Edgar Filing: Convergence Ethanol, Inc.

Convergence Ethanol, Inc.

As filed with the U.S. Securities and Exchange Commission on June 12, 2007

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

CONVERGENCE ETHANOL, INC.

(formerly MEMS USA, INC.)

(Name of small business issuer in its charter)

Nevada	1090	82-0288840
(State or Other Jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
Incorporation or Organization)	Classification Code Number)	Identification No.)

5701 Lindero Canyon Road, Suite 2-100

Westlake Village, California 91362

(818) 735-4750

(Address and telephone number of principal executive offices)

James A. Latty

Chief Executive Officer

Convergence Ethanol, Inc.

5701 Lindero Canyon Road, Suite 2-100

Westlake Village, California 91362

(818) 735-4750

(Name, address and telephone number of agent for service)

Copy to:

Mark Abdou, Esq.

Yaphett K. Powell, Esq.

Richardson & Patel LLP

10900 Wilshire Boulevard, Suite 500

Los Angeles, California 90024

Tel (310) 208-1182

Fax (310) 208-1154

Approximate date of proposed sale to the public: From time to time after the effective date of the Registration Statement.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. þ

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o

Calculation of Registration Fee
Title of Each Class of Securities to be Registered	Amount to be Registered	Proposed Maximum Offering Price Per Share (1)	Proposed Maximum Aggregate Offering Price	Amount of Registration Fee
Common Stock, $0.001 par value per share	500,000	$0.470	$235,000	$7.21
Common stock, $0.001 par value per share, underlying convertible note	3,300,000	$0.470	$1,551,000	$47.62
Common stock, $0.001 par value per share, underlying warrants	1,500,000	$0.470	$705,000	$21.64
Total	5,300,000	$0.470	$2,491,000	$76.47

(1) Estimated solely for the purposes of calculating the registration fee pursuant to Section 6(b) of the Securities Act of 1933, as amended, and computed pursuant to Rule 457(c) promulgated under the Securities Act of 1933, as amended, based upon the average of the high ($0.49) and low ($0.45) prices of the registrant’s common stock on June 8, 2007, on the Over-The-Counter Bulletin Board.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT CONVERGENCE ETHANOL, INC. FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION

PROSPECTUS DATED June 12, 2007

PROSPECTUS

5,300,000

SHARES OF COMMON STOCK

CONVERGENCE ETHANOL, INC.

This prospectus covers the sale of up to 5,300,000 shares of common stock of Convergence Ethanol, Inc. (the “Company”, “Registrant”, “Convergence”, “we”, “us”, “our” shall refer to Convergence Ethanol, Inc. and our wholly-owned subsidiaries) by the selling stockholders (the “Selling Stockholders”) identified in this prospectus under the section titled “Selling Stockholders.” Of the 5,300,000 shares of common stock registered hereby, 1,500,000 shares of common stock are issuable to the Selling Stockholders upon the exercise of certain warrants and 3,300,000 shares of common stock are issuable to the Selling Stockholders upon the conversion of certain convertible notes. Except with respect to amounts that may be received by us from the Selling Stockholders upon the exercise of the warrants, we will not receive any proceeds from the sale of the shares by any Selling Stockholder. We have agreed to bear all expenses of registration of the common stock offered hereby under federal and state securities laws.

Our common stock is quoted on the Over-the-Counter Bulletin Board (“OTC Bulletin Board”) under the symbol “CETH.OB”. The last reported sale price of the common stock as reported on the OTC Bulletin Board on June 8, 2007, was $0.49 per share.

The Selling Stockholders, directly or through agents, brokers or dealers designated from time to time, may sell the shares of common stock offered hereby from time to time on terms to be determined at the time of sale. See the section of this document titled “Plan of Distribution.” Our capital stock is more fully described in the section of this prospectus entitled “Description of Securities.”

See the section of this document titled “Risk Factors” beginning on page 2 for certain factors relating to an investment in the shares of common stock offered hereby.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE COMMON STOCK OFFERED HEREBY OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this prospectus is June 12, 2007.

TABLE OF CONTENTS

	Page Number
Prospectus Summary	1
Risk Factors	3
Forward-Looking Statements	7
Use of Proceeds	8
Description of Business	8
Properties	14
Legal Proceedings	14
Directors, Executive Officers, Promoters and Control Persons	14
Director and Executive Officer Compensation	16
Security Ownership of Management and Certain Beneficial Owners	18
Certain Relationships and Related Transactions	18
Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Market Price of and Dividends on the common stock	25
Description of Securities	27
Selling Stockholders	28
Plan of Distribution	28
Experts	30
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	30
Legal Matters	30
Interests of Named Experts and Counsel	30
Disclosure of Commission Position on Indemnification for Securities Act Liabilities	30
Where You Can Find More Information	31
Index to Financial Statements	F-1

PROSPECTUS SUMMARY

This summary does not contain all of the information you should consider before investing in our common stock. Before deciding to invest in our common stock, you should carefully read this entire prospectus, especially the section titled “Risk Factors” and our financial statements and the related notes.

About Convergence Ethanol, Inc.

Our History

We were incorporated in the State of Nevada on April 12, 2002. On November 29, 2006, we incorporated a wholly-owned Nevada subsidiary for the sole purpose of effecting a name change of our company through a merger with our subsidiary. On December 5, 2006, we merged our subsidiary into our company, with our company carrying on as the surviving corporation under the name Convergence Ethanol, Inc. Our name change was effected with NASDAQ on December 13, 2006 and our ticker symbol on the OTC Bulletin Board was changed to “CETH”.

Our Business

We are a renewable energy company with a mission to support the energy industry’s production of cleaner burning fuels, through the development of profitable, bio-renewable energy refineries and through the engineering, fabrication and sale of environmentally focused refinery systems and equipment.

We are comprised of three wholly-owned operating subsidiaries, California MEMS USA, Inc., d/b/a Convergence Ethanol Corp. (“CA MEMS”) a California corporation, Bott Equipment Company, Inc. (“Bott”) and Gulfgate Equipment, Inc. (“Gulfgate”), Texas corporations, and a fourth majority-owned subsidiary, Hearst Ethanol One, Inc., a Federal Canadian corporation (“HEO”).

Each subsidiary has a specific eco-energy focus: (1) CA MEMS engineers, designs, procures and supervises fabrication of Intelligent Filtration Systems™ (IFS) for the oil industry, (2) Bott sells and leases engineered products such as pumps, compressors, flow meters, and components to the energy sector; (3) Gulfgate designs, engineers, fabricates, sells and services eco-focused energy systems; and (4) HEO has plans to develop and operate a synthetic woodwaste-to-ethanol processing facility.

Corporate Information

Our corporate headquarters are located at 5701 Lindero Canyon Road, Suite 2-100, Westlake Village, California 91362, and our telephone number is (818) 735-4750. Our website is located at www.c-eth.com. Information on our website is not part of this prospectus.

Industry And Market Data

We obtained the industry, market and competitive position data used throughout this prospectus from our own research, internal surveys and studies conducted by third parties, independent industry associations or general publications and other publicly available information. In particular, we have based much of our discussion of the ethanol industry, including government regulation relevant to the industry and forecasted growth in demand, on information published by the Renewable Fuels Association, or RFA, the national trade association for the ethanol industry, and the American Coalition for Ethanol, or ACE, a national trade association for the ethanol industry. Independent industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Further, because the RFA and ACR are trade organizations for the ethanol industry, they may present information in a manner that is more favorable to that industry than would be presented by an independent source. Forecasts are particularly likely to be inaccurate, especially over long periods of time.

About the Offering and this Prospectus

This prospectus covers the resale of up to 5,300,000 shares of common stock by the Selling Stockholders identified in this prospectus under the section of this document titled “Selling Stockholders.” Except with respect to amounts that may be received by us from the Selling Stockholders upon the exercise of the warrants, we will not receive any proceeds from the sale of the shares by any Selling Stockholder. See “Use of Proceeds.” We have agreed to bear all expenses of registration of the common stock offered by this prospectus.

This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission (the “SEC”) utilizing a “shelf” registration process. Under the shelf registration process, the Selling Stockholders may, from time to time, sell the common stock described in this prospectus. We may prepare a prospectus supplement at any time to add, update or change the information contained in this prospectus. This prospectus does not contain all the information you can find in the registration statement or the exhibits filed with or incorporated by reference into the registration statement. You should read this prospectus and any prospectus supplement together with the registration statement, the exhibits filed with or incorporated by reference into the registration statement and the additional information described under the section of this document titled “Where You Can Find More Information.”

The Offering

On October 27, 2006, we entered into a Securities Purchase Agreement with GCA Strategic Investment Fund Limited (“GCA”) whereby we sold GCA a secured convertible note in the aggregate principal amount of $3,530,000 (the “Note”). The Note was issued on October 31, 2006 and is due October 31, 2009. GCA purchased the Note for $3,177,000, which is 90% of the principal amount. The Note does not bear interest except upon an event of default, at which time interest shall accrue at the rate of 18% per annum. The Note is secured by a first security position in assets of our parent company and our Bott and Gulfgate subsidiaries. The Note is also guaranteed by our Bott and Gulfgate subsidiaries.

The Note may be converted into shares of our common stock. The conversion price will be 85% of the trading volume weighted average price, as reported by Bloomberg LP (the “VWAP”), for the five trading days immediately prior to the date of notice of conversion. In conjunction with this prospectus, we filed a registration statement to register the resale of shares of our common stock issuable upon the conversion of the Note and exercise of certain warrants (as described below). During the first 30 days after the registration statement is effective (the “Initial Pricing Period”), the conversion price will not be less than $0.47 (the “Floor Conversion Price”), nor greater than $0.61 (the “Ceiling Conversion Price”). For the 90 day period following the Initial Pricing Period and each successive 90 day period thereafter (each a “Reset Period”), the Floor Conversion Price shall be reduced by an amount equal to 40% of the lesser of (i) the Floor Conversion Price or (ii) the Closing Bid Price as reported by Bloomberg on the trading day immediately following the Initial Pricing Period or Reset Period, as the case may be, and the Ceiling Conversion Price shall be increased by an amount equal to 40% of the lesser of (y) the current Ceiling Conversion Price or (z) the closing bid price as reported by Bloomberg on the trading day immediately following the Initial Pricing Period or Reset Period as the case may be.

Pursuant to the Securities Purchase Agreement, we also issued warrants to GCA to purchase 1,000,000 shares of our common stock (the “Warrants”). The Warrants are callable if our common stock trades at $1.32 or more for any consecutive five-day period. The Warrants have a term of five years and an initial exercise price of $0.66 (120% of the average five day VWAP price for our common stock for the five trading days immediately prior to October 31, 2006). We paid a fee to Global Capital Advisors, LLC, GCA’s adviser of $35,300. Additionally, we issued a warrant to Global Capital Advisors, LLC to purchase 500,000 shares of our common stock (the “Global Capital Warrant”). The Global Capital Warrant has terms similar to the Warrants. The shares underlying the Note, Warrants, and Global Capital Warrant are being registered on this registration statement.

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and all other information contained in this prospectus before deciding to invest in our common stock. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. The risks described below are not the only ones facing our company. Additional risks not presently known to us or which we currently consider immaterial also may adversely affect our company.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

We are an emerging growth company with limited operating history, accordingly there is limited historical information available upon which you can judge the merits of an investment in our company. In February 2004 we commenced operations as a new business engaged in designing and selling micro electro mechanical systems for scientific and engineering companies. In October 2004 we acquired our Bott and Gulfgate subsidiaries, which are engaged in the businesses of providing systems and equipment to various industries, including petrochemical plants, refineries, pulp and paper mills, steel mills, and electrical utilities. In December 2005 we incorporated our HEO subsidiary for the purpose of designing, building and operating ethanol production facilities. We only recently acquired control of all of our operating subsidiaries, and have limited experience in running these companies.

We have generated net losses since inception, which may continue for the foreseeable future as we try to grow our business, which means that you may be unable to realize a return on your investment for a long period of time, if ever. Our present business operations commenced in February 2004. From inception through September 30, 2006, we incurred a cumulative net loss of $16,473,023 which included non-cash net asset impairment charges of $12,376,796. We expect to continue incurring operating losses until we are able to derive meaningful revenues from our proposed business relating to ethanol production, energy generation and supply.

We have limited available working capital and require significant additional capital in order to sustain our operations, and if we cannot obtain additional financing we might cease to continue operating. As of September 30, 2006, we had total current assets of $ 4,083,117 and a working capital deficit of $721,961 before including a liability for common stock subscribed of $1,194,376. We believe that we require a minimum of $1,800,000 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. We have not received any funds, nor can there be any assurance that such funds will be forthcoming. Should we be unable to raise the required funds, our ability to finance our continued operations will be materially adversely affected.

Our independent auditors' report raises substantial doubt about our ability to continue as a going concern. Our independent auditors have prepared their report on our 2006 financial statements assuming that we will continue as a going concern. Their report has an explanatory paragraph stating that our recurring losses from operations since inception, limited operating revenue and limited capital resources raise substantial doubt about our ability to continue as a going concern. 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. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary, should the Company be unable to continue as a going concern.

Because we have few proprietary rights, others can provide products and services substantially equivalent to ours. We hold a provisional patent application relating to our MEMS operations, however we hold no patents or patents applications relating to our energy generation and supply business or our proposed ethanol production business. We believe that most of the technology used in the design and building of ethanol production facilities and in the area of the energy generation and supply business is generally known and available to others. Consequently, others will be able to compete with us in these areas. We rely on a combination of confidentiality agreements and trade secret law to protect our confidential information. In addition, we restrict access to confidential information on a ‘‘need to know’’ basis. However, there can be no assurance that we will be able to maintain the confidentiality of our proprietary information. If our proprietary rights are violated, or if a third party claims that we violate their trademark or other proprietary rights, we may be required to engage in litigation. Proprietary rights litigation tends to be costly and time consuming. Bringing or defending claims related to our proprietary rights may require us to redirect our human and monetary resources to address those claims.

We may not be able to compete effectively or competitive pressures faced by us may materially adversely affect our business, financial condition, and results of operations. We expect to face significant competition in our ethanol production, energy generation and supply and MEMS operations. Virtually all of our competitors have greater marketing and financial resources than us and, accordingly, there can be no assurance that we will be able to compete effectively or that competitive pressures faced by us will not materially adversely affect our business, financial condition, and results of operations.

We are dependent upon our key personnel. Our performance is substantially dependent on the continued services and on the performance of our senior management and other key personnel. We plan to obtain “key person” life insurance for our key personnel, however, at this time, no such policies are in effect. Our performance will also depend upon our ability to retain and motivate other officers and key employees. The loss of the services of any of our executive officers or other key employees could have a material adverse effect on our business, prospects, financial condition and results of operations. Our future success also depends on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical and managerial personnel. Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, assimilate or retain sufficiently qualified personnel. The failure to retain and attract the necessary technical, and managerial personnel could have a material adverse effect on our business, prospects, financial condition and results of operations.

Because we are smaller and have fewer financial and other resources than many ethanol producers, we may not be able to successfully compete in the very competitive ethanol industry. Ethanol is a commodity. There is significant competition among existing ethanol producers. Our business faces competition from a number of producers that can produce significantly greater volumes of ethanol than we can or expect to produce, producers that can produce a wider range of products than we can, and producers that have the financial and other resources that would enable them to expand their production rapidly if they chose to. These producers may be able to achieve substantial economies of scale and scope, thereby substantially reducing their fixed production costs and their marginal productions costs. If these producers are able to substantially reduce their marginal production costs, the market price of ethanol may decline and we may be not be able to produce ethanol at a cost that allows us to operate profitably. Even if we are able to operate profitably, these other producers may be substantially more profitable than us, which may make it more difficult for us to raise any financing necessary for us to achieve our business plan and may have a materially adverse effect on the market price of our common stock.

Competition from large producers of petroleum-based gasoline additives and other competitive products may impact our profitability. Our success depends substantially upon continued demand for ethanol from major oil refiners. There are other gasoline additives that have octane and oxygenate values similar to those of ethanol but which currently cannot be produced at a cost that makes them competitive. The major oil refiners have significantly greater financial, technological and personal resources than we have to reduce the costs of producing these alternative products or to develop other alternative products that may be produced at lower cost. The major oil refiners also have significantly greater resources than we have to influence legislation and public perception of ethanol. If the major oil refiners are able to produce ethanol substitutes at a cost that is lower than the cost of ethanol production, the demand for ethanol may substantially decrease. A substantial decrease in the demand for ethanol will reduce the price of ethanol, adversely affect our profitability and decrease the value of your stock.

If ethanol and gasoline prices drop significantly, we will also be forced to reduce our prices, which potentially may lead to losses. Prices for ethanol products can vary significantly over time and decreases in price levels could adversely affect our profitability and viability. The price of ethanol has some relation to the price of gasoline. The price of ethanol tends to increase as the price of gasoline increases, and the price of ethanol tends to decrease as the price of gasoline decreases. Any lowering of gasoline prices will likely also lead to lower prices for ethanol and adversely affect our operating results. We cannot assure you that we will be able to sell our ethanol profitably, or at all.

Lax enforcement of environmental and energy policy regulations may adversely affect the demand for ethanol. Our success will depend, in part, on effective enforcement of existing environmental and energy policy regulations. Many of our potential customers are unlikely to switch from the use of conventional fuels unless compliance with applicable regulatory requirements leads, directly or indirectly, to the use of ethanol. Both additional regulation and enforcement of such regulatory provisions are likely to be vigorously opposed by the entities affected by such requirements. If existing emissions-reducing standards are weakened, or if governments are not active and effective in enforcing such standards, our business and results of operations could be adversely affected. Even if the current trend toward more stringent emissions standards continues, our future prospects will depend on the ability of ethanol to satisfy these emissions standards more efficiently than other alternative technologies. Certain standards imposed by regulatory programs may limit or preclude the use of our products to comply with environmental or energy requirements. Any decrease in the emission standards or the failure to enforce existing emission standards and other regulations could result in a reduced demand for ethanol. A significant decrease in the demand for ethanol will reduce the price of ethanol, adversely affect our profitability and decrease the value of your stock.

Price increases or interruptions in needed energy supplies could cause loss of customers and impair our profitability. Ethanol production requires a constant and consistent supply of energy. If there is any interruption in our supply of energy for whatever reason, such as availability, delivery or mechanical problems, we may be required to halt production. If we halt production for any extended period of time, it will have a material, adverse effect on our business. Natural gas and electricity prices have historically fluctuated significantly. We purchase significant amounts of these resources as part of our ethanol production. Increases in the price of natural gas or electricity would harm our business and financial results by increasing our energy costs.

RISKS RELATED TO AN INVESTMENT IN OUR COMMON STOCK

Our common stock may be thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares. Our common stock is thinly traded and we will be required to undertake efforts to develop market recognition for us and support for our shares of common stock in the public market. The price and volume for our common stock that will develop cannot be assured.

The number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent. This situation may be attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days, weeks, months, or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained. While we are trading on the OTC Bulletin Board, the trading volume we will develop may be limited by the fact that many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in Bulletin Board stocks and certain major brokerage firms restrict their brokers from recommending Bulletin Board stocks because they are considered speculative, volatile and thinly traded.

Our common stock is subject to the “penny stock” rules which could limit the trading and liquidity of the common stock, adversely affect the market price of our common stock and increase your transaction costs to sell those shares. The trading price of our common stock is below $5 per share; and therefore, the open-market trading of our common stock will be subject to the “penny stock” rules, unless we otherwise qualify for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock, reducing the liquidity of an investment in our common stock and increasing the transaction costs for sales and purchases of our common stock as compared to other securities.

The market price for our common stock may be particularly volatile given our status as a relatively unknown company with a small and thinly traded public float and lack of history as a public company which could lead to wide fluctuations in our share price. The market for our common stock may be characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price could continue to be more volatile than a seasoned issuer for the indefinite future. The potential volatility in our share price is attributable to a number of factors. First, as noted above, our shares of common stock may be sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our shares of common stock are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Many of these factors will be beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time.

In addition, the market price of our common stock could be subject to wide fluctuations in response to:

·	quarterly variations in our revenues and operating expenses;

·	announcements of new products or services by us;

·	fluctuations in interest rates;

·	significant sales of our common stock, including “short” sales;

·	the operating and stock price performance of other companies that investors may deem comparable to us; and

·	news reports relating to trends in our markets or general economic conditions

The stock market, in general, and the market prices for penny stock companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance.

Stockholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.

Limitations on director and officer liability and indemnification of our officers and directors by us may discourage stockholders from bringing suit against a director. Our bylaws provide, with certain exceptions as permitted by governing state law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on our behalf against a director. In addition, our articles of incorporation and bylaws may provide for mandatory indemnification of directors and officers to the fullest extent permitted by governing state law.

We do not expect to pay dividends for the foreseeable future, and we may never pay dividends. We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock may be limited by state law. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize their investment.

Our management owns 19% and an investment group may own a significant percentage of our outstanding common stock, which may limit your ability and the ability of our other stockholders, whether acting alone or together, to propose or direct the management or overall direction of our Company. Such concentrated control of the Company may adversely affect the price of our common stock. Our principal stockholders may be able to control matters requiring approval by our stockholders, including the election of directors, mergers or other business combinations. Such concentrated control may also make it difficult for our stockholders to receive a premium for their shares of our common stock in the event we merge with a third party or enter into different transactions which require stockholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. Accordingly, if all of our officers and directors exercise outstanding option this stockholder together with our directors and executive officers could have the power to control the election of our directors and the approval of actions for which the approval of our stockholders is required. If you acquire shares, you may have no effective voice in the management of the Company.

Future sales of our equity securities could put downward selling pressure on our securities, and adversely affect the stock price. There is a risk that this downward pressure may make it impossible for an investor to sell his securities at any reasonable price, if at all. Future sales of substantial amounts of our equity securities in the public market, or the perception that such sales could occur, could put downward selling pressure on our securities, and adversely affect the market price of our common stock.

FORWARD-LOOKING STATEMENTS

This prospectus, including the sections titled “Summary” and “Risk Factors” and other sections, contains certain statements that constitute “forward-looking statements”. These forward-looking statements include certain statements regarding intent, belief or current expectations about matters (including statements as to “beliefs,” “expectations,” “anticipations,” “Intentions” or similar words). Forward-looking statements are also statements that are not statements of historical fact. Because these statements are based on factors that involve risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. These factors include, among others:

·	our ability to achieve and maintain profitability;

· the price volatility of the common stock;

· the historically low trading volume of the common stock;

· our ability to manage and fund our growth;

· the short period of time we have employed certain of our executive officers;

· our ability to attract and retain qualified personnel;

· litigation;

· our ability to compete with current and future competitors;

· our short operating history;

· our ability to obtain additional financing;

· general economic and business conditions;

· other risks and uncertainties included in the section of this document titled “Risk Factors”; and

· other factors discussed in our other filings made with the SEC.

The subsequent forward-looking statements relating to the matters described in this document and attributable to us or to persons acting on our behalf are expressly qualified in their entirety by such factors. We have no obligation to publicly update or revise these forward-looking statements to reflect new information, future events, or otherwise, except as required by applicable Federal securities laws, and we caution you not to place undue reliance on these forward looking statements.

USE OF PROCEEDS

This prospectus relates to shares of our common stock that may be offered and sold from time to time by Selling Stockholders. We will receive no proceeds from the sale of shares of common stock in this offering. Should any Selling Stockholder acquire the shares to be sold by exercising common share purchase warrants, we would receive the proceeds from the exercise price. In such an event we anticipate we would use the proceeds of such exercise for working capital and general corporate purposes.

DESCRIPTION OF BUSINESS

General

Our Operating Subsidiaries

HEO

Our HEO subsidiary is working on plans for a woodwaste-to-ethanol refinery to be built in Hearst, Ontario, Canada. Ethanol is a clean, high-octane, high-performance automotive fuel commonly blended in gasoline to extend supplies and reduce harmful emissions. Organic woodwaste (wood chips or fiber), the raw material for fuel-grade ethanol, is an overabundant waste stream of the Canadian forest products industries. We intend that the refinery will use modern catalytic processing, as used in oil refineries, to synthetically convert organic woodwaste into fuel-grade ethanol. We believe that this convergence of technologies - applying oil refinery process unit operations to alternative fuel production - will enable the continuous production of fuel-grade ethanol in high volume and at low cost.

Currently, our HEO subsidiary owns 720 acres of land in Hearst, Ontario, including a woodwaste repository containing nearly 1.5 million tons of organic woodwaste. We believe that the existing woodwaste on site will be sufficient to run the future plant for more than one year for production of 120 million gallons of fuel-grade ethanol. Our ability to complete this project is wholly dependent, however, on the successful fulfillment of several conditions, including receipt of all necessary environmental and other permits and the acquisition of capital for the development and construction of the plant.

We own 87% of HEO; we incorporated HEO in Ontario, Canada in December 2005.

CA MEMS

Our CA MEMS subsidiary engineers, designs and oversees the construction of “Intelligent Filtration Systems™” (“IFS”) for the gas and oil industry. These systems are utilized to filter wastes from oil or water streams. The IFS integrates previously separate units into a dynamic filtration system. Engineered for ease of operation and maintenance, it gives the refinery exceptional and coordinated control. Direct ecological benefits of the energy-efficient design include reduced greenhouse emissions and a dramatic reduction in the volume of hazardous waste.

The U.S. Environmental Protection Agency (“EPA”) and California Air Resources Board (“CARB”) requirements for cleaner burning fuels have opened up additional opportunities for our IFS technology. We believe our IFS product can help our customers achieve lower operating costs and minimize wastes while enhancing their ability to meet the more stringent government requirements for cleaner burning fuels. The system dramatically reduces hazardous waste disposal costs.

We anticipate that we may be able to utilize our intelligent filtration systems as an integral part of any ethanol production facility that we may design. We are presently aware of three competitors offering similar technologies to CA MEMS IFS technology.

On December 1, 2006, we delivered our first Intelligent Filtration System to a major Los Angeles-area oil refinery. This advanced filtration system enables the production of cleaner-burning, reduced-sulfur motor fuel, supporting refinery environmental improvement goals.

GULFGATE

Our Gulfgate subsidiary 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 turbine engine oils. These same systems are used by electric power generation facilities to remove water from transformer oils. To help meet its customers’ diverse needs, Gulfgate maintains and operates a large rental fleet of filtration and dehydration systems. Gulfgate also provides a full line of spare parts, service, and replacement elements for its products. Gulfgate’s market includes petrochemical plants, refineries, pulp and paper mills, steel mills, electrical utilities, engineering contractors, municipalities and U.S. government agencies. Gulfgate is ISO 9001:2000 certified, authorized ASME Code welding facility, and is a qualified international vendor to the oil and gas industries. Gulfgate has served customers throughout the energy sector since 1952; we acquired Gulfgate in 2004.

BOTT

Our Bott subsidiary is a stocking distributor for premier lines of industrial pumps, compressors, flow meters, 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. Gulfgate also constructs refueling systems that Bott sells for commercial marine vessels. Bott’s customers include chemical manufacturers, refineries, power plants and other industrial customers.

Bott has provided liquid handling equipment and solutions to the industrial, petroleum marketing, pulp/paper, paint and chemical market places since 1952; we acquired Bott in 2004. As a stocking distributor, Bott maintains components, parts and "know how" to provide application engineering, repair parts and services for each of the manufacturers we represent. Additionally, Bott Equipment will package fluid handling solutions into fully integrated and assembled systems meeting customer specifications. By utilizing our knowledge of the individual components (pumps, meters, valves) and our field service experience, Bott is the best choice for user-friendly, correctly applied equipment for fluid movement, measurement and control.

Our History

We were incorporated in the State of Nevada on April 12, 2002 as Lumalite Holdings, Inc. We had not generated significant revenues and were considered a development stage company .Pursuant to a Merger Agreement and Plan of Reorganization dated January 28, 2004 between us and MEMS USA, Inc., a California corporation (“CA MEMS”), we acquired all of the outstanding capital shares of CA MEMS in exchange for 10 million shares of our common stock. Since the stockholders of CA MEMS acquired approximately 75% of our issued and outstanding shares and the CA MEMS management team and board of directors became our management team and board of directors, this acquisition has been treated as a recapitalization for accounting purposes. In accounting for this transaction:

·	CA MEMS is deemed to be the purchaser and surviving company for accounting purposes. Accordingly, its net assets are included in our consolidated balance sheet at their historical book values and the results of operations of CA MEMS have been presented for all prior periods; and

·	Control of the net assets and business of our company were acquired effective February 18, 2004. This transaction has been accounted for as a purchase of our assets and liabilities by CA MEMS. The historical cost of the net liabilities assumed was $-0-.

Pursuant to the transaction described above, we changed our name from Lumalite Holdings, Inc to MEMS USA, Inc.

In November 2004, we formed a subsidiary, Can Am Ethanol One, Inc. (“Can Am”), in which we owned 49% of the equity interest. We created Can Am to manufacture, own and operate one ethanol production facility in British Columbia, Canada. In June 2005, the Company and its Canadian counterpart each made a CN$25,000 at risk deposit to open escrow toward purchase of 2,150 acres of land intended to serve as a plant site in British Columbia, Canada. Subsequently, the Company paid an additional at-risk deposit of CN$50,000 for an extension of the closing date of the purchase agreement. This project was discontinued.

As described above, in 2006, we merged into a wholly owned subsidiary to change our name to Convergence Ethanol, Inc.

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

Our Strategy

We are presently in the process of integrating our subsidiaries, which we believe will promote efficiency and lower operating costs. While each of our subsidiaries will remain a separate operating entity, we intend to optimize the resources of each. MEMS CA's primary responsibility will be to design and engineer new products and systems for the energy sector. It is anticipated that Bott and Gulfgate will supply component parts for these systems, which will be assembled in Texas under MEMS CA's supervision. We also anticipate that once we obtain the necessary funding, we will be able to design, build and operate ethanol plants for our current and future ethanol production joint ventures, starting with our HEO facility.

Our plan of operation is to focus in geographic areas which offer abundant supplies of organic woodwaste, superior transportation infrastructure, expedited permitting processes, high local demand for ethanol, and favorable provincial and federal tax incentives. The Province of Ontario, where our HEO facility will be located, has mandated that all motor gasoline sold in Ontario must contain at least 5% ethanol by 2007, with the goal of 10% by 2010. In addition to the U.S. ethanol market, we believe that Canada will provide an assured market for fuel-grade ethanol. Currently, our HEO subsidiary owns 720 acres of land in Hearst, Ontario, including a woodwaste repository containing nearly 1.5 million tons of organic woodwaste. We believe that the existing woodwaste on site will be sufficient to run the future plant for more than one year for production of 120 million gallons of fuel-grade ethanol. Our ability to complete this project is wholly dependent, however, on the successful fulfillment of several conditions, including receipt of all necessary environmental and other permits and the acquisition of capital for the development and construction of the plant.

The Ethanol Industry. Fuel-grade ethanol is the world's most used alternative liquid fuel. It is commonly blended in gasoline to extend supplies and reduce emissions. In 2004, according to the American Coalition for Ethanol, 30% of all United States gasoline was blended with some percentage of ethanol. The most common blend is E10, which contains 10% ethanol and 90% gasoline. There is also growing federal government support for E85, which is a blend of 85% ethanol and 15% gasoline. Worldwide demand for ethanol is more than double production capacity and grows at over 25% per year.

In Canada, 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. The blending of fuel-grade 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.

In the U.S., on August 8, 2005 President Bush signed into law the Energy Policy Act of 2005. The Energy Policy Act transformed ethanol from a gasoline additive under the 1990 Clean Air Act to a primary gasoline substitute, which we believe will serve to strengthen and expand the role of ethanol in the U.S. fuel economy. A highlight of the Energy Policy Act is the creation of a 7.5 billion gallon renewable fuel standard, or RFS, increasing use of renewable domestic fuels such as ethanol and biodiesel. The newly approved RFS of the Energy Policy Act establishes that a percentage of the U.S. fuel supply will be provided by renewable, domestic fuels such as ethanol. In addition, the Energy Policy Act establishes a 30% tax credit up to $30,000 for the cost of installing clean fuel refueling equipment, such as an E85 ethanol fuel pump.

Recent studies published by the Renewable Fuel Association indicate that approximately 4.0 billion gallons of ethanol will be consumed in 2006 in the United States, and every automobile manufacturer approves and warrants the use of E10. Because the ethanol molecule contains oxygen, it allows an automobile engine to more completely combust fuel, resulting in fewer emissions and improved performance. Fuel ethanol has an octane value of 113 compared to 87 for regular unleaded gasoline. Domestic ethanol consumption has tripled in the last eight years, and consumption increases in some foreign countries, such as Brazil, are even greater in recent years. For instance, 40% of the automobiles in Brazil operate on 100% ethanol, and others use a mixture of 22% ethanol and 78% gasoline. The European Union and Japan also encourage and mandate the increased use of ethanol.

The Ethanol Production Process. In the United States, ethanol is primarily made from starch crops, principally from the starch fraction of corn. However, it can also be made using industrial food processing wastes and cellulosic biomass feedstocks, such as woody and fibrous materials, agricultural residues, corn cobs and stover, bagasse stalks from sugar cane, forestry residues, yard waste, and restaurant and municipal solid waste. Ethanol is produced by extracting, fermenting and distilling the sugars trapped in these diverse feedstocks.

The vast majority of United States ethanol production relies on mature, proven corn-based technology. Consequently, the production plants are concentrated in the corn belt of the Midwest, principally in Illinois, Iowa, Minnesota, Nebraska and South Dakota. Historically and over the longer term, the economics of corn ethanol have favored large scale plants, producing more than 60 million gallons per year, which are located in close proximity to the Corn Belt and away from the major consuming markets.

Biomass Ethanol Production. In a recent report, "Outlook For Biomass Ethanol Production Demand", the U.S. Energy Information Administration found that advancements in production technology of ethanol from biomass could reduce costs and result in production increases of 40% to 160% by 2010. We intend on processing biomass as part of our HEO project. Biomass (cellulosic feedstocks) includes woody fibrous materials or woodwaste, agricultural waste, forestry residues, waste paper, municipal solid waste and most plant material. Cellulosic feedstocks are often available for relatively low cost or even free, and they are abundant, global and renewable in nature. These waste streams, which would otherwise be abandoned, land-filled or incinerated, exist in populated metropolitan areas where ethanol prices are higher.

Given the high and rising price of corn, we believe that the conversion of low-cost cellulosic feedstocks, such as woodwaste, will be important in future ethanol production. In addition to its lower raw material costs, biomass-to-ethanol production has the following advantages over corn-based production:

biomass allows producers to avoid the pressure on margins created by rises in corn prices;

key limitation for ethanol is that there are currently no pipelines available for the transportation of ethanol; this may create a potential niche market for biomass ethanol because it can be produced locally with a variety of waste products;

biomass generates an additional class of valuable co-products, such as xylitol, which are not derived from corn; and

biomass is more energy efficient than its corn counterpart.

There are three basic steps in converting biomass to ethanol: (1) converting biomass to a fermentation feedstock (some form of fermentable sugar) - this can be achieved using a variety of different extraction technologies, (2) fermenting biomass intermediates using biocatalysts (microorganisms including yeast and bacteria) to produce ethanol and (3) processing the fermentation product, which yields fuel-grade ethanol and by-products such as xylitol.

Name	Age	Position	Director Term
Dr. James A. Latty	61	Chief Executive Officer, President and Chairman of the Board of Directors	April 16, 2008
John C. Fitzgerald	65	Director	April 16, 2009
Steve Newsom	47	Director	April 16, 2010
Richard W. York	59	Chief Financial Officer	N/A

	Annual Compensation				Long-Term Compensation		All Other Compensation
Name and Position	Year	Salary	Bonus	Other Annual Compensation	Restricted Stock Awards ($)	Common Shares Underlying Options Granted (# Shares)
James A. Latty, CEO	2006	$240,000	--	--	--	--	--
	2005	$240,000	--	$5,950	--	1,000,000	--
	2004	$240,000	--	--	--	1,284,343	--

Daniel K. Moscaritolo,	2006	$240,000	--	$9,350	--	--	--
COO & CTO (1)	2005	$240,000	--	$10,200	--	--	--
	2004	$240,000	--	$94,770	--	1,284,343	--

Richard York, CFO (2)	2006	$93,000	--	--	--	26,335	--
	2005	$93,000	--	--	--	--	--
	2004	$15,500	--	--	--	50,000	--

Name and Address (1)	Number of Shares		Percentage Owned (2)
Dr. James A. Latty		3,464,468 (3)		15.9 %
Steve Newsom		300,000 (4)		1.4 %
Richard W. York		96,336 (5)		0.5 %
Mark Trumble		1,569,902		7.6 %
Daniel K. Moscaritolo		2,437,605		11.72 %
John C. Fitzgerald		333,613 (6)		1.6 %
All Directors & Executive Officers as a Group (4 persons)		4,194,417		18.68%

	High	Low

Fiscal Year-Ending September 30, 2005
First Quarter	$2.32	$1.51
Second Quarter	$3.30	$2.10
Third Quarter	$2.59	$1.70
Fourth Quarter	$2.45	$1.50

Fiscal Year-Ending September 30, 2006
First Quarter	$1.80	$0.87
Second Quarter	$1.80	$0.95
Third Quarter	$3.63	$1.02
Fourth Quarter	$2.06	$0.80

Fiscal Year-Ending September 30, 2007
First Quarter	$0.95	$0.41
Second Quarter	$0.80	$0.35

Plan Category	Number of Common Shares to Be Issued Upon Exercise of Outstanding Options		Weighted- Average Exercise Price of Outstanding Options		Number of Common Shares Remaining Available for Issuance Under Equity Compensation Plan
Equity compensation plan approved by stockholders		N/A		N/A		N/A
Equity compensation plan not approved by stockholders (1)		2,453,167		$2.53		863,715

			Shares Beneficially Owned After Completion of the Offering
Selling Stockholders	Shares of Common Stock Beneficially Owned Prior to the Offering (1)	Number of Shares Offered by this Prospectus	Number	Percent (2)
GCA Strategic Investment Fund Limited (3)	4,300,000	4,300,000	1,037,482	4.99%
Global Capital Advisors, LLC (4)	500,000	500,000	-	*
Richardson & Patel LLP (5)	500,000	500,000	-	*

(1)	For purposes of this table, “beneficial ownership” is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934 pursuant to which a Selling Stockholder is deemed to have beneficial ownership of any shares of common stock that such stockholder has the right to acquire within 60 days of June 8, 2007.
(2)	Based on 20,791,226 shares of common stock outstanding on June 8, 2007.
(3)	Includes 3,300,000 shares of common stock issuable upon conversion of certain secured convertible term notes and 1,000,000 shares of common stock issuable upon exercise of certain warrants. GCA Strategic Investment Fund Limited may not convert its note or exercise its warrants if such conversion or exercise would result in GCA Strategic Investment Fund Limited, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934 and the rules promulgated thereunder) in excess of 4.99% of the then issued and outstanding shares of our common stock. The natural persons with voting power and investment power on behalf of GCA Strategic Investment Fund Limited are Mr. Lewis N. Lester, Director and Mr. Michael S. Brown, Director.
(4)	Includes 500,000 shares of common stock issuable upon exercise of warrants. The natural persons with voting power and investment power over Global Capital Advisors, LLC are Mr. Lewis N. Lester, Director and Mr. Michael S. Brown, Director.
(5)	The natural person with voting power and investment power over Richardson & Patel LLP is Mr. Erick Richardson.

	Page(s)
Consolidated Financial Statements for the years ended September 30, 2006 and 2005

Report of Independent Certified Public Accountants	F-3
Consolidated Balance Sheet as of September 30, 2006	F-4
Consolidated Statements of Operations for the years ended September 30, 2006 and 2005	F-5
Consolidated Statement of Stockholders’ Equity for the years ended September 30, 2006 and 2005	F-6
Consolidated Statements of Cash Flows for years ended September 30, 2006 and 2005	F-7
Notes to Audited Consolidated Financial Statements	F-8

Consolidated Financial Statements for the quarter ended December 31, 2006

Consolidated Balance Sheet as of December 31, 2006 (unaudited)	F-25
Consolidated Statements of Operations for the Three Months Ended December 31, 2006 and 2005 (unaudited)	F-26
Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2006 and 2005 (unaudited)	F-27
Notes to Unaudited Consolidated Financial Statements	F-28

Consolidated Financial Statements for the quarter ended March 31, 2007

Consolidated Balance Sheet as of March 31, 2007 (unaudited)	F-43
Consolidated Statements of Operations for the Three Months and Six Months Ended March 31, 2007 and 2006 (unaudited)	F-44
Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2007 and 2006 (unaudited)	F-45
Notes to Unaudited Consolidated Financial Statements	F-46

Accounts receivable, net allowance for uncollectible of $83,081		1,281,998
Inventories, net of provision for slow moving items of $25,000		2,039,688
Other current assets		630,881
Total current assets	4,083,117
Plant, property and equipment, net		2,575,027
Other assets		58,473
Total assets	$	6,716,617

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	3,381,466
Lines of credits		325,114
Notes payable		343,302
Current portion of long-term debt		51,904
Other liabilities		78,884
Loans from stockholders		167,408
Convertible loan payable		150,000
Liability due to a legal settlement		307,000
Liability to be satisfied through the issuance of shares	1,194,376
Total current liabilities		5,999,454
Other payables	35,389
Total liabilities		6,034,843
Minority interests		103,930
Stockholders' equity:
Common stock, $0.001 par value; 100,000,000 shares authorized; 20,186,938 shares issued and outstanding		20,187
Additional paid in capital		21,061,314
Receivables in shares of common stock		(231,076)

Treasury stock (2,699,684 shares)	(3,799,558)
Total stockholders' equity	577,844
Total liabilities and stockholders' equity	$	6,716,617

		2006			2005
Revenues	$	9,210,755		$	8,828,157
Cost of revenues		7,385,693			6,678,185
Gross profit		1,825,062			2,149,972
Operating expenses:
Selling, general and administrative expenses		5,125,048			4,570,066
Other operating expense		71,364			4,704
Total operating expenses		5,196,412			4,574,770
Loss from operations		(3,371,350	)		(2,424,798	)
Income due to legal settlement		3,703,634			-
Impairment of investment in CanAm		(71,765	)		-
Impairment of construction in progress of airplane		(289,740	)		-
Impairment of goodwill		(915,434	)		-
Biomass inventory write off		(11,461,362	)
Loss attributable to minority interest		1,478,450			-
Net loss	$	(10,927,567	)	$	(2,424,798	)

Net loss per share, basic and diluted:
Weighted average number of shares outstanding, basic and diluted		19,489,977			16,950,966
Net loss per share, basic and diluted	$	(0.56	)	$	(0.14	)

	2006			2005
Net income (loss), as reported	$	(10,927,567	)	$	(2,424,798	)
Deduct:
Total stock-based employee compensation expenses determined under the fair value Black-Scholes method with a 145% and 80% volatility and 6% and 3% risk free rate of return assumption at September 30, 2006 and 2005 respectively		(1,036,510	)		(1,444,684	)
Pro forma net income (loss)	$	(11,964,077	)	$	(3,869,482	)
Income (loss) per share:
Weighted average shares, basic and diluted		19,489,977			16,950,966
Basic, pro forma, per share	$	( 0.61	)	$	(0.23	)

	Common stock		Subscrip- tions receivable			Additional paid in capital			Treasury Stock			Accumulated deficit			Stockholders' equity
Balance as of September 30, 2004	$	15,092	$	(2,050	)	$	3,422,911					$	(3,120,655	)	$	315,298
Payment on subscriptions receivable				1,800												1,800
Common stock issued to acquired Bott & Gulfgate		1,310					890,625									891,935
Common stock issued for cash		964					1,613,940									1,614,904
Common stock issued for service		38					65,416									65,454
Other adjustments							(35,960	)					(1	)		(35,961	)
Net loss for the year													(2,424,798	)		(2,424,798	)
Balance as of September 30, 2005		17,404		(250	)		5,956,932			-			(5,545,454	)		28,632
Common stock issued for service		269					378,388									378,657
Common stock issued for cash received in prior year		129					105,871									106,000
Common stock issued for cash received		2,014					1,541,949									1,543,963
Receivables in shares of common stock							(231,076	)								(231,076	)
Common stock issued pursuant to terms of acquisition		371					809,595									809,966
Subscription receivable deemed uncollectible				250												250
Canceled put option related to acquisition of Texas subsidiaries							1,400,000									1,400,000
Investment in HEO							10,868,579									10,868,579
Treasury stock from legal settlement										(3,799,558	)					(3,799,558	)
Net loss for the year													(10,927,569	)		(10,927,569	)
Balance as of September 30, 2006	$	20,187	$	-		$	20,830,238		$	(3,799,558	)	$	(16,473,023	)	$	577,844

Cash flows used in operating activities:	2006			2005
Net loss	$	(10,927,567	)	$	(2,424,798	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		233,445			242,367
Bad debt expense		37,135			-
Common stock issued for services		388,033			65,450
Loss on investment in CanAm One		71,765			-
Loss attributable to minority interest		(1,478,450	)
Loss due to write off of biomass inventory		11,461,362
Impairment of goodwill		915,434			-
Impairment of construction in progress - airplane		289,740
Income due to legal settlement		(3,703,634	)		-
(Gain) on sale or disposal of equipment		-			(44,743	)
Change in assets and liabilities:
Accounts receivable		(562,043	)		214,547
Inventories		(494,879	)		(236,662	)
Other current assets		(414,851	)		(24,232	)
Accounts payable and accrued expenses		1,986,201			321,789
Other current liabilities		78,884			-
Total adjustments		8,808,142			538,516
Net cash used in operating activities		(2,119,425	)		(1,886,282	)
Cash flows from investing activities:
Purchase of property and equipment		(126,455	)		(55,408	)
Net proceeds from sale of equipment					87,600
Cash balance net of payments for purchase of Bott and Gulfgate		-			55,712
Investment in CanAm One					(71,765	)
Other assets		-			(44,340	)
Stock subscription receivable		-			1,800
Net cash used in for investing activities		(126,455	)		(26,401	)
Cash flows from financing activities:
Lines of credit		(52,297	)		-
Notes payable		(30,031	)		(105,655	)
Current portion of long-term debt		(22,612	)		(21,158	)
Loan from stockholders		(24,192	)		191,600
Payment on long term liabilities		(26,553	)		(76,294	)
Purchase of shares pursuant to acquisition of subsidiaries		(20,000	)		-
Underwriting related to issuance of shares					(386,143	)
Cash received for shares to be issued		180,000			1,111,000
Common stock issued for cash		1,652,878			2,001,047
Net cash provided (used) by financing activities		1,548,278			2,714,397
Net increase (decrease) in cash and cash equivalents		(697,603	)		801,714
Cash and cash equivalents, beginning of period		828,153			26,439
Cash and cash equivalents, end of period	$	130,550		$	828,153
Supplemental disclosure of cash flow information:
Income taxes paid	$	26,125		$	27,515
Interest paid	$	178,814		$	84,361
Supplemental disclosure of non-cash financing activities:
Common stock (including $1,400,000 of shares subject to mandatory redemption factor as of September 30, 2005) issued for acquisition of Bott and Gulfgate	$	- 0 -		$	2,291,935
Assets acquired by HEO through issuance of shares	$	12,474,497			-

	2006
Land	$	778,608
Buildings and improvements		1,244,453
Furniture, Machinery and equipment		1,025,414
Automobiles and trucks		47,508
		3,095,983
Less accumulated depreciation		(520,956	)
	$	2,575,027

Promissory notes for automobile	$	10,143
Mortgage payable		19,724
Convertible loan		150,000
Less current portion		179,867
Long-term		168,267
	$	11,600

	2006		2005
Federal income tax rate		35.0%		35.0%
State income tax rate		6.0%		6.0%
Current year losses: loss for which no current benefit is provided		(41.0)		(41.0)
Effective Income Tax Rate		0%		0%

Facility and vehicle leases:
2007	$	182,777
2008		174,124
2009		37,041
	$	393,942

Warrants outstanding
	Number		Average Exercise Price
Outstanding at beginning of the year		910,183	$	2.65
Granted during the year		2,230,182		2.26
Outstanding at end of the year		2,440,365		2.52
Exercisable at end of the year		380,000		2.26
Exercised during the year		0		-
Cancelled during the year		700,000		2.65

	Aggregate Intrinsic Value		Number of Warrants
Outstanding at September 30, 2005	$	2,411,985		910,183
Granted		921,250		2,230,182
Exercised		-		-
Cancelled		-		700,000
Outstanding at September 30, 2006	$	6,145,653		2,440,365

Total options outstanding		4,443,044
Exercise prices	$	3.35
Weighted average remaining life (years)		3

CONVERGENCE ETHANOL, INC. (fka Mems USA, Inc.)
Consolidated Balance Sheet
(Unaudited)


	December 31, 2006
A S S E T S
Current assets:
Cash and cash equivalent	$	169,306
Accounts receivable, net allowance for uncollectible of $144,060		1,534,644
Inventories, net		1,177,066
Other current assets		730,719
Total current assets		3,611,735
Plant, property and equipment, net		2,548,235
Other assets		721,703
Total assets	$	6,881,673

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	1,667,038
Current portion of long-term debt		8,044
Other liabilities		142,812
Loans from stockholders		103,108
Liability to be satisfied through the issuance of shares		1,200,375
Derivative liability		3,953,337
Total current liabilities		7,074,714
Long-term liabilities		13,446
Liability related to convertible note payable		876,228
Total liabilities		7,964,388
Minority interests		101,125
Stockholders' Deficit :
Common stock, $0.001 par value; 100,000,000 shares authorized; 20,256,938 shares issued and outstanding		20,257
Additional paid in capital		19,559,734
Accumulated deficit		(16,964,274	)
Treasury stock (2,710,436 shares)		(3,799,558	)
Total stockholders' deficit		(1,183,840	)
Total liabilities and stockholders' deficit	$	6,881,673
The accompanying notes are an integral part of these unaudited consolidated financial statements.

CONVERGENCE ETHANOL, INC. (fka Mems USA, Inc.)
Consolidated Statement of Operations
Three month periods ended December 31, 2006 and 2005
(Unaudited)


	2006			2005

Net Revenue	$	3,947,772		$	2,626,519
Cost of revenue		3,281,511			2,071,744
Gross profit		666,261			554,775
Selling, general and administrative expenses		1,387,825			1,321,547
Loss from operations		(721,564	)		(766,772	)
Other income (expenses)
Gain from change in derivative liability		543,469			-
Income due to legal settlement		-			3,703,634
Interest expense		(249,869	)		(35,498	)
Other income (expense)		(65,093	)		12,217
Total other income		228,507			3,680,353
Income (loss) before minority interest		(493,057	)		2,913,581
Loss attributable to minority interest		2,806			-
Net income (loss)	$	(490,251	)	$	2,913,581

Net income (loss) per share, basic and diluted:
Weighted average number of shares outstanding, basic & diluted		17,610,368			18,439,506
Net income (loss) per share, basic & diluted	$	(0.03	)	$	0.16

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

CONVERGENCE ETHANOL, INC. (fka Mems USA, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Month Periods ended December 31, 2006 & 2005
(Unaudited)

	2006			2005
Cash flows used for operating activities:
Net income (loss)	$	(490,251	)	$	2,913,581
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Income due to legal settlement		-			(3,703,634	)
Depreciation and amortization		64,989			61,693
Stock base compensation, director and employee		85,894			-
Amortization of prepaid loan fees		47,864			-
Amortization of discount on convertible note		178,593
Gain from derivative liability		(543,469	)		-
Common stock issued for services		6,000			10,000
Loss attributable to minority interest		(2,805	)
Change in assets and liabilities:
Accounts receivable		(252,646	)		(186,172	)
Inventories		862,622			112,176
Other current assets		287,750			72,133
Accounts payable and accrued expenses		(1,714,428	)		5,445
Other current liabilities		63,533			-
Total adjustments		(916,103	)		(3,628,359	)
Net cash used for operating activities		(1,406,354	)		(714,778	)
Cash flows from investing activities:
Purchase of property and equipment		-			(20,769	)
Other assets		-			24,000
Net cash used for investing activities		-			3,231
Cash flows from financing activities:
Proceeds from convertible loan		3,177,000			-
Debts issuance cost		(476,370	)		-
Lines of credit		(325,114	)		-
Promissory notes payable		(365,245	)		-
Current portion of long-term debt		(43,860	)		(30,398	)
Convertible loan		(150,000	)		-
Payment due to legal settlement		(307,000	)		-
Repayment of loan from stockholders		(64,300	)		20,000
Net cash provided by (used in) financing activities		1,445,111			(10,398	)
Net increase (decrease) in cash and cash equivalents		38,756			(721,945	)
Cash and cash equivalents, beginning of period		130,550			828,153
Cash and cash equivalents, end of period	$	169,306		$	106,208

Supplemental disclosure of cash flow information:
Interest paid	$	71,276		$	35,498
Income taxes paid	$	-		$	-
Supplemental disclosure of non-cash financing activities:
Common stock issued for finder's fees for HEO property	$	38,500		$	-

		Three Months Ended December 31, 2006
Expected dividend yield		0.00%
Expected volatility		92.5% to 93.6%
Average risk-free interest rate		4.52% to 4.81%
Expected life (in years)		2.5 to 6

Three Months Ended December 31, 2005
Net income, as reported	$	2,913,581
Deduct: Total stock-based employee compensation expenses determined under the fair value Black-Scholes method with a 128% volatility at December 31, 2005 and a 6% risk free rate of return assumption		(175,664	)
Pro forma net income	$	2,737,917
Income per share:
Weighted average shares, basic		18,439,506
Basic, pro forma, per share	$	0.15

Weighted average shares, diluted		19,131,642
Diluted, pro forma, per share	$	0.14

Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at October 1, 2006		1,884,358		$	1.85			$	20,000
Granted		600,000			.48				-
Exercised		-			-				-
Forfeited		(345,000	)		1.50				-
Converted		-			-				-
Expired		-			-				-
Canceled		-			-				-
Outstanding at December 31, 2006		2,139,358		$	1.52		7.60	$	132,000

Exercisable at December 31, 2006		1,758,696		$	1.65		7.25	$	64,500

Non-vested Options	Shares			Weighted-Average Grant-Date Fair Value
Non-vested at October 1, 2006		539,324		$	1.25
Granted		300,000		$	0.35
Vested		(143,662	)	$	1.16
Forfeited		(315,000	)	$	1.09
Non-vested at December 31, 2006		380,662		$	0.70

Warrants	Shares		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at October 1, 2006		822,000	$	2.61			$	-
Granted		-	$	-				-
Exercised		-	$	-				-
Forfeited		-	$	-				-
Converted		-	$	-				-
Expired		-	$	-				-
Canceled		-	$	-				-
Outstanding at December 31, 2006		822,000	$	2.61		2.13	$	-

Exercisable at December 31, 2006		822,000	$	2.61		2.13	$	-