.
 
 **NOTE
        8 - SALE OF ASSETS**
 
 In
        April
        2005, the Company sold several of its properties to MPG Development LLC (“MPG”),
        a limited liability company controlled by officers of the Company and their
        immediate families. The properties, which had a carrying amount on the books
        of
        $199,970, were transferred in exchange for the satisfaction of certain loans
        to
        the officers totaling $375,000. Certain of these properties are used as
        collateral pursuant to the amended agreement with Pittsford.
 
 In
        September 2005, the Company sold one of its properties in Salt Lake City,
        Utah
        to 3553 Main, LLC, a limited liability company, one of whose members is an
        officer of the Company. The property, which had a carrying amount on the
        books
        of $618,269, was transferred in exchange for the assumption of the underlying
        mortgage and a payment of $28,000.
 
 In
        April
        2006, the Company sold its remaining facilities in Utah to an unrelated party
        for $2,500,000 in a sale-leaseback transaction. In addition, the Company
        entered
        into an operating lease agreement for the rental of these facilities for
        a 36
        month period through monthly payments of $9,000 commencing on the first
        anniversary of the lease agreement.
 
 **NOTE
        9 - MANAGEMENT’S PLAN OF OPERATION AND GOING CONCERN
        MATTERS**
 
 The
        Company has reported losses from operations for the last two years. In addition,
        the Company has a working capital deficiency, a deficiency in stockholders’
equity and has been notified by its lender that it is in default of its credit
        facility. The Company has also not paid many of its other obligations in
        a
        timely manner.
 
 During
        2005 and 2006, we have made a significant effort to obtain additional financing.
        These financings have included the mortgaging of certain properties, the
        obtaining of additional lines of credit and the factoring of its receivables.
        We
        have also refinanced a number of its equipment and properties in what it
        believes will be beneficial to its future cash flow. In addition, a number
        of
        the debenture issuances have been converted into common stock.
 
 The
        financial statements have been prepared assuming Company is able to continue
        as
        a going concern. The financial statements do not include any adjustments
        relating to the recoverability and classification of assets or liabilities
        that
        might be necessary should the Company be unable to continue as a going
        concern.
 
 F-10
 
 **MICHELEX
        CORPORATION**
 **AND
        SUBSIDIARIES**
 
 **NOTES
        TO FINANCIAL STATEMENTS**
 
 MARCH
        31,
        2006
 
 **NOTE
        10 - SUBSEQUENT EVENTS**
 
 Sale-Leaseback
        Equipment
 
 In
        May
        2006, the Company entered into a sale leaseback agreement with an unrelated
        third party. Pursuant to the agreement, the Company sold certain of its assets
        for $1,200,000. As a condition of the agreement, the Company agreed to lease
        the
        assets pursuant to a five year lease at a rental of $19,583 per month plus
        an
        additional rent factor equal to the 6.5% over the prime rate of the unpaid
        remaining rental. The Company has the additional option to purchase the assets
        anytime after the first twelve months for an amount equal to the remaining
        unpaid lease payments plus $117,500.
 
 Subsequent
        Financing
 
 In
        June
        2006, the Company entered into a $40,000 secured promissory note with Ayuda
        Funding Corp. The note incurs interest at the rate of 10% per annum and is
        due
        on June 16, 2007. The note can be converted at any time at the option of
        the
        holder, into common shares of the Company at the lesser of $.01 per share
        or 80%
        of the average closing bid price for the ten days preceding the conversion
        date.
 
 In
        July
        2006, the Company entered into a Securities Purchase Agreement with several
        investors whereby the Company would issue an aggregate of $1,200,000 in 6%
        convertible secured notes and options to purchase up to 10,000,000 shares
        of the
        Company’s common stock. The notes are due on July 28, 2009 and may be converted
        into common stock at any time prior to maturity at the option of the holder.
        The
        loan may be converted at a conversion price which is the lesser of $.20 or
        a
        discounted average trading price of the shares (the discount being dependent
        on
        the meeting of certain registration conditions). The holder is limited in
        the
        conversions prior to maturity date to the greater of $60,000 per calendar
        month
        or the average daily dollar volume calculated during the ten business days
        prior
        to conversion. In addition, the agreement puts limitations on certain types
        of
        transactions. In July 2006, the Company closed on the first portion of the
        notes
        aggregating $400,000.
 
 In
        April
        2006, the Company refinanced several of its properties in Massena, New York
        through a mortgage agreement totaling $1,200,000. The loan, which has an
        original due date of April 2007, incurs interest at the greater of 13% per
        annum
        or the prime rate plus 6% per annum. If all payments are made timely, the
        due
        date on the loan may be extended for an additional twelve months. The mortgage
        is guaranteed by an officer of the Company. In addition, as an additional
        incentive to loan the funds, the Company granted a warrant to the mortgage
        holder to purchase up to 1,000,000 shares of the Company’s common stock at an
        exercise price of $.02 per share. The warrant is exercisable anytime after
        April
        24, 2006 for a period of one (1) year.
 
 In
        June
        2006, the Company obtained additional mortgage financing totaling $500,000
        from
        a separate lender. Borrowings under the mortgage which is due June 30, 2007
        incur interest at the rate of 10% per annum. The Company is required to make
        payments under the mortgage of $4,167 per month.
 
 Issuance
        of Shares for Legal Services
 
 In
        July
        2006, the Company agreed to issue 250,000 shares of the Company’s common stock
        to its attorneys for legal services. On the date of issuance, the Company
        will
        reflect as expenses for legal fees, approximately $5,000 (the market value
        of
        the shares on the date of the issuance).
 
 Also
        in
        July 2006, the Company agreed to issue 1,000,000 restricted shares of the
        Company’s common stock to another attorney in connection with services provided
        in the Arbitration with Mr. Arnold and Investor Relations Services. On the
        date
        of issuance, the Company will reflect as expenses for legal fees, approximately
        $20,000 (the market value of the shares on the date of the
        issuance.
 
 Issuance
        of shares to vendors
 
 In
        August
        2006, the Company issued 2,500,000 shares to one of its vendors in partial
        payment for the balance due to the vendor for materials.
 
 Warrants
        issued for Consulting Services
 
 In
        April
        2006, the Company entered into a one year agreement for financial consulting
        services in exchange for the granting of warrants to purchase 25,000,000
        shares
        of the Company’s common stock. The warrants vest based upon a set schedule over
        a one-year period and are exercisable at $.02 per share for a period of five
        years.
  F-11
  **MICHELEX
        CORPORATION**
 **AND
        SUBSIDIARIES**
 
 **NOTES
        TO FINANCIAL STATEMENTS**
 
 MARCH
        31,
        2006
 
 **NOTE
        10 - SUBSEQUENT EVENTS (continued)**
 
 Warrants
        Granted to Officers
 
 In
        April
        2006, the Company granted to officers of the Company, options to purchase
        an
        aggregate of 50,000,000 shares of the Company’s common stock at an exercise
        price of $.02 per share. The options may be exercised after April 15, 2006
        and
        expire after April 15, 2011. The Company valued the warrants at $494,119
        using
        the Black-Scholes option pricing method. The value was expensed as incurred
        as
        there was no vesting period. In August 2006, options to purchase 8,900,000
        options were exercised in exchange for $178,000.
  Letter
          of Intent
  In
          November, 2006, the Company entered into a letter of intent to acquire
          Ag Pro,
          Ltd. Ag Pro Ltd. Operates a press process soy oilseed crushing plant and
          a
          physical method vegetable oil refinery.
 
 F-12
 
 **Item
        2. Management’s Discussion and Analysis of Financial Condition and Results of
        Operation.**
  Some
        of
        the information in this report contains forward-looking statements that involve
        substantial risks and uncertainties. You can identify these statements by
        forward-looking words such as "may," "will," "expect," "anticipate," "believe,"
        "estimate" and "continue," or similar words. You should read statements that
        contain these words carefully because they:
 
 ·
              discuss
                  our future expectations;
 
 ·
              contain
                  projections of our future results of operations or of our financial
                  condition; and
 
 ·
              state
                  other "forward-looking"
                  information.
  We
        believe it is important to communicate our expectations. However, there may
        be
        events in the future that we are not able to accurately predict or over which
        we
        have no control. Our actual results and the timing of certain events could
        differ materially from those anticipated in these forward-looking
        statements.
  **General
        Overview**
  We
        are
        designers and manufacturers of high quality customized and standard plastic
        components. We provide precision products manufactured with state-of-the-art
        equipment using only the finest materials meeting or exceeding our rigorous
        standards.
  MICHELEX
        DIVISION
  Michelex
        Division imports, manufactures and sells plastic injection molded media
        packaging products. Our products also consist of paper, vinyl, tyvek and
        board
        mailer-based media packaging for use with CD and DVD media. This is the larger
        of our two (2) divisions in terms of revenues, personnel, and infrastructure.
        For the 12 months ended December 31, 2004 this division accounted for
        approximately 70% of total company sales. For the 12 months ended December
        31,
        2005 this division accounted for approximately 85% of total company sales.
        Revenues for this division in the first quarter of 2006 accounted for 50%
        of
        total sales.
  MICHELE
        AUDIO.
  Michele
        Audio involved primarily in the duplication and packaging of music and spoken
        word communication products. For the 12 months ended December 31, 2004 this
        division accounted for approximately 30% of total company sales. For the
        12
        months ended December 31, 2005 this division accounted for approximately
        15% of
        total company sales. Revenues for the division in the first quarter of 2006
        accounted for 50% of total sales.
 
 3
  During
        2005 and 2006, we have made a significant effort to obtain additional financing.
        These financings have included the mortgaging of certain properties, the
        obtaining of additional lines of credit and the factoring of its receivables.
        We
have also refinanced a number of its equipment and properties in what it
        believes will be beneficial to its future cash flow. In addition, a number
        of
        the debenture issuances have been converted into common stock.
 
 In
        July
        2006, the Company entered into a Securities Purchase Agreement with several
        investors whereby the Company would issue an aggregate of $1,200,000 in 6%
        convertible secured notes and options to purchase up to 10,000,000 shares
        of the
        Company’s common stock. The notes are due on July 28, 2009 and may be converted
        into common stock at any time prior to maturity at the option of the holder.
        The
        loan may be converted at a conversion price which is the lesser of $.20 or
        a
        discounted average trading price of the shares (the discount being dependent
        on
        the meeting of certain registration conditions). The holder is limited in
        the
        conversions prior to maturity date to the greater of $60,000 per calendar
        month
        or the average daily dollar volume calculated during the ten business days
        prior
        to conversion. In addition, the agreement puts limitations on certain types
        of
        transactions. In July 2006, the Company closed on the first portion of the
        notes
        aggregating $400,000.
 
 In
        June
        2006, the Company entered into a $40,000 secured promissory note with Ayuda
        Funding Corp. The note incurs interest at the rate of 10% per annum and is
        due
        on June 16, 2007. The note can be converted at any time at the option of
        the
        holder, into common shares of the Company at the lesser of $.01 per share
        or 80%
        of the average closing bid price for the ten days preceding the conversion
        date.
 
 In
        June
        2006, the Company obtained additional mortgage financing totaling $500,000
        from
        a separate lender. Borrowings under the mortgage which is due June 30, 2007
        incur interest at the rate of 10% per annum. The Company is required to make
        payments under the mortgage of $4,167 per month.
 
 In
        2006,
        Michele Audio and Wells Fargo entered into an agreement to settle the debt
        owed
        to Wells Fargo. In April 2005, Michele Audio and Wells Fargo entered into
        a
        letter agreement (the “Letter Agreement”) whereby the balances due under the
        line of credit were accelerated causing Michele Audio to seek alternative
        financing to repay the borrowings. Pursuant to the agreement, Michele Audio
        agreed to make payments of $1,025,000 in June 2006 (the “June Payment”),
        $1,150,000 in August 2006 (the “August Payment”) and $250,000 in December 2006
        and interest only payments at the prime rate on the remaining unpaid balance
        until the final payment is made in December 2006. The June Payment and August
        Payment including the interest only payments have been made.
 
 In
        May
        2006, the Company entered into a sale leaseback agreement with an unrelated
        third party. Pursuant to the agreement, the Company sold certain of its assets
        for $1,200,000. As a condition of the agreement, the Company agreed to lease
        the
        assets pursuant to a five year lease at a rental of $19,583 per month plus
        an
        additional rent factor equal to the 6.5% over the prime rate of the unpaid
        remaining rental. The Company has the additional option to purchase the assets
        anytime after the first twelve months for an amount equal to the remaining
        unpaid lease payments plus $117,500.
 
 In
        April
        2006, the Company refinanced several of its properties in Massena, New York
        through a mortgage agreement totaling $1,200,000. The loan, which has an
        original due date of April 2007, incurs interest at the greater of 13% per
        annum
        or the prime rate plus 6% per annum. If all payments are made timely, the
        due
        date on the loan may be extended for an additional twelve months. The mortgage
        is guaranteed by an officer of the Company. In addition, as an additional
        incentive to loan the funds, the Company granted a warrant to the mortgage
        holder to purchase up to 1,000,000 shares of the Company’s common stock at an
        exercise price of $.02 per share. The warrant is exercisable anytime after
        April
        24, 2006 for a period of one (1) year.
 
 Our
        revenues decreased from $14.8 million for the year ended December 31, 2004
        to
        $5.5 million for the year ended December 31, 2005. Management believes
        that this decrease was the result of Wells Fargo canceling our Line of
        Credit and demanding full payment of the term loan, totaling approximately
        $3,900,000.
 
 In
        June
        2005, Michele Audio entered into an agreement with Pittsford to amend its
        existing promissory notes and convert the loan into a term loan. The amended
        note will incur interest at the rate of ten percent (10%) per annum and is
        payable in monthly installments including interest of $7,720 through July
        1,
        2008. The note may be prepaid at any time and if prepaid prior to July 1,
        2006,
        Pittsford agrees to forgive $25,000 of the principle amount outstanding.
        The
        loan is secured by certain of Michele Audio’s properties as well as certain of
        the properties of MPG Development LLC (“MPG”) located in Massena, New York. The
        note is guaranteed by MPG in addition to certain officers of Michele Audio.
        As
        of December 31, 2005, Michele Audio owes $794,644 to Pittsford.
 
 In
        May
        2005, the Company entered into a one (1) year account receivable purchase
        agreement with Commercial Capital Lending, LLC (“CCL”). Pursuant to the
        agreement, CCL agrees to purchase up to 80% of the eligible accounts receivable
        from the Company. The Company may be required to repurchase accounts sold
        to CCL
        under certain conditions. The Company is required to pay interest at the
        rate of
        prime plus one percent on 80% of the face amount of the accounts purchased.
        In
        addition, the Company is required to pay a servicing fee totaling .6% (six
        tenths of one percent) of the net face amount of the open receivables for
        each
        15 days the account is open. The agreement, among other provisions, is secured
        by all personal property excluding inventory and equipment.
  4
  In
        May
        2005, the Company entered into a secured convertible debenture for $150,000
        with
        the brother of one of the officer/directors. The debenture incurs interest
        at
        the rate of 8% per annum and is payable in monthly installments including
        interest totaling $3,041 through June 2010. The mortgage is secured by one
        of
        the Company’s properties as well as the home of the officer/director. The
        Company has not made the required payments under the mortgage. The Company
        has
        recorded a beneficial conversion feature totaling $50,000, which were recorded
        as a discount on the debentures and are being amortized over the term of
        the
        related debenture as additional interest expense. In June 2006, the note
        and
        accrued interest were converted into 8,100,000 shares of the Company’s common
        stock. At that time, the remaining beneficial conversion feature will be
        expensed.
 
 In
        May
        2005, the Company entered into a lease for equipment under capital lease
        arrangements with Franklin Funding, Inc. Pursuant to the lease, among other
        provisions, the lessor retains actual title to the leased property until
        the
        termination of the lease, at which time the property can be purchased for
        one
        dollar. The lease dated May 17, 2005 is for certain equipment located in
        the
        Salt Lake City facilities. The term of the lease is forty months with monthly
        payments of $7,755 which is equal to the cost to amortize $250,000 over the
        lease term at an interest rate of approximately 17% per annum. The Company
        had
        obtained the lease and related underlying equipment through an assumption
        agreement with one of the Company’s vendors. The vendor declared bankruptcy in
        2006. Pursuant to a settlement agreement in June 2006 with Franklin Funding,
        The
        Company gave up possession of the equipment and cancelled the lease with
        Franklin Funding.
 
 In
        April
        and May 2005, the Company transferred certain equipment in exchange for the
        repayment of the existing debt on the equipment to a corporation controlled
        by
        the brother of one of the Company’s officers. The Company subsequently leased
        back the equipment. Pursuant to the two separate two-year lease agreements,
        the
        Company is required to make monthly payments totaling $3,000 and $2,000 per
        month, respectively. The Company has not made any of the required lease payments
        pursuant to the agreement.
  In
        April,
        2005 Wells Fargo cancelled our line of credit and demanded full payment of
        the
        term loan totaling $3,900,000. Management believes that this was the result
        of a
        dispute between the Company and Wells Fargo regarding a financing deal between
        the Company and Argilus Capital LLC that was not completed.
 
 The
        Line
        of Credit with Wells Fargo was an ongoing relationship that was renewed in
        March, 2005 (See Note 4). At that time, the Company incurred a charges of
        approximately $37,000 for the renewal and there was no indication of any
        problems. As such, the cancellation of the credit line and demand for payment
        was completely unexpected by management.
 
 The
        Company’s arrangement with Wells Fargo was an asset based lending arrangement
        and as of the cancellation date in April, 2005, Wells Fargo proceeded to
        retain
        all of the Company’s cash as it came it. This prevented the Company from
        operating and essentially put the Company in a “shut down mode” with the
        majority of the work force being laid off and the Company operating at a
        very
        limited capacity. This had a large impact on the Company’s customer
        base.
 
 In
        order
        to keep the Company solvent, management obtained capital through the sale
        of
        assets and property. This resulted in a significant decline in our fixed
        assets
        balance from December 31, 2004 to December 31, 2005. In addition, loans were
        obtained from officers and related parties.
 
 In
        January 2005, Michele Audio entered into a revolving line of credit agreement
        with Ringsport, Ltd., a British Virgin Islands corporation. Pursuant to the
        agreement, Michele Audio may borrow up to one million dollars ($1,000,000)
        for a
        term of one (1) year. The line bears interest at the rate of prime plus one
        percent. The line is collateralized by the cash, marketable securities and
        investments of Michele Audio. In 2005, Michele Audio borrowed $50,000 under
        the
        line.
 
 Our
        efforts in 2004 and 2005 were spent on a number of financing deals that
        ultimately did not come to fruition. Management did not obtain financing
        until
        April, 2006 causing revenues to suffer in 2005.
  In
        November 2004, we signed a Standby Equity Distribution Agreement with Cornell
        Capital Partners, LP (“Cornell”) whereby Cornell agreed to purchase, during the
        next two (2) years, up to $10,000,000 of our common stock. We have not borrowed
        any funds under the agreement.
  In
        October 2004, we entered into a Collateral Share Agreement (the “Collateral
        Share Agreement”) with Ginette and Thomas Gramuglia the President and Vice
        President of the Company at that time. The Collateral Share Agreement called
        for
        the Company to issue to Thomas Gramuglia and Ginette Gramuglia 3,000,000
        shares
        each of the Company’s common stock as consideration for their continuing
        personal guarantees of certain of the Company’s loan obligations. Ownership of
        the collateral shares remain with the Company unless an event of default
        occurs
        under the guaranteed loans set forth in the Collateral Share Agreement, however
        Tom and Ginette Gramuglia have voting rights for the shares during the term
        of
        the Collateral Share Agreement. Additionally, the Collateral Share Agreement
        stipulates that either Thomas or Ginette Gramuglia have the option to purchase
        the collateral shares at either $.24 (twenty-four cents) per share or the
        average closing bid price for the shares for any five (5) day trading period
        during the term of the Collateral Share Agreement. The Collateral Share
        Agreement further indicates that the Company may from time to time transfer
        ownership of the collateral shares to Thomas Gramuglia pursuant to his
        employment agreement and applicable securities laws. The term of the Collateral
        Share Agreement is the shorter of 10 years or the term of the loan
        guarantees.
  5
  In
        September 2003, Michele Audio entered into a short-term note agreement with
        Pittsford Capital Mortgage Partners, LLC (“Pittsford”) for $775,000. The note,
        which was due September 17, 2004, unless repaid sooner, bears interest at
        the
        rate of sixteen percent (16%) per annum. Interest only payments are due
        monthly.
  In
        March
        2002, Michele Audio entered into a $7,000,000 revolving note agreement (the
        “Note Agreement”) with Wells Fargo Business Credit, Inc. (“Wells Fargo”) for
        working capital and issuance of letters of credit. Interest was payable monthly
        at Well’s Fargo’s then base rate plus 3%. The note was payable on demand. At
        December 31, 2004 total borrowings under the Note Agreement totaled $1,666,319
        placing Michele Audio in default. In April 2004, the Note Agreement was amended
        to change certain of the provisions including the formula used to calculate
        the
        funds available for borrowing and settlement of certain default
        charges.
 
 Competition .
  Two
        (2)
        of our competitors in the plastics and packaging industry went out of out
        of
        business. We believe that this will give us an opportunity to regain the
        market
        share that was lost in 2005 and 2006.
  Significant
        Income or Loss .
  In
        2005,
        there was no significant income or loss arising from our continuing operations.
        In 2006, we incurred charges related to options offered in exchange for
        outstanding loans due. These are one time charges that will be incurred in
        2006.
  6
 
 Issuance
        of Unregistered Stock
 
 In
        July
        2006, the Company agreed to issue 250,000 shares of the Company’s common stock
        to its attorneys for legal services. On the date of issuance, the Company
        will
        reflect as expenses for legal fees, approximately $5,000 (the market value
        of
        the shares on the date of the issuance).
  Also
        in
        July 2006, the Company agreed to issue 1,000,000 shares of the Company’s common
        stock to another attorney in connection with services provided in the
        Arbitration with Mr. Arnold and Investor Relations Services. On the date
        of
        issuance, the Company will reflect as expenses for legal fees, approximately
        $20,000 (the market value of the shares on the date of the
        issuance.
  In
        August
        2006, the Company issued 2,500,000 **** shares
        to one of its vendors in partial payment for the balance due to the vendor
        for
        materials.
  In
        April
        2006, the Company granted to officers of the Company, options to purchase
        an
        aggregate of 50,000,000 shares of the Company’s common stock at an exercise
        price of $.02 per share. The options may be exercised after April 15, 2006
        and
        expire after April 15, 2011. The Company valued the warrants at $494,119
        using
        the Black-Scholes option pricing method. The value was expensed as incurred
        as
        there was no vesting period. In August 2006, options to purchase 8,900,000
        options were exercised in exchange for $178,000.
  In
        March
        2006, the Company issued 477,500 shares of common stock to
        employees.
  
 **Forward-Looking
        Information.**
  Statements
        made in this Form 10-QSB which are not purely historical are forward-looking
        statements with respect to the goals, plan objectives, intentions, expectations,
        financial condition, results of operations, future performance and business
        of
        our Company, including, without limitation, statements preceded by, followed
        by
        or that include the words "may", "would", "could", "should", "expects",
        "projects", "anticipates", "believes", "estimates", "plans", "intends",
        "targets" or similar expressions.
  Forward-looking
        statements involve inherent risks and uncertainties, and important factors
        (many
        of which are beyond our Company's control) that could cause actual results
        to
        differ materially from those set forth in the forward-looking statements,
        including the following, in addition to those contained in our Company's
        reports
        on file with the Securities and Exchange Commission: (i) general economic
        or
        industry conditions, nationally and/or in the communities in which our Company
        may conduct business; (ii) changes in the interest rate environment, legislation
        or regulatory requirements; (iii) conditions of the securities markets; (iv)
        changes in the industries in which the Company competes; (v) the development
        of
        products or services that may be superior to products or services offered
        or
        developed by our Company; (vi) competition; (vii) changes in the quality
        or
        composition of products or services developed by our Company; (viii) our
        ability
        to develop new products or services; (ix) our ability to raise capital; (x)
        changes in accounting principals, policies or guidelines; (xi) financial
        or
        political instability; (xii)
        acts of war or terrorism; (xiii) other economic, competitive, governmental,
        regulatory and technical factors affecting our Company's operations, products,
        services and prices.
  Accordingly,
        results actually achieved may differ materially from expected results in
        these
        statements. Forward-looking statements speak only as of the date they are
        made.
        The Company does not undertake, and specifically disclaims, any obligation
        to
        update any forward-looking statements to reflect events or circumstances
        occurring after the date of such statements.
  **Item
        3. Controls and Procedures.**
  The
        Company's President and Treasurer are responsible for establishing and
        maintaining disclosure controls and procedures.
  (a)
        Evaluation of Disclosure Controls and Procedures
  Based
        on
        their evaluation as of March 31, 2006, the President and the Treasurer have
        concluded that the Company's disclosure controls and procedures (as defined
        in
        Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended)
        are effective to ensure that information required to be disclosed in reports
        that the Company files or submits under the Securities Exchange Act, as amended
        is recorded, processed, summarized and reported within the time periods
        specified in the rules and forms of the Securities and Exchange
        Commission.
  (b)
        Changes in internal controls
  Based
        on
        their evaluation as of March 31, 2006, the President and the Treasurer have
        concluded that there were no significant changes in the Company's internal
        controls over financial reporting or in any other areas that could significantly
        affect the Company's internal controls subsequent to the date of his most
        recent
        evaluation, including any corrective actions with regard to significant
        deficiencies and material weaknesses.
  7
 
 **PART
        II - OTHER INFORMATION**
 **Item
        1. Legal Proceedings.**
 
 Except
        as
        indicated below, the Company is not a party to any pending legal proceeding.
        To
        the knowledge of management, no federal, state or local governmental agency
        is
        presently contemplating any proceeding against the Company. No director,
        executive officer or affiliate of the Company or owner of record or beneficially
        of more than five percent (5%) of its common stock is a party adverse to
        the
        Company or has a material interest adverse to the Company in any
        proceeding.
  In
        January 2006, the Company received a subpoena from the SEC as part of an
        investigation the SEC is conducting into trading in certain over the counter
        stocks. The Company has not been notified that the SEC is conducting a formal
        or
        informal investigation into the Company.
  In
        November 2005, the Company received notice of the settlement of arbitration
        between Michele Audio, Investor Relations Services, Inc., a Delaware corporation
        (“Investor Relations”) and Charles Arnold. Pursuant to the settlement, the
        Company is required to pay an aggregate of $290,928 for damages, interest,
        legal
        and administrative fees relating to a claim filed by Investor Relations and
        Charles Arnold that they had not been compensated as called for pursuant
        to a
        Consulting Agreement and Personal Services Agreement respectively (the
“Agreements”).
  Michele
        Audio had simultaneously entered into the Agreements with Investor Relations
        and
        Mr. Arnold during the 2003 fiscal year. Both Investor Relations and Mr. Arnold
        had agreed to be compensated with preferred shares of Michele Audio
        stock.
  **Item
        2. Changes in Securities and Small Business Issuer Purchases of Equity
        Securities.**
  None;
        not
        applicable.
  **Item
        3. Defaults Upon Senior Securities.**
  None;
        not
        applicable.
 
 **Item
        4. Submission of Matters to a Vote of Security Holders.**
 
 On
        December 20, 2005, our Board of Directors and majority shareholders voted
        to
        increase the authorized number of shares from 100,000,000 to
        1,000,000,000.
  On
        September 9, 2003, our Board of Directors and majority stockholders voted
        to
        amend Article I of our Articles of Incorporation to change our name to “Michelex
        Corporation.” The amendment became effective on September 29, 2003. A definitive
        information statement was filed on September 8, 2003.
  **Item
        5. Other Information.**
  None;
        not
        applicable.
 
 **Item
        6. Exhibits and Reports on Form 8-K.**
  (a)
        Exhibits.
 **31.1
        - 302 Certification Thomas Gramuglia.**
  **31.2
        - 302 Certification Sharon Bishop.**
  **32
        - 906 Certification.**
  (b)
        Reports on Form 8-K.
 **None.**
   8
  **SIGNATURES**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrant
        has
        duly caused this Report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  **MICHELEX,
          INC.**
 Date: 11/14/06
              
              /s/
                Thomas GramugliaThomas
                GramugliaPresident
                  and Director
 Date: 11/14/06
              
              /s/
                Sharon BishopSharon
                BishopSecretary
                  and Director
  9