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 June 30, 2006


Commission file number 0-4846-3


                                 MEMS USA, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)


         Nevada                                         82-0288840

         (STATE OR OTHER JURISDICTION OF                (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 August 11, 2006 was
20,852,327.

                      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.

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

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




                                      - 1
<PAGE>


                                   FORM 10-QSB

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006

                                      INDEX
                                                                        PAGE
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

         o Consolidated Balance Sheets as of June 30, 2006
             and September 30, 2005                                           3

         o Consolidated Statements of Operations (unaudited)
             for the three and nine months ended June 30, 2006 and 2005       4


         o Consolidated Statements of Cash Flows (unaudited)
             for the nine months ended June 30, 2006 and 2005                 5

         o Consolidated Statement of Equity (unaudited) as
             of June 30, 2006                                                 6

         o Notes to Consolidated Financial Statements
            (unaudited)                                                   7 - 20

Item 2.  Management's Discussion and Analysis or Plan of Operation       20 - 27

Item 3.  Controls and Procedures                                              27

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings                                                   27

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds         28

Item 3.   Defaults upon Senior Securities                                     30

Item 4.   Submission of Matters to a Vote of Security Holders                 30

Item 5.   Other Information                                                   30

Item 6.   Exhibits                                                            31

Signatures                                                               32 - 35


                            - 2
<PAGE>


ITEM 1 --   FINANCIAL STATEMENTS
                                        MEMS USA, INC.
                                 CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               (Unaudited)       Audited
                              A S S E T S                     June 30, 2006    September 30,
Current Assets:                                                                    2005
                                                              -------------    -------------
<S>                                                           <C>              <C>
   Cash and cash equivalent                                   $     788,676    $     828,153
   Accounts receivable, net allowance for uncollectible
of $58,490 and $46,196 respectively                               1,162,173          756,840
   Inventories, net of provision for slow moving items
of $25,000 and $25,000 respectively                              12,733,677          880,370
   Other current assets                                             701,725          170,197
                                                              -------------    -------------
      Total current assets                                       15,386,251        2,635,560
                                                              -------------    -------------
Plant, property and equipment, net                                2,668,267        2,316,836
Other assets                                                        471,785          388,906

Investment in Can Am Ethanol One, Inc.                               71,765           71,765
Goodwill                                                            915,373          915,373
                                                              -------------    -------------
      TOTAL ASSETS                                            $  19,513,441    $   6,328,440
                                                              =============    =============
                 LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable and accrued expenses                      $   3,143,227    $   1,395,264
   Lines of credits                                                 341,905          750,744

   Notes payable                                                    347,660               --

   Current portion of long-term debt                                 92,871           29,292

   Other liabilities                                                159,389               --

   Loans from shareholders                                          151,073               --

   Convertible loan payable                                         150,000               --
   Liability to be satisfied through the issuance of shares       1,007,776        1,111,000
                                                              -------------    -------------
      Total current liabilities                                   5,393,901        3,286,300
                                                                                     211,942
Long-term liabilities                                                41,779

Loans from shareholders                                                  --          191,600

Liability due to a legal settlement                                 307,000               --

Common shares with mandatory redemption                                  --        1,400,000

Common shares payable under terms of acquisition agreement               --          809,966
                                                              -------------    -------------
   Total Liabilities                                              5,742,680        5,899,808
Minority interests                                                1,494,269
                                                                               -------------
Stockholders' equity:
Common stock, $0.001 par value; 100,000,000 shares
authorized; 20,852,327 and 17,404,197 shares
respectively issued and outstanding                                  23,547           17,404
Stock subscriptions receivable                                   (2,512,850)            (250)
Additional paid in capital                                       22,939,030        5,956,931

Shares to be redeemed                                              (231,076)              --
Accumulated deficit                                              (4,142,601)      (5,545,453)

Treasury stock  (2,699,684 shares)                               (3,799,558)              --
-----------------------------------------------------------   -------------    -------------
   Total stockholders' equity                                    12,276,492          428,632
                                                              -------------    -------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              $  19,513,441    $   6,328,440
                                                              =============    =============
</TABLE>

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


                            - 3
<PAGE>



                                  MEMS USA, INC
                      Consolidated Statement of Operations
                       Three and nine months ended June 30
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                   Three months ended June 30,     Nine months ended June 30,
                                                       2006           2005           2006             2005
                                                  ------------    ------------    ------------    ------------

<S>                                               <C>             <C>             <C>             <C>
Revenues                                          $  2,029,431    $  1,878,580    $  7,171,362    $  6,757,819

Cost of revenues                                     1,554,914       1,558,758       5,585,009       5,018,238
                                                  ------------    ------------    ------------    ------------
Gross profit                                           474,517         319,822       1,586,353       1,739,581


Selling, general and administrative expenses         1,161,641       1,090,010       3,837,378       3,446,593
                                                  ------------    ------------    ------------    ------------
Loss from operations                                  (770,188)     (2,251,025)     (1,707,012)       (687,124)


Other income (expense)                                 (18,385)          3,121         (52,888)          6,222

Income due to legal settlement                              --              --       3,703,634              --

Loss attributable to minority interest                   3,133              --           3,133              --
                                                  ------------    ------------    ------------    ------------
Net income (loss)                                 $   (702,376)   $   (767,067)   $  1,402,854    $ (1,700,790)
                                                  ============    ============    ============    ============

Net income (loss) per share, basic and diluted:
Weighted average number of shares outstanding,
basic                                               19,849,572      17,240,840      19,026,161      16,102,581
Net income (loss) per share, basic                $      (0.04)   $      (0.04    $       0.07    $      (0.11)
                                                  ============    ============    ============    ============
Weighted average number of shares outstanding,      19,849,572      17,240,840      20,700,202      16,102,581
diluted
Net income (loss) per share, diluted              $      (0.04)   $      (0.04)   $       0.07         % (0.11
                                                  ============    ============    ============    ============
</TABLE>


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

                            - 4
<PAGE>

                       MEMS USA, INC.
            CONSOLIDATED STATEMENT OF CASH FLOWS
                  NINE MONTHS ENDED JUNE 30
                         (UNAUDITED)


<TABLE>
<CAPTION>
                                                                        2006             2005
                                                                    ------------    ------------
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
<S>                                                                 <C>             <C>
   Net income (loss)                                                $  1,402,854    $ (1,700,790)
Adjustments  to  reconcile  net  income  (loss)  to net
cash  used in  operating activities:
   Depreciation                                                          173,855         109,157
   Common stock issued for services                                      319,677          25,000

   Income due to legal settlement                                     (3,703,634)             --
Change in assets and liabilities:
   Accounts receivable                                                  (405,333)        164,779
   Inventories                                                       (11,853,307)        (63,484)
   Other current assets                                                 (531,528)       (105,306)
   Accounts payable and accrued expenses                               1,747,962         297,196

   Lines of credit                                                            --        (100,612)

   Current portion of long-term debt                                          --         (21,439)

   Other current liabilities                                             159,390              --
                                                                    ------------    ------------
      Total adjustments                                              (14,092,918)        305,291
                                                                    ------------    ------------
      Net cash used in operating activities                          (12,690,064)     (1,395,499)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                   (525,287)        (39,428)

   Cash balance net of payments for purchase of Bott and Gulfgate             --           5,073
   Common stock issued for cash                                        2,643,631

   Other assets                                                          (82,878)             --
      Net cash (used in) provided by investing activities               (608,165)      2,609,276

CASH FLOWS FROM FINANCING ACTIVITIES:

   Minority interest                                                   1,494,269              --

   Lines of credit                                                       (35,506)             --

   Notes payable                                                         (25,673)             --

   Current portion of long-term debt                                      63,579              --

   Liability to be satisfied through the issuance of shares                2,776              --

   Loan from shareholders                                                (40,527)          5,000
   Payment on long term liabilities                                      (20,163)        (47,119)

   Purchase of shares pursuant to acquisition of subsidiaries            (20,000)             --

   Underwriting related to issuance of shares                            (97,316)             --

   Investment in HEO                                                  10,284,435              --

   Common stock issued for cash                                        1,652,878              --

   Common stock payable under terms of acquisition agreement                  --        (809,966)
                                                                    ------------    ------------
      Net cash provided (used) by financing activities                13,258,752        (852,085)
                                                                    ------------    ------------
Net increase in cash and cash equivalents                                (39,477)        361,692
Cash and cash equivalents, beginning of period                           828,153          26,439
                                                                    ------------    ------------
Cash and cash equivalents, end of period                            $    788,676    $    388,131
                                                                    ============    ============

Supplemental disclosure of cash flow information:
Income taxes paid                                                   $     29,354    $         --
                                                                    ============    ============
Interest paid                                                       $    137,332    $     27,882
                                                                    ============    ============

Supplemental disclosure of non-cash financing activities:
Common stock (including $1,400,000 of shares subject to mandatory   $    809,966    $  3,059,966
redemption factor) issued for acquisition of Bott and Gulfgate
                                                                    ============    ============
Common stock issued for services                                    $    319,677    $     12,500
                                                                    ============    ============
</TABLE>


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


                            - 5
<PAGE>


                          MEMS USA
              Consolidated Statement of Equity
                         (Unaudited)

<TABLE>

BALANCE AS OF SEPTEMBER
<S>                       <C>             <C>             <C>             <C>             <C>             <C>
30, 2005                  $     17,404    $       (250)   $  5,956,932    $         --    $ (5,545,454)   $    428,632
Common stock issued for
service                            229                         319,448                                         319,677
Common stock issued for
cash received in prior
year                               129                         105,871                                         106,000
Common stock issued for
cash received                    2,014                       1,650,864                                       1,652,878
Shares to be redeemed
due to legal settlement       (231,076)                                       (231,076)
Common stock issued
pursuant to terms of
acquisition                        371         809,595                                         809,966
Common stock issued for
subscriptions
receivable                       3,400      (2,512,600)      2,509,200
Canceled put option
related to acquisition
of Texas subsidiaries                                        1,400,000                                       1,400,000
Investment in HEO                                           10,284,435                                      10,284,435
Treasury stock from-
legal settlement                            (3,799,558)     (3,799,558)

Underwriting fees                                              (97,316)                                        (97,316)
Net income for the nine
months                                                                                       1,402,854       1,402,854
                          ------------    ------------    ------------    ------------    ------------    ------------
BALANCE AS OF JUNE 30,
                   2006   $     23,547    $ (2,512,850)   $ 22,707,953    $ (3,799,558)   $ (4,142,600)   $ 12,276,492
                          ============    ============    ============    ============    ============    ============
</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:


         The Board of  Directors  of  California  MEMS USA,  Inc.,  a California
         corporation  ("CA MEMS"),  a wholly owned  subsidiary of MEMS USA, Inc.
         Nevada,  voted  in 2006 to amend CA  MEMS'  Articles  of  Incorporation
         changing its name to "Convergence Ethanol(TM) Corp."


         MEMS USA, Inc.,  (the  "Company") was  incorporated  in Nevada in 2002.
         MEMS   USA/Convergence   Ethanol   Corporation  is  a  California-based
         developer of bio-renewable energy projects and provider of professional
         engineered systems to the energy industry.  The Company is comprised of
         three wholly owned subsidiaries, California MEMS USA, Inc., ("CA MEMS")
         a California  corporation,  Bott Equipment  Company,  Inc. ("Bott") and
         Gulfgate Equipment, Inc. ("Gulfgate").

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

         SUBSIDIARIES:


         MEMS  USA  has  three  wholly-owned   subsidiaries;   Gulfgate,   Bott,
         California Mems, and hold majority  interest of Hearst Ethanol One. The
         business of the subsidiaries is listed below.

         GULFGATE

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


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

         HEARST ETHANOL ONE - A PROJECT TO PRODUCE BIO-RENEWABLE FUEL-GRADE
         ALCOHOL/ETHANOL FROM WOODWASTE

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

                                      - 7
<PAGE>


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

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

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

         ACCOUNTS RECEIVABLE:


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


         INVENTORIES:


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


         REVENUE RECOGNITION


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


                                      - 8
<PAGE>


         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  nine  months  ended  June  30,  2006 and 2005 are as
         follows:

<TABLE>
<CAPTION>

                                                                                        2006                2005
                                                                                 -----------------   ----------------
         <S>                                                                     <C>                    <C>
         Net income (loss), as reported                                          $     $1,424,391       $ (1,700,790)
         Deduct:
         Total stock-based employee compensation expenses determined under
         the fair value Black-Scholes method with a 129%  and 80% volatility
         at June 30, 2006 and 2005 respectively and a 6% and 3% respectively
         risk free rate of return assumption                                             (29,911)            (97,826)
                                                                                 -----------------      --------------
         Pro forma net income (loss)                                             $    $ 1,394,480       $ (1,798,616)
                                                                                 =================      ==============
         Income (loss) per share:
         Weighted average shares, basic                                                19,026,161          16,102,581
         Basic, pro forma, per share                                             $           0.07       $      (0.11)
                                                                                 =================      ==============
                                                                                 =================      ==============
         Weighted average shares, diluted                                              20,700,202          16,102,581
         Diluted, pro forma, per share                                           $           0.07       $      (0.11)
                                                                                 =================      ==============
</TABLE>

                                      - 9
<PAGE>


         INTERIM FINANCIAL STATEMENTS:


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

         GOING CONCERN:


         The accompanying  financial statements have been prepared in conformity
         with accounting  principles  generally accepted in the United States of
         America,  which  contemplates the Company as a going concern.  However,
         the Company has sustained  substantial operating losses in recent years
         ($4,121,063) and has used substantial amounts of working capital in its
         operations.  Realization of a major portion of the assets  reflected on
         the accompanying  balance sheet is dependent upon continued  operations
         of the Company which, in turn, is dependent upon the Company's  ability
         to  meet  its  financing   requirements   and  succeed  in  its  future
         operations.  Management  believes that actions presently being taken to
         revise the Company's operating and financial  requirements provide them
         with the opportunity for the Company to continue as a going concern. We
         will  continue  our attempts to raise  additional  cash through debt or
         equity  financings  in  2006  in  order  to meet  our  working  capital
         requirements.


(2)      BUSINESS ACQUISITION:


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


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


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


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


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


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


                                      - 10
<PAGE>

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


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


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


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


                                      - 11
<PAGE>

         FIRST AMENDED STOCK PURCHASE AGREEMENT WITH MARK TRUMBLE


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


         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 assets 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
                                                            ==================


                                      - 12
<PAGE>

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

         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)      INVENTORIES:


         Inventories  consist of finished goods of $590,396 and $502,430 at June
         30, 2006 and  September 30, 2005  respectively;  and work in process in
         the amount of $773,887 and $402,940 respectively.


(4) PLANT, PROPERTY AND EQUIPMENT:

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


                                               2006                 2005
                                        -------------------    ----------------
Land                                    $          502,000     $       502,000

Buildings and improvements                       1,073,000           1,073,000
Furniture, machinery and equipment               1,014,505             769,590
Automobiles and trucks                              47,508             180,652
Leasehold improvement                               82,879              79,105
                                        -------------------    ----------------
                                                 2,719,892           2,604,347
Less accumulated
depreciation                                     (454,221)           (287,511)
                                        -------------------
                                                               ----------------
                                        $      $ 2,265,671     4     2,316,836
                                        ===================    ================

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


(5)      INVESTMENTS IN HEARST ETHANOL ONE, INC.:


         HEARST ETHANOL ONE INC. AGREEMENT:


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


                                      - 13
<PAGE>

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

         Pursuant to a Memorandum of Understanding entered I

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

         HEARST ETHANOL ONE INC. VALUATION:


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

         The  market   research  firm  carried  out  two  separate   preliminary
         valuations   of  HEO:  a  residual   property   and   biomass/woodwaste
         replacement valuation and a separate valuation of the biomass/woodwaste
         using a "fuel oil avoided cost" method. The residual valuation provides
         a value of the  woodwaste  on a disposal  basis with no future  ethanol
         refinery  planned.  The "fuel oil avoided  cost"  valuation  provides a
         value of the  biomass to a future  ethanol  refinery.  The  Company has
         included the most  conservative  of the two appraisal  methods and that
         value is included in the consolidated financials statement for June 30,
         2006.  The  preliminary   valuation  based  on  the  residual  property
         valuation and the  replacement  value of the biomass on the HEO site is
         US $11,781,725.

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

(6)      INVESTMENTS IN CAN AM ETHANOL ONE, INC.:


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


(7)      BUSINESS LINES OF CREDITS - BOTT


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


                                      - 14
<PAGE>

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


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

         This  promissory note was finalized in December 2005, for $372,012 at a
         variable  interest  rate  equal  to the  bank's  prime  rate.  The note
         provides  for five  monthly  principal  payments  of $3,092 and a final
         payment of the  remaining  principal and interest in June 2006. In June
         2006 the Company  negotiated  an extension of the final payment to July
         2006. The Company is currently  renegotiating an extension of the final
         payment to September 2006.
         All of the foregoing  promissory  notes contained the following  common
         terms: The notes specified that no advances under the notes may be used
         for personal,  family or household purposes and that all advances shall
         be used  solely  for  business,  commercial,  agricultural  or  similar
         purposes. Bott could draw down on the lines of credit provided that: it
         was not in default under the note  evidencing  the  particular  line of
         credit or any other  agreement that it might have with the bank; it was
         not insolvent;  no guarantor had revoked or limited the terms of his or
         her guarantee  respecting the note; Bott used the funds available under
         the  particular  note  for an  unauthorized  purpose;  and/or  the bank
         believed that its interests  under the note are not secured.  The notes
         provided  the  following   limitations   on  the  use  of  methods  and
         advancements  respecting  the credit  line,  and the bank may not honor
         requests for additional  advances if: the requested advance would cause
         the amounts  requested  under the particular note to exceed its initial
         limit;  Bott's  checks or bank cards  relating  to the credit  line are
         reported  lost  or  stolen;  the  note  is in  default;  or the  amount
         requested  is less  than  allowed  under the  note.  The  notes  permit
         prepayment of all or part of the outstanding balances without penalty.
         The Agreements  and Notes are secured by the inventory,  chattel paper,
         accounts receivable and general  intangibles.  The Agreements and Notes
         are also secured by the  personal  performance  guarantees  of Mr. Mark
         Trumble  and  Mr.  Lawrence  Weisdorn  (Commercial   Guarantees).   The
         Commercial  Guarantees  require  the  guarantors  to  assure  that  all
         payments due under the Notes are timely made or to make such  payments.
         All amounts  related to Bott's  outstanding  promissory  notes  totaled
         $347,660  and  $555,028  on  June  30,  2006  and  September  30,  2005
         respectively.


                                      - 15
<PAGE>

(8)      BUSINESS LINE OF CREDIT - GULFGATE:

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

(9) LIABILITY TO BE SATISFIED THROUGH THE ISSUANCE OF SHARES

         The Company sold 670,000  shares of its common stock for $1,005,000 via
         a private  placement  offering  through SW Bach &  Company,  a New York
         securities  dealer.  The  Company  anticipates  satisfying  its private
         placement  obligations through issuance of common stock to shareholders
         as soon  as the  Company  completes  its  SB-2  registration  with  the
         Securities & Exchange  Commission.  Additional  details concerning this
         transaction  may be found in the  Company's  Form 10-KSB  report  filed
         February 2, 2006 (Sales Agency Agreement) which is hereby  incorporated
         by reference.
         The Company sold  1,552,900  shares of its common stock for  $1,273,378
         via another private placement  offering from February through May 2006.
         The Company satisfied its obligations  through issuance of common stock
         to shareholders in June 2006.

(10)     LONG-TERM DEBTS AND OTHER LIABILITIES:


         PROMISSORY NOTES:

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

         MORTGAGE:

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


                                      - 16
<PAGE>

         LOANS FROM SHAREHOLDERS:

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

         FINANCING LEASE AGREEMENTS:

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


         CONVERTIBLE LOAN PAYABLE:

         In September 2004, the Company entered into a convertible  loan with an
         investor.  The  principal  amount of the  convertible  loan  payable is
         $150,000 at an interest rate of 8% per annum paid  quarterly.  The loan
         is  convertible  into common stock at any time within two (2) years (24
         months) starting  September 3, 2004 at the conversion price of $2.20 or
         68,182 shares. Each share converted entitles the holder to purchase one
         additional  share of stock at an  exercise  price of $3.30  within  the
         ensuing 12  months.  If at the end of  September  2006 the loan has not
         been converted into common stock,  the principal amount becomes due and
         payable. To date, the loan has not been converted.

(11)     RESIGNATION OF EXECUTIVE OFFICER AND BOARD MEMBER:


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


                                      - 17
<PAGE>

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


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


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


(12)     INCOME FROM LEGAL SETTLEMENT:


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


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


         ASSIGNMENT OF THE TRUMBLE CLAIMS:


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



                                      - 18
<PAGE>

 (13)    PRIVATE PLACEMENT OF SECURITIES:


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


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


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


                                      - 19
<PAGE>

 (14)    MATERIAL AGREEMENT:


         $1.5 MILLION CONTRACT TO BUILD AN INTELLIGENT FILTRATION SYSTEM

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

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

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

 (15)    SUBSEQUENT EVENTS:


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

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

OVERVIEW:


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


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

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


                                      - 20
<PAGE>

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

      o     Create a viable alternative energy enterprise;
      o     Displace   consumption  of  fossil  fuels  with  non-greenhouse  gas
            bio-renewables; o Improve the environment; and
      o     Produce  bio-renewable  fuel-grade  alcohol/ethanol at a substantial
            profit.

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

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

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

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

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


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


                                      - 21
<PAGE>


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


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


HISTORY AND OPERATIONS

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

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

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

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

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


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


                                      - 22
<PAGE>

SUBSIDIARIES

GULFGATE

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

BOTT

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

HEARST ETHANOL ONE, INC.

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

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

Comparison of Operations

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


                                      - 23
<PAGE>

The Company  computes  gross  profit as net sales less cost of sales.  The gross
profit  margin  is the  gross  profit  divided  by  net  sales,  expressed  as a
percentage.  The gross profit margin was 23.4% and 17.0% in the third quarter of
fiscal 2006 and 2005,  respectively.  The  increase of 6.4% in the gross  profit
margin for the third  quarter as compared to the prior year was due primarily to
lower  dehydration  filtration  rental unit repairs and cost of sales variances.
Gross profit margin for the nine-month periods ended June 30, 2006 and 2005 were
22.1% and 25.7%  respectively.  This decrease of 3.6% was primarily due to lower
margins on commercial  aviation  refueling systems  shipments.  Margins for this
segment  of the  business  for the  quarter  ended  June 30,  2006  reflect  the
significant competitive pressures encountered on bidding and winning several key
customer  jobs.

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

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


For the quarter ended June 30, 2006,  shareholder's  equity was  $12,276,492  as
compared to equity of $428,632  for the prior year period  ended  September  30,
2005.  The  increase in  shareholder  equity is  primarily  attributable  to the
acquisition of HEO.

Other  expense  (income),  net was $18,385 and $(3,121) for the fiscal  quarters
ended June 30, 2006 and 2005, respectively.  Other expense (income), net for the
nine-month  periods  ended June 30,  2006 and 2005 were  $52,888  and  $(6,222),
respectively.  The  increase in other  expense is  attributable  to the interest
payments made pursuant to the terms of the credit lines of Bott and Gulfgate and
the "Put Option" (See note 13) with Mr. Trumble.

In summary,  net losses were $702,376 and $767,067 for the fiscal quarters ended
June 30,  2006 and 2005,  respectively.  Net income  (loss)  for the  nine-month
periods  ended  June  30,  2006  and  2005  were  $1,402,854  and  $(1,700,790),
respectively.  The decreased net loss for the fiscal quarter ended June 30, 2006
as  compared  to the prior year was  primarily  due to higher  MEMS  general and
administrative  expenses  resulting from the initial start-up efforts associated
with the Canadian  Ethanol  projects,  legal fees and consulting  expenses.  The
increased  net income for the nine months ended June 30, 2006 as compared to the
prior year was due to the favorable  settlement of a legal dispute  ($3,703,634;
see note 10).  Excluding  the income from the  settlement  agreement the Company
would have reported a  year-to-date  net loss of  $2,300,780.  The increased net
loss for the nine  months  ended June 30, 2006 as compared to the prior year was
mainly due to lower margins on commercial  aviation  refueling systems shipments
and higher  general  and  administrative  expenses  (See  Selling,  general  and
administrative expenses).

                                      - 24
<PAGE>


Liquidity and Capital Resources

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

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

Subsequent Event - None to report.

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

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

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.


                                      - 25
<PAGE>


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

ITEM 3 -- CONTROLS AND PROCEDURES

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

PART II - OTHER INFORMATION


Item1.  Legal Proceedings

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


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.


                                      - 26
<PAGE>

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


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


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

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


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

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


                                      - 27
<PAGE>

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


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


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.


                                      - 28
<PAGE>

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


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

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

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

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

Item 3.  Defaults upon Senior Securities - None

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

Item 5.  Other Information

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

         Rider A


                                      - 29
<PAGE>

         Items not reported on Form 8-K.

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

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

Item 6.  Exhibits

            (a)   Exhibits

                  31.1     Certification of 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).



                                      - 30
<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:  August 14, 2006                  /s/
                                        -----------------------------------
                                        James A. Latty
                                        Chief Executive Officer