**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





FORM
      10-QSB/A





**QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR**


**15(D)
      OF THE SECURITIES EXCHANGE ACT OF 1934**





For
      the
      quarterly period ended June 30, 2006







Commission
      file number 0-4846-3




**MEMS
      USA, INC.**


**(Name
      of small business issuer in its charter)**








Nevada
            
            82-0288840**(State
                or other jurisdiction of**
              **incorporation
                or organization)**
            
            **(I.R.S.
                employer**
              **identification
                no.)**5701
                Lindero Canyon Road, Suite 2-100Westlake
                Village, California
            
            91362**(Address
                of principal executive offices)**
            
            **(Zip
                code)**





**Issuer’s
      telephone number, including area code**  (818)
      735-4750




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




The
      number of shares of the common stock outstanding as of August 11, 2006 was
      20,852,327.




**Documents
      incorporated by reference:**





The
      amended 10-QSB includes reviewed Financial Statements as of June 30, 2006 and
      2005 by the independently registered accounting firm.  The 10-QSB filed on
      August 14, 2006 included the financial statements which did not reflect the
      final revisions in Notes to Consolidated Financial Statements.





Form
      8-K
      Dated April 29, 2005 Re. Can Am Ethanol One, Inc.





Form
      8-K
      Dated December 21, 2005 Re. Hearst Ethanol One, Inc.




Form
      10-KSB Dated February 2, 2006 Re. MEMS USA, Inc. Annual Report.





Form
      8-K
      Dated March 30, 2006 Re. MEMS USA, Inc. - CDI Customer Order





Form
      8-K
      Dated April 21, 2006 Re. Hearst Ethanol One, Inc.







-
          1







**FORM
      10-QSB/A**





**For
      The Quarterly Period Ended June 30, 2006**





**INDEX**


**Page**


**PART
                  I - FINANCIAL INFORMATION**Item
                  1.
              Financial
                Statements•Consolidated
                  Balance Sheets (unaudited) as of June 30, 2006 and September 30,
                  2005
              3•
Consolidated
                Statements of Operations (unaudited) for the three and nine months
                ended
                June 30, 2006 and 2005
              4•
ConsolidatedStatements of Cash Flows (unaudited) for the nine months ended June
                30,
                2006 and 2005
              5•Consolidated
                  Statement of Equity (unaudited) as of June 30, 2006
              6•
                  Notes to Consolidated Financial Statements (unaudited)
              7
                  -
                  18Item
                  2.
              Management’s
                Discussion and Analysis or Plan of Operation
              18 -
                  24Item
                  3.
              Controls
                and
                Procedures
              24**PART
                  II****-
                  OTHER INFORMATION**Item
                  1.
              Legal
                Proceedings
              24Item
                  2.
              Unregistered
                Sales of Equity Securities and Use of Proceeds
              25Item
                  3.
              Defaults
                upon
                Senior Securities
              27Item
                  4.
              Submission
                of
                Matters to a Vote of Security Holders
              27Item
                  5.
              Other
                Information
              27Item
                  6.
              Exhibits
              28Signatures
              29







-
          2







ITEM
      1 --
      FINANCIAL STATEMENTS


**MEMS
                USA, INC.****Consolidated
                Balance Sheets****(Unaudited)**
            
            **Audited****A
                S S E T S**
            
            **June
                30, 2006**
            
            **September**
              **30,
                2005**Current
                Assets:Cash
                and cash equivalent
            
            $
            788,676
            
            $
            828,153Accounts
                receivable, net allowance for uncollectible of $58,490 and $46,196
                respectively
            
            
            1,162,173
            
            
            756,840Inventories,
                net of provision for slow moving items of$25,000
                and $25,000 respectively
            
            
            12,733,677
            
            
            880,370Other
                current assets
            
            
            701,725
            
            
            170,197Total
                current assets
            
            
            15,386,251
            
            
            2,635,560Plant,
                property and equipment, net
            
            
            2,668,267
            
            
            2,316,836Other
                assets
            
            
            471,785
            
            
            388,906Investment
                in Can Am Ethanol One, Inc.
            
            
            71,765
            
            
            71,765Goodwill
            
            
            915,373
            
            
            915,373**Total
                Assets**
            
            $
            19,513,441
            
            $
            6,328,440**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                Liabilities:Accounts
                payable and accrued expenses
            
            $
            3,143,227
            
            $
            1,395,264Lines
                of credits
            
            
            341,905
            
            
            750,744Notes
                payable
            
            
            347,660
            
            
            -Current
                portion of long-term debt
            
            
            92,871
            
            
            29,292Other
                liabilities
            
            
            159,389
            
            
            -Loans
                from shareholders
            
            
            151,073
            
            
            -Convertible
                loan payable
            
            
            150,000
            
            
            -Liability
                to be satisfied through the issuance of shares
            
            
            1,007,776
            
            
            1,111,000Total
                current liabilities
            
            
            5,393,901
            
            
            3,286,300Long-term
                liabilities
            
            
            41,778
            
            
            211,942Loans
                from shareholders
            
            
            -
            
            
            191,600Liability
                due to a legal settlement
            
            
            307,000
            
            
            -Common
                shares with mandatory redemption
            
            
            -
            
            
            1,400,000Common
                shares payable under terms of acquisition agreement
            
            
            -
            
            
            809,966Total
                Liabilities
            
            
            5,742,679
            
            
            5,899,808Minority
                interests
            
            
            1,494,269
            
            
            -Stockholders'
                equity:Common
                stock, $0.001 par value; 100,000,000 shares authorized;
                20,852,327and17,404,197sharesrespectively
                issued and outstanding
            
            
            23,547
            
            
            17,404Stock
                subscriptions receivable
            
            
            (2,512,850
            )
            
            (250
            )Additional
                paid in capital
            
            
            22,939,030
            
            
            5,956,931Shares
                to be redeemed
            
            
            (231,076
            )
            
            -Accumulated
                deficit
            
            
            (4,142,600
            )
            
            (5,545,453
            )Treasury
                stock (2,699,684 shares)
            
            
            (3,799,558
            )
            
            -Total
                stockholders' equity
            
            
            12,276,493
            
            
            428,632**Total
                liabilities and stockholders' equity**
            
            $
            19,513,441
            
            $
            6,328,440





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





-
          3






**MEMS
                USA, INC****Consolidated
                Statement of Operations****Three
                and nine months ended June 30****(Unaudited)****Three
                months ended June 30,**
            
            **Nine
                months ended June 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Revenues
            
            $
            2,029,431
            
            $
            1,878,580
            
            $
            7,171,362
            
            $
            6,757,819Cost
                of revenues
            
            
            1,554,914
            
            
            1,558,758
            
            
            5,585,009
            
            
            5,018,238Gross
                profit
            
            
            474,517
            
            
            319,822
            
            
            1,586,353
            
            
            1,739,581Selling,
                general and administrative expenses
            
            
            1,161,641
            
            
            1,090,010
            
            
            3,837,378
            
            
            3,446,593Loss
                from operations
            
            
            (687,124
            )
            
            (770,188
            )
            
            (2,251,025
            )
            
            (1,707,012
            )Other
                income (expense)
            
            
            (18,385
            )
            
            3,121
            
            
            (52,888
            )
            
            6,222Income
                due to legal settlement
            
            
            -
            
            
            -
            
            
            3,703,634
            
            
            -Loss
                attributable to minority interest
            
            
            3,133
            
            
            -
            
            
            3,133
            
            
            -Net
                income (loss)
            
            $
            (702,376
            )
            $
            (767,067
            )
            $
            1,402,854
            
            $
            (1,700,790
            )Net
                income (loss) per share, basic and diluted:Weighted
                average number of shares outstanding, basic
            
            
            19,849,572
            
            
            17,240,840
            
            
            19,026,161
            
            
            16,102,581Net
                income (loss) per share, basic
            
            $
            (0.04
            )
            $
            (0.04
            )
            
            0.07
            
            $
            (0.11
            )Weighted
                average number of shares outstanding, diluted
            
            
            19,849,572
            
            
            17,240,840
            
            
            20,700,202
            
            
            16,102,581Net
                income (loss) per share, diluted
            
            $
            (0.04
            )
            $
            (0.04
            )
            $
            0.07
            
            $
            (0.11
            )




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






-
          4







**MEMS
                USA, INC.****CONSOLIDATED
                STATEMENT OF CASH FLOWS****Nine
                months ended June 30****(Unaudited)****2006**
            
            **2005****Cash
                flows from operating activities:**Net
                income (loss)
            
            $
            1,402,854
            
            $
            (1,700,790
            )Adjustments
                to reconcile net income (loss) to net cash used in operating
                activities:Depreciation
            
            
            173,855
            
            
            109,157Common
                stock issued for services
            
            
            319,677
            
            
            25,000Income
                due to legal settlement
            
            
            (3,703,634
            )
            
            -Change
                in assets and liabilities:Accounts
                receivable
            
            
            (405,333
            )
            
            164,779Inventories
            
            
            (11,853,307
            )
            
            (63,484
            )Other
                current assets
            
            
            (531,528
            )
            
            (105,306
            )Accounts
                payable and accrued expenses
            
            
            1,747,962
            
            
            297,196Lines
                of credit
            
            
            -
            
            
            (100,612
            )Current
                portion of long-term debt
            
            
            -
            
            
            (21,439
            )Other
                current liabilities
            
            
            159,390
            
            
            -Total
                adjustments
            
            
            (14,092,918
            )
            
            305,291Net
                cash used in operating activities
            
            
            **(12,690,064**
            **)**
            
            **(1,395,499**
            **)****Cash
                flows from investing activities:**Purchase
                of property and equipment
            
            
            (525,287
            )
            
            (39,428
            )Cash
                balance net of payments for purchase of Bott and Gulfgate
            
            
            -
            
            
            5,073Common
                stock issued for cash
            
            
            
            
            
            2,643,631Other
                assets
            
            
            (82,878
            )
            
            -Net
                cash (used in) provided by investing activities
            
            
            **(608,165**
            **)**
            
            **2,609,276****Cash
                flows from financing activities:**Minority
                interest
            
            
            1,494,269
            
            
            -Lines
                of credit
            
            
            (35,506
            )
            
            -Notes
                payable
            
            
            (25,673
            )
            
            -Current
                portion of long-term debt
            
            
            63,579
            
            
            -Liability
                to be satisfied through the issuance of shares
            
            
            2,776
            
            
            -Loan
                from shareholders
            
            
            (40,527
            )
            
            5,000Payment
                on long term liabilities
            
            
            (20,163
            )
            
            (47,119
            )Purchase
                of shares pursuant to acquisition of subsidiaries
            
            
            (20,000
            )
            
            -Underwriting
                related to issuance of shares
            
            
            (97,316
            )
            
            -Investment
                in HEO
            
            
            10,284,435
            
            
            -Common
                stock issued for cash
            
            
            1,652,878
            
            
            -Common
                stock payable under terms of acquisition agreement
            
            
            -
            
            
            (809,966
            )Net
                cash provided by (used in) financing activities
            
            
            **13,258,752**
            
            
            **(852,085**
            **)**Net
                increase in cash and cash equivalents
            
            
            (39,477
            )
            
            361,692Cash
                and cash equivalents, beginning of period
            
            
            828,153
            
            
            26,439Cash
                and cash equivalents, end of period
            
            **$**
            **788,676**
            
            **$**
            **388,131**Supplemental
                disclosure of cash flow information:Income
                taxes paid
            
            $
            29,354
            
            $
            -Interest
                paid
            
            $
            137,332
            
            $
            27,882Supplemental
                disclosure of non-cash financing activities:Common
                stock (including $1,400,000 of shares subject to mandatory redemption
                factor) issued for acquisition of Bott and Gulfgate
            
            $
            809,966
            
            $
            3,059,966Common
                stock issued for services
            
            $
            319,677
            
            $
            12,500




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







-
          5









MEMS
                USA, INC.Consolidated
                Statement of Equity(Unaudited)**Common
                stock**
            
            **Subscriptions
                receivable**
            
            **Additional
                paid in capital**
            
            **Treasury
                Stock**
            
            **Accumulated
                deficit**
            
            **Stockholders'
                equity****Balance
                as of September 30, 2005**
            
            $
            17,404
            
            $
            (250
            )
            $
            5,956,932
            
            $
            -
            
            $
            (5,545,454
            )
            $
            428,632Common
                stock issued for service
            
            
            229
            
            
            
            
            
            319,448
            
            
            
            
            
            
            
            
            319,677Common
                stock issued for cash received in prior year
            
            
            129
            
            
            
            
            
            105,871
            
            
            
            
            
            
            
            
            106,000Common
                stock issued for cash received
            
            
            2,014
            
            
            
            
            
            1,650,864
            
            
            
            
            
            
            
            
            1,652,878Shares
                to be redeemed due to legal settlement
            
            
            
            
            
            
            
            
            (231,076
            )
            
            
            
            
            
            
            
            (231,076
            )Common
                stock issued pursuant to terms of acquisition
            
            
            371
            
            
            
            
            
            809,595
            
            
            
            
            
            
            
            
            809,966Common
                stock issued for subscriptions receivable
            
            
            3,400
            
            
            (2,512,600
            )
            
            2,509,200
            
            
            
            
            
            
            
            
            -Canceled
                put option related to acquisition of Texas subsidiaries
            
            
            
            
            
            
            
            
            1,400,000
            
            
            
            
            
            
            
            
            1,400,000Investment
                in HEO
            
            
            
            
            
            
            
            
            10,284,436
            
            
            
            
            
            
            
            
            10,284,436Treasury
                stock from legal settlement
            
            
            
            
            
            
            
            
            
            
            
            (3,799,558
            )
            
            
            
            
            (3,799,558
            )Underwriting
                fees
            
            
            
            
            
            
            
            
            (97,316
            )
            
            
            
            
            
            
            
            (97,316
            )Net
                income for the nine months
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,402,854
            
            
            1,402,854**Balance
                as of June 30, 2006**
            
            $
            23,547
            
            $
            (2,512,850
            )
            $
            22,707,954
            
            $
            (3,799,558
            )
            $
            (4,142,600
            )
            $
            12,276,493




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








-
          6





**Notes
      to consolidated financial statements:**




**(1)** **Company
      and Summary of Significant Accounting Policies:**




**Nature
      of Business:**




MEMS
      USA,
      Inc., (the “Company”) was incorporated in Nevada in 2002 **.** The
      Company’s mission is to support the energy industry in producing cleaner burning
      fuels. Each Subsidiary has a specific eco-energy focus: (1) development of
      a
      woodwaste to bio-renewable fuel-grade alcohol/ethanol project (HEO); (2) selling
      engineered products (Bott); and (3) engineering, fabrication and sale of
      eco-focused energy systems (Gulfgate); ISO 9001:2000-certified, and have served
      customers throughout the energy sector since 1952.






**Subsidiaries:**




The
      Company has
      three wholly-owned subsidiaries: California MEMS USA, Inc., (“CA MEMS”) a
      California corporation, Bott Equipment Company, Inc. (“Bott”), Gulfgate
      Equipment, Inc. (“Gulfgate”), and the Company hold majority interest (87.3%) of
      Hearst Ethanol One, Inc., a Federal Canadian corporation (“HEO”). The business
      of the subsidiaries is listed below.







**CA
      Mems**




The
      Board
      of Directors of CA MEMS voted in 2006 to amend CA MEMS' Articles of
      Incorporation changing its name to "Convergence Ethanol(TM) Corp." 
CA MEMS is a California-based developer of bio-renewable energy projects
      and provider of professional engineered systems to the energy
      industry.




**Bott**


Bott
      is a
      stocking distributor for premier lines of industrial pumps, valves and
      instrumentation. Bott specializes in the construction of aviation refueling
      systems for helicopter refueling on oil rigs throughout the world.  Bott
      and Gulfgate have a combined direct sales force as well as commissioned sales
      representatives that sell their products. Both Bott and Gulfgate earned ISO
      9001:2000 certification and are qualified international vendors to the oil
      and
      gas industries.




**Gulfgate**




Gulfgate
      engineers, designs, fabricates and commissions eco-focused energy systems
      including particulate filtration equipment for the oil and power
      industries.   Gulfgate also makes and sells vacuum dehydration and
      coalescing systems that remove water from hydrocarbon oils.  Gulfgate
      maintains and operates a rental fleet of filtration and dehydration
      systems.







**Hearst
      Ethanol One - A Project to Produce Bio-renewable Fuel-Grade Alcohol/Ethanol
      from
      Woodwaste**





The
      Company is currently developing a project that is expected to produce 120
      million gallons a year of bio-renewable fuel-grade alcohol/ethanol. In December
      2005, the Company incorporated Hearst Ethanol One, Inc., a Federal Canadian
      Corporation (“HEO”). HEO, which owns 850 acres in Hearst, Ontario, Canada and
      nearly 2 million metric tons of woodwaste, is the Company's first bio-renewable
      energy project.






-
          7






HEO
      is
      building an ecologically sound woodwaste refinery to produce bio-renewable,
      fuel-grade alcohol or ethanol. Organic woodwaste (organic chips or fiber),
      the
      raw material for fuel-grade alcohol/ethanol, is an overabundant waste stream
      of
      the Canadian forest products industries. The refinery will use modern catalytic
      processing, as used in oil refineries, to synthetically convert organic
      woodwaste into fuel-grade alcohol or ethanol. This convergence of technologies
      will enable the continuous production of bio renewable fuel-grade alcohol in
      high volume, at low cost. Currently, HEO is 87.3% owned by MEMS USA,
      Inc.





Fuel-grade
      alcohol/ethanol is the world's most used alternative liquid fuel. Worldwide
      demand is more than double production capacity and grows at over 25% per year.
      Next years market for fuel-grade alcohol/ethanol in Canada is eight times
      greater than last year’s production capability.





The
      Province of Ontario has mandated that all motor gasoline sold in Ontario must
      contain at least 5% ethanol by 2007, with the goal of 10% by 2010, providing
      an
      assured market for fuel-grade alcohol/ethanol. HEO has invested over 17 million
      to date to develop HEO, including expenses for the purchase of 850 acres in
      Hearst, Ontario, obtaining construction permits, acquiring a quarry for
      construction aggregate and the purchase of a woodwaste repository containing
      nearly 2 million tons of woodwaste. Woodwaste on site is sufficient supply
      to be
      able to run the plant for two years or for production of 240 million gallons
      of
      fuel-grade alcohol/ethanol.




**Accounts
      Receivable:**




In
      the
      normal course of business, the Company provides credit to customers. We monitor
      our customers’ payment history, and perform credit evaluation of their financial
      condition. We maintain adequate reserves for potential credit losses based
      on
      the age of the receivable and specific customer circumstance.




**Inventories:**




Inventories
      are valued at the lower of cost (first-in, first-out) or market value and have
      been reduced by an allowance for excess, slow-moving and obsolete inventories.
      The estimated allowance is based on Management's review of inventories on hand
      compared to historical usage and estimated future usage and sales. Inventories
      under long-term contracts reflect accumulated production costs, factory
      overhead, initial tooling and other related costs less the portion of such
      costs
      charged to cost of sales and any un-liquidated progress payments. In accordance
      with industry practice, costs incurred on contracts in progress include amounts
      relating to programs having production cycles longer than one year, and a
      portion thereof may not be realized within one year.




**Revenue
      Recognition**




The
      majority of the Company’s revenues are recognized when products are shipped to
      or when services are performed for unaffiliated customers. Other revenue
      recognition methods the Company uses include the following: revenue on
      production contracts is recorded when specific contract terms are fulfilled,
      which is when the product or service is delivered; revenue from cost
      reimbursement contracts is recorded as costs are incurred.




**Stock
      Based Compensation:**






-
          8






Pro
      forma
      information regarding net loss and loss per share, pursuant to the requirements
      of SFAS 123, as amended by FAS 148 Accounting For Stock-Base Compensation
      Transaction and Disclosure - An Amendment to FAS-123, for the nine months ended
      June 30, 2006 and 2005 are as follows:






2006
            
            2005Net
                income (loss), as reported
            
            $
            1,402,854
            
            $
            (1,700,790
            )Deduct:Total
                stock-based employee compensation expenses determined under the fair
                value
                Black-Scholes method with a 129% and 80% volatility at June 30, 2006
                and
                2005 respectively and a 6% and 3% respectively risk free rate of
                return
                assumption
            
            
            (29,911
            )
            
            (97,826
            )Pro
                forma net income (loss)
            
            $
            1,372,943
            
            $
            (1,798,616
            )Income
                (loss) per share:Weighted
                average shares, basic
            
            
            19,026,161
            
            
            16,102,581Basic,
                pro forma, per share
            
            $
            0.07
            
            $
            (0.11
            )Weighted
                average shares, diluted
            
            
            20,700,202
            
            
            16,102,581Diluted,
                pro forma, per share
            
            $
            0.07
            
            $
            (0.11
            )





**Employee
      Stock Options:**




In
      connection with the employment agreements, the Company has granted options
      to
      certain key executives to acquire common stock of the Company
      (“Options”).




The
      number of weighted average exercise prices of all options granted for the nine
      months ended June 30, 2006 are as follows:




Number
            
            Average
              Exercise
                PriceOutstanding
                at September 30, 2005
            
            
            5,338,227
            
            $
            3.00Granted
                during the period
            
            
            827,499
            
            
            2.39Exercised
            
            
            10,000
            
            
            1.00Cancelled
            
            
            870,000
            
            
            3.25Outstanding
                at June 30, 2006
            
            
            5,285,726
            
            $
            1.98




**Interim
      Financial Statements:**




The
      accompanying unaudited consolidated financial statements for the nine months
      ended June 30, 2006 and 2005 include all adjustments (consisting of only normal
      recurring accruals), which, in the opinion of management, are necessary for
      a
      fair presentation of the results of operations for the periods presented.
      Interim results are not necessarily indicative of the results to be expected
      for
      a full year. These unaudited consolidated financial statements should be read
      in
      conjunction with the audited consolidated financial statements for the year
      ended September 30, 2005 included in the Company’s 2005 Annual
      Report.




**Going
      Concern:**




The
      accompanying financial statements have been prepared in conformity with
      accounting principles generally accepted in the United States of America, which
      contemplates the Company as a going concern. However, the Company has sustained
      substantial operating losses in recent years ($4,142,600) and has used
      substantial amounts of working capital in its operations. Realization of a
      major
      portion of the assets reflected on the accompanying balance sheet is dependent
      upon continued operations of the Company which, in turn, is dependent upon
      the
      Company's ability to meet its financing requirements and succeed in its future
      operations. Management believes that actions presently being taken to revise
      the
      Company's operating and financial requirements provide them with the opportunity
      for the Company to continue as a going concern. We will continue our attempts
      to
      raise additional cash through debt or equity financings in 2006 in order to
      meet
      our working capital requirements.






-
          9






**(2)** **Business
      Acquisition:**




On
      October 26, 2004 (“Closing Date”), the Company consummated the purchase of 100%
      of the outstanding shares of each two Texas corporations, Bott Equipment
      Company, Inc. (“Bott”) and Gulfgate Equipment, Inc. (“Gulfgate”), each effective
      October 1, 2004, from their president and sole shareholder, Mr. Mark Trumble.




Under
      the
      terms of the stock purchase agreement, the Company acquired 100% of the shares
      of Bott and Gulfgate from Mr. Trumble for $50,000 in cash and 1,309,677 shares
      of the Company’s common stock.




752,688
      shares of the shares issued to Trumble were subject to a one time put. On or
      about October 26, 2005, Mr. Trumble exercised this put. Under the terms of
      the
      put, Trumble elected to exchange all of the 752,688 shares for an amount equal
      to $1.86 per share (which is the average price of the Company’s stock on the OTC
      BBC for the thirty trading days comprising September 13, 2004 through October
      22, 2004) times the number of shares exchanged by Trumble pursuant to the put.
      The Company had sixty (60) days from the date of exercise to pay off any sums
      due thereby. An extension for
      payment of the put was negotiated between Mr. Trumble and the Company. The
      Company’s performance under the terms of
      the
      put is secured by second deeds of
      trust with vendors’ liens in favor of Trumble on
      certain parcels of the Companies’ Texas real estate.




The
      752,688 shares subject to the put, have been properly treated as a $1.4 million
      liability, pursuant to Statement of Financial Accounting Standards no. 150
      (SFAS
      150) Accounting for Certain Financial Instruments with Characteristics of both
      Liabilities and Equity until the terms of the put expire.




The
      Company agreed to create an employee stock option plan for its employees and
      those of its affiliates, including Bott and Gulfgate. In connection with said
      plan, the Company agreed to file Registration Statement Form S-8 under The
      Securities Act of 1933 (securities to be offered to employees in employee
      benefit plans) within 30 days of the Closing Date. The Company had also agreed
      that it would issue Trumble an additional 123,659 shares of the Company’s
      restricted stock if it failed to achieve this milestone. The Company filed
      the
      Form S-8 Registration Statement within 30 days of the Closing Date thereby
      achieving this milestone and avoiding the issuance of penalty shares to Mr.
      Trumble.




The
      Agreement also provided that Trumble would personally introduce the Company’s
      officers and representatives to five (5) qualified Texas bankers and that the
      Company will utilize its best efforts to remove Trumble’s name as guarantor from
      the Bott and Gulfgate lines of credit (See notes 7 and 8) within 90 days of
      the
      fifth introduction. The Company agreed that it will issue Trumble an additional
      370,977 shares of restricted stock should it fail to achieve this milestone.
      Mr.
      Lawrence Weisdorn, Mr. Daniel Moscaritolo and Dr. James Latty have also agreed
      to join Trumble as guarantors on the Bott and Gulfgate credit lines. Mr.
      Weisdorn joined Trumble as guarantor on the Bott and Gulfgate credit lines
      in or
      around mid-November 2004. Mr. Moscaritolo and Dr. Latty have agreed to join
      as
      guarantors should the Company fail to recognize the milestone of removing
      Trumble’s name as guarantor from the existing credit lines within the specified
      time period. As of the date of this report, only four qualified personal
      introductions have occurred. Thus, the 90 day milestone has not been triggered.
      The Company is committed to removing Mark Trumble as guarantor from the existing
      lines of credit and has submitted applications for credit lines with a number
      of
      financial institutions.






-
          10






In
      October 2004, the Company agreed to secure a best efforts underwriting
      commitment letter from a qualified investment banker within 45 days of the
      Closing Date to raise a minimum of $2 million in equity capital. An additional
      123,659 shares of the Company’s restricted stock were to be issued to Trumble
      should the Company fail to achieve this milestone. The Company obtained a
      commitment letter within 45 days of the Closing Date thereby achieving this
      milestone and avoiding the issuance of penalty shares to Mr. Trumble. The
      Company also agreed, in connection with the $2 million equity raise, that the
      Company would receive $2 million in gross equity funding within 120 days of
      the
      Closing Date. The Company has agreed that it will issue Trumble an additional
      123,659 shares of its restricted stock should it fail to achieve this milestone.
      The Company did not achieve this milestone and is obligated to issue 123,659
      penalty shares to Mark Trumble. During January 2006 the Company issued and
      delivered 123,659 penalty shares in satisfaction of its obligation to Mr.
      Trumble.




Finally, the
      Company agreed to allow Trumble to sell 326,344 shares of his stock at a
      purchase price of approximately $607,000 to private parties, including a related
      party, Lawrence Weisdorn, Sr., the former CEO’s father and a shareholder and/or
      Weisdorn Sr.’s assignees pursuant to a written agreement between Trumble and
      Weisdorn Sr. Should
      Trumble fail to recognize $607,000, through no fault of Trumble, the Company
      agreed to issue up to 494,636 shares of restricted stock to Trumble. The
      percentage of the Penalty Shares the Company shall issue, if any, shall be
      prorated in accordance with any monies received by Trumble during the 60-day
      period. It is further understood that the penalties were subject to the
      following schedule: (1) Trumble shall have recognized at least $75,000 within
      15
      days of the Closing Date or he shall receive up to 61,829 Penalty Shares; (2)
      Trumble shall recognize an additional $75,000 within 30 days of the Closing
      Date
      or he shall receive up to an additional 61,829 Penalty Shares; (3) Trumble
      shall
      recognize an additional $150,000 within 45 days of the Closing Date or he shall
      receive up to an additional 123,659 Penalty Shares; and (4) Trumble shall
      recognize an additional $307,000 within 60 days of Closing Date or he shall
      receive up to an additional 247,318 Penalty Shares. Each milestone is to be
      calculated as a stand-alone event. The obligations of items 1, 2, and 3 were
      met
      which avoided the associated penalty shares.  All of the above Penalty
      Share calculations shall be subject to a pro-rata offset for monies received
      that fall short of the indicated milestones.




On
      December 15, 2005, the Company assumed Weisdorn Sr.’s obligation to purchase
      165,054 shares from Mr. Trumble at $1.86 per share, which constituted the
      remainder of Weisdorn, Sr.’s obligation to purchase such shares pursuant to the
      written agreement referenced in the paragraph above. During the first quarter
      of
      fiscal year 2005, the Company, in order to avoid the issuance of 61,829 penalty
      shares, paid $75,000 directly to Mr. Trumble. The Company has received
      approximately $39,000 of the $75,000 from Mr. Weisdorn Sr. The Company has
      recorded this payment as a reduction to additional paid-in capital.






-
          11






Mr.
      Trumble did not recognize $307,000 within 60 days of the closing date. As a
      result, the Company was obligated to issue 247,318 penalty shares to Mr.
      Trumble. During January 2006 the Company issued and delivered 247,318 penalty
      shares in satisfaction of its obligation to Mr. Trumble. Additionally, the
      covenant to remove Mr. Trumble from the lines of credit remains and may require
      us to issue up to 370,977 additional penalty shares in the event that we fail
      to
      satisfy that remaining covenant. Effective May 8, 2006, the Company and Mr.
      Trumble amended the original Stock Purchase Agreement dated October 26, 2004
      (the “SPA”) and agreed, among other things, to issue 60,000 shares to Mr.
      Trumble in full and final satisfaction of all claims that Trumble has or may
      have to additional shares of the Company’s common stock as a result of any
      breach of, or failure to meet a milestone under the SPA.




**First
      amended stock purchase agreement with Mark Trumble**




Effective
      May 8, 2006, the Company and its officers entered into a First Amended Stock
      Purchase Agreement and Release (“Agreement”) with Mark Trumble, amending that
      certain Stock Purchase Agreement dated September 1, 2004 (the “SPA”), pursuant
      to which the parties agreed to, among other things, Trumble agreed to release
      the Company from its obligations under the put, including any obligation to
      make
      the Interest Payment or to pay interest on any sum whatsoever, and shall release
      any security interest he claims in the real estate owned by Gulfgate and/or
      Bott, and the Company, within 60 days, shall secure a funding commitment in
      which Trumble shall be paid the sum of $307,000 at the time of the closing
      of
      the funding. This sum shall be used to purchase 165,053 shares of the common
      stock of the Company from Trumble at the price of $1.86 per share. The Company
      shall also pay from the funding all amounts of bank or other indebtedness owed
      by the Company, Bott or Gulfgate, which is personally guaranteed by Trumble.
      The
      Company shall issue Trumble, upon closing of the funding, 60,000 shares of
      the
      Company’s common stock. This additional issuance of shares of the common stock
      of the Company shall be in full and final satisfaction of all claims that
      Trumble has or may have to additional shares of the Company’s common stock as a
      result of any breach of, or failure to meet a milestone under, the SPA. As
      of
      the date of this report the Company has not secured a funding commitment and
      has
      negotiated an extension of the Agreement to December 2006.




Non-Competition
      Agreement:




The
      agreement also provides that Trumble shall not for a period of eighteen (18)
      months following his separation from the Company, unless permitted to do so
      by
      the Company, engage, directly or indirectly as an individual, representative
      or
      employee of others, in the business of designing, manufacturing or selling
      products in competition with the Company or any of its subsidiaries in any
      geographic area where the Company or its subsidiaries are doing business.




Management
      believes that the acquisition of Bott and Gulfgate will provide the Company
      with
      cost effective means to engineer, manufacture and distribute products for its
      customers in the energy sector. Bott and Gulfgate may also provide or construct
      products used in ethanol production facilities. The acquisition has been
      accounted for as a purchase transaction pursuant to Statement of Financial
      Accounting Standards No. 141 Business Combinations (SFAS 141) and accordingly,
      the acquired assets and liabilities assumed are recorded at their book values
      at
      the effective date of acquisition except for the real property which approximate
      the most current appraised value. Excess cost of $915,373 over the appraised
      real property and book value of the other acquired assets and liabilities
      assumed was assigned to goodwill. Goodwill included 370,977 of penalty common
      shares valued at $809,966.






-
          12






The
      following table summarizes the estimated fair values of the assets acquired
      and
      liabilities assumed at the date of acquisition.






Current
                assets
            
            $
            1,826,720Plant,
                property, and equipment, net
            
            
            2,237,749Total
                assets acquired
            
            
            4,064,469Total
                liabilities assumed
            
            
            (1,827,942
            )Net
                assets acquired
            
            
            2,236,527Excess
                costs over fair value
            
            
            915,373Total
                purchase price
            
            $
            3,151,900




The
      $3,151,900 purchase price was comprised of the following:




Cash
            
            $
            50,000Common
                Stock (370,977 penalty shares)
            
            
            809,965Common
                Stock (1,309,677 shares)
            
            
            2,291,935Total
                purchase price
            
            $
            3,151,900




**(3)** **Inventories:**




Inventories
      consist of finished goods of $590,290 and $502,430 at June 30, 2006 and
      September 30, 2005 respectively; raw material of $11,394,500 and $0 at June
      30,
      2006 and September 30, 2005 respectively and work in process in the amount
      of
      $773,887 and $402,940 respectively.




**(4)** **Plant,
      Property and Equipment** :




A summary
      at June 30, 2006 and September
      30, 2005 are
      as
      follows:




2006
            
            2005Land
            
            $
            816,022
            
            $
            502,000Buildings
                and improvements
            
            
            1,161,574
            
            
            1,073,000Furniture,
                machinery and equipment
            
            
            1,014,505
            
            
            769,590Automobiles
                and trucks
            
            
            47,508
            
            
            180,652Leasehold
                improvement
            
            
            82,879
            
            
            79,1053,122,488
            
            
            2,604,347Less
                accumulated depreciation
            
            
            (454,221
            )
            
            (287,511
            )$
            2,668,267
            
            $
            2,316,836




Depreciation
      expense charged to operations for nine months and three months ended June 30,
      2006 and 2005 were $173,855 and $58,207; and $109,157 and $47,535
      respectively.






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          13






**(5)** **Investments
      in Hearst Ethanol One, Inc.:**




**Hearst
      Ethanol One Inc. Agreement:**




On
      April
      21, 2006, Hearst Ethanol One, Inc., a Federal Canadian corporation (“HEO”), a
      majority-owned subsidiary of Registrant, completed the acquisition of
      approximately 850 acres of real property, together with all biomass material
      located thereon (approximately two million tons of woodwaste), located in the
      Township of Kendall, District of Cochrane, Canada (cumulatively, the
“Property”), from C. Villeneuve Construction Co. LTD., a Canadian Corporation
      (“Villeneuve”), as provided under that agreement to purchase these assets
      earlier reported in Registrant’s 8-K dated December 27, 2005 (the “Agreement”).
      The Property was purchased to provide the site and the biomass material for
      the
      construction and operation of a 120,000,000 gallon per year bio-renewable
      woodwaste-to-fuel-grade alcohol/ethanol refinery to be owned by HEO and
      designed, built and managed by  Convergence
      Ethanol, Inc. aka, CA MEMS, a subsidiary of Registrant. The on-site inventory
      of
      biomass is sufficient for 1.5 years of production or 180,000,000 gallons of
      fuel-grade alcohol/ethanol.




Pursuant
      to the provisions of the Agreement, HEO issued ten point five percent (10.5%)
      of
      HEO’s common shares to Villeneuve as consideration for the transfer of the
      Property. At the close of the transaction, Registrant owned 87.3% of the common
      stock of HEO.




Pursuant
      to a Memorandum of Understanding entered into on April 20, 2006 between HEO
      and
      Villeneuve to clarify the Agreement, Villeneuve shall be entitled to one member
      of HEO’s board of directors for so long as Villeneuve is at least a ten percent
      (10%) shareholder of HEO. As of the date of this report HEO has incurred
      $129,000 for environmental certificates and legal expenses.




**Hearst
      Ethanol One Inc. Valuation:**




The
      Company engaged an independent market and investment research firm, based in
      Toronto, Canada, to appraise the assets owned by HEO. The research firm
      specializes in the forest products industry including timber utilization, fiber
      processing, and market research.




The
      market research firm carried out two separate preliminary valuations of HEO:
      a
      residual property and biomass/woodwaste replacement valuation and a separate
      valuation of the biomass/woodwaste using a “fuel oil avoided cost” method. The
      residual valuation provides a value of the woodwaste on a disposal basis with
      no
      future ethanol refinery planned. The “fuel oil avoided cost” valuation provides
      a value of the biomass to a future ethanol refinery. The Company has included
      the most conservative of the two appraisal methods and that value is included
      in
      the consolidated financials statement for June 30, 2006. The preliminary
      valuation based on the residual property valuation and the replacement value
      of
      the biomass on the HEO site is US $11,797,096 which includes land $314,022,
      building $88,574 and raw material $11,394,500





A
      number
      of assets of HEO that have not been included in this initial preliminary
      valuation including but not limited to: standing timber value, gross
      merchantable mature timber on site, the non-merchantable slash residual from
      the
      mature timber, and the immature and undersize wood biomass. The other tangible
      and intangible assets owned by HEO include: a small rock quarry (and associated
      mineral rights) on the property, as well as a landfill license and permits
      as
      issued by the Government of Ontario Ministry of the Environment (“MOE”). These
      assets will be included in the final appraisal due September 2006. In addition
      to the previously mentioned HEO assets, the Company has identified three
      additional wood waste sites in the Hearst area. These sites have not been
      included in this preliminary assessment and will be included in the final
      appraisal due September 2006.






-
          14






**(6)** **Investments
      in Can Am Ethanol One, Inc.:**




In
      November 2004, the Company formed a joint venture, Can Am Ethanol One,
      Inc.  (“Can Am One”). We presently own forty-nine point three percent
      (49.3%) of Can Am and maintain 50% of Can Am’s voting rights.




**(7)** **Business
      Lines of Credits - Bott**




Bott
      previously maintained three lines of credits with a bank in Houston, Texas.
      The
      credit lines were evidenced by three promissory notes, a Business Loan Agreement
      and certain commercial guarantees issued in favor of the bank. The material
      terms of these agreements follow:




In
      May
      2004, Bott entered into a promissory note with a bank whereby Bott could borrow
      up to $250,000 over a three-year term. Bott could obtain credit line advances
      based upon its asset base. The note required monthly payments of one
      thirty-sixth (1/36) of the outstanding principal balance plus accrued interest
      at the Bank's prime rate plus 1.0 percent.




In
      June
      2004, Bott executed a promissory note ("Note") with a bank whereby Bott could
      borrow up to $600,000, at an interest rate equal to the bank's prime rate.
      The
      Note provided for monthly payments of all accrued unpaid interest due as of
      the
      date of each payment. The Note further provided for a balloon payment of all
      principal and interest outstanding on the Note's one year anniversary. The
      Company informed the bank that it would not renew the line of credit and
      negotiated a long-term promissory note.




This
      promissory note was finalized in December 2005, for $372,012 at a variable
      interest rate equal to the bank's prime rate. The note provides for five monthly
      principal payments of $3,092 and a final payment of the remaining principal
      and
      interest in June 2006 . In
      June
      2006 the Company negotiated an extension of the final payment to July 2006.
      The
      Company is currently renegotiating an extension of the final payment to
      September 2006.




All
      of
      the foregoing promissory notes contained the following common terms: The notes
      specified that no advances under the notes may be used for personal, family
      or
      household purposes and that all advances shall be used solely for business,
      commercial, agricultural or similar purposes. Bott could draw down on the lines
      of credit provided that: it was not in default under the note evidencing the
      particular line of credit or any other agreement that it might have with the
      bank; it was not insolvent; no guarantor had revoked or limited the terms of
      his
      or her guarantee respecting the note; Bott used the funds available under the
      particular note for an unauthorized purpose; and/or the bank believed that
      its
      interests under the note are not secured. The notes provided the following
      limitations on the use of methods and advancements respecting the credit line,
      and the bank may not honor requests for additional advances if: the requested
      advance would cause the amounts requested under the particular note to exceed
      its initial limit; Bott's checks or bank cards relating to the credit line
      are
      reported lost or stolen; the note is in default; or the amount requested is
      less
      than allowed under the note. The notes permit prepayment of all or part of
      the
      outstanding balances without penalty.






-
          15






The
      Agreements and Notes are secured by the inventory, chattel paper, accounts
      receivable and general intangibles. The Agreements and Notes are also secured
      by
      the personal performance guarantees of Mr. Mark Trumble and Mr. Lawrence
      Weisdorn (Commercial Guarantees). The Commercial Guarantees require the
      guarantors to assure that all payments due under the Notes are timely made
      or to
      make such payments. All amounts related to Bott’s outstanding promissory notes
      totaled $347,660 and $555,028 on June
      30,
      2006 and September
      30, 2005 respectively.




**(8)** **Business
      Line of Credit - Gulfgate:**




In
      June
      2002, Gulfgate executed a promissory note (“Note”) with a bank that allowed
      Gulfgate to borrow up to $200,000 at an interest rate equal to the bank’s prime
      rate, or a minimum interest rate of 5.00% per annum, whichever was greater.
      Gulfgate could draw down on the line of credit provided: that it was not in
      default on this Note or any other agreement that it might have with the bank;
      it
      was not insolvent; no guarantor revoked or limited the terms of his guarantee;
      the Borrower used the funds available under the Note for an unauthorized purpose
      (i.e., other than for a business purpose without first obtaining the bank’s
      written consent); and /or the bank believed that its interests are not secured.
      The Note provided the following limitations on the use of methods and
      advancements respecting the credit line, and the bank may not honor requests
      for
      advances if: the requested advance would cause the amounts requested under
      the
      Note to exceed $200,000; Gulfgate’s checks or bank cards relating to the credit
      line are reported lost or stolen; the Note was in default; or the amount
      requested is less than allowed under the Note. The Note provided for monthly
      payments of all accrued unpaid interest due as of the date of each payment.
      The
      Note remains in force and effect until the bank provides notice to Gulfgate
      that
      no additional withdrawals are permitted (Final Availability Date). Thereafter,
      payments equal to either $250 or the outstanding interest plus one percent
      of
      the outstanding principal as of the Final Availability Date are due monthly
      until the Note is repaid in full. The Note allows for prepayment of all or
      part
      of the outstanding principal or interest without penalty. The Note is secured
      by
      Gulfgate’s accounts with the bank, and by Gulfgate’s inventory, chattel paper,
      accounts receivable, and general intangibles. The Agreement is also secured
      by
      the performance guarantees of Mr. Mark Trumble, Mr. Lawrence Weisdorn and the
      Company. The personal guarantees require the guarantors to assure that all
      payments due under the Note are timely made or to make such payments. Amounts
      outstanding at June
      30,
      2006 and September
      30, 2005 totaled $178,719 and $195,716 respectively.




**(9)** **Liability
      to be satisfied through the issuance of shares** ****




The
      Company sold 670,000 shares of its common stock for $1,005,000 via a private
      placement offering through SW Bach & Company, a New York securities
      dealer.  The Company anticipates satisfying its private placement
      obligations through issuance of common stock to shareholders as soon as the
      Company completes its SB-2 registration with the Securities & Exchange
      Commission . Additional
      details concerning this transaction may be found in the Company’s Form 10-KSB
      report filed February 2, 2006 (Sales Agency Agreement) which is hereby
      incorporated by reference.




The
      Company sold 1,552,900 shares of its common stock for $1,273,378 via another
      private placement offering from February through May 2006. The Company satisfied
      its obligations through issuance of common stock to shareholders in June
      2006.






**(10)**
            **Long-Term
                Debts and other
                liabilities:**




**Promissory
      Notes:**




In
      May
      2003, Bott executed a promissory note with a bank in the amount of $26,398
      at an
      interest rate equal to four point fifty five percent (4.55%) for a vehicle
      purchase. The term of the note is for fifty-nine (59) months at $494 per month.
      Balance outstanding at June
      30,
      2006 and September
      30, 2005 were $11,385 and $15,004 respectively.




**Mortgage:**




On
      May
      31, 2002, Gulfgate entered into a $140,000 promissory note (“Note”) with a bank
      in connection with the refinancing of Gulfgate’s real estate.   The
      Note bears a fixed interest rate of seven percent (7.00%) per annum.  
The Loan provided for fifty-nine monthly payments of $1,267 due beginning July
      2002 and ending June 2007.  The Note may be prepaid without fee or penalty
      and is secured by a deed of trust on Gulfgate’s realty. Gulfgate is required
      under the terms of a separate agreement to provide replacement value fire and
      extended coverage insurance having a $2,500 deductible. Balance outstanding
      at June
      30,
      2006 and September
      30, 2005 were $17,883 and $58,934 respectively.




**Loans
      from shareholders:**




Daniel
      K.
      Moscaritolo, COO and Director, and James A. Latty, CEO and Chairman, (“Lenders”)
      each loaned the Company $105,800; $95,800 of which were received in September
      2005, and $10,000 received in October 2005 (collectively $211,600). The
      transactions are evidenced by two notes dated November 1, 2005 (hereinafter,
      “Notes”). The terms of the Notes require repayment of the principal and
      interest, which accrues at a rate of ten percent (10%) per annum on May 1,
      2006.
      Currently, the Notes are still outstanding. The Notes are accompanied by
      Securities Agreements that grant the Lenders a security interest in all personal
      property belonging to the Company, as well as granting an undivided 1⁄2 security
      interest in all of the Company’s right title and interest to any trademarks,
      trade names, contract rights, and leasehold interests.




**Financing
      Lease Agreements:**




In
      September 2002, Gulfgate entered into a non-cancelable debt financing agreement
      (“Agreement”) with the bank’s leasing corporation for the financing of certain
      equipment and a paint booth. The Agreement calls for the payment of forty-eight
      (48) monthly installment payments of $1,556 beginning September 2002 at the
      interest rate of 6.9% per annum. Balance outstanding at June
      30,
      2006 and September
      30, 2005 were $4,624 and $17,988 respectively.




**Convertible
      Loan Payable:**




In
      September 2004, the Company entered into a convertible loan with an investor.
      The principal amount of the convertible loan payable is $150,000 at an interest
      rate of 8% per annum paid quarterly. The loan is convertible into common stock
      at any time within two (2) years (24 months) starting September 3, 2004 at
      the
      conversion price of $2.20 or 68,182 shares. Each share converted entitles the
      holder to purchase one additional share of stock at an exercise price of $3.30
      within the ensuing 12 months.




If
      at the
      end of September 2006 the loan has not been converted into common stock, the
      principal amount becomes due and payable. To date, the loan has not been
      converted.




**(11)**
            **Resignation
                of Executive Officer and Board
                Member:**




On
      October 17, 2005, the Company and its officers filed a complaint against
      Lawrence Weisdorn, Jr. (“Weisdorn), the Company’s former Chief Executive Officer
      and Chairman of the Board of Directors, Lawrence Weisdorn, Sr. (“Weisdorn Sr.”
and together with Weisdorn, the “Weisdorn Parties”), Nathan Drage (“Drage”) and
      Drage related parties in the Superior Court of the State of California for
      Los
      Angeles County, alleging claims for, among other things, breaches of Nevada
      and
      federal law and breach of fiduciary duty (the “Action”). The Company’s claims
      were based in substantial part on allegations of the unauthorized issuance
      of
      shares of the Company’s predecessor’s common stock in December 2003, prior to
      the reverse acquisition and merger with CA MEMS, which was finalized in February
      2004. The Company sought an injunction preventing the Weisdorn Parties and
      Drage
      and his related parties from selling or transferring any of the shares of the
      Company’s common stock issued in December 2003, the return of the shares to the
      Company for cancellation and monetary damages.




On
      November 3, 2005, the Weisdorn Parties filed a cross-complaint against the
      Company and its officers, alleging claims for, among other things, breach of
      employment agreement, libel and indemnification (the “Weisdorn Counterclaim”).
      The Weisdorn Parties’ claims were based in part on assertions by Weisdorn that
      he was improperly terminated without cause from his positions with the Company
      in June 2005, and that he was entitled to indemnification pursuant to Nevada
      corporations law in connection with the Action. The Weisdorn Parties sought
      monetary damages.




On
      December 15, 2005, the Company and its officers entered into a Settlement
      Agreement and Release with the Weisdorn Parties and other Weisdorn related
      parties, effective as of July 1, 2005 (the “Settlement Agreement”), pursuant to
      which the parties agreed to, among other things, dismiss the Action as it
      related to the Weisdorn Parties, dismiss the Weisdorn Counterclaim, mutually
      release all claims and mutually indemnify the other parties from certain claims.
      Weisdorn also agreed to deliver a letter of resignation to the Company,
      confirming his resignation as Chief Executive Officer and Chairman of the Board
      of Directors of the Company as of June 25, 2005 and clarifying and confirming
      the terms of his separation from the Company. The Weisdorn Parties and other
      Weisdorn related parties further agreed to deliver to the Company all shares
      or
      rights to shares of the Company’s common stock owned by such parties. The net
      stock returned to the Company by the Weisdorn parties was 2,699,684 shares,
      not
      including 670,000 shares of the Company’s common stock to be held by the Company
      in an account for the benefit of the Weisdorn Parties (the “Retained Stock”),
      which Retained Stock will be sold for the benefit of the Weisdorn Parties
      pursuant to the terms set forth in the Settlement Agreement. The Company has
      the
      option to purchase any portion of the Retained Stock at a price determined
      according to the terms of the Settlement Agreement. The Company also agreed
      to
      assume the obligations of the Weisdorn Parties to purchase certain shares of
      the
      Company’s common stock from Mark Trumble, and the Weisdorn Parties assigned to
      the Company their interests in their rights, if any, purchase such shares (the
      Trumble Claims).




The
      Settlement Agreement did not in any way affect claims brought in the Action
      by the Company and its officers against Drage and the
      Drage-related entities. However, on January 13, 2006, Drage and
      Adrian Wilson verbally agreed to a settlement in principle with the Company,
      which the parties have memorialized.  In connection with the verbal
      agreement to a settlement, the Company and its officers filed a Request for
      Dismissal without prejudice of all claims against Drage and the
      Drage-related entities on January 13, 2006.




**(12)**
              **Income
                  from legal settlement:**


-
          16






On
      December 15, 2005, the Company and its officers entered into a Settlement
      Agreement and Release with the Weisdorn Parties and other Weisdorn related
      parties, effective as of July 1, 2005 (the “Settlement Agreement”), pursuant to
      which the Weisdorn Parties and other Weisdorn related Parties agreed to deliver
      to the Company all shares or rights to shares of the Company’s common stock
      owned by such parties. The net common stock returned to the Company by the
      Weisdorn parties and other Weisdorn related parties was 2,699,684 shares. See
      note 11 for additional details.




The
      fair
      value of 2,669,684 shares of the Company’s common stock at December 15, 2005 was
      $3,779,558. The per share closing price of the Company’s stock at December 15,
      2005 was $1.40.




**Assignment
      of the Trumble Claims:**




The
      Company and the Weisdorn Parties further agreed the Weisdorn Parties, and each
      of them; assigned to the Company any and all rights or interest they, or any
      of
      them, have in or to the Trumble Claims. On December 15, 2005, the Company
      assumed Weisdorn Sr.’s obligation to purchase 165,054 shares from Mr. Trumble at
      $1.86 per share for a total liability of $307,000. The fair value of this
      obligation at December 15, 2005 is $231,076 (165,054 shares at $1.40 per share)
      with the difference charged to other income ($75,924).




**(13)**
            **Private
                placement of securities:**




On
      November 10, 2005, the Company entered into a stock purchase agreement with
      Mercatus & Partners, Limited, a private limited company of the United
      Kingdom (“Mercatus Limited”), for the sale of 1,530,000 shares of the Company’s
      common stock for a minimum purchase price of $0.73 per share (the “SICAV One
      Agreement), and another stock purchase agreement with Mercatus Limited also
      for
      the sale of 1,530,000 shares of the Company’s common stock for a minimum
      purchase price of $0.73 per share (the “SICAV Two Agreement” and together with
      the SICAV One Agreement, the “SICAV Agreements”). The shares offered and sold
      under the SICAV Agreements were offered and sold pursuant to a private placement
      that is exempt from the registration provisions of the Securities Act. Pursuant
      to the terms of the SICAV Agreements, the Company issued and delivered an
      aggregate number of 3,060,000 shares of the Company’s common stock within five
      days of the execution of the respective SICAV Agreements to a custodial lock
      box
      on behalf of Mercatus Limited for placement into two European SICAV funds.
      The
      SICAV Agreements provided Mercatus Limited with up to 30 days after the delivery
      of the shares of the Company’s common stock to issue payment to the Company. If
      the Company did not receive payment for the shares within 30 days of the
      delivery of the shares the Company had the right to demand the issued shares
      be
      returned. The Company has not yet received payment for the shares issued
      pursuant to the SICAV Agreements.




On
      November 12, 2005, the Company also entered into another private stock purchase
      agreement with Mercatus Limited for the sale of 170,000 shares of the Company’s
      common stock for a minimum purchase price of $0.82 per share (the “Private SICAV
      One Agreement”) and another private stock purchase agreement with Mercatus
      Limited also for the sale 170,000 shares of the Company’s common stock for a
      minimum purchase price of $0.82 per share (the “Private SICAV Two Agreement” and
      with the Private SICAV One Agreement, the “Private SICAV Agreements”). The
      shares offered and sold under the SICAV Agreements were offered and sold
      pursuant to a private placement that is exempt from the registration provisions
      of the Securities Act. Pursuant to the terms of the Private SICAV Agreements,
      the Company issued and delivered an aggregate amount of 340,000 shares of the
      Company’s common stock within five days of the execution of the respective
      Private SICAV Agreements to a custodial lock box on behalf of Mercatus Limited
      for placement into a European bank SICAV fund. Subject to a valuation of the
      shares, Mercatus Limited had up to 30 days after the delivery of the shares
      of
      the Company’s common stock to issue payment to the Company. If the Company did
      not receive payment within 45 days of the issuance of the shares to Mercatus
      LP,
      the Company had the right to demand the issued shares be returned. The Company
      has not yet received payment for the shares issued pursuant to the Private
      SICAV
      Agreements.






-
          17






In
      a
      letter to Mercatus dated April 13, 2006 the Company declared Mercatus to be
      in
      material breach of the above Private Purchase Agreements due to non-payment,
      terminated the Agreements in their entirety and exercised its right to demand
      the return of all the shares. Mercatus has informed the Company of its intent
      to
      return all of the shares but as of the date of this report the Company has
      not
      received them. The Company is currently exploring all available options in
      recovering its shares.




**(14)**
            **Material
                Agreement:**




**$1.5
      million contract to build an Intelligent Filtration System**




In
      February 2006, the Company won a $1.5 million order from CDI, who is under
      contract with a major oil refinery in Southern California to supply filtration
      equipment. CDI is an engineering, procurement and construction company, based
      in
      Houston with headquarters in Philadelphia. The Company will supply an integrated
      “Intelligent Filtration System” consisting of a Smart Backflush Filtration
      System with an integral electronic decanting system, a carbon bed filter and
      an
      ion-exchange resin bed system. This equipment will purify the amine fluid by
      removing particulate, chemical contaminants, and heat stable salts to allow
      the
      amine to more effectively remove carbon dioxide and sulfur compounds during
      refining.




This
      unique technology includes permanent filtration elements that are back-flushed
      clean, thereby eliminating the need to dispose of conventional filter elements.
      The system dramatically reduces hazardous waste disposal costs. These systems
      will provide years of effective utilization of the amine fluids and extend
      the
      useful life of the refinery’s amine process equipment.




This
      contract is cancelable subject to costs reimbursement and liquidated
      damages.







**ITEM
      2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATIONS**





*Unless
      otherwise indicated, all references to our company include our wholly-owned
      subsidiaries, MEMS USA, Inc., a California corporation currently being renamed
      Convergence Ethanol, Bott Equipment Company, Inc., a Texas corporation and
      Gulfgate Equipment, Inc., a Texas corporation as well as an equity interest
      in
      an inactive Canadian corporation, Can Am Ethanol One, Inc., a British Columbia
      corporation and an 87.3% equity interest in Hearst Ethanol One, Inc., a Canadian
      Federal corporation (“HEO”).*





**Overview:**




We
      are
      engaged in the business of developing bio-renewable energy projects and
      providing professional engineered systems to the energy industry. The Company’s
      mission is to support the energy industry in producing cleaner burning fuels.
      Each of three company-operating divisions has a specific eco-energy focus:
      (1)
      development of a woodwaste to bio-renewable fuel-grade alcohol/ethanol project,
      (2) selling engineered products; and (3) engineering, fabrication and sale
      of
      eco-focused energy systems. ISO 9001:2000-certified, operating divisions have
      served customers throughout the energy sector since 1952.






-
          18






In
      October 2004, the Company acquired the two Texas corporations, Bott Equipment
      Company, Inc. (“Bott”) and Gulfgate Equipment, Inc. (“Gulfgate”). In December
      2005, the Company incorporated Hearst Ethanol One, Inc., a Canadian Federal
      corporation (“HEO”) for the purpose of building, owning and operating a
      fuel-grade alcohol/ethanol production facility in Canada.




The
      intersection of political pressure, environmental concern and technological
      advancement has created a unique opportunity for rapid advancement in the
      alternative fuels industry. Under the leadership of James A. Latty, PhD, PE
      (President, CEO) and Daniel K. Moscaritolo (COO, CTO), Convergence Ethanol
      is
      currently developing a project that will enable the industry to achieve its
      energy goals.




Hearst
      Ethanol One is the Company's woodwaste to bio-renewable fuel-grade
      alcohol/ethanol project. It is located in Hearst, Ontario Canada at the center
      of a well-established forestry products industry. This project has four
      objectives:




·
            Create
                a viable alternative energy enterprise;


·
            Displace
                consumption of fossil fuels with non-greenhouse gas bio-renewables;


·
            Improve
                the environment; and


·
            Produce
                bio-renewable fuel-grade alcohol/ethanol at a substantial
                profit.




As
      of
      June 30, 2006 the Company owns eighty-seven point three percent (87.3%) of
      HEO.
      Dr. James A. Latty and Mr. Daniel Moscaritolo are directors and officers of
      HEO.




We
      believe that technologically sound projects addressing the shortage of
      fuel-grade alcohol/ethanol offers a significant business opportunity in the
      energy sector. Throughout the world, governments, organizations and individuals
      are facing a shortage of fuel-grade alcohol/ethanol, the world’s second largest
      source of liquid transportation fuels. Worldwide demand for fuel-grade
      alcohol/ethanol is growing at over 25% per year. In fact, current demand is
      more
      than double worldwide production capacity. One important solution for producing
      fuel-grade alcohol/ethanol is the conversion of abundant, low cost,
      non-food-grade bio-renewable materials such as woodwaste and residue. The use
      of
      these raw materials is essential to meeting worldwide demand.




We
      believe the market opportunity in Canada is unique. The demand for fuel-grade
      alcohol in Canada in 2007 will be eight times greater than the production
      capacity last year. In addition, the Province of Ontario has mandated that
      all
      motor gasoline sold there must contain at least 5% fuel-grade alcohol by 2007
      with a 10% target by 2010.




We
      are
      developing the fuel-grade alcohol/ethanol refinery to use modern catalytic
      processing, as used in oil refineries, to convert forestry woodwaste into bio
      renewable fuel-grade alcohol/ethanol. Our management team has many years
      combined experience in modern catalytic processing and we are using our
      expertise in proven oil refinery technologies to synthetically convert this
      woodwaste to fuel-grade alcohol/ethanol. This convergence of technologies will
      enable the continuous production of fuel-grade alcohol/ethanol in high volume,
      at low cost. The HEO refinery will only represent a fraction of the production
      capacity needed in Ontario to meet the government mandate. Woodwaste, a
      pre-existing, concentrated, abundant waste stream of local forest industries,
      is
      a non-food raw material for making fuel-grade alcohol/ethanol -- an advantage
      helping to ensure consistent supply and reliable cost.






-
          19






On
      December 21, 2005, HEO entered into a land purchase agreement with C. Villeneuve
      Construction Company, Ltd. C. Villenueve Construction (“Villeneuve”) is a leader
      in the civil and general construction industries and forestry services including
      tree harvesting and woodwaste transport in Northern Ontario. Villeneuve has
      received an extensive list of awards of recognition and has built a wide variety
      of construction projects across Northern Ontario.




On
      April
      21, 2006, HEO completed the acquisition of approximately 850 acres of real
      property, together with all biomass material located thereon (approximately
      one
      point five million metric tons of woodwaste), located in the Township of
      Kendall, District of Cochrane, Canada (cumulatively, the “Property”), from C.
      Villeneuve Construction Co. LTD., a Canadian Corporation (“Villeneuve”), as
      provided under that agreement to purchase these assets earlier reported in
      Registrant’s 8-K dated December 27, 2005 (the “Agreement”).




The
      Property was purchased to provide the site and the initial biomass material
      for
      the development of a 120,000,000-gallon per year bio-renewable
      woodwaste-to-fuel-grade alcohol/ethanol refinery to be owned by HEO and with
      development leadership provided by Convergence Ethanol, Inc. The HEO site in
      Ontario, Canada was selected for its excellent access to transportation and
      utilities as well as its abundant woodwaste reserves. Currently, HEO has
      exclusive access to or ownership of ten million metric tons of woodwaste enough
      to produce approximately 1.2 billion gallons of fuel-grade alcohol/ethanol.
      Pursuant to the provisions of the Agreement, HEO issued ten point five percent
      (10.5%) of HEO’s common shares to Villeneuve as consideration for the transfer
      of the Property.




We
      estimate that the fuel-grade alcohol/ethanol plant will require approximately
      $320 million in capital. The Company’s development team, headquartered in
      Westlake Village, CA, will be entering into contracts with HEO for development
      and supervision of the project.






**History
      and Operations**






CA
      MEMS
      USA/Convergence Ethanol was incorporated in November 2000. We are engaged in
      the
      development of energy projects and providing professional engineered systems
      to
      the energy industry. We have been supporting the energy sector with engineered
      equipment and systems for several years. During 2004, our engineers designed
      and
      constructed an acoustic viscometer. This instrument utilizes sound waves
      traveling through a fluid stream to determine the fluid’s viscosity. In May
      2005, the Company filed a utility patent application respecting this device,
      which replaces the previously filed provisional patent.





During
      2004, the Company’s engineers built a hydrocarbon-blending unit. The unit we
      produced mixes three organic fluids, in differing percentages with a high degree
      of accuracy. Another goal identified in 2004 was to assess the opportunity
      for
      developing fuel-grade alcohol/ethanol production capacity. When properly
      blended, fuel-grade alcohol/ethanol and gasoline provide a higher octane,
      cleaner burning fuel for automobiles.





Our
      engineers have also been charged to oversee the Company’s IFS business. These
      Intelligent Filtration Systems filter oil refinery liquids such as amine, oil
      or
      water. In February 2006, MEMS received a purchase order for $1.5 million for
      the
      engineering, manufacturing and installation of an automatic back flushable
      filtration system (ABF/IFS). This is the largest sale in the Company’s history.
      The customer is a Fortune 50 energy company serving the major integrated oil
      and
      gas industry.





-
          20






Presently,
      CA MEMS USA/Convergence Ethanol uses a combined direct sales force as well
      as
      commissioned sales representatives to sell its products. Our Company has a
      diversified client base and is not dependent upon any one or a few major
      customers.





In
      January 2006, the Company was approved for ISO 9001:2000 certification. We
      believe this certification will enhance the Company’s worldwide recognition as a
      high quality provider and will enhance our ability to compete nationally and
      internationally.






On
      April
      15, 2006 CA MEMS USA, Inc., to better reflect the Company’s emphasis in the
      alternative energy sector, announced its decision to change its name to
      Convergence Ethanol, Inc., and to conduct its businesses, whether directly
      by
      the Company or through its wholly owned subsidiary, CA MEMS.





**Subsidiaries**





**Gulfgate**





Gulfgate
      produces particulate filtration equipment used in the oil and power industries.
      Gulfgate also produces vacuum dehydration and coalescing systems that are used
      to remove water from ground based turbine engine oil. These same types of
      systems are used by electric power distribution companies to remove water from
      electrical transformer oils. To help meet its customer’s diverse needs, Gulfgate
      maintains and operates a rental fleet of filtration and dehydration systems.
      Presently, Gulfgate has a combined direct sales force as well as commissioned
      sales representatives selling its products.





**Bott**





Bott
      is a
      stocking distributor for high value lines of industrial pumps, valves and
      meters. Bott also sells refueling systems made by Gulf Gate that are used for
      helicopter refueling systems on offshore drilling and production platforms
      throughout the world. Bott also sells refueling systems for commercial marine
      vessels. Bott’s customers include chemical plants, refineries, power plants and
      other industrial customers. Bott has a combined direct sales force as well
      as
      commissioned sales representatives.





**Hearst
      Ethanol One, Inc.**




HEO
      is a
      private Canadian corporation incorporated through the Canadian federal
      government, organized for the purpose of developing and operating a synthetic
      woodwaste biomass-to-fuel-grade alcohol (ethanol) plant in Hearst, Ontario
      Canada. It is anticipated that the fuel-grade alcohol/ethanol produced by HEO
      will be sold and consumed as a motor fuel additive in the Province of Ontario.
      The blending of fuel-grade alcohol/ethanol with motor fuel improves the octane
      number, displaces the use of crude oil and reduces tailpipe emissions,
      particularly greenhouse gas emissions believed to cause global warming. This
      will help Canada meet the Kyoto Protocol for reduced greenhouse gas emissions.
      We believe HEO will require approximately $320 million in capital. MEMS
      USA/Convergence Ethanol’s development team, headquartered in Westlake Village,
      C.A., will contract with HEO to provide development supervisory
      services.






-
          21






We
      are
      presently in the process of integrating and improving our Texas subsidiaries,
      which we believe will promote efficiency and lower operating costs. CA MEMS
      USA/Convergence Ethanol’s primary responsibility will be to direct the
      development of HEO. The window provided by HEO to the corporation will enhance
      the competitive position of Bott and Gulfgate to sell products and services
      to
      the rapidly expanding alternative fuels industry.




Comparison
      of Operations





Net
      sales
      were $2,029,431 and $1,878,580 for the three months ended June 30, 2006 and
      2005, respectively. Net sales for the nine-month periods ended June 30, 2006
      and
      2005 were $7,171,362 and $6,757,819, respectively. The sales increases for
      the
      three months (6.1%) and for the nine months (5.9%) ended June 30, 2006 as
      compared to the prior year were due primarily to strong “Oil Patch” customer
      demand for our industrial pumps, equipment rentals and repairs
      services.





The
      Company computes gross profit as net sales less cost of sales. The gross profit
      margin is the gross profit divided by net sales, expressed as a percentage.
      The
      gross profit margin was 23.4% and 17.0% in the third quarter of fiscal 2006
      and
      2005, respectively. Gross profit margin for the nine-month periods ended June
      30, 2006 and 2005 were 22.1% and 25.7% respectively. This decrease of 3.6%
      was
      primarily due to lower margins on commercial aviation refueling systems
      shipments. Margins for this segment of the business for the quarter ended June
      30, 2006 reflect the significant competitive pressures encountered on bidding
      and winning several key customer jobs.




Selling,
      general and administrative (SG&A) expenses were $1,161,641 and $1,090,010
      for the three months ended June 30, 2006 and 2005, respectively. SG&A for
      the nine-month periods ended June 30, 2006 and 2005 were $3,837,378 and
      $3,446,593, respectively. The increase in SG&A spending for the three months
      and for the nine months ended June 30, 2006 as compared to the prior year were
      due primarily to auditing fees associated with the acquisition of Gulfgate
      and
      Bott, legal costs (See Part II, Item 1, Legal Proceedings) and consulting
      fees.




We
      expect
      that over the near term, our selling, general and administration expenses will
      increase as a result of, among other things, increased legal and accounting
      fees
      associated with increased corporate governance activities in response to the
      Sarbanes-Oxley Act of 2002, recently adopted rules and regulations of the
      Securities and Exchange Commission, the filing of a registration statement
      with
      the Securities and Exchange Commission to register for resale the shares of
      common stock and shares of common stock underlying warrants issued in various
      private offerings, increased employee costs associated with planned staffing
      increases, increased sales and marketing expenses, increased activities related
      to the design, engineering and construction of the Hearst Ethanol One, Inc.
      ethanol production facility and increased activity in searching for and
      analyzing potential acquisitions.




For
      the
      quarter ended June 30, 2006, shareholder’s equity was $12,276,493 as compared to
      equity of $428,632 for the prior year period ended September 30, 2005. The
      increase in shareholder equity is
      primarily attributable to the acquisition of approximately 850 acres of real
      property, together with all biomass material by HEO. (See note 5)





Other
      expense (income), net was $18,385 and $(3,121) for the fiscal quarters ended
      June 30, 2006 and 2005, respectively. Other expense (income), net for the
      nine-month periods ended June 30, 2006 and 2005 were $52,888 and $(6,222),
      respectively. The increase in other expense is attributable to the interest
      payments made pursuant to the terms of the credit lines of Bott and Gulfgate
      and
      the “Put Option” (See note 2) with Mr. Trumble.






-
          22





In
      summary, net losses were $702,376 and $767,067 for the fiscal quarters ended
      June 30, 2006 and 2005, respectively. Net income (loss) for the nine-month
      periods ended June 30, 2006 and 2005 were $1,402,854 and $(1,700,790),
      respectively. The decreased net loss for the fiscal quarter ended June 30,
      2006
      as compared to the prior year was primarily due to higher MEMS general and
      administrative expenses resulting from the initial start-up efforts associated
      with the Canadian Ethanol projects, legal fees and consulting expenses. The
      increased in net income for the nine months ended June 30, 2006 as compared
      to
      the prior year was due to the favorable settlement of a legal dispute
      ($3,703,634; see note 1 2 ).
      Excluding the income from the settlement agreement the Company would have
      reported a year-to-date net loss of $2, 300 , 780. The
      increased net loss for the nine months ended June 30, 2006 as compared to the
      prior year was mainly due to lower margins on commercial aviation refueling
      systems shipments and higher general and administrative expenses (See Selling,
      general and administrative expenses).








Liquidity
      and Capital Resources


Our
      plan
      of operations over the next 12 months includes the continued pursuit of our
      goal
      to design, engineer, build and operate one or more ethanol plants. In that
      regard we are dependent upon Hearst Ethanol One, Inc.’s efforts to raise the
      necessary capital. We believe that our working capital as of the date of this
      report will not be sufficient to satisfy our estimated working capital
      requirements at our current level of operations for the next twelve months.
      Our
      cash and cash equivalents were $788,676 as of June 30, 2006, compared to cash
      and cash equivalents of $828,153 as of September 30, 2005.





At
      our
      current cash “burn rate”, we will need to raise additional cash through debt or
      equity financings during the fourth quarter of 2006 and the first quarter of
      2007 in order to fund our continued HEO project development activities and
      to
      finance possible future losses from operations as we expand our business lines
      and reach a profitable level of operations. Before considering Hearst Ethanol
      One, Inc., we believe that we require a minimum of $2,500,000 in order to fund
      our planned operations over the next 12 months, in addition to the capital
      required for the establishment of any ethanol production facilities. We plan
      to
      obtain the additional working capital through private placement sales of our
      equity securities and debt financing. As of the date of this report the Company
      has not received any firm commitments for funding and there is no assurance
      that
      such funds will be available on commercially reasonable terms, if at all. Should
      we be unable to raise the required funds, our ability to finance our continued
      operations will be materially adversely affected.





Subsequent
      Event - None to report.





Cautionary
      Statement Regarding Future Results, Forward-Looking Information and Certain
      Important Factors





We
      make
      written and oral statements from time to time regarding our business and
      prospects, such as projections of future performance, statements of management’s
      plans and objectives, forecasts of market trends, and other matters that are
      forward-looking statements. Statements containing the words or phrases “will
      likely result,” “are expected to,” “will continue,” “is anticipated,”
“estimates,” “projects,” “believes,” “expects,” “anticipates,” “intends,”
“target,” “goal,” “plans,” “objective,” “should” or similar expressions identify
      forward-looking statements, which may appear in documents, reports, filings
      with
      the Securities and Exchange Commission, news releases, written or oral
      presentations made by officers or other representatives made by us to analysts,
      stockholders, investors, news organizations and others, and discussions with
      management and other representatives of us.






-
          23





Our
      future results, including results related to forward-looking statements, involve
      a number of risks and uncertainties. No assurance can be given that the results
      reflected in any forward-looking statements will be achieved. Any
      forward-looking statement made by or on behalf of us speaks only as of the
      date
      on which such statement is made. Our forward-looking statements are based upon
      assumptions that are sometimes based upon estimates, data, communications and
      other information from suppliers, government agencies and other sources that
      may
      be subject to revision. Except as required by law, we do not undertake any
      obligation to update or keep current either (i) any forward-looking
      statement to reflect events or circumstances arising after the date of such
      statement, or (ii) the important factors that could cause our future
      results to differ materially from historical results or trends, results
      anticipated or planned by us, or which are reflected from time to time in any
      forward-looking statement which may be made by or on behalf of us.




In
      addition to other matters identified or described by us from time to time in
      filings with the SEC, there are several important factors that could cause
      our
      future results to differ materially from historical results or trends, results
      anticipated or planned by us, or results that are reflected from time to time
      in
      any forward-looking statement that may be made by or on behalf of us. Some
      of
      these important factors, but not necessarily all important factors, include
      those risk factors set forth in our 2005 Annual Report on Form 10-KSB/A filed
      with the SEC on February 2, 2006





ITEM
      3 --
      CONTROLS AND PROCEDURES





Our
      disclosure controls and procedures are designed to ensure that information
      required to be disclosed in reports that we file or submit under the Securities
      Exchange Act of 1934 is recorded, processed, summarized and reported within
      the
      time periods specified in the rules and forms of the Securities and Exchange
      Commission and that such information is accumulated and communicated to our
      management, as appropriate, to allow timely decisions regarding required
      disclosure. Our President and Chief Financial Officer have reviewed the
      effectiveness of our disclosure controls and procedures and have concluded
      that
      the disclosure controls and procedures, overall, are effective as of the end
      of
      the period covered by this report. There has been no change in the Company’s
      internal control over financial reporting (as defined in Rule 13a-15(f) under
      the Exchange Act) during the period covered by this report that have materially
      affected, or are reasonably likely to materially affected, the Company’s
      internal control over financial reporting.





PART
      II -
      OTHER INFORMATION




Item1.
      Legal Proceedings




On
      October 17, 2005, the Company and its officers filed a complaint against
      Lawrence Weisdorn, Jr. (“Weisdorn), the Company’s former Chief Executive Officer
      and Chairman of the Board of Directors, Lawrence Weisdorn, Sr. (“Weisdorn Sr.”
and together with Weisdorn, the “Weisdorn Parties”), Nathan Drage (“Drage”) and
      Drage related parties in the Superior Court of the State of California for
      Los
      Angeles County, alleging claims for, among other things, breaches of Nevada
      and
      federal law and breach of fiduciary duty (the “Action”). The Company’s claims
      were based in substantial part on allegations of the unauthorized issuance
      of
      shares of the Company’s predecessor’s common stock in December 2003, prior to
      the reverse acquisition and merger with MEMS-CA which was finalized in February,
      2004. The Company sought an injunction preventing the Weisdorn Parties and
      Drage
      and his related parties from selling or transferring any of the shares of the
      Company’s common stock issued in December 2003, the return of the shares to the
      Company for cancellation and monetary damages. (see note 11)






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          24






On
      November 3, 2005, the Weisdorn Parties filed a cross-complaint against the
      Company and its officers, alleging claims for, among other things, breach of
      employment agreement, libel and indemnification (the “Weisdorn Counterclaim”).
      The Weisdorn Parties’ claims were based in part on assertions by Weisdorn that
      he was improperly terminated without cause from his positions with the Company
      in June 2005, and that he was entitled to indemnification pursuant to Nevada
      corporations law in connection with the Action. The Weisdorn Parties sought
      monetary damages.






On
      December 15, 2005, the Company and its officers entered into a Settlement
      Agreement and Release with the Weisdorn Parties and other Weisdorn related
      parties, effective as of July 1, 2005 (the “Settlement Agreement”), pursuant to
      which the parties agreed to, among other things, dismiss the Action as it
      related to the Weisdorn Parties, dismiss the Weisdorn Counterclaim, mutually
      release all claims and mutually indemnify the other parties from certain claims.
      Weisdorn also agreed to deliver a letter of resignation to the Company,
      confirming his resignation as Chief Executive Officer and Chairman of the Board
      of Directors of the Company as of June 25, 2005 and clarifying and confirming
      the terms of his separation from the Company. The Weisdorn Parties and other
      Weisdorn related parties further agreed to deliver to the Company all shares
      or
      rights to shares of the Company’s common stock owned by such parties. The net
      stock returned to the Company by the Weisdorn parties was 2,699,684 shares,
      not
      including 670,000 shares of the Company’s common stock to be held by the Company
      in an account for the benefit of the Weisdorn Parties (the “Retained Stock”),
      which Retained Stock will be sold for the benefit of the Weisdorn Parties
      pursuant to the terms set forth in the Settlement Agreement. The Company has
      the
      option to purchase any portion of the Retained Stock at a price determined
      according to the terms of the Settlement Agreement. The Company also agreed
      to
      assume the obligations of the Weisdorn Parties and other Weisdorn related
      parties to purchase certain shares of the Company’s common stock from a third
      party, and the Weisdorn Parties assigned to the Company their interests in
      certain claims against a third party.




The
      Settlement Agreement did not in any way affect claims brought in the Action
      by the Company and its officers against Drage and the
      Drage-related entities. However, on January 13, 2006, Drage and
      Adrian Wilson verbally agreed to a settlement in principle with the Company,
      which the parties intend to memorialize shortly.  In connection with the
      verbal agreement to a settlement, the Company and its officers filed a Request
      for Dismissal without prejudice of all claims against Drage and the
      Drage-related entities on January 13, 2006.






Item
      2. Unregistered Sales of Equity Securities and Use of Proceeds:




On
      October 26, 2004 the Company issued 1,309,667 shares of its common stock to
      Mr.
      Mark Trumble in consideration for the purchase of 100% of the shares of Bott
      Equipment Company, Inc. and Gulfgate Equipment, Inc. in accordance with the
      Stock Purchase Agreement (“Agreement”) entered into by the Company and Mr.
      Trumble. (A copy of the Agreement was filed as an Exhibit to our form 10KSB/A
      filed with the SEC on February 3, 2005.) The Agreement contains covenants in
      favor of Mr. Trumble that are secured with our promise to issue up to a total
      of
      1,236,591 additional shares of our stock to Mr. Trumble in the event we fail
      to
      satisfy those covenants. **** Effective
      May 8, 2006 the Company and Mr. Trumble amended the original Stock Purchase
      Agreement dated October 26, 2004 and agreed to, among other things, to issue
      60,000 shares to Mr. Trumble in full and final satisfaction of all claims that
      Trumble has or may have to additional shares of the Company’s common stock as a
      result of any breach of, or failure to meet a milestone under the SPA. See
      Subsequent events for details of First Amended Stock Purchase
      Agreement.






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          25






As
      of the
      date of this report, the Company is obligated to issue 60,000 additional shares
      to Mr. Trumble. Additionally, certain outstanding covenants may require us
      to
      issue up to 370,977 additional penalty shares in the event that we fail to
      satisfy those covenants.





In
      its
      stock purchase agreement with Mr. Trumble, respecting the purchase of Gulfgate
      and Bott, the Company recognized that Trumble would sell 326,344 shares of
      its
      stock at a purchase price of approximately $607,000 to private parties,
      including a related party Lawrence Weisdorn, Sr., the CEO’s father and a
      shareholder and/or Weisdorn Sr.’s assignees pursuant to a written agreement
      between Trumble and Weisdorn Sr.. As part of the Company’s agreement with Mr.
      Trumble, the Company agreed that if Mr. Trumble failed to recognize $607,000,
      portions of which were due on specific dates following the closing date of
      the
      transaction, the Company agreed to issue up to 494,636 shares of restricted
      stock to Trumble.




In
      December 2004 the Company paid $75,000 to Mr. Mark Trumble in order to avoid
      the
      issuance of 61,829 Penalty Shares to Mr. Trumble. In January 2005, the Company
      paid Mr. Trumble $158,000 to avoid the issuance of 123,659 Penalty Shares to
      Mr.
      Trumble. Although the Company had no obligation to make these payments under
      its
      agreement with Mr. Trumble, it did have an obligation to issue penalty shares
      to
      Mr. Trumble if Mr. Trumble did not recognize these monies through the sale
      of
      stock. When the Company learned that the primary obligor, Mr. Lawrence Weisdorn
      Sr., was then unable to fulfill his contractual obligations to Mr. Trumble,
      the
      Company believed that it was in the shareholder’s best interests to avoid
      dilution by making these payments and seeking to recoup the monies paid by
      the
      Company from Mr. Weisdorn Sr. at a later date. As of this date the company
      has
      received $185,000 from Lawrence Weisdorn Sr. The Company believes that it will
      recover some or all of the remaining balance, $48,000, before the close of
      the
      next quarter. The Company is obligated to issue to Mr. Trumble 247,318 Penalty
      Shares because Mr. Trumble did not recognize $307,000 within 60 days of the
      close of the acquisition. Finally, the Company is obligated to issue to Mr.
      Trumble an additional 123,659 Penalty Shares since the Company did not receive
      $2,000,000 in gross equity funding within 120 days of the Closing Date. In
      summary, the Company’s obligation to issue penalty shares totaling 370,977
      valued at $810,000 to Mr. Trumble has significantly increased
      goodwill.







On
      November 10, 2005, the Company entered into a stock purchase agreement with
      Mercatus & Partners, Limited, a private limited company of the United
      Kingdom (“Mercatus Limited”), for the sale of 1,530,000 shares of the Company’s
      common stock for a minimum purchase price of $0.73 per share (the “SICAV One
      Agreement), and another stock purchase agreement with Mercatus Limited also
      for
      the sale of 1,530,000 shares of the Company’s common stock for a minimum
      purchase price of $0.73 per share (the “SICAV Two Agreement” and together with
      the SICAV One Agreement, the “SICAV Agreements”). The shares offered and sold
      under the SICAV Agreements were offered and sold pursuant to a private placement
      that is exempt from the registration provisions of the Securities Act under
      Section 4(2) of the Securities Act pursuant to Mercatus Limited’s exemption from
      registration afforded by Regulation S. Pursuant to the terms of the SICAV
      Agreements, the Company issued and delivered an aggregate number of 3,060,000
      shares of the Company’s common stock within five days of the execution of the
      respective SICAV Agreements to a
      custodial lock box on behalf of Mercatus
      Limited for placement into two European SICAV funds. The SICAV Agreements
      provided Mercatus Limited with up to 30 days after the delivery of the shares
      of
      the Company’s common stock to issue payment to the Company. If payment for the
      shares was not received by the Company within 30 days of the delivery of the
      shares, the Company had the right to demand the issued shares be returned.
      The
      Company has not yet received payment for the shares issued pursuant to the
      Private SICAV Agreements.







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          26






On
      November 12, 2005, the Company also entered into another private stock purchase
      agreement with Mercatus & Partners, Limited, a private limited company of
      the United Kingdom (“Mercatus Limited”) for the sale of 170,000 shares of the
      Company’s common stock for a minimum purchase price of $0.82 per share (the
“Private SICAV One Agreement”) and another private stock purchase agreement with
      Mercatus LP also for the sale 170,000 shares of the Company’s common stock for a
      minimum purchase price of $0.82 per share (the “Private SICAV Two Agreement” and
      with the Private SICAV One Agreement, the “Private SICAV Agreements”). The
      shares offered and sold under the SICAV Agreements were offered and sold
      pursuant to a private placement that is exempt from the registration provisions
      of the Securities Act under Section 4(2) of the Securities Act pursuant to
      Mercatus Limited’s exemption from registration afforded by Regulation S.
      Pursuant to the terms of the Private SICAV Agreements, the Company issued and
      delivered an aggregate amount of 340,000 shares of the Company’s common stock
      within five days of the execution of the respective Private SICAV Agreements
      to
      a custodial lock box on behalf of Mercatus Limited for placement into a European
      bank SICAV fund. Subject to a valuation of the shares, Mercatus LP had up to
      30
      days after the delivery of the shares of the Company’s common stock to issue
      payment to the Company. If payment was not received by the Company within 45
      days of the issuance of the shares to Mercatus Limited, the Company had the
      right to demand the issued shares be returned. The Company has not yet received
      payment for the shares issued pursuant to the Private SICAV
      Agreements.




In
      a
      letter to Mercatus dated April 13, 2006 the Company declared Mercatus to be
      in
      material breach of the above Private Purchase Agreements due to non-payment,
      terminated the Agreements in their entirety and exercised its right to demand
      the return of all the shares. Mercatus has informed the Company of its intent
      to
      return all of the shares but, as of the date of this report the Company has
      not
      received them. The Company is currently exploring all available options in
      recovering its shares.





On
      December 13, 2005 the Company issued and delivered 125,000 shares of the
      Company’s common stock for $100,000.





During
      the month of December 2005, the Company issued and delivered an aggregate amount
      of 8,254 shares of the Company’s common stock to three consultants for services
      valued at approximately $16,000.





The
      Company sold 1,552,900 shares of its common stock for $1,273,378 via another
      private placement offering from February through May 2006. The Company satisfied
      its obligations through issuance of common stock to shareholders in June
      2006.




Exemption
      from the registration provisions of the Securities Act of 1933 for the
      transactions described above is claimed under Section 4(2) of the Securities
      Act
      of 1933, among others, on the basis that such transactions did not involve
      any
      public offering and the purchasers were sophisticated or accredited with access
      to the kind of information registration would provide.





Item
      3.
      Defaults upon Senior Securities - None





Item
      4.
      Submission of Matters to a Vote of Security Holders - None





Item
      5.
      Other Information






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          27






Principal
      Accountant Fees and Services


Our
      board
      of directors has selected Kabani & Company, Inc. as our independent
      accountants to audit our consolidated financial statements for the fiscal year
      2005. Stonefield Josephson, Inc. previously audited our consolidated financial
      statements for the two fiscal years ended September 30, 2004 and
      2003.





Rider
      A





Items
      not reported on Form 8-K.





Effective
      May 8, 2006, the Company and its officers entered into a First Amended Stock
      Purchase Agreement and Release (“Agreement”) with Mark Trumble, amending that
      certain Stock Purchase Agreement dated September 1, 2004. For more information
      on the Agreement, please refer to Note 2.





The
      Company sold 1,552,900 shares of its common stock for $1,273,378 via a private
      placement offering from February through May 2006. For more information on
      this
      private placement, please refer to Part II, Item 2 (Unregistered Sales of Equity
      Securities and Use of Proceeds) of this Report.





Item
      6.
      Exhibits





(a)
            Exhibits





31.1
            Certification
                of PresidentPursuant
                to Rule 13a-14(a) of the Securities Exchange Act of 1934 (Filed
                electronically herewith)


31.2
            Certification
                of Chief Financial OfficerPursuant
                to Rule 13a-14(a) of the Securities Exchange Act of 1934 (Filed
                electronically herewith)


32.2
            Certification
                of President and Chief Financial Officer Pursuant to18
                U.S.C Section 1350 (Furnished electronically
                herewith).






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          28





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.


MEMS
                USA, Inc.
              (Registrant)Date:
              August 14, 2006
            
            /s/ James
              A.
              LattyJames
                A. Latty
              Chief
                Executive Officer






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