**U.S.
SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 
 FORM
10-QSB
 
 **QUARTERLY
REPORT PURSUANT TO SECTION 13 OR**
 **15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934**
 
 For the
quarterly period ended March 31, 2005
  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 2-100
      Westlake
      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 o No x
  The
number of shares of the common stock outstanding as of May 10, 2005 was
16,989,425.
  **Documents
incorporated by reference: None.** ****
 
 
  **MEMS
USA, INC.**
 
 **Table
of contents for Form 10-QSB**
 
 **Quarter
Ended March 31, 2005**
 Page
      NumberPART
      1 - FINANCIAL INFORMATIONITEM
      1. Financial Statements∙Consolidated
      Balance Sheet as of March 31, 2005 (unaudited)
    2∙Consolidated
      Statements of Operations (unaudited)
      For
      the three and six months ended March 31, 2005 and 2004
    3∙Consolidated
      Statements of Cash Flows (unaudited)
      For the six months ended March 31, 2005 and 2004
    4∙Notes
      to Consolidated Financial Statements (unaudited)
    5 -
      12ITEM
      2. Management’s Discussion and Analysis or Plan of Operations
    13ITEM
      3. Controls And Procedures
    17PART
      II - OTHER INFORMATIONITEM 1. Unregistered Sales of Equity Securities and Use of
      Proceeds
    17ITEM 2. Other Information
    17ITEM
      3. Exhibits
    18
 
 
 
 Item 1.
Financial statements
 
 MEMS
      USA, INC.Consolidated
      Balance SheetMarch 31, 2005(Unaudited)
  ASSETSCurrent
      Assets:Cash
      and cash equivalent
    
    $
    182,589Accounts
      receivable, net of allowance for doubtful accounts of$52,240
    
    
    1,125,845Inventories
    
    
    707,901Other
      current assets
    
    
    122,385Total
      current assets
    
    
    2,138,720Plant,
      property and equipment, net
    
    
    2,111,527Other
      assets
    
    
    343,746Goodwill
    
    
    1,147,785Total
      assets
    
    $
    5,741,778LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and accrued expenses
    
    $
    1,009,345Line
      of credits
    
    
    865,721Current
      portion of long-term debt
    
    
    46,351Liability
      to be satisfied through the issuance of common stock
    
    
    1,088,108Deferred
      revenue
    
    
    10,550Total current liabilities
    
    
    3,020,075Loans
      payable, long-term
    
    
    236,939Loan
      from shareholder
    
    
    5,000Common
      shares payable under terms of acquisition agreement
    
    
    809,966Common
      shares with mandatory redemption
    
    
    1,400,000Total
      liabilities
    
    
    5,471,980Stockholders'
      equityCommon
      stock, $0.001 par value; 100,000,000 shares authorized,16,439,404
      shares issued and outstanding
    
    
    16,439Stock
      subscriptions receivable
    
    
    (2,050
    )Additional
      paid in capital
    
    
    4,309,787Accumulated
      deficit
    
    
    (4,054,378
    )Total
      stockholders' equity
    
    
    269,798Total
      liabilities and stockholders' equity
    
    $
    5,741,778
 
 The
accompanying notes are an integral part of these financial
statements.
 - 2
-
   MEMS
      USA, INC.Consolidated
      Statements of Operations(Unaudited)
  Three
      months ended March 31
    
    Six
      months ended March 312005
    
    2004
    
    2005
    
    2004RevenueSales
    
    $
    1,864,543
    
    $
    0
    
    $
    4,879,240
    
    $
    0Cost
      of sales
    
    
    1,362,702
    
    
    209,193
    
    
    3,517,192
    
    
    313,309Gross
      profit
    
    
    501,841
    
    
    (209,193
    )
    
    1,362,048
    
    
    (313,309
    )Selling
      expenses
    
    
    104,742
    
    
    0
    
    
    287,296
    
    
    0General
      & administration
    
    
    1,102,867
    
    
    325,813
    
    
    2,017,818
    
    
    679,986Merger
      Related Expense
    
    
    0
    
    
    0
    
    
    0
    
    
    350,360Loss from
      operations
    
    
    (705,768
    )
    
    (535,006
    )
    
    (943,066
    )
    
    (1,343,655
    )Other
      income
    
    
    6,481
    
    
    0
    
    
    9,343
    
    
    0Net
      Loss
    
    $
    (699,287
    )
    $
    (535,006
    )
    $
    (933,723
    )
    $
    (1,343,655
    )Net
      loss per share, basic and diluted
    
    $
    (0.05
    )
    $
    (0.04
    )
    $
    (0.06
    )
    $
    (0.12
    )Weighted
      average number of shares outstanding, basicand
      diluted
    
    
    15,035,895
    
    
    12,281,553
    
    
    15,035,895
    
    
    11,177,326
 
 The
accompanying notes are an integral part of these financial
statements.
  - 3
-
 MEMS USA,
INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
 Mar
      31, 2005
    
    Mar
      31, 2004Cash
      flows provided by (used for) operating activities:Net
      loss
    
    
    (933,723
    )
    
    ($1,343,655
    )Adjustments
      to reconcile net loss to net cash used foroperating
      activities:Depreciation
    
    
    61,622
    
    
    12,380Common
      stock issued for services
    
    
    25,000
    
    
    433,360Change
      in assets and liabilities net of effects from purchase ofBott
      and Gulfgate:(Increase)
      decrease in current assets:Accounts
      receivable
    
    
    (118,994
    )Inventories
    
    
    26,026Deposits
    
    
    
    
    
    (141,000
    )Other
      current assets
    
    
    12,349
    
    
    13,333Increase
      (decrease) in current liabilities:Accounts
      payable and accrued expenses
    
    
    (63,411
    )
    
    (310,672
    )Lines
      of credit
    
    
    9,323Current
      portion of long-term debt
    
    
    (4,099
    )Liability
      to be satisfied through the issuance of shares
    
    
    1,088,108Deferred
      revenue
    
    
    10,550
    
    
    10,000Total
      adjustments
    
    
    1,046,474
    
    
    17,401Net
      cash provided by (used for) operating activities
    
    
    112,751
    
    
    (1,326,254
    )Cash
      flows used (provided) in financing activities:Loan
      from shareholder
    
    
    (5,000
    )Payment
      on long term liabilities
    
    
    51,297Total
      cash used in financing activities
    
    
    46,297
    
    
    0Cash
      flows provided (used) by investing activities:
    
    
    
    
    
    50,300Purchase
      of property and equipment
    
    
    (6,873
    )
    
    (5,177
    )Underwriting
      related to issuance of shares
    
    
    90,149
    
    
    0Cash
      balance net of payments for purchase of Bott and Gulfgate
    
    
    5,073Common
      stock issued for cash
    
    
    1,347
    
    
    1,369,787Net
      cash provided by financing activities
    
    
    89,696
    
    
    1,414,910Net
      increase in cash and cash equivalents
    
    
    156,150
    
    
    88,656Cash
      and cash equivalents, beginning of period
    
    
    26,439
    
    
    12,992Cash
      and cash equivalents, end of period
    
    
    182,589
    
    $
    101,648Supplemental
      disclosure of cash flow information:Income
      taxes paid
    
    
    0
    
    
    0Interest
      paid
    
    
    27,882
    
    
    19,286Supplemental
      disclosure of non-cash financing activities:Common
      stock (including $1,400,000 of shares subject to mandatory redemption
      factor and $809,996 of penalty shares)to
      be issued for acquisition of Bott and Gulfgate
    
    
    3,059,966Common
      stock issued for services
    
    
    25,000
    
    
    433,360Dividends
      accrued
    
    
    
    
    
    6,100
  The
accompanying notes are an integral part of these financial
statements.
 
 - 4
-
 
 Notes to
consolidated financial statements:
  **(1)**
    **Company
      & Summary of Significant Accounting
Policies:**
  **Nature
of Business:**
  MEMS USA,
Inc. (the “Company”) was incorporated in Nevada in 2002.  The Company is
comprised of three wholly owned subsidiaries, MEMS USA, Inc., a California
Corporation (“MEMS CA”), Bott Equipment Company, Inc. (“Bott”) and Gulfgate
Equipment, Inc. (“Gulfgate”).  In November 2004, the Company formed a joint
venture, Can Am Ethanol One, Inc.  (“Can Am”). We presently own forty nine
point three percent (49.3%) of Can Am and maintain 50% of the company’s voting
rights.
 
 MEMS CA
is an engineering and design firm engaged in the development and sale of
instrumentation, blending skids and Intelligent Filtration Systems
(“IFS”).
 
 Gulfgate
produces particulate filtration equipment utilized in the oil and power
industries.   Gulfgate also produces vacuum dehydration and coalescing
systems that are utilized to remove water from turbine engine oil.  These
same systems are used by electric power generation facilities to remove water
from transformer oils.  To help meet its customers’ diverse needs, Gulfgate
maintains and operates a fleet of filtration and dehydration systems.
 
 Bott is a
stocking distributor for various lines of industrial pumps, valves and
instrumentation such as those utilized in MEMS CA’s IFS and blending skid
systems.  Bott specializes in the construction of aviation and refueling
systems, including, but not limited to helicopter refueling systems used on oil
rigs throughout the world.  Bott also constructs refueling systems for
commercial marine vessels.  Bott’s customers include chemical plants,
refineries, power plants and other industrial applications.
  MEMS CA,
Bott and Gulfgate utilize a combination direct sales force as well as
commissioned sales representatives to market and distribute their
products.
  Can Am
was created to manufacture, own and operate an ethanol production facilities in
Canada.  The joint venture will utilize a synthetic biomass conversion
process to convert waste materials into ethanol.  We intend to develop
several other joint venture ethanol plants in Canada that will use a synthetic
biomass conversion process, subject to receipt of required
funding.
  We are
presently in the process of integrating our subsidiaries, which we believe will
promote efficiency and lower operating costs.  While each of our
subsidiaries will remain a  separate
operating entity, we intend to optimize the resources of each.
  **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, plus fees earned (Can
Am Ethanol One); revenue under long-term contracts, for which delivery is an
inappropriate measure of performance, is recognized on the
percentage-of-completion method based upon incurred costs compared to total
estimated costs under the contract; and revenue under engineering contracts is
generally recognized as milestones are attained.
  - 5
-
  **Going
Concern**
  The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States, which
contemplates the Company as a going concern. However, the Company has sustained
substantial operating losses in recent years 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.
  **Accounts
Receivable:**
  Accounts
receivable have been reduced by an allowance for amounts that may become
uncollectible. This estimated allowance is based primarily on Management's
evaluation of the financial condition of the customer and historical bad debt
experience. The Company has provided reserves for doubtful accounts as of March
31, 2005 in the amount of $52,240 that the Company believes are adequate.
 
 **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.
  **Stock
Based Compensation:**
  Pro forma
information regarding net loss and loss per share, pursuant to the requirements
of SFAS 123, for the three and six months ended March 31, 2005 and 2004 are as
follows:
  
 Three
      months ended March 31
    
    Six
      months ended March 312005
    
    2004
    
    2005
    
    2004Net
      loss, as reported
    
    $
    (699,287
    )
    $
    (535,006
    )
    $
    (933,723
    )
    $
    (1,343,655
    )Deduct:
      Total stock-based employee compensationexpenses
      determined underthe
      fair value Black-Scholesmethod
      with a 3% volatility and a 6% risk free rate of returnassumption
    
    
    (32,610
    )
    
    (17,110
    )
    
    (66,672
    )
    
    (34,222
    )Pro
      forma net loss
    
    
    (731,897
    )
    $
    (552,116
    )
    $
    (1,000,395
    )
    $
    (1,377,877
    )Loss
      per share:Weighted
      average shares, basicand
      diluted - as reported
    
    
    15,035,895
    
    
    12,281,553
    
    
    15,035,895
    
    
    11,177,326Basic
      and diluted, pro forma, per share
    
    $
    (0.05
    )
    $
    (0.04
    )
    $
    (0.07
    )
    $
    (0.12
    )
 ****
 - 6
-
  **(2)**
    **Interim
      Financial Statements:**
  The
accompanying unaudited consolidated financial statements for the three and six months ended March 31,
2005 and 2004 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 period
from November 17, 2000 (inception) to September 30, 2004 included in the
Company’s Form 10-KSB/A.
 
 **(3)**
    **Business
      Acquisition:**
  On
October 26, 2004 (“Closing Date”), effective October 1, 2004, the Company
purchased 100% of the outstanding shares of two Texas corporations, Bott
Equipment Company, Inc. (“Bott”) and Gulfgate Equipment, Inc. (“Gulfgate”) 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 newly issued common stock.
  752,688
shares of the shares issued to Trumble are subject to a one time put. The
exercise of the put must occur, if at all, on or within 10 business days after
the day which falls three hundred sixty-six (366) days after the Closing Date.
Under the terms of the put, Trumble may exchange some or all of the 752,688
shares for an amount equal to $1.86 (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. Should Trumble choose to exercise this put, the Company
shall have sixty (60) days from the date of exercise to pay off any sums due
thereby. 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’ 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 f or
Certain Financial Instruments with Characteristics of both
Liabilities  and
Equity until
the terms of the put expire.
 
 The
Company agreed to create an employee option plan for its employees and those of
its affiliates, including Bott and Gulfgate. In connection with said plan, the
Company agreed to file Form S-8 Registration Statement under The Security 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 will 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 has 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 Mr. 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.
 
 - 7
-
 
 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
$2,000,000 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.
 
 Finally, the
Company has recognized that Trumble shall 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 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 are 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. 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.
  During
the first quarter, the Company, in order to avoid the issuance of 61,829 penalty
shares, paid $75,000 directly to Mr. Trumble. The Company has recorded this
payment as a reduction to additional paid-in capital. As of the date of this
report the Company has received approximately $27,000 of the $75,000 from Mr.
Weisdorn Sr. The Company is currently pursuing the collection of the remaining
balance of $48,000.
  - 8
-
 
 Mr.
Trumble did not recognize $307,000 within 60 days of the closing date. As a
result, the Company is obligated to issue 247,318 penalty shares 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.
  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’s components and Gulfgate’s fabrication
abilities may also be utilized to construct components to be used in Can AM
Ethanol One, Inc.’s 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
$1,148,000 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 $810,000.
 
 The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition:




Current
      assets
    
    $
    1,846,000Property,
      machinery, furniture and equipment
    
    
    1,873,000Total
      assets acquired
    
    
    3,719,000Current
      liabilities
    
    
    1,619,000Long
      term debt
    
    
    138,000Total
      liabilities assumed
    
    
    1,757,000Net
      assets acquired
    
    
    1,962,000Excess
      Cost over fair value
    
    
    1,148,000Total
      purchase price
    
    $
    3,110,000
   
 In the
event that any purchase adjustments arise within one year of the purchase date,
the foregoing allocation may be adjusted.
  The
$3,110,000 purchase price was comprised of the following:
  Cash
    
    $
    50,000Common
      Stock (370,977 Penalty shares)
    
    
    810,000Common
      Stock (1,309,677 shares)
    
    
    2,250,000Total
    
    $
    3,110,000
  - 9
-
 
 The
following pro-forma summary presents the consolidated results of operations of
the Company as if the acquisition had occurred at the beginning of the three and
six months ended March 31, 2005 and 2004.
 
 For the
three and six months ended March 31, 2005 and 2004 (approximately)
 
 Three
      months ended March 31
    
    Six
      months ended March 312005
    
    2004
    
    2005
    
    2004Net
      sales
    
    $
    1,865,000
    
    $
    1,536,000
    
    $
    4,87
      $4,879,000
    
    $
    3,238,000Gross
      Profit
    
    
    502,000
    
    
    227,000
    
    
    1,362,000
    
    
    52,000Net
      loss attributable to common shareholders
    
    $
    (699,000
    )
    $
    (494,000
    )
    $
    (934,000
    )
    $
    (1,607,000
    )Net
      loss per share
    
    $
    (0.05
    )
    $
    (0.04
    )
    $
    (0.06
    )
    
    ($0.14
    )
 
 **(4)**
    **Inventories:**
 
 
 Inventories,
net of reserve for slow moving inventory ($45,000), consist of finished goods of
approximately $455,000 and work in process in the amount of approximately
$253,000.
 
 **(5)**
    **Property
      and Equipment**:
 
 A summary
(approximately) at March 31, 2005 is as follows:
 Land
    
    $
    502,000Buildings
    
    
    1,452,000Furniture,Machineryand
      equipment
    
    
    174,000Automobiles
      and trucks
    
    
    92,000Total
    
    
    2,220,000Less
      accumulated depreciation
    
    
    108,000$
    2,112,000
 Depreciation
expense charged to operations totaled approximately $30,800 and $61,600,
respectively, for the three and six months ended March 31, 2005.
 
 **(6)**
    **Liability
      to be satisfied through the issuance of
shares**
 
 
 In the
second quarter, 2005, forty-seven (47) PIPE warrant holders exercised 550,021 warrants
valued at $1,088,000 at an average price of approximately $2.00 per common
share. The Company satisfied its obligations through issuance of common stock to
the PIPE warrant holders in April 2005.
 
 **(7)**
    **Business
      Line of Credit - Bott:**
  Bott
maintains three lines of credit with a bank in Houston, Texas. The credit lines
are 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 may borrow up
to $250,000 over a three year term. Bott may obtain credit line advances based
upon its asset base. The note requires 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.
  - 10
-
  In June
2004, Bott executed a promissory note (“Note”) with a bank whereby Bott may
borrow up to $600,000, at an interest rate equal to the bank’s prime rate. The
Note provides for monthly payments of all accrued unpaid interest due as of the
date of each payment. The Note further provides for a balloon payment of all
principal and interest outstanding on the Note’s one year anniversary.
  In
October 2004, Bott executed a promissory note with a bank that allows Bott to
borrow up to $200,000, at an interest rate equal to the bank’s prime rate plus
1.0 percent. The note provides for monthly payments of all accrued unpaid
interest due. The note also provides for the payment of $66,666 in the months of
December 2004 and January 2005 and payment of the remaining principal and
interest in February 2005. The note was paid off in the second
quarter.
  All of
the foregoing promissory notes contain the following common terms: The notes
specify 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 may draw down on the lines of
credit provided that: it is not in default under the note evidencing the
particular line of credit or any other agreement that it might have with the
bank; it is not insolvent; no guarantor has revoked or limited the terms of his
or her guarantee respecting the note; Bott uses the funds available under the
particular note for an unauthorized purpose; and/or the bank believes that its
interests under the note are insecure. The notes provide 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.
  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. Amounts outstanding at March 31, 2005 totaled
$689,255.
  **(8)**
    **Business
      Line of Credit - Gulfgate:**
  In June
2002, Gulfgate executed a promissory note (“Note”) with a bank that allows
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 is greater.
Gulfgate may draw down on the line of credit provided: that it is not in default
on this Note or any other agreement that it might have with the bank; it is not
insolvent; any guarantor revokes or limits the terms of his guarantee; the
Borrower uses 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 believes that its interests are insecure. The
Note provides 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 is in default; or the amount requested is less
than allowed under the Note. The Note provides 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 March 31, 2005 totaled $176,466.
 
 **(9)**
    **Promissory
      Notes:**
 
 
 In
November 2002, Gulfgate executed a promissory note with a bank in the amount of
$35,782 at an interest rate equal to the bank’s prime rate plus one-quarter of
one percent (0.25%) for a vehicle purchase. The term of the note is for
forty-seven (47) months. The Note is secured by Gulfgate’s deposit accounts at
the bank. Balance outstanding at March 31, 2005 was $17,032.
 
 In May
2003, Bott executed a promissory note with a bank in the amount of $26,398 at an
interest rate equals 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 March 31, 2005 is $17,387.
 
 **(10)**
    **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 as computed
on a 360/365 day basis.   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.  The Note 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 March 31, 2005 was
$69,162.
 
 **(11)**
    **Financing
      Lease Agreement:**
 
 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 6.90 percent per annum.
 
 Summary
of long-term notes payable and financing lease are as follow:
 Convertible
      loan
    
    $
    150,000Promissory
      notes for automobiles
    
    
    34,419Mortgage
      payable
    
    
    69,162Financing
      lease agreement payable
    
    
    26,810Other
    
    
    2,899283,290Less
      current portion
    
    
    46,351Long-term
    
    $
    236,939
  **(12)**
    **Subsequent
      Event:**
  In April
2005, the Company sold 375,000 shares of its common stock via a private
placement offering (the PIPE). The Company recognized a combined purchase price
of $750,000. The average price for this transaction was $2.00 per
share.
 
  
 - 11
-
 
 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, Bott Equipment Company,
Inc., a Texas corporation, Gulfgate Equipment, Inc., a Texas corporation and our
joint venture Can Am Ethanol One, Inc., a British Columbia corporation.*
  Plan
of Operations:
  We are
engaged in the business of developing and manufacturing advanced engineered
products, systems and plants, mostly for the energy, oil and natural gas
industries. Our business is divided into three operating divisions, including
(i) the design, development and operation of ethanol facilities, (ii) the
provision of systems and components to the energy sector, and (iii) the
engineering applications and sale of micro electro mechanical systems (MEMS) for
scientific and engineering companies. As related in our annual report, in
October 2004, the Company acquired two Texas corporations, Bott Equipment
Company, Inc. (“Bott”) and Gulfgate Equipment, Inc. (“Gulfgate”). In November
2004, the Company formed a joint venture, Can Am Ethanol One, Inc. (“Can Am”).
As of the date of this report, the Company owns 49.3% of the outstanding shares
of Can Am and has voting rights equal to 50%. Two of MEMS directors sit on the
Can Am board. The purpose of this joint venture is to design, build and operate
an ethanol production facility. We believe that these strategic acquisitions and
alliances will allow us to grow our businesses. The Company is currently in the
process of becoming ISO 9001:2000 certified. This certification will provide the
Company with worldwide recognition that we have high quality products and
standards and will allow us a greater ability to compete on a national and
International basis.
 
 MEMS CA
was incorporated in November 2000. MEMS CA is an engineering and design firm.
MEMS CA has been engaged in the engineering and sale of instrumentation,
blending skids and Intelligent Filtration Systems (IFS). During 2004, MEMS CA’s
engineers designed and constructed an acoustic viscometer. This instrument
utilizes sound waves traveling through a fluid stream to determine the fluid’s
viscosity. To date, the Company has determined that the instrument may be
utilized to measure the viscosity of a range of aqueous and organic fluids,
including refined and crude oils. The Company has filed a provisional patent
application respecting this device and anticipates filing one or more utility
patents respecting this device in the near future. MEMS CA is presently
designing a multi-variant pressure, temperature and flow meter for use in
industrial applications.
 
 During
2004, MEMS CA’s engineers also built a hydrocarbon blending system technology.
One system we produced mixes three organic fluids, in differing percentages with
accuracy. One of the Company’s long term goals is to be able to build blending
systems to mix ethanol with motor gasoline. When properly mixed, ethanol and
gasoline provide a higher octane, cleaner burning fuel for automobiles.
 
 MEMS CA’s
engineers have also been charged by the Company to oversee the Company’s IFS
business. These systems are utilized to filter wastes from amine, oil or water
streams. Unlike a typical canister filter system, such as the oil filter in an
automobile, which needs to be periodically replaced and disposed of, the filters
utilized in intelligent filtration systems can last for decades. Furthermore,
the filter system is self cleaning. Once the system recognizes that its filter
is becoming clogged by debris filtered from the fluid flow, it turns the fluid
flow through the filter off and “back flushes” the debris caked on the filter
into a collection vessel. The system then turns the fluid flow through the
system back on through the freshly cleaned filter. The filter cleaning process
takes only seconds to complete and repeats as necessary to assure optimum
filtration. A facility utilizing IFS technology needn’t dispose of contaminated
filters, but only need dispose of the contaminate itself. Thus, while a
filtration system based upon IFS technology typically requires a greater capital
investment on the part of the purchaser, these costs are offset in the long run
by savings in filter replacement and disposal costs. The Company anticipates
that it may be able to utilize its intelligent filtration systems as an integral
part of any ethanol production facility that it may design. The Company is
presently aware of three competitors offering similar technologies to MEMS IFS
technology.
 
 - 12
-
 
 Presently,
MEMS CA utilizes a combination direct sales force as well as commissioned sales
representatives to market and distribute its products. MEMS CA targets niche
business segments and is not dependent upon any one or a few major customers. A
typical contract requires MEMS CA to engineer a product that previously did not
exist or improve upon an existing technology using MEMS (Micro Electro
Mechanical Systems) devices. The vast majority of the monies raised since the
Company’s acquisition of MEMS CA have been utilized to fund MEMS CA’s
acquisition and development of new technologies.
 
 Gulfgate
produces particulate filtration equipment utilized in the oil and power
industries. Gulfgate also produces vacuum dehydration and coalescing systems
that are utilized to remove water from ground based turbine engine oil. These
same systems are used by electric power generation facilities to remove water
from transformer oils. To help meet its customer’s diverse needs, Gulfgate
maintains and operates a rental fleet of filtration and dehydration systems.
Presently, Gulfgate utilizes a combination direct sales force as well as
commissioned sales representatives to market and distribute its
products.
 
 Bott is a
stocking distributor for various lines of industrial pumps, valves and
instrumentation such as those utilized in MEMS CA’s IFS and blending skid
systems. Bott specializes in the construction of aviation and refueling systems,
including, but not limited to, helicopter refueling systems on oil rigs
throughout the world. Bott also constructs refueling systems for commercial
marine vessels. Bott’s customers include chemical plants, refineries, power
plants and other industrial applications. Bott utilizes a combination direct
sales force as well as commissioned sales representatives to market and
distribute its products.
  Can Am
was created to manufacture, own and operate one ethanol production facility in
Canada. The joint venture will utilize a synthetic biomass conversion process to
convert waste materials into ethanol. We are aware of several commercially
available conversion processes which we believe will meet our requirements and
are presently evaluating the processes in relation to their required capital
investment, operating costs, conversion yield and product quality as a
prerequisite to licensing or acquiring the process technology. It is anticipated
that the ethanol manufactured by the joint venture will be sold to companies
which blend ethanol with motor fuel. The blending of ethanol with motor fuel
reduces emissions and will help countries such as Canada meet the Kyoto Accords
for reduced greenhouse gas emissions. We intend to develop several ethanol
plants in Canada that will use a synthetic biomass conversion process, subject
to receipt of required funding. We estimate that each ethanol plant will require
approximately $150 million in capital. MEMS USA’s engineering group,
headquartered in Westlake Village, CA, has entered into a contract with Can Am
to develop the engineering data and direct the plant engineering and
construction projects. It is anticipated that the Company’s Texas subsidiaries
will be called upon to supply instrumentation for the project and assist in its
modular construction, subject to receipt of funding. As of the date of this
report there has been no significant dollar amount invested in Can
Am.
  We are
presently in the process of integrating and improving our subsidiaries, which we
believe will promote efficiency and lower operating costs. While each of our
subsidiaries will remain a separate operating entity, we intend to optimize the
resources of each. MEMS CA’s primary responsibility will be to design and
engineer new products and systems for the energy sector. It is anticipated that
Bott will supply component parts for these systems, which will be assembled in
Texas under MEMS CA’s supervision. We have already transferred our IFS and other
technology to Texas in order to establish lines of communication and a working
relationship. We also anticipate that once we obtain the necessary funding, the
symbiotic relationship between our subsidiaries will allow us to engineer,
design, and partially construct ethanol plants for our Canadian joint
venture.
  - 13
-
 
 Comparison
of Operations
 
 Net sales
were $1,864,543 and $-0- for the three months ended March 31, 2005 and 2004,
respectively. Net sales for the six-month periods ended March 31, 2005 and 2004
were $4,879,240 and $-0-, respectively. The sales increases for the three months
and for the six months ended March 31, 2005 as compared to the prior year were
due to the acquisition of Gulfgate and Bott. Net sales decreased $1.2 million
(38.2%) to $1,864,543 for the second quarter of fiscal 2005 from $3,014,697 for
the first quarter of fiscal 2005. The sales decrease for the second quarter of
fiscal 2005 from the previous quarter was mainly due to the scheduled delivery
due dates established by our customers. Timing differences, from quarter to
quarter, on deliveries of capital equipment such as those sold by Bott and
Gulfgate are not an unusual occurrence. Several large orders that were booked in
the first half of fiscal year 2004 shipped in the first quarter of fiscal 2005.
New orders now in backlog at Bott and Gulfgate are running at plan for the third
quarter of fiscal 2005.
 
 Operating
expenses were $1,207,609 and $325,813 for the fiscal quarters ended March 31,
2005 and 2004, respectively. Operating expenses for the six-month periods ended
March 31, 2005 and 2004 were $2,305,114 and $1,030,346, respectively. Operating
expense increases for the quarter ended and for the six months ended March 31,
2005 as compared to the prior year were due to the acquisition of Gulfgate and
Bott. We expect operating expenses to increase further as we undertake the
design, engineering and construction of one or more ethanol plants in Canada.
 
 For the
quarter ended March 31, 2005, shareholder’s equity was $269,798 as compared to a
deficit of $762,050 for the prior year period ended March 31, 2004. The increase
in shareholder equity is
attributable to the acquisition of Gulfgate and Bott and the sale of MEMS common
stock in several private placement offerings.
 
 Interest
expense was $8,596 and $-0- for the fiscal quarters ended March 31, 2005 and
2004, respectively. Interest expense for the six-month periods ended March 31,
2005 and 2004 was $27,882 and $-0-, respectively. The increase is attributable
to the interest payments made pursuant to the terms of the credit lines of Bott
and Gulfgate.
 
 In
summary, net losses were $699,287 and $535,006 for the fiscal quarters ended
March 31, 2005 and 2004, respectively. Net losses for the six-month periods
ended March 31, 2005 and 2004 were $933,723 and $1,343,655, respectively. The
increased net loss for the fiscal quarter ended March 31, 2005 as compared to
the prior year was primarily due to higher MEMS general and administrative
expenses resulting from a ramping up of operations to accommodate the
acquisition of Bott and Gulfgate and the initial start-up efforts associated
with the Can-Am Ethanol One contract. Reduction in net loss for the six months
ended March 31, 2005 as compared to the prior year was primarily due to the
acquisition of Gulfgate and Bott.
 
 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 Can Am Ethanol One, Inc.’s efforts to raise the
necessary capital. We also intend to continue to develop our sensor technology.
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 $182,589 as of March 31, 2005, compared to cash and cash equivalents of
$26,439 as of September 30, 2004. At our current cash “burn rate”, we will need
to raise additional cash through debt or equity financings during the first
three quarters of 2005 in order to fund our continued development of our sensor
technology and devices and to finance possible future losses from operations as
we expand our business lines and reach a profitable level of operations. Before
considering Can Am, we believe that we require a minimum of $2,000,000 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. However, as of the date of this report, we have no firm
commitments for the sale of our securities nor can there be any 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.
 
 - 14
-
 
 During
the months of February through June 2004, the Company sold 1,331,783 shares of
its common stock via a private placement offering (the “PIPE”). The subscription
agreement accompanying the PIPE sales provided the purchaser with a warrant to
purchase an additional share of the Company’s common stock for each share
purchased under the PIPE. The warrants bore an expiration date of January 27,
2005.
 
 In
January 2005, forty-seven (47) PIPE warrant holders exercised 550,021
warrants and the Company recognized a combined purchase price of $1,110,570. The
average price for this transaction was $2.02 per share.
 
 In April
2005 the Company sold 375,000 shares of its common stock via a private placement
offering (the “PIPE”). The Company
recognized a combined purchase price of $750,000. The average price for this
transaction was $2.00 per share.
 
 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.
 
 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 2004 Annual Report on Form 10-KSB/A filed
with the SEC on February 3, 2005
 
 - 15
-
 
 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
 
 Item 1.
Unregistered Sales of Equity Securities and Use of Proceeds
  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. **** As of the
date of this report, the Company is obligated to issue 370,977 penalty 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 April
2005 the Company sold 375,000 shares of its common stock via a private placement
offering (the “PIPE”). The Company
recognized a combined purchase price of $750,000. The average price for this
transaction was $2.00 per share.
 
 Item 2.
Other Information:
  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. This
increase in goodwill could give rise to impairment loss recognition at the
company’s measurement date, September 30, 2005.
 
 - 16
-
  Item 3. 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 Officer Pursuant
      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 to 18
      U.S.C Section 1350 (Furnished electronically
herewith).
 
 - 17
-
 
 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: May 23, 2005
    By:
    /s/James
      A. Latty
      PresidentTitle
  - 18
-