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 December 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                              (I.R.S. employer
incorporation or organization)                               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 |_| No |X|

The number of shares of the common stock outstanding as of February 10, 2006 was
18,768,744.

                      Documents incorporated by reference:

           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.


                                      -1-
<PAGE>

                                   FORM 10-QSB

                For The Quarterly Period Ended December 31, 2005

                                      INDEX

<TABLE>
<CAPTION>
                                                                                      Page
<S>                                                                                <C>
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements
         o Consolidated Balance Sheets as of December 31, 2005 and 2004
                  (unaudited)...................................................        3

         o Consolidated Statements of Operations (unaudited) for the three
                 months ended December 31, 2005 and 2004........................        4

         o Consolidated Statements of Cash Flows (unaudited) for the three
                 months ended December 31, 2005 and 2004........................         5

         o Consolidated Statement of Equity (unaudited) as of December 31, 2005          6

         o Notes to Consolidated Financial Statements (unaudited)...............    7 - 18

Item 2.  Management's Discussion and Analysis or Plan of Operation..............   18 - 24

Item 3.  Controls and Procedures................................................        24

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings.....................................................        25

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds...........        26

Item 3.   Defaults upon Senior Securities.......................................        27

Item 4.   Submission of Matters to a Vote of Security Holders...................        27

Item 5.   Other Information.....................................................        27

Item 6.   Exhibits..............................................................        28

Signatures......................................................................   29 - 32
</TABLE>


                                      -2-
<PAGE>

ITEM 1. FINANCIAL STATEMENTS:

                           Consolidated Balance Sheets
                                   December 31
                                   (Unaudited)

<TABLE>
<CAPTION>
                                   A S S E T S
Current Assets:                                                                    2005              2004
                                                                               ------------      ------------
<S>                                                                            <C>               <C>
   Cash and cash equivalent                                                    $    106,208      $     64,269
 Accounts receivable, net allowance for uncollectible of
   $46,196 and $51,640 respectively                                                 943,012         1,403,804
  Inventories, net of provision for slow moving items of $25,000 and
  $45,000 respectively                                                              768,194           602,124
   Other current assets                                                              98,064           107,810
                                                                               ------------      ------------
      Total current assets                                                        1,915,478         2,178,007
                                                                               ------------      ------------
Plant, property and equipment, net                                                2,275,912         2,136,381
Other assets                                                                        364,906           343,746
Investment in Can Am Ethanol One, Inc.                                               71,765                --
Goodwill                                                                            915,373           337,819
                                                                               ------------      ------------
      Total assets                                                             $  5,543,434      $  4,995,953
                                                                               ============      ============
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses                                       $  1,400,710      $  1,288,349
   Lines of credits                                                                 176,424           981,055
   Notes payable                                                                    556,929                --
   Current portion of long-term debt                                                 36,843            65,132
   Deferred revenue                                                                      --            10,550
   Loans from shareholders                                                          211,600                --
   Convertible loan payable                                                         150,000                --
   Liability to be satisfied through the issuance of shares                       1,005,000                --
                                                                               ------------      ------------
      Total current liabilities                                                   3,537,506         2,345,086
                                                                               ------------      ------------
Lon-term liabilities                                                                 41,384           232,799
Other loans from shareholders                                                            --            50,000
Liability due to a legal settlement                                                 307,000                --
Common shares with mandatory redemption                                           1,400,000         1,400,000
Common shares payable under terms of acquisition agreement                          809,966                --
                                                                               ------------      ------------
   Total Liabilities                                                              6,095,856         4,027,885
Stockholders' equity (deficit):
Common stock, $0.001 par value; 100,000,000 shares authorized; 18,237,767
and 16,431,077 shares respectively issued and outstanding                            20,937            16,431
Stock subscriptions receivable                                                   (2,512,850)           (2,050)
Additional paid in capital                                                        8,581,998         4,309,787
Shares to be redeemed (165,054 shares)                                             (231,076)               --
Accumulated deficit                                                              (2,631,873)       (3,356,100)
Treasury stock (2,699,684 shares)                                                (3,779,558)               --
                                                                               ------------      ------------
   Total stockholders' equity (deficit)                                            (552,422)          968,068
                                                                               ------------      ------------
      Total liabilities and stockholders' equity                               $  5,543,434      $  4,995,953
                                                                               ============      ============
</TABLE>

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


                                      -3-
<PAGE>

                                  MEMS USA, INC
                      Consolidated Statement of Operations
                         Three months ended December 31
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 2005               2004
                                                             ------------       ------------
<S>                                                          <C>                <C>
Revenues                                                     $  2,626,519       $  3,014,697
Cost of revenues                                                2,071,744          2,154,487
                                                             ------------       ------------
Gross profit                                                      554,775            860,210
Selling, general and administrative expenses                    1,321,547          1,097,504
                                                             ------------       ------------
Loss from operations                                             (766,772)          (237,294)

Other income                                                      (23,281)             2,862
                                                                                ------------
Income due to legal settlement                                  3,703,634                 --
                                                             ------------       ------------
Net income (loss)                                            $  2,913,581       $   (234,432)
                                                             ============       ============

Net income (loss) per share, basic and diluted:
Weighted average number of shares outstanding, basic           18,439,506         16,410,871
Net income (loss) per share, basic                           $       0.16       $      (0.01)
                                                             ============       ============
Weighted average number of shares, outstanding, diluted        19,131,642         16,410,871
Net income (loss) per share, diluted                         $       0.15       $      (0.01)
                                                             ============       ============
</TABLE>

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


                                      -4-
<PAGE>

                                 MEMS USA, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                         Three Months ended December 31
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                      2005              2004
                                                                                  ------------      ------------
<S>                                                                               <C>               <C>
Cash flows provided by (used for) operating activities:
   Net income (loss)                                                              $  2,913,581      $   (234,432)
                                                                                  ------------      ------------
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
   Depreciation                                                                         61,693            30,811
   Common stock issued for services                                                     10,000                --
   Income due to legal settlement                                                   (3,703,634)               --
Change in assets and liabilities:
   Accounts receivable                                                                (186,172)         (396,953)
   Inventories                                                                         112,176           131,803
   Other current assets                                                                 72,133            28,558
   Accounts payable and accrued expenses                                                 5,445           216,824
   Deferred revenue                                                                         --            10,550
                                                                                  ------------      ------------
      Total adjustments                                                             (3,628,359)           21,593
                                                                                  ------------      ------------
      Net cash used in operating activities                                           (714,778)         (212,839)
                                                                                  ------------      ------------
Cash flows from investing activities:
   Purchase of property and equipment                                                  (20,769)              820
   Other assets                                                                         24,000                --
                                                                                  ------------      ------------
      Net cash used for investing activities                                             3,231               820
                                                                                  ------------      ------------
Cash flows from financing activities:
   (Repayment) proceeds from lines of credit and long term debts                       (30,398)          194,776
   Loan from shareholder                                                                20,000            50,000
    Cash balance net of payments for purchase of Bott and Gulfgate                          --             5,073
                                                                                  ------------      ------------
      Net cash provided by (used in) financing activities                              (10,398)          249,849
                                                                                  ------------      ------------
Net increase (decrease) in cash and cash equivalents                                  (721,945)           37,830
Cash and cash equivalents, beginning of period                                         828,153            26,439
                                                                                  ------------      ------------
Cash and cash equivalents, end of period                                          $    106,208      $     64,269
                                                                                  ============      ============
Supplemental disclosure of cash flow information:

Income taxes paid                                                                 $         --      $         --
                                                                                  ============      ============
Interest paid                                                                     $     35,498      $     19,286
                                                                                  ============      ============
Supplemental disclosure of non-cash financing activities:
Common stock (including $1,400,000 of shares subject to mandatory redemption                        $  2,250,000
factor) issued for acquisition of Bott and Gulfgate
</TABLE>

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


                                      -5-
<PAGE>

                                  MEMS USA, INC
                        Consolidated Statement of Equity
                                December 31, 2005
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                Additional
                                   Common      Subscriptions      paid in                       Accumulated     Stockholders'
                                    stock        receivable       capital      Treasury stock      deficit          equity
                                ------------    ------------    ------------    ------------    ------------     ------------
<S>                             <C>             <C>             <C>             <C>             <C>              <C>
Balance as of September 30,     $     17,404    $       (250)   $  5,956,932              --    $ (5,545,454)    $    428,632
2005

Common stock issued for
service                                    4              --           9,995              --                            9,999

Common stock issued for cash
received in prior year                   129              --         105,871              --                          106,000

Common stock issued for
subscriptions receivable               3,400      (2,512,600)      2,509,200              --                               --

Charges due to legal
settlement                                --              --        (231,076)             --                         (231,076)

Net income for the quarter                                                                         2,913,581        2,913,581
Treasury stock due to legal
settlement                                --              --              --      (3,779,558)                      (3,779,558)
                                ------------    ------------    ------------    ------------    ------------     ------------
Balance as of December 31,
2005                            $     20,937    $ (2,512,850)   $  8,350,922    $ (3,779,558)   $ (2,913,581)    $   (552,422)
                                ============    ============    ============    ============    ============     ============
</TABLE>

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


                                      -6-
<PAGE>

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 is comprised of three wholly owned  subsidiaries,  California MEMS
      USA, Inc., fka, MEMS USA, Inc., a California Corporation ("MEMS CA"), Bott
      Equipment   Company,   Inc.   ("Bott")   and  Gulfgate   Equipment,   Inc.
      ("Gulfgate").  In December 2005, the Company  incorporated  Hearst Ethanol
      One,  Inc.,  an Ontario  corporation  ("HEO") for the purpose of building,
      owning and operating an ethanol production facility in Canada. The Company
      owns  ninety-nine  point three percent  (99.3%) of HEO. Dr. James A. Latty
      and Mr. Daniel  Moscaritolo  are presently the only directors and officers
      of HEO.

      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 Can Am's voting rights.

      MEMS CA is a California based professional  engineered  systems,  products
      and  services  company  serving the oil,  petro-chemical,  natural gas and
      electric utility industries.

      Gulfgate produces  particulate  filtration equipment for the oil and power
      industries.  Gulfgate  also produces  vacuum  dehydration  and  coalescing
      systems that 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 rental  fleet of  filtration  and  dehydration
      systems.

      Bott is a stocking  distributor for 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 also  constructs  refueling  systems  for  commercial  marine
      vessels.  Bott's  customers  include chemical  manufacturers,  refineries,
      power plants and other industrial customers.

      MEMS CA, Bott and Gulfgate  have a combined  direct sales force as well as
      commissioned sales representatives that sell their products.

      Can Am was created to manufacture,  own and operate one ethanol production
      facility in British Columbia Canada.  The plant was to utilize a synthetic
      biomass  conversion  process to convert wood waste materials into ethanol.
      Subject to  receipt of the  required  funding  several  biomass-to-ethanol
      plants are  planned  for  Canada  that will also use a  synthetic  biomass
      conversion process.

      We are continuing the process of vertically  integrating our subsidiaries,
      which we believe will promote  efficiency and lower operating costs.  Each
      of our subsidiaries will remain a separate operating entity.

      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.


                                      -7-
<PAGE>

      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:

      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 three  months  ended  December  31, 2005 and 2004 are as
      follows:

<TABLE>
<CAPTION>
                                                                           2005               2004
                                                                       ------------       ------------
<S>                                                                    <C>                <C>
      Net income (loss), as reported                                   $  2,913,581       $   (234,432)
      Deduct:
      Total stock-based employee compensation expenses determined
      under the fair value Black-Scholes method with a 128%  and
      80% volatility at December 31, 2005 and 2004 respectively
      and a 6% and 1.5% respectively risk free rate of return
      assumption                                                           (175,664)        (1,008,110)
                                                                       ------------       ------------
      Pro forma net loss                                               $  2,737,917       $ (1,242,542)
                                                                       ============       ============
      Income (loss) per share:
      Weighted average shares, basic                                     18,439,506         16,410,871
      Basic, pro forma, per share                                      $       0.15       $      (0.08)
                                                                       ============       ============
      Weighted average shares, diluted                                   19,131,642         16,410,871
      Diluted, pro forma, per share                                    $       0.14       $      (0.08)
                                                                       ============       ============
</TABLE>

      Interim Financial Statements:

      The accompanying unaudited consolidated financial statements for the three
      months  ended   December  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 year ended September 30,
      2005 and 2004 included in the Company's Form 10-KSB/A.


                                      -8-
<PAGE>

      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
      $2,631,873  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 to raise  additional  cash through debt or equity  financings  in
      2006 in order to meet our working capital requirements.

(2)   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. On or about October 26, 2005, Mr.  Trumble  exercised this put. Under
      the terms of the put,  Trumble has 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 shall have
      sixty (60) days from the date of exercise to pay off any sums due thereby.
      An  extension  for  payment  of the put has been  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' 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  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.


                                      -9-
<PAGE>

      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 note 6
      and 7) 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.

      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 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 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.  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.


                                      -10-
<PAGE>

      On December 15, 2005, the Company  assumed  Weisdorn  Sr.'s  obligation to
      purchase 165,054 shares from Mr. Trumble at $1.86 per share.

      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.

      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 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.

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

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

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


                                      -11-
<PAGE>

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

(3)   Accounts Receivable:

      Accounts  receivable has 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  December  31,  2005 and 2004 in the  amount  of
      $46,196 and $51,640 respectively that the Company believes are adequate.

(4)   Inventories:

      Inventories consist of finished goods of $449,271 and $323,323 at December
      31,  2005 and 2004  respectively;  and work in  process  in the  amount of
      $343,923 and $278,800 respectively.

(5)   Plant, Property and Equipment:

      A summary at December 31, 2005 and 2004 are as follows:

                                                  2005              2004
                                              -----------       -----------
      Land                                    $   502,000       $   502,000
      Buildings and improvements                1,073,000         1,452,419
      Furniture, Machinery and equipment          790,360           167,996
      Automobiles and trucks                      180,651            91,700
      Leasehold improvement                        79,105                --
                                              -----------       -----------
                                                2,625,116         2,214,115
      Less accumulated
      depreciation                               (349,204)          (77,735)
                                              -----------       -----------
                                              $ 2,275,912       $ 2,136,380
                                              ===========       ===========

      Depreciation  expense  charged to operations  totaled  $61,693 and $30,811
      respectively, for the three months ended December 31, 2005 and 2004.

(6)   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.


                                      -12-
<PAGE>

      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 October 2004,  Bott executed a promissory note with a bank that allowed
      Bott to borrow up to  $200,000,  at an  interest  rate equal to the bank's
      prime rate plus 1.0 percent. The note provided for monthly payments of all
      accrued  unpaid  interest  due. The note also  provided 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  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.

      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  $544,311  and $665,255 on
      December 31, 2005 and 2004 respectively.

(7)   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


                                      -13-
<PAGE>

      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 December 31, 2005 and 2004 totaled
      $189,042 and $182,466 respectively.

(8)   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  obligations
      through issuance of common stock to shareholders in March 2006. 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.

(9)   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  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 December 31, 2005
      and 2004 were $13,786 and $18,660 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 December 31, 2005 and 2004 were $32,138 and $76,091
      respectively.

      Loans from shareholders:

      Mr. 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.  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.


                                      -14-
<PAGE>

      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 6.90 percent per annum.
      Balance outstanding at December 31, 2005 and 2004 were $12,136 and $30,693
      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 the two year period the loan has not been  converted into
      common stock, the principal amount becomes due and payable.

(10)  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 three months ended December 31, 2005 and 2004 are as follows:

<TABLE>
<CAPTION>
                                                             2005                      2004
                                                                  Average                    Average
                                                   Number of      Exercise   Number of       Exercise
                                                   shares         Price      shares          Price
<S>                                                <C>            <C>        <C>             <C>
      Outstanding at beginning of the quarter      5,338,227      $3.00      4,100,388       1.55
      Granted during the quarter                          --      $  --      1,535,000       1.97
      Outstanding at end of the quarter            4,488,727      $1.95      5,635,388       1.76
      Exercisable at end of the quarter            1,380,914      $1.88      1,068,912       1.97
      Exercised during the quarter                        --      $  --             --         --
      Cancelled during the quarter                   849,500      $5.55             --         --
</TABLE>

(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


                                      -15-
<PAGE>

      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.

      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.

      Income from legal settlement:

      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,
      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.


                                      -16-
<PAGE>

      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).

(12)  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 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 SICAV  Agreements but has not exercised its
      right to demand return of the shares.)

      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


                                      -17-
<PAGE>

      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  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
      payment was not received by the Company  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  but  has not
      exercised its right to demand return of the shares.

(13)  Subsequent Event:

      In February 2006,  MEMS USA received a $1.5 million order to construct for
      an amine purification  system which will be installed at a refinery with a
      large oil company.  Amine is used in a refinery to remove  Carbon  Dioxide
      and Sulfur products from oil to produce  cleaner burning fuels.  There are
      three  major  components  in the  amine  purification  system.  The  first
      component is MEMS USA's Intelligent  Backflushing Filtration System (IFS).
      This system  removes  particulates  such as rust which gets dislodged from
      pipes and other  components  in the refinery and other hard  particulates.
      The filtration system uses permanent filter elements which are backflushed
      periodically.  The  backflush  waste  material  consists  of water and the
      particulates  which have been filtered by the permanent  filter  elements.
      The backflush  waste is further  concentrated in a decanting  vessel.  The
      second  major  system is a carbon bed  filtration  system which is used to
      remove chemical  contaminants  and  hydrocarbons  which will sometimes mix
      with the amine during its use in a refinery.  The third major system is an
      Ion Exchange  filtration system which removes heat stable salts which form
      in the amine,  causing the amine to be less  effective in removing  Carbon
      Dioxide and Sulfur products. 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,  Bott
Equipment Company, Inc., a Texas corporation,  Gulfgate Equipment, Inc., a Texas
corporation,  our joint  venture Can Am Ethanol One,  Inc.,  a British  Columbia
corporation and Hearst Ethanol One, Inc., an Ontario corporation ("HEO").

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  2005,  the Company  acquired  two Texas  corporations,  Bott  Equipment
Company, Inc. ("Bott") and Gulfgate Equipment, Inc. ("Gulfgate").


                                      -18-
<PAGE>

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.  In June 2005,  the
Company and its  Canadian  counterpart  each made a CN$25,000 at risk deposit to
open escrow toward  purchase of 2,150 acres of land intended to serve as a plant
site in British Columbia, Canada ("Purchase Agreement").

Subsequently, the Company paid an additional at-risk deposit of CN$50,000 for an
extension of the Closing Date of the Purchase Agreement.  As of the date of this
report,  the Purchase  Agreement remains active,  but has not closed. Due to the
length of time that Purchase  Agreement has remained  pending,  as well as other
factors,  the Company is  contemplating  selling its' interest to Accelon Energy
System,  Inc.,  the other owner of Can Am Ethanol One,  Inc. We will continue to
explore other potential plant sites in Canada.

In December 2005, the Company  incorporated Hearst Ethanol One, Inc., an Ontario
corporation ("HEO") for the purpose of building, owning and operating an ethanol
production  facility in Canada. As of the date of this report,  the Company owns
ninety-nine  point  three  percent  (99.3%) of HEO.  Dr.  James A. Latty and Mr.
Daniel Moscaritolo are presently the only directors and officers of HEO.

On  December  21,  2005,  HEO entered  into a land  purchase  agreement  with C.
Villeneuve   Construction  Company,  Ltd.  Upon  successful  completion  of  due
diligence  concerning  600 acres of land to be acquired  near  Hearst,  Ontario,
Canada  and  at the  discretion  of the  Company  to  accept  the  results,  the
transaction  is  anticipated  to close on or before  May 1st,  2006.  Additional
details concerning this transaction may be found in the Company's Form 8K report
filed December 27, 2005 which is hereby incorporated by reference.

We believe that these strategic acquisitions and alliances will allow us to grow
our  businesses.  In January,  2006 the Company was approved  for ISO  9001:2000
certification.  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. In May 2005 the Company filed a utility patent
application   respecting  this  device  which  replaces  the  previously   filed
provisional  patent.  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.


                                      -19-
<PAGE>

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.  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. (See subsequent events for more details.)

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.


                                      -20-
<PAGE>

On April 25,  2005 the  Company  and Accelon  Energy  System,  Inc.  ("Accelon")
entered  into a contract  with Can Am whereby the Company and Accelon  agreed to
provide certain services to Can Am on the condition that Can Am receives project
funding on or before June 1st,  2005.  Please  refer to the  Company's  Form 8-K
filing dated April 29, 2005 for details relating to this contract.  The contract
was amended on May 24, 2005 by the parties to extend the  termination  date from
June 1, 2005 to October 31, 2005.  Please see Exhibit 10.2 for details  relating
to this amendment.

Can Am was  created to  manufacture,  own and  operate  one  ethanol  production
facility  in  British  Columbia  Canada.  The plant was to  utilize a  synthetic
biomass conversion process to convert wood waste materials into ethanol. In June
2005,  the Company and its  Canadian  counterpart  each made a CN$25,000 at risk
deposit to open escrow toward  purchase of 2,150 acres of land intended to serve
as a plant site in British Columbia, Canada ("Purchase Agreement").

Subsequently, the Company paid an additional at-risk deposit of CN$50,000 for an
extension of the Closing Date of the Purchase Agreement.  As of the date of this
report,  the Purchase  Agreement remains active,  but has not closed. Due to the
length of time that Purchase  Agreement has remained  pending,  as well as other
factors,  the Company is  contemplating  selling its' interest to Accelon Energy
System, Inc., the other owner of Can Am Ethanol One, Inc.

HEO is a private  Canadian  corporation  organized for the purpose of developing
and operating a synthetic wood waste biomass-to-ethanol plant in Hearst, Ontario
Canada.  Subject to receipt of the required  funding several  biomass-to-ethanol
plants are planned for Canada that will also use a synthetic  biomass-to-ethanol
conversion  process.  It is anticipated  that the ethanol  manufactured by these
facilities  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
estimate  that each  ethanol  plant will require  approximately  $150 million in
capital.  MEMS USA's engineering group,  headquartered in Westlake Village,  CA,
will be entering into contract  negotiations with HEO 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.

On  December  21,  2005,  HEO entered  into a land  purchase  agreement  with C.
Villeneuve   Construction  Company,  Ltd.  Upon  successful  completion  of  due
diligence  concerning  600 acres of land to be acquired  near  Hearst,  Ontario,
Canada  and  at the  discretion  of the  Company  to  accept  the  results,  the
transaction  is  anticipated  to close on or before  May 1st,  2006.  Additional
details concerning this transaction may be found in the Company's Form 8K report
filed December 27, 2005 which is hereby incorporated by reference.

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
current and future Canadian joint ventures.


                                      -21-
<PAGE>

Comparison of Operations

Net sales  decreased  $388,178  (12.9%) to  $2,626,519  for the first quarter of
fiscal 2006 from  $3,014,697  for the first  quarter of fiscal  2005.  The sales
decrease  during the fiscal  quarter ended  December 31, 2005 as compared to the
prior year  quarter  is mainly  due to  commercial  aviation  refueling  systems
shipments slipping to the second fiscal quarter.  With the improving economy the
Company  finished  the quarter  ended  December  31, 2005 with a record level of
orders in sales backlog ($3.6 million).

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 21.1% and 28.5% in the first quarter of
fiscal  2006 and 2005,  respectively.  This  decrease  of 7.4% was mainly due to
lower margins on commercial  aviation refueling systems  shipments.  Margins for
this segment of the business for the quarter ended December 31, 2005 reflect the
significant competitive pressures encountered on bidding and winning several key
customer jobs.

Selling,  general and  administrative  (SG&A)  expenses for the first quarter of
fiscal 2006 were $1,321,547, compared with $1,097,504 for the prior year period.
The increase in SG&A spending in the fiscal  quarter ended  December 31, 2005 as
compared to the prior year period is mainly due to auditing fees associated with
the acquisition of Gulfgate and Bott and legal costs (See Part II, Item 1, Legal
Proceedings).

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 December 31, 2005,  shareholder's  deficit was $552,422 as
compared to equity of  $968,068  for the prior year period  ended  December  31,
2004.  The  decrease in  shareholder  equity is  primarily  attributable  to net
operating losses incurred over the past twelve months, and accruals to record an
obligation to issue penalty  shares of MEMS common stock related to the October,
2004 acquisition of Gulfgate and Bott ($809,966) and a liability  arising out of
a legal settlement ($307,000; See note 11).

Upon the  anticipated  receipt of funds ($2.5 million) from Mercatus & Partners,
Limited  for a stock  subscription  receivable  and  upon the  issuance  of $1.0
million for shares of MEMS common stock sold in a private placement  offering in
September,  2005 (See Part II, Item 2,  Unregistered  Sales of Equity Securities
and Use of Proceeds), less the obligations due to Mr. Trumble ($307,000), equity
would increase $4.0 million and represent a $2.5 million increase over the prior
year period ended December 31, 2004.

Interest  expense,  net was $35,498 and  $19,286 for the fiscal  quarters  ended
December 31, 2005 and 2004,  respectively.  The increase in interest  expense is
attributable  to the interest  payments made pursuant to the terms of the credit
lines of Bott and Gulfgate.


                                      -22-
<PAGE>

In summary,  net income was $2,913,581 and a net loss of $234,432 for the fiscal
quarters  ended  December 31, 2005 and 2004,  respectively.  The  increased  net
income for the fiscal  quarter ended  December 31, 2005 as compared to the prior
year was due to the favorable  settlement of a legal  dispute  ($3,703,634;  See
note 11).  Excluding the income from the settlement  agreement the Company would
have  reported a net loss of  $790,053.  The  increased  net loss for the fiscal
quarter ended  December 31, 2005 as compared to the prior year was mainly due to
lower sales and  associated  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 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  $106,208 as of December 31,  2005,  compared to cash and cash
equivalents of $64,269 as of December 31, 2004.

At our current cash "burn rate",  we will need to raise  additional cash through
debt or equity  financings  during  the first  half of 2006 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 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.  As of the date of this report,  we have one commitment for the sale
of $2.5 million of our securities but, as of the date of this report the Company
has not  received  the  funds.  In the  absence of this  commitment  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

During the month of January 2006,  the Company issued and delivered an aggregate
amount of 370,977  shares of the  Company's  common stock  pursuant to the stock
purchase  agreement  dated October 26, 2004 between Mark Trumble and the Company
(See Note 2).

In February  2006,  MEMS USA received a $1.5 million order to construct an amine
purification  system  which will be  installed  at a  refinery  with a large oil
company.  Amine is used in a  refinery  to  remove  Carbon  Dioxide  and  Sulfur
products  from oil to  produce  cleaner  burning  fuels.  There are three  major
components in the amine  purification  system. The first component is MEMS USA's
Intelligent   Backflushing   Filtration   System  (IFS).   This  system  removes
particulates  such as rust which gets dislodged from pipes and other  components
in the  refinery  and  other  hard  particulates.  The  filtration  system  uses
permanent  filter  elements which are  backflushed  periodically.  The backflush
waste material  consists of water and the particulates  which have been filtered
by the permanent filter elements. The backflush waste is further concentrated in
a decanting  vessel.  The second major system is a carbon bed filtration  system
which is used to  remove  chemical  contaminants  and  hydrocarbons  which  will
sometimes  mix with the amine  during  its use in a  refinery.  The third  major
system is an Ion  Exchange  filtration  system  which  removes heat stable salts
which form in the amine,  causing  the amine to be less  effective  in  removing
Carbon  Dioxide  and  Sulfur  products.  These  systems  will  provide  years of
effective  utilization  of the amine  fluids and  extend the useful  life of the
refinery's amine process equipment.


                                      -23-
<PAGE>

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 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.


                                      -24-
<PAGE>

PART II - OTHER INFORMATION

Item 1. 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.

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.


                                      -25-
<PAGE>

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. 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 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


                                      -26-
<PAGE>

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 SICAV
Agreements but has not exercised its right to demand return of the shares.)

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 but has
not exercised its right to demand return of the 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.

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

      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.


                                      -27-
<PAGE>

Item 6. Exhibits

            (a)   Exhibits

                  31.1  Certification of President Pursuant 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).


                                      -28-
<PAGE>

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: February 22, 2006                         /s/
                                                --------------------------------
                                                James A. Latty
                                                Chief Executive Officer


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