UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

(Mark One)

|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                       For the period ended: June 30, 2007

|_|  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934

                For the transition period from________ to_______

                       Commission File Number: 333-128758

                      UTILICRAFT AEROSPACE INDUSTRIES, INC.
        (Exact name of small business issuer as specified in its charter)

               Nevada                                          20-1990623
               ------                                          ----------
   (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                         Identification No.)

             7339 Paeso Del Volcan
            Albuquerque, New Mexico                            87121
            -----------------------                            -----
   (Address of principal executive offices)                  (Zip Code)

                                  866-843-1348
                           (Issuer's telephone number)

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act 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.
|X| Yes |_| No


Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). |_| Yes |X| No

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

                Class                               Outstanding at June 30, 2007
--------------------------------------------  ----------------------------------
  Common Stock, par value $.0001 per share               216,425,989 shares

Transitional Small Business Disclosure Format (check one): Yes |_| No |X|



--------------------------------------------------------------------------------




<PAGE>





                      UTILICRAFT AEROSPACE INDUSTRIES, INC.

                                   FORM 10-QSB

                                    CONTENTS




   PART I -- FINANCIAL INFORMATION                                      Page No.
                                                                        --------

             Item 1.           Financial Statements                            3

             Item 2.           Management's Discussion and Analysis           16

             Item 3            Controls and Procedures                        21

   PART II -- OTHER INFORMATION

             Item 1.           Legal Proceedings                              21

             Item 2.           Unregistered Sales of Equity Securities and
                                Use of Proceeds                               21

             Item 3.           Defaults Upon Senior Securities                21

             Item 4.           Submission of Matters to a Vote of
                                Security Holders                              21

             Item 5.           Other Information                              22

             Item 6.           Exhibits                                       22

             Signatures                                                       22


             Certifications                                             Attached









                                      - 2 -

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<PAGE>



 PART I. FINANCIAL INFORMATION

 Item 1. Financial Statement

                      Utilicraft Aerospace Industries, Inc.
                          (A Development Stage Company)
                                   (UNAUDITED)
                                  Balance Sheet
                                  June 30, 2007


                                     Assets
                                     ------

Current assets:
   Cash                                                           $   157,490

                                                                  -----------
     Total current assets                                             157,490
                                                                  -----------

Computer equipment, net of depreciation of $9,534                      23,691
                                                                  -----------

Other assets:
   Lease security deposits and other assets                            23,250
   Performance flight test aircraft                                   352,928
   Prototypes for design aircraft                                     312,804
                                                                  -----------
                                                                      688,982
                                                                  -----------

     Total assets                                                     870,163
                                                                  ===========



                 Liabilities and Stockholders' Equity (Deficit)
                 ----------------------------------------------


Current liabilities:
   Accounts payable and accrued expenses                          $   555,474
   Note payable                                                       142,894
   Payroll taxes payable                                              437,667
   Accrued interest, related party                                     59,102
   Rent payable, related party                                        114,000
   Accrued aircraft rent, related party                                60,000
   Deferred compensation                                            2,916,272
   Loans and advances from related party                              416,069
                                                                  -----------
     Total current liabilities                                      4,701,478
                                                                  -----------

Long-term liabilities:
   Deferred rent obligation                                            78,000
                                                                  -----------

Commitments and contingencies (Note 7)

Stockholders' equity (deficit):
   Preferred stock, $.0001 par value, 25,000,000 shares
     authorized, no shares issued or outstanding                         --
   Common stock, $.0001 par value, 475,000,000 shares
     authorized, 214,825,989 shares issued and outstanding             21,642
   Additional paid-in capital                                       5,649,775
   Deficit accumulated during the development stage                (9,580,732)
                                                                  -----------
     Total stockholders' equity (deficit)                          (3,909,315)
                                                                  -----------

     Total liabilities and stockholders' equity (deficit)         $   870,163
                                                                  ===========



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


                                      - 3 -

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<PAGE>
<TABLE>
<CAPTION>


                      Utilicraft Aerospace Industries, Inc.
                          (A Development Stage Company)
                                   (UNAUDITED)
                            Statements of Operations


                                                                                                              Period From
                                                                                                              December 9,
                                           Three Months   Three Months      Six Months       Six Months           2004
                                              Ended          Ended            Ended            Ended         (Inception) to
                                             June 30,       June 30,         June 30,         June 30,           June 30,
                                               2007           2006             2007             2006              2007
                                         -------------    -------------    -------------    -------------    -------------
<S>                                      <C>              <C>              <C>              <C>              <C>

Revenues                                 $        --      $        --      $        --      $        --      $        --
                                         -------------    -------------    -------------    -------------    -------------

Operating expenses:

   Related party reorganization costs
     (Notes 1 and 2)                              --               --               --               --          3,519,073
   Compensation and related costs              306,663          264,602          575,263          461,554        3,935,792
   General and administrative,
     exclusive of compensation costs
     shown separately above                    202,550          193,341          311,484          362,355        1,546,612

   Engineering, research and
     development                                18,649           78,057           35,873           93,526          475,626

   Interest expense                             44,591            8,288           50,037           16,366          103,629
                                         -------------    -------------    -------------    -------------    -------------
     Total operating expenses                  572,453          544,288          972,657          933,801        9,580,732
                                         -------------    -------------    -------------    -------------    -------------

Loss before provision for income taxes        (572,453)        (544,288)        (972,657)        (933,801)      (9,580,732)

Provision for income taxes                        --               --               --               --               --
                                         -------------    -------------    -------------    -------------    -------------

Net loss                                 $    (572,453)   $    (544,288)   $    (972,657)   $    (933,801)   $  (9,580,732)
                                         =============    =============    =============    =============    =============


Basic net loss per share based on
   weighted average common shares        $       (0.00)   $       (0.00)   $       (0.01)   $       (0.01)
                                         =============    =============    =============    =============


Weighted average number of common
   shares outstanding                      158,661,557      154,074,186      158,661,557      154,074,186
                                         =============    =============    =============    =============

</TABLE>


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




                                      - 4 -

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<PAGE>
<TABLE>
<CAPTION>

                      Utilicraft Aerospace Industries, Inc.
                          (A Development Stage Company)
                                   (UNAUDITED)
                            Statements of Cash Flows

                                                                                               Period From
                                                                                             December 9, 2004
                                                    Six Months Ended     Six Months Ended     (Inception) to
                                                       June 30,             June 30,            June 30,
                                                         2007                 2006                2007
                                                     -----------          -----------          -----------
<S>                                                  <C>                  <C>                  <C>

Cash flows from operating activities:

Net loss                                             $  (972,657)         $  (933,801)         $(9,580,732)

Adjustments to reconcile net loss to net
   cash used in operating activities:
   Depreciation                                            2,705                 --                  9,534
   Non-cash portion of related party
     reorganization costs                                   --                   --              2,450,615
   Common stock issued for services                      112,500                 --              1,512,500
   Deferred compensation                                 203,735              126,091            1,057,164
   Expenses paid by related party                           --                101,697              206,052
   Compensation paid by AMUC                                --                   --                 46,923
   Deferred rent                                          12,000                6,000               78,000
Changes in operating assets and liabilities:
   Prepaid expenses                                         --                 (6,770)                --
   Lease security deposits and other
     assets                                                 --                 (9,179)             (23,250)
   Deferred financing costs                                 --                176,172                 --
   Accounts payable and accrued expenses                  43,190              148,958              478,323
   Accounts payable, AMUC                                   --                   --                   --
   Payroll taxes payable                                  83,970               52,225              441,277
   Accrued interest, related party                        10,228               16,365               59,102
   Rent payable, related party                              --                   --                114,000
   Accrued aircraft rent, related party                   15,000               15,000               60,000
   Deferred compensation                                    --                   --                (33,000)
                                                     -----------          -----------          -----------
Net cash used in operating activities                   (489,329)            (307,242)          (3,123,492)
                                                     -----------          -----------          -----------

Cash flows from investing activities:
    Payments on Performance Flight Test
   Aircraft                                             (352,928)            (352,928)
   Purchase of prototypes for design
     aircraft                                               --                (42,987)            (312,804)
    Purchase of computers                                 (6,175)                --                (33,225)
                                                     -----------          -----------          -----------
Net cash used in investing activities                   (359,103)             (42,987)            (698,957)
                                                     -----------          -----------          -----------

Cash flows from financing activities:
   Proceeds from issuance of common stock                960,100            1,020,100            4,426,540
   Financing cost associated with common
     stock                                                  --               (270,999)            (271,000)
   Advance from note payable                             142,894                 --                142,894
   Advances from related party                             5,000                5,000              127,377
   Repayment of advances from related
     party                                              (137,872)            (240,200)            (445,872)
                                                                          -----------          -----------
Net cash provided by financing activities                970,122              513,901            3,979,939
                                                                          -----------          -----------

Net increase in cash                                     121,690              163,672              157,490
Cash at beginning of period                               35,800                  507                 --
                                                     -----------          -----------          -----------
Cash at end of period                                    157,490              164,179              157,490
                                                     ===========          ===========          ===========
Interest paid                                               --                   --                    371
                                                     ===========          ===========          ===========

</TABLE>

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



                                      - 5 -

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<PAGE>
<TABLE>
<CAPTION>


                      Utilicraft Aerospace Industries, Inc.
                          (A Development Stage Company)
                                   (UNAUDITED)
                            Statements of Cash Flows

                      Supplemental Disclosures of Non-Cash
                       Investing and Financing Activities
                       ----------------------------------

                                                                                     Period From
                                                                                   December 9, 2004
                                        Six Months Ended      Six Months Ended      (Inception) to
                                            June 30,             June 30,             June 30,
                                              2007                 2006                 2007
                                        ---------------       ---------------      ---------------
<S>                                     <C>                   <C>                  <C>


Assumption of obligations for deferred
   compensation of former AMUC officers         $ --                 $ --          $  1,892,108

Assumption of loans and advances from
   related party                                $ --                 $ --          $    531,889

Assumption of accounts payable of AMUC
                                                $ --                 $ --          $  1,145,609


</TABLE>


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



                                      -6 -

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<PAGE>

                      UTILICRAFT AEROSPACE INDUSTRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2007



1.   BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY:

The unaudited financial  statements have been prepared by the Company,  pursuant
to the rules and regulations of the Securities and Exchange Commission.  Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
omitted  pursuant to such SEC rules and regulations;  nevertheless,  the Company
believes that the disclosures are adequate to make the information presented not
misleading.  These  financial  statements and the notes hereto should be read in
conjunction  with the financial  statements  and notes  thereto  included in the
Company's  Form 10-KSB for the year ended  December  31,  2006,  which was filed
April 27, 2007. In the opinion of the Company, all adjustments, including normal
recurring  adjustments  necessary to present  fairly the  financial  position of
Utilicraft Aerospace Industries, Inc. as of June 30, 2007 and the results of its
Operations and cash flows for the six months then ended, have been included. The
results of operations for the interim period are not  necessarily  indicative of
the results for the full year.

Utilicraft Aerospace  Industries,  Inc., (the "Company") was incorporated in the
State of Nevada on  December  9, 2004 and uses a December  31 year end.  It is a
development stage,  research and development  company. The Company was formed to
conceive and  implement a solution to the problem of  declining  capacity in the
short haul (or feeder) route segments of the air cargo hub and spoke system. The
research  and  development  efforts  are  focused  on the design of a system for
moving freight,  centered around a new aircraft specifically designed for feeder
route segments, the FF-1080 Freight Feeder aircraft. The Company is also engaged
in the development of related systems for fuel management and electronic freight
tracking (Note 2).

The financial  statements  of the Company have been  prepared  assuming that the
Company will continue as a going concern.  However,  since inception the Company
has a  loss  from  operations  of  approximately  $9,600,000.  This  is  largely
attributable to the  reorganization  costs  associated with American  Utilicraft
Corporation   ("AMUC")  (Note  3)  and  the  costs  of  sustaining  a  corporate
infrastructure  and  the  related  overhead  deemed  necessary  to  support  the
Company's  operations  while  raising  capital  to  develop a  prototype  of the
aircraft  described above. Cash losses from operations since inception have been
approximately $3,124,000.  Although the Company has a working capital deficiency
of approximately  $4,543,988 at June 30, 2007,  approximately $3,451,443 of this
deficiency  is owed to the  principal  officers  of the Company and will be paid
when and if funds are available.

In light of the Company's  current  financial  position and the  uncertainty  of
raising  sufficient  capital to achieve its business plan,  there is substantial
doubt about the Company's ability to continue as a going concern. In the opinion
of management,  approximately  $15,000,000 will be required over the next twelve
months to remove any threat to the  continuation  of its  business  during  such
time. The Company has entered into a financing agreement as more fully discussed
in Note 7, with PacifiCorp Funding Partners Trust ("PacifiCorp"), to potentially
provide between  $40,000,000 and $80,000,000 in equity financing.  Despite these
activities,  there can be no assurance that  management's  efforts to adequately
capitalize the Company will be successful.

There have been no changes in accounting policies used by the Company during the
quarter ended June 30, 2007.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Management estimates
--------------------

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and liabilities at the dates of the financial  statements and
the reported amounts of operating expenses during the reporting periods.  Actual
results could differ from these estimates.

Cash and cash flows
-------------------

For purposes of the statements of cash flows,  cash includes demand deposits and
time deposits with  maturities of less than three months.  None of the Company's
cash is restricted.

The Company  maintains  cash  accounts,  which could  exceed  federally  insured
limits.  The  Company  has not  experienced  any losses  from  maintaining  cash
accounts in excess of federally  insured  limits.  Management  believes that the
Company does not have significant credit risk related to its cash accounts.


                                        7

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<PAGE>


                      UTILICRAFT AEROSPACE INDUSTRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2007


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED

Fair value of financial instruments
-----------------------------------

In accordance with the reporting requirements of SFAS No. 107, Disclosures About
Fair Value of Financial  Instruments,  the Company  calculates the fair value of
its assets and  liabilities  which qualify as financial  instruments  under this
statement and includes this additional information in the notes to the financial
statements  when the fair value is different  than the  carrying  value of those
financial instruments.  The estimated fair value of the loans from related party
approximate   their  carrying  amounts  due  to  the  short  maturity  of  these
instruments.  At June 30,  2007,  the Company  did not have any other  financial
instruments.

Stock Based Compensation
------------------------

Effective  September  30,  2005,  the Company  adopted  Statement  of  Financial
Accounting  Standards  (SFAS)  123R,  Share-Based  Payment,  using the  modified
prospective   method.   This   statement   requires  the  Company  to  recognize
compensation  cost  based on the grant  date fair  value of  options  granted to
employees and directors.

Recent accounting pronouncements
--------------------------------

In July  2006,  the FASB  issued  FASB  Interpretation  No. 48,  Accounting  for
Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for income
taxes by  prescribing a minimum  probability  threshold that a tax position must
meet before a financial  statement benefit is recognized.  The minimum threshold
is  defined  in FIN 48 as a tax  position  that is more  likely  than  not to be
sustained  upon  examination  by  the  applicable  taxing  authority,  including
resolution  of  any  related  appeals  or  litigation  processes,  based  on the
technical  merits of the position.  The tax benefit to be recognized is measured
as the largest  amount of benefit that is greater than fifty  percent  likely of
being realized upon ultimate settlement.  FIN 48 must be applied to all existing
tax positions upon initial adoption. The cumulative effect of applying FIN 48 at
adoption,  if any,  is to be  reported  as an  adjustment  to  opening  retained
earnings for the year of adoption.  FIN 48 is effective for the  Company's  year
end 2007,  although  early  adoption is permitted.  The Company is assessing the
potential effect of FIN 48 on its financial statements.

In 2006, the Financial Accounting Standards Board issued the following:

-    SFAS No. 155: Accounting for Certain Hybrid Financial Instruments
-    SFAS No. 156: Accounting for Servicing of Financial Assets
-    SFAS No. 157: Fair Value Measurements
-    SFAS No. 158:  Employers'  Accounting for Defined Benefit Pension and Other
     Postretirement Plans

Management  has reviewed  these new  standards  and  believes  that they have no
impact on the financial statements of the Company.

Income taxes
------------

The Company  employs the asset and  liability  method in  accounting  for income
taxes  pursuant to Statement of Financial  Accounting  Standards  (SFAS) No. 109
"Accounting  for Income  Taxes."  Under  this  method,  deferred  tax assets and
liabilities are determined based on temporary  differences between the financial
reporting  and tax  bases of  assets  and  liabilities  and net  operating  loss
carryforwards,  and are  measured  using  enacted  tax  rates  and laws that are
expected to be in effect when the differences are reversed.



                                        8

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<PAGE>
<TABLE>
<CAPTION>


                      UTILICRAFT AEROSPACE INDUSTRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2007

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED

Net loss per share
------------------

Basic net loss per share is computed  based upon the weighted  average number of
common  shares  outstanding  during  the  periods,   adjusted  for  contingently
returnable  shares  (see Note 7) and is  computed  by  dividing  net loss by the
adjusted weighted average number of shares during the periods.  Diluted net loss
per share is based upon the weighted average number of common shares outstanding
during the periods, adjusted for contingently returnable shares, plus the number
of incremental shares of common stock contingently issuable upon the exercise of
the  outstanding  warrants,  (Notes 5 and 7).  No effect  has been  given to the
potential exercise of the warrants because their effect would be anti-dilutive.

Basic net loss per share has been computed as follows:

                                                                  Six Months          Six Months
                                                                    Ended               Ended
                                                                June 30 , 2007      June 30, 2006
                                                              ------------------- -------------------
<S>                                                           <C>                 <C>

Net loss                                                      $        (972,657 ) $       (933,8013 )
                                                              =================== ===================

Weighted average common shares outstanding                           215,570,489         213,111,736
Less - weighted average contingently returnable shares               (56,908,932)        (59,037,550)
                                                              ------------------- -------------------
Adjusted weighted average for basic net loss per share               158,661,557         154,074,186
   computation
                                                              =================== ===================
Basic net loss per share                                      $           (0.01 ) $           (0.01 )
                                                              =================== ===================
</TABLE>


Engineering, research and development
-------------------------------------

The Company  expenses  engineering,  research and development  costs as they are
incurred.  For the six months  ended June 30, 2007 and the years ended  December
31,  2006 and 2005,  respectively,  and for the  period  from  December  9, 2004
(inception)  through  December  31,  2006,  such costs were  $35,873,  $174,445,
$261,428  and  $475,626,  respectively.  These  amounts  relate to research  and
development of the Company's new aircraft design.

Performance Flight Test Aircraft
--------------------------------

Costs directly related to building the Performance Flight Test Aircraft ("PFTA")
amounting  to $352,928  as of June 30, 2007  include  engineering  design,  wind
tunnel testing and costs associated with the construction of the fuselage.  Upon
completion,  these costs and other costs related to building the completed  PFTA
will be depreciated over the then estimated useful life of the PFTA.


Patents
-------

In December  2004,  the Company  obtained the assignment of rights to three U.S.
patents from its President pursuant to the terms of his "Employment  Agreement."
One patent is for the design of the FF-1080 aircraft. Another is a method patent
that incorporates the design in an integrated air cargo  information  system for
an electronic  freight  tracking  system.  The third patent is for a system that
computes the most economical route segment based on the change in aircraft gross
weight on each segment resulting in better fuel efficiency.

The Company's  access to the patents was obtained from the Employment  Agreement
discussed above with its President,  and were not assigned any value because all
of the costs and obligations incurred in connection with obtaining access to the
patents were not paid to its President but were paid to AMUC,  its  stockholders
and  creditors  aggregating  approximately  $3,519,000  and were expensed at the
reorganization  date of  December  9,  2004 and  reflected  in the  accompanying
financial statements as "Related party reorganization costs."



                                        9

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<PAGE>


                      UTILICRAFT AEROSPACE INDUSTRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2007


3.   TRANSACTIONS WITH AMERICAN UTILICRAFT CORPORATION

The Company was effectively  reorganized  from American  Utilicraft  Corporation
("AMUC")  through the issuance of 111,444,769  Common shares to AMUC and 294,000
common shares issued  directly to AMUC  stockholders,  effective for  accounting
purposes as of December 9, 2004. AMUC  distributed the shares it received to its
stockholders.

AMUC was engaged in the development of the FF-1080-300ER prior to the forming of
UAI. As  consideration  for the release of any claims to the patent rights (Note
2),  the  Company  paid  approximately  $1,146,000  to AMUC or  directly  to its
creditors and assumed  liabilities for deferred  compensation to former officers
and  employees  of AMUC of  approximately  $1,892,000  and debt to an officer of
approximately  $532,000.  Such  amounts have been  reflected  as "Related  party
reorganization costs" in the accompanying  statements of operations as discussed
in Note 2.

Since the Company  acquired  none of the assets of AMUC nor assumed any business
formerly  operated by AMUC, no financial  statements of AMUC are presented.  The
reorganization  transactions  were  accounted for at the fair value of cash paid
and liabilities assumed.

4.   NOTE PAYABLE

The Note  Payable of $142,894 is at no interest  and is due in  installments  as
follows;

              $15,000 on July 5, 2007
              $50,000 on July 31, 2007
              $25,000 on August 15, 2007
              $13,085 on September 15, 2007
              $39,809 within 5 business days of first flight of FPTA or July 3,
                      2008, whichever date comes first.

5.   CAPITAL STRUCTURE DISCLOSURES

The  Company's  capital  structure is not complex.  The Company is authorized to
issue 25,000,000 shares of preferred stock with a par value of $.0001 per share.
The Company is authorized to issue 475,000,000 shares of common stock with a par
value of $.0001 per share.

Preferred stock
---------------
No shares of preferred stock have been issued as of June 30, 2007.

Common stock
------------
Each common  stock share has one voting  right and the right to dividends if and
when declared by the Board of Directors.

Stock options, warrants and other rights
----------------------------------------
As of June 30,  2007,  the Company has not adopted  any  employee  stock  option
plans.

Valuation of stock issued for services
--------------------------------------

Effective May 6, 2005,  the Company  issued  20,000,000  shares to two executive
officers for services rendered in connection with pre-incorporation services and
their agreement to serve as directors.  The shares were valued at $.07 per share
based on shares  issued in  February  and March 2005 for cash at $.10 per share.
Management  of the Company  estimated the value below the cash price of $.10 per
share because the shares  contained no  registration  rights and contain  resale
restrictions.  The  expense  is  reflected  in the  accompanying  statements  of
operations under "compensation and related costs."

In June of 2007, the Company issued 250,000 shares of restricted common stock to
its Vice President and Chief  Financial  Officer as stipulated in his employment
agreement and valued the shares at $0.15 per share.

In June of 2007, the Company issued 500,000 shares of restricted common stock to
a consulting  firm for advisory and investment  banking  services and valued the
shares at $0.15 per share.


                                       10

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<PAGE>
<TABLE>
<CAPTION>


                      UTILICRAFT AEROSPACE INDUSTRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2007


5.   CAPITAL STRUCTURE DISCLOSURES -CONTINUED


Warrants
--------

A summary of all the Company's warrants  outstanding at June 30, 2007,  December
31, 2006 and 2005,  respectively  and the changes during the years then ended is
presented in the following table.



                                                    AMUC                       Related
                                                Stockholders   PacifiCorp       Party         Total
                                                -----------   -----------    -----------   -----------
<S>                                             <C>           <C>            <C>           <C>

Warrants outstanding, December 31, 2004         17,287,664          --             --      17,287,664

   Issued                                             --      60,000,000           --      60,000,000
                                               -----------   -----------    -----------   -----------

Warrants outstanding, December 31, 2005         17,287,664    60,000,000           --      77,287,664

   Issued                                             --            --        1,084,388     1,084,388

   Exercised                                          --      (2,502,960)          --      (2,502,960)

                                               -----------   -----------    -----------   -----------
Warrants outstanding, December 31, 2006         17,287,664    57,497,040      1,084,388    75,869,092

    Issued                                         250,000       250,000

   Exercised                                          --        (750,000)          --        (750,000)
                                               -----------   -----------    -----------   -----------

Warrants outstanding, June 30, 2007             17,287,664    56,747,040      1,334,388    75,369,092
                                               ===========   ===========    ===========   ===========

</TABLE>


As of June 30,  2007,  the  Company  has  outstanding  warrants  issued  to AMUC
stockholders that are exercisable to purchase 17,287,664 shares of the Company's
common stock at prices  ranging from $.10 to $5.00 per share.  All such warrants
expire in January  2008.  See Note 7 for a  description  of  warrants  issued in
connection with a financing  agreement to purchase  60,000,000  shares of common
stock.

In January and March 2006, the Company agreed to issue warrants to its President
to purchase 897,416 and 186,972, respectively, shares of common stock in lieu of
paying interest and for  consideration  of default risk on the additional  loans
made to the Company during 2005 and 2006 (Note 8). The warrants are  exercisable
at $1.00 per share over three years from January 15, 2006 and March 31, 2006.

In March of 2007,  the Company  issued  warrants  its Vice  President  and Chief
Financial Officer 250,000 warrants to purchase 250,000 shares of common stock as
part of his  employment  agreement.  The  warrants are  exercisable  at $.50 per
share.

6.   INCOME TAXES

The Company accounts for corporate income taxes in accordance with SFAS No. 109,
Accounting  for  Income  Taxes.  Under  SFAS No.  109,  deferred  tax assets and
liabilities   are   recognized  for  the  estimated   future  tax   consequences
attributable to differences  between the financial statement carrying amounts of
existing  assets and  liabilities  and their  respective tax bases. In addition,
future tax benefits,  such as those from net operating loss carry forwards,  are
recognized to the extent that  realization  of such benefits is more likely than
not.  Deferred tax assets and  liabilities  are measured using enacted tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.

                                       11

--------------------------------------------------------------------------------

<PAGE>
<TABLE>
<CAPTION>


                      UTILICRAFT AEROSPACE INDUSTRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2007


6.   INCOME TAXES - CONTINUED

At June 30, 2007,  December 31, 2006 and December 31, 2005,  the Company's  only
deferred tax assets are offset by a valuation allowance, (there were no deferred
tax  liabilities)  which  totaled  approximately   $3,238,000,   $2,912,000  and
$2,335,660,  respectively  (using an anticipated  effective tax rate of 34%) and
was  attributable to its net operting tax loss  carryforwards  of  approximately
$6,920,000  incurred since  inception.  These operating  losses expire from 2024
through 2026.

A reconciliation  of income tax expense at the statutory  federal rate of 34% to
income tax expense at the Company's effective tax rate is as follows:

                                                                                        Period From
                                            Six Months                                 December 9,
                                              Ended       Year Ended     Year Ended       2004
                                              June        December        December    (Inception) to
                                               30,           31,            31,          June 30,
                                              2007          2006           2005           2007
                                           ---------    -----------    -----------    -----------
<S>                                        <C>          <C>            <C>            <C>

Tax benefit computed at statutory rate     $326,0000    $   577,000    $ 1,116,000    $ 3,238,000

Increase in valuation allowance             (326,000)      (577,000)    (1,116,000)    (3,238,000)

Net Change                               $      --      $      --      $      --      $      --

</TABLE>


7.   COMMITMENTS AND CONTINGENCIES

Funding commitment
------------------
The Company  entered  into a financing  agreement  (the  "Agreement")  effective
September 12, 2005 with  PacifiCorp  Funding  Partners Trust  ("PacifiCorp")  to
provide  equity  financing  of  a  minimum  of  $40,000,000  and  a  maximum  of
$80,000,000  through  the  exercise  of  warrants  for  the  purchase  of  up to
60,000,000 shares. The terms of the warrants are as follows:

     (i)  Warrants for the purchase of 20 million shares are exercisable at $.50
          per share for a period of 360 days after  execution  of the  Agreement
          (the  exercise  period has been  extended to September 30, 2007 by the
          Company);

     (ii) Warrants  for the  purchase of 30 million  shares are  exercisable  at
          $1.50  per  share  for a period  of 540 days  after  execution  of the
          Agreement (the exercise period has been extended to September 30, 2007
          by the Company);

     (iii) And,  warrants for the purchase of 10 million shares are  exercisable
          at $2.50 per share for a period  of 720 days  after  execution  of the
          Agreement.

As consideration for PacifiCorp's funding efforts, the Company and two executive
officers  collectively  agreed to contribute a total of  80,000,000  shares (the
"PacifiCorp  Shares") of restricted  common stock of the Company to  PacifiCorp.
The PacifiCorp  Shares  consist of 60,584,260  common shares newly issued by the
Company  to  PacifiCorp   (these  shares  are  considered   legally  issued  and
outstanding and are entitled to full voting rights and dividends,  provided that
in the event PacifiCorp fails to meet its funding obligations and the subsequent
return of any portion of the shares, PacifiCorp will have an obligation to repay
any  dividends on returned  shares),  and a total of  19,415,740  common  shares
personally transferred to PacifiCorp from the two executive officers.

In the event that PacifiCorp fails to exercise  warrants  sufficient to generate
the minimum funding ($40,000,000) within 540 days following the execution of the
Agreement (effectively, March 6, 2007), extended by the Company to September 30,
2007, upon demand,  PacifiCorp will be obligated to return all of the PacifiCorp
Shares to the Company and return all  unexercised  warrants for  cancellation or
resale. The Agreement allows the parties to renegotiate the terms of exercise of
the  warrants,  whether  as to  exercise  price or  period,  in the event of the
establishment of a public market for the Company's common stock.



                                       12

--------------------------------------------------------------------------------

<PAGE>


                      UTILICRAFT AEROSPACE INDUSTRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2007


7.   COMMITMENTS AND CONTINGENCIES - CONTINUED

The 60,584,260 new PacifiCorp Shares issued by the Company were not valued under
the provisions of SFAS 123R since there is no performance  commitment other than
to return  the  shares.  The  value of the  above  warrants  was  determined  by
management to be insignificant  and,  accordingly,  no value was assigned to the
warrants.  Any  shares  returned  by  PacifiCorp  due  to  failure  to  exercise
sufficient warrants to generate the minimum funding will be returned pro-rata to
the Company and the executive  officers.  Though  PacifiCorp may be obligated to
return the PacifiCorp  Shares,  upon obtaining  authorization from an Officer of
the Company,  it is authorized  to transfer such shares to third parties  during
the period the Agreement  remains in effect.  Because the new PacifiCorp  shares
are contingently returnable until the minimum funding of $40,000,000 is reached,
all unearned shares as of December 31, 2006 (58,363,129 common shares) have been
excluded from the weighted  average  common  shares used in computing  basic net
loss per share until all necessary  conditions  have been  satisfied or when the
shares are no longer returnable.

During the year ended December 31, 2006,  PacifiCorp  transferred funds totaling
$1,466,439 to the Company for exercise of warrants for the purchase of 2,502,960
shares at an  exercise  price of $.50 per share.  Notwithstanding  the fact that
PacifiCorp has only paid for the purchase of 2,502,960 shares as of December 31,
2006, it has requested and obtained transfer of a total of 5,078,160  PacifiCorp
Shares to third parties.  Since the Company has not retained a security interest
in the  PacifiCorp  Shares and  retains no right to demand  return of the shares
from a third  party in the event  PacifiCorp  defaults  on its  minimum  funding
obligations as of December 31, 2006, the Company has recognized 2,221,131 of the
60,584,260  PacifiCorp Shares  transferred as "earned." In addition,  711,829 of
the 19,415,740  previously issued and outstanding shares personally  transferred
by the two executive officers, have also been considered as "earned."

During the six months ended June 30, 2007, PacifiCorp transferred funds totaling
$160,000  to the Company for  exercise of warrants  for the  purchase of 320,000
shares  at an  exercise  price of $.50 per  share.  The  Company  is also in the
process of issuing  PacifiCorp  430,000 shares for exercises in 2006. As of June
30, 2007 PacifiCorp has acquired a total of 5,918,960  shares by the exercise of
3,252,960  warrants and the sale of  2,666,000  its shares for  $800,100,  which
shares were issued to  PacificCorp  under this  funding  agreement  as set forth
above. PacifiCorp made the decision to have the $800,100 come to the Company for
production of the Performance Flight Test Aircraft and since the shares were not
originally valued the $800,100 was added to the Company's  additional capital as
these shares  relate to the funding  commitment.  Notwithstanding  the fact that
PacifiCorp  has  acquired  the  5,918,960  shares  as set  forth  above,  it has
requested  and obtained  transfer of a total of 7,744,160  PacifiCorp  Shares to
third  parties in the  process  of acting on its  funding  agreement.  Since the
Company  has not  retained  a security  interest  in the  PacifiCorp  Shares and
retains no right to demand  return of the shares from a third party in the event
PacifiCorp  defaults on its minimum funding obligations as of June 30, 2007, the
Company has recognized 3,675,328 of the 60,584,260 PacifiCorp Shares transferred
as "earned." In addition,  1,177,872  of the  19,415,740  previously  issued and
outstanding shares personally  transferred by the two executive  officers,  have
also been considered as "earned."

The Company protects its rights with respect to return of the PacifiCorp  Shares
(in the  event  PacifiCorp  fails to meet its  minimum  funding  obligation)  by
maintaining  control over the certificates  representing  PacifiCorp Shares that
are  registered in the name of PacifiCorp  (i.e.,  the shares that have not been
transferred  to third parties) as well as any shares issued upon the exercise of
the warrants in the name of PacifiCorp  ("PacifiCorp Warrant Shares").  As such,
the Company is effectively  able to insure that  PacifiCorp will be able to meet
share  return  obligations  in the event it is unable  to meet  minimum  funding
obligations under the Agreement.

Operating leases
----------------
The Company is presently obligated under several operating leases.

Ground Lease,  City of Albuquerque,  New Mexico This lease,  effective March 31,
2005, is for the Company's future primary operations and manufacturing facility.
The City of  Albuquerque  has agreed to abate  certain  portions  of the monthly
rentals  until the end of the  initial  five year  lease in  January  2010.  The
abatement  results  in 100% of the  first  year's  rent and 50% of the next four
years' rent to be deferred  until January 2010, at which time,  the abated rent,
aggregating  $144,000,  will be due and  payable.  During  the first year of the
lease,  abated monthly rentals of $4,000 were accrued. In April 2006, the abated
monthly rentals were reduced to $2,000 per month. This abated rent obligation is
reflected  in the  accompanying  balance  sheet as "Deferred  rent  obligation."
During the six months ended June 30, 2007 and the years ended  December 31, 2006
and 2005,  respectively,  the Company  recorded rent expense under this lease of
$24,000, $48,000 and $48,000, respectively.

At the end of the initial  five year period,  the lease  provides for changes in
the annual rent during each successive  five year period  throughout its 20 year
term based on changes in the fair market value of the underlying land.

                                       13

--------------------------------------------------------------------------------

<PAGE>


                      UTILICRAFT AEROSPACE INDUSTRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2007



7.   COMMITMENTS AND CONTINGENCIES - CONTINUED

Office Space Lease, Plaza II Executive Center
---------------------------------------------

The Company entered into a Lease Agreement with Plaza II Executive Center,  Inc.
on July 25, 2005.  Pursuant to the Lease  Agreement the Company leased 1,500 sq.
ft. of office space located at 125 Lincoln Avenue, Suite 400, 125 Lincoln Plaza,
Santa Fe, New Mexico for an initial term of eight (8) months beginning on August
1, 2005 and  ending on March 1,  2006.  The  lease  was  automatically  extended
pursuant to its terms to July 31, 2007 and was amended to extend the term of the
lease to July 31,  2008.  Pursuant to the  amendment,  the  monthly  rent on the
extended  lease is $2,465  and the lease  provides  for a  minimum  $50  monthly
support service charge, and a $10 per month, per person, kitchen fee.

Hanger Lease, City of Albuquerque, New Mexico
---------------------------------------------

This lease is for  temporary  space until the  Company's  permanent  facility is
constructed as discussed  above.  Monthly rentals are $3,600 on a month-to-month
basis beginning March 1, 2006. During the six months ended June 30, 2007 and the
year ended  December 31, 2006,  the Company  recorded  lease  expense under this
lease of $21,600 and $50,699, respectively.

Aircraft Lease, Related Party, J.D. Aero, LLC
---------------------------------------------

The Company  leases an aircraft  from a company  wholly  owned by the  Company's
President.  The lease is for five year term with  monthly  payments  of  $2,500.
During the six months ended June 30, 2007 and the years ended  December 31, 2006
and 2005 and for the period from December 9, 2004  (inception)  through December
31,  2006,  the  Company  recorded  rent  expense  under this lease of  $15,000,
$30,000, $21,478 and $66,478, respectively.

In April 2006, the Company paid $25,489 for  electronics  that were added to the
aircraft for testing purposes for the FF-1080.  Under terms of the lease,  these
additions remain the property of J.D. Aero, L.L.C.

The following is a schedule of future minimum rental payments required under the
above long-term operating leases for the next five calendar years:

                         Year             Amount
                         -------------- -----------


                         2007              $41,050
                         2008               95,605
                         2009               78,000
                         2010               63,000
                                        -----------
                                        $  277,655
                                        ===========


Purchase commitments
--------------------

Once  production  of  the  Company's  prototype  aircraft  commences,   purchase
commitments  will consist  primarily of  agreements  for raw materials and parts
needed in the Company's aircraft manufacturing operations.

The Company estimates it will spend  approximately  $15,000,000 over the next 12
months for its  Performance  Flight  Test  Aircraft  ("PFTA"),  engineering  and
general and administrative expenses, and FAA Part 25 Type Certification.

An  engineering  contract  for the wing design and a wind tunnel is in place for
approximately  $325,000, of which approximately  $270,235, has been paid through
June 30, 2007,  and $183,085 is reflected in  "Performance  flight test aircraft
and Prototypes for design aircraft" assets on the accompanying balance sheet.

Executive compensation
----------------------

The Company is obligated  under the terms of  employment  contracts for seven of
its executive officers.  The terms of the contracts are generally five years and
provide for annual salaries of $95,000 to $300,000 each. The annual compensation
for these seven executive officers aggregates approximately $1,120,000.

                                       14

--------------------------------------------------------------------------------

<PAGE>


                      UTILICRAFT AEROSPACE INDUSTRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2007


7.   COMMITMENTS AND CONTINGENCIES - CONTINUED

The contracts  provide for substantial  increases based on certain future events
that, if achieved by the Company,  would raise the aggregate annual compensation
to approximately $1,500,000, subject to inflation adjustments.

The  contracts  also provide for bonuses  based on certain  numbers of aircrafts
sold in the future.  Certain  officers  may earn a bonus based on rates  varying
from (1)/16 of 1% to 3% of the aircraft's selling price.

The employment  agreement for the President of the Company also provides that he
will  receive a bonus  equal to 4% of the "net  profits,"  as  defined,  in each
fiscal year.

If there is a change in control,  of the  Company,  as defined,  each officer is
subject to significant  severance benefits,  which provide,  among other things,
for ten times then current salary, allowance to surrender stock options, receive
health  benefits for two years and to pay legal expenses to defend the officer's
contract up to $250,000 each.

Royalties to officer/founder
----------------------------

As part of the  consideration for transferring use of the patents to the Company
that are owned by the  President,  in December  2004,  the Company agreed to pay
royalties in the amount of 3% of the  Company's  gross  proceeds on all sales of
the FF-1080  Series of aircraft to its  President.  Such  royalties  are payable
within  thirty days of receipt  for  payments on such  aircraft.  Royalties  are
payable on the first 2,000 aircraft sold by the Company.

Pursuant to the  employment  agreement of the President,  if it expires  without
renewal or is terminated  for any reason except one that would cause  revocation
of the patent assignments, the Company may continue the development, manufacture
and sale of the FF-1080 Series of aircraft  subject to the payment of additional
royalties  equal to 3% of the  gross  sales of the  products.  This  would be in
addition to the royalties payable that are discussed above.

8.   RELATED PARTY TRANSACTIONS

As  discussed  in Note 3, the  Company  assumed  the  obligation  for  loans and
advances made to AMUC by J.D. Aero, LLC ("Aero") and the Company's President, of
$532,000. As of June 30, 2007, these loans and advances,  which bear interest at
4% and are unsecured,  aggregated $416,069,  plus accrued and unpaid interest of
$59,102,  and are  reflected  in "Loans and  advances  from  related  party" and
"Accrued interest, related party" on the accompanying balance sheet. For the six
months ended June 30, 2007,  and the years ended  December 31, 2006 and 2005 and
the period from  December 9, 2004  (inception)  to December 31,  2006,  interest
expense  of  $10,228,  $30,393,  $23,199  and  $63,820,  respectively,  has been
reflected in the accompanying statements of operations.

In January and March 2006, the Company agreed to issue warrants to its President
to purchase 897,416 and 186,972, respectively, shares of common stock in lieu of
paying interest and for  consideration of default risk on the advance portion of
the loans,  which were $317,841 at the  conversion  date (Note 4).  Accordingly,
accrued  interest of $3,378 has been  included  in  additional  paid-in  capital
during the year ended December 31, 2006.  The warrants are  exercisable at $1.00
per share over three years from January 15, 2006 and March 31, 2006.

In March of 2007,  the Company  issued  warrants to its Vice President and Chief
Financial Officer 250,000 warrants to purchase 250,000 shares of common stock as
part of his  employment  agreement.  The  warrants are  exercisable  at $.50 per
share.

In June of 2007, the Company issued 250,000 shares of restricted common stock to
its  Vice  President  and  Chief  Financial  Officer  as part of his  employment
agreement and valued the shares at $0.15 per share.

9.   SUBSEQUENT EVENTS

On August 6, 2007,  the  Company  signed a purchase  agreement  with Mid America
Aero,  LLC  for 10 of  the  Company's  FF-1080-200  aircraft  for  $115,000,000,
including  $5,000,000  of spare parts,  with  progress  payments to begin within
sixty (60) days from the date that the Company  completes  "First Flight" of the
FF-1080  prototype  aircraft and  completed the  development  necessary to begin
production of the Purchaser's aircraft.  The Company will record the sale on its
books at the time progress payments begin.

                                       15

--------------------------------------------------------------------------------

<PAGE>


Item 2. Management's  Discussion and Analyses of Financial Condition and Results
        of Operation


The following  discussion  should be read in conjunction  with our  consolidated
financial  statements  provided in this annual  report on Form  10-KSB.  Certain
statements contained herein may constitute forward-looking statements within the
meaning  of  the  Private  Securities  Litigation  Reform  Act  of  1995.  These
statements involve a number of risks, uncertainties and other factors that could
cause actual results to differ materially, as discussed more fully herein.

The  forward-looking  information  set forth in this annual  report is as of the
date of this filing,  and we undertake no duty to update this information.  More
information about potential factors that could affect our business and financial
results is  included  in the  section  entitled  "Risk  Factors"  of this annual
report.

The budget for  completion of the PFTA and FAA  certification,  both in time and
money, is largely based on the availability of funds. If we are unable to obtain
required funding on a timely basis,  both these budgets will likely be exceeded,
and it will cost more and take longer to accomplish these tasks.

Overview

We are a development  stage research and development  company with no product to
sell, no revenue  stream,  significant  operating  losses and negative cash flow
from  operations.  The  Company  has  incurred  net losses  from  operations  of
$9,580,732  for the period  from  inception  to June 30,  2007.  Our  ability to
continue as a going  concern is subject to sales of stock,  the  vagaries of the
market for our stock and various other  factors.  There is no assurance  that we
can continue as a going concern.

Our plan is to focus on completing the PFTA and expediting the  certification of
the  FF-1080-200 in furtherance of our goal to bring the aircraft to market.  We
expect these tasks and processes will cost approximately $51,000,000, and take a
minimum  of 24  months.  We  anticipate  that the PFTA will  cost  approximately
$11,000,000,  and  that  Phase  I and  Phase  II  FAA  certification  will  cost
approximately  $40,000,000.  We  expect to  continue  to fund  these  operations
through private-placement sales of common stock and/or warrants.

Phase I will include the development of the  certification  plan,  filing of the
certification application, certification of the detailed production engineering,
construction   of  the  static  test  articles  and  the   conformity   aircraft
subassemblies,  and initial flight tests using the prototype aircraft. Phase II,
which will begin 6 months  after  commencement  of Phase I, will  include  final
assembly of the conformity aircraft, certification flight-testing and receipt of
final FAA Part 25 Type Certification.

To implement the  foregoing  time  schedule,  we expect to complete the detailed
engineering of the PFTA and to construct the aircraft during the first 12 months
of the plan. The PFTA will be a pre-certified, non-production aircraft that will
be built under the regulations for experimental aircraft.

Upon  completion of the detailed CAD  engineering  of the PFTA, we will initiate
the FAA Part 25 Type Certification program, which is anticipated to be completed
over a 24 month period. We have completed  approximately 80% of our detailed CAD
engineering, and can finish this work within two months, pending availability of
funds.

Our  business  plan calls for the  completion  of up to 36  aircraft  during the
period in which are obtaining the FAA Part 25 Type  Certification,  depending on
customer orders;  that is to say we could deliver our first production  aircraft
and begin  recognizing  revenues  immediately upon obtaining  certification.  We
would  finance  building  these  type-conforming   aircraft  through  production
progress payments from customers in accordance with standard industry practices.
Though we have no firm orders  secured as of the date of this report,  we expect
to begin obtaining orders during the Part 25 Type Certification process.

Notwithstanding  the anticipations  and estimates set forth in this section,  it
should be noted that the timeline for the development stages has been and may be
further  delayed  due  to  lack  of  funding,  the  timing  of FAA  reviews  and
certification, or other factors..

We  continue  to  pursue  various  direct  sales  initiatives  with  prospective
customers.  Our current focus is on the international  market,  where we believe
buyers would be willing to begin committing  funds to eventual  purchases of our
planes  earlier than their  domestic  counterparts.  Our current  marketing  and
customer-development  program is aimed at  securing  orders for the  FF-1080-200
aircraft.  The Company has imposed threshold requirements for parties seeking to
qualify as distributors.  Prospective  distributors must demonstrate  sufficient
finances and business operating history (current  financial  statement) to prove
that they are viable  on-going  and solvent  companies,  and are able to support
their current and future aerospace business or MRO operations.





                                     - 16 -

--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>


Results of Operations

Six and Three Months Ended June 30, 2007  Compared to Six and Three Months Ended
June 30, 2006.

     Net sales. The Company remains in the development stage and has not had any
sales since its inception date of December 9, 2004.

     Operating  expenses.  The  Company  remains  in the  development  stage its
operating  expenses  consisting  of  compensation  related  costs,  general  and
administrative expenses,  engineering,  research and development for the six and
three  months  ended  June 30,  2007 and  2006 are  comparative  for each of the
periods as indicated in the following summary:

                                          Three             Three
                                          Months            Months          Six Months       Six Months
                                          Ended             Ended             Ended            Ended
                                      June 30, 2007     June 30,2006      June 30, 2007    June 30, 2006
                                        ---------         ---------         ---------        ---------
<S>                                     <C>               <C>               <C>              <C>

Compensation related  costs             $306,663          $264,602          $575,263          $461,554


General and Administrative Expenses      202,550           193,341           311,484           362,355


Engineering, Research and Development     18,649            78,057            35,873            93,526


Interest Expense                          44,591             8,288            50,037            16,366
                                        --------          --------          --------          --------



Total Operating Expenses                $572,453          $544,288          $972,657          $933,801
                                        ========          ========          ========          ========

</TABLE>

     The  Compensation  related  costs  increased as the Company  increased  its
management  staff in preparation for the building of the FF-1080  prototype plan
and the related marketing efforts.

     The General  and  Administrative  Expenses  increased  primarily  due to an
increase of $65,000 in corporate expenses.

     Interest expense  increased for the periods in 2007 as compared to 2006 due
to the interest  charges on the wind tunnel  agreement with Analytical  Methods,
Inc.

     Net  Result.  As the  result of the  Company  not  having any sales for the
periods,  our net loss for the six months  ended June 30,  2007 and 2006 and the
three  months  ended June 30,  2007 and 2006,  respectively,  equaled  the total
operating expenses for the periods as set forth in the tables above.

Liquidity and Future Capital Requirements

Since  inception we initially  funded  operations  from  proceeds from a private
placement.  We were initially  capitalized with approximately  $2,000,000 raised
from a private  placement  offering  of  20,000,000  shares  of common  stock on
January  19,  2005,  and  have  received  approximately  $2,400,000  million  in
additional subscriptions or for exercise of warrants since then.

We will require approximately $15,000,000 to sustain operations over the next 12
months,  which includes PFTA engineering and construction costs of approximately
$11,000,000 and general and administrative expenses of approximately $3,000,000.
The  balance  will be  reserved  for  contingency  items  that may occur in this
process.  Budgeted  amounts not spent due to cost-savings  and additional  funds
received  by the  Company  will  be  allocated  to  initiate  FAA  Part  25 Type
Certification.  We cannot satisfy our current cash requirements  without raising
additional funds through our agreement with PacifiCorp Funding Partners Trust or
obtaining debt or equity financing through other qualified lenders or investors.

We entered into an Amended Master Financing Agreement (referred to herein as the
"PacifiCorp Agreement") Between PacifiCorp Funding Partners Trust and Utilicraft
Aerospace  Industries,  Inc. effective as of September 12, 2005. Pursuant to the
terms  of  the  PacifiCorp   Agreement,   PacifiCorp   Funding   Partners  Trust
("PacifiCorp"),  a trust formed under the laws of the Republic of Mauritius  has
agreed to  potentially  provide  a  minimum  of  $40,000,000  and a  maximum  of
$80,000,000  in  financing  through the  exercise of warrants  (the  "PacifiCorp
Warrants")  granted to PacifiCorp for the purchase of up to 60,000,000 shares of
our common stock. The PacifiCorp Agreement provides that PacifiCorp will utilize
its best efforts to provide funding but does not obligate PacifiCorp to exercise
any of the PacifiCorp Warrants.  The PacifiCorp Warrants consist of (1) warrants
for the  purchase of  20,000,000  shares of common stock at a price of $0.50 per
share,  exercisable  for a period  of 360 days  (the  exercise  period  has been
extended by the Company to September 30, 2007); (2) warrants for the purchase of
30,000,000 shares of common stock at a price of $1.50 per share,


                                      -17-
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exercisable  for a period of 540 days (the exercise  period has been extended by
the  Company to  September  30,  2007);  and (3)  warrants  for the  purchase of
10,000,000 shares of common stock at a price of $2.50 per share, exercisable for
a period of 720 days. The PacifiCorp Agreement expressly states that the parties
reserve the right,  without obligation,  to renegotiate the terms of exercise of
the PacifiCorp Warrants, whether as to exercise price or period, in the event of
the  establishment  and based on the  condition  (price and  volume) of a public
market for our common  stock.  In addition,  the Company,  John Dupont and Darby
Boland  collectively  agreed to  contribute  a total of  80,000,000  shares (the
"PacifiCorp  Shares") of restricted  common stock of the Company to  PacifiCorp.
The PacifiCorp  Shares consist of 60,584,260 shares newly issued by the Company,
11,660,000  shares  contributed and transferred by John Dupont  personally,  and
7,755,740  shares  contributed and transferred by Darby Boland  personally.  The
PacifiCorp  Trustee is entitled to exercise full voting  rights  relating to the
PacifiCorp  Shares.  In the event that PacifiCorp  fails to exercise  PacifiCorp
Warrants sufficient to generate the minimum funding (i.e., $40,000,000) provided
for in the  PacifiCorp  Agreement  within  540  days  following  execution  (the
exercise  period has been  extended  by the  Company  to  September  30,  2007),
PacifiCorp  is obligated  to return the  PacifiCorp  Shares and all  unexercised
PacifiCorp Warrants for cancellation.  Notwithstanding the foregoing obligation,
the PacifiCorp  Agreement allows for transfer of the PacifiCorp  Shares to third
parties  but  provides  that any  transfer  during  the  period  the  PacifiCorp
Agreement is in effect requires a counter-party signature from an Officer of the
Company.  No security  interest in the PacifiCorp Shares is reserved pursuant to
the  PacifiCorp  Agreement,  and absent any  subsequent  agreement  between  the
parties with respect to resale of the PacifiCorp  shares, the Company retains no
right to demand return of the shares from a third party in the event  PacifiCorp
defaults  on its  obligations.  None of the  PacifiCorp  Shares  or shares to be
issued upon exercise of the PacifiCorp Warrants have been registered.

During  the year ended  December  31,  2006,  PacifiCorp  transferred  net funds
totaling  $1,4,66,439 to us for exercise of PacifiCorp Warrants for the purchase
of 2,502,960 shares at an exercise price of $.50 per share.  Notwithstanding the
fact that  PacifiCorp  has only paid for the purchase of 2,502,960  shares as of
December  31,  2006,  it has  requested  and  obtained  transfer  of a total  of
5,078,160 of the PacifiCorp Shares to third parties.

During the six months  ended June 30,  2007,  PacifiCorp  transferred  net funds
totaling $160,000 to us for exercise of PacifiCorp  Warrants for the purchase of
320,000  shares at an exercise  price of $.50 per share.  The Company is also in
the process of issuing  PacifiCorp  430,000 shares for exercises in 2006. During
this period,  PacifiCorp  also sold  2,666,000 of its shares  received  from the
Company as part of its funding  agreement  and elected to have the $800,100 come
directly to the  Company  for the  development  of the  Performance  Flight Test
Aircraft and the Company  added the $800,100 to its  additional  paid in capital
account as the proceeds related to the stock issued to PacifiCorp as part of the
funding agreement.

We protect our rights with respect to return of the PacifiCorp  Shares under the
PacifiCorp  Agreement (in the event PacifiCorp fails to meet its minimum funding
obligation) by maintaining control over the certificates representing PacifiCorp
Shares that are registered in the name of PacifiCorp (i.e., the shares that have
not been  transferred  to  third  parties).  While  we do not have the  right to
recover  shares sold or pledged by  PacifiCorp  to  third-parties,  we do ensure
receipt of funds for Warrant  exercise  prior to permitting  transfers  from the
PacifiCorp  certificates.  Because  we also hold the  certificates  representing
shares  issued  upon the  exercise  of the  PacifiCorp  Warrants  in the name of
PacifiCorp  ("PacifiCorp Warrant Shares"),  we can use these shares to partially
offset our inability to recover  shares held by  third-parties.  While we cannot
have  complete  assurances  as to recovery of all the  PacifiCorp  Shares in the
event it is unable to meet  minimum  funding  obligations  under the  PacifiCorp
Agreement,  we believe that the funds generated by the Warrant exercise provides
us with substantial benefits and that the retention of certificates representing
the  PacifiCorp  Shares  and the  PacifiCorp  Warrant  Shares  provides  us with
adequate assurances and protections.

While PacifiCorp has agreed to provide potential financing,  we do not intend to
stop looking for other means of funding our needs.  Among other things,  we will
continue  to  explore  debt and  equity  financing  from  qualified  lenders  or
investors.  The PacifiCorp  Agreement  contains no  anti-dilution  provisions or
other   restrictions  that  would  prevent  the  Company  from  obtaining  other
financing.  John Dupont has, when  necessary,  personally  loaned the Company or
paid Company expenses to maintain Company operations.

We do not believe that  inflation  has had a material  impact on our business or
operations.

Material Commitments for Expenditures

Depending  on our  ability  to arrange  financing,  we expect to pay one or more
other  aircraft  fabricators  a significant  portion of the amount  budgeted for
construction  and  assembly  of the PFTA  during the next 12 months.  We have an
agreement  with  Metalcraft  Technologies,  Inc.,  but it is  non-exclusive  and
requires us to agree to several material terms,  including  pricing and delivery
schedules,  such that we have the  flexibility  to choose the fabricator we deem
best suited to our work.  At June 30, 2007 the Company has  advanced  Metalcraft
$100,000 towards the purchase of materials for manufacturing  the fuselage.  See
"Liquidity and Future Capital  Requirements" section above for details regarding
our plans to finance  such  expenditures.  In  addition,  apart from our current
lease  obligations  for the hangar and assembly  facility at Double  Eagle-II in
Albuquerque,  New Mexico,  we expect to spend between  $200,000 and $400,000 for
leasehold  improvements  to our  facilities  to make  them  suitable  for  final
assembly of the aircraft. See

                                      -18-

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"DESCRIPTION OF PROPERTY" section below. Additionally,  we have committed to pay
$323,276 to Analytical  Models,  Inc. for  construction of the wind tunnel model
and related  engineering and testing, of which we have paid a total of $270,235.
We have also contracted with D3 Technologies,  Inc. ("D3") to provide structural
analysis and design integration services. The services to be provided by D3 will
total approximately $137,750; we have paid $52,563 for work done to date.


Going Concern

Due to our continuing to be a development stage company and not having generated
revenues, in their Notes to our financial statements for the year ended December
31, 2006, our independent  auditors included an explanatory  paragraph regarding
concerns about our ability to continue as a going concern.

The continuation of our business is dependent upon obtaining  further  financing
and achieving a break even or profitable  level of  operations.  The issuance of
additional equity securities by us could result in a significant dilution in the
equity interests of our current or future stockholders.

There are no  assurances  that we will be able to either (1)  achieve a level of
revenues  adequate  to generate  sufficient  cash flow from  operations;  or (2)
obtain additional financing through either private placements,  public offerings
and/or bank financing necessary to support our working capital requirements.  To
the extent that funds  generated  from  operations  and any private  placements,
public offerings and/or bank financing are  insufficient,  we will have to raise
additional working capital. No assurance can be given that additional  financing
will be  available,  or if  available,  will be on terms  acceptable  to us.  If
adequate working capital is not available we may not increase our operations.

These conditions raise substantial doubt about our ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might be necessary should we be unable to
continue as a going concern.

Off-Balance Sheet Arrangements

We are not a party to any off-balance  sheet  arrangements  and do not engage in
trading activities involving non-exchange traded contracts. In addition, we have
no financial  guarantees,  debt or lease agreements or other  arrangements  that
could trigger a requirement  for an early payment or that could change the value
of our assets.

Description of Property

The  Company  operates  from the Double  Eagle II Airport  in  Albuquerque,  New
Mexico.  We have entered into a Ground Lease with the City of Albuquerque for 10
acres located on the Double Eagle II Airport,  at a rate of $48,000 per year for
the initial five year period and is adjusted  each  successive  five year period
throughout  the 20 year term based on changes  in the fair  market  value of the
land.  The City of  Albuquerque  has  agreed to abate  certain  portions  of the
monthly rentals until the end of the initial five years of the lease, in January
2010. The abatement results in 100% of the first year's rent and 50% of the next
four years' rent to be deferred  until January  2010, at which time,  the abated
rent, aggregating $144,000, will be due and payable.

We plan to construct,  or have constructed for us, a Final Assembly  Facility on
this  property.  The 80,000 sq. ft.  hangar-like  structure  will be designed to
support the planned  production  rate of eight aircraft per month or 96 aircraft
per year.  The  facility is also  expected  to include  26,000 sq. ft. of office
space.  A second  100,000 sq. ft.  facility  may also be  constructed  to handle
future  increased  production  rates. We intend to perform the final assembly of
all of the  FF-1080-200  aircraft in New Mexico.  Our Quality  Assurance  flight
testing  program  will be  conducted  at the  planned  facility  in New  Mexico.
Additionally our customer on-site  engineering  employees will be housed at this
facility as well as the final customer flight test and Final Delivery inspection
personnel.

In the  interim,  we have  also  entered  into a Hangar  Lease  with  the  city,
subsequently  amended by a First Amendment to the Double Eagle II Airport Hangar
Lease (the  original  Hangar  Lease,  as Amended  is  referred  to herein as the
"Amended  Hangar  Lease"),  which  provides for a 14,400 square foot hangar at a
rate of $3,600 per month.  The Amended  Hangar Lease also  provides that we will
pay certain  fees  relating  to  maintenance,  identification  badges and refuse
containment.  The city of Albuquerque  has reserved the right to adjust the rent
annually in an amount  equal to 3% of the previous  years rent.  The term of the
Amended Hangar Lease is month to month, commencing on March 1, 2006.

Additionally,  we have signed a letter of intent with R&D Development,  Inc., an
Illinois corporation, to construct and lease to us a 40,500 square foot assembly
hangar,  and a 15,000 square foot  attached  office  facility to complete  final
assembly of the PFTA and up to two  FF-1080-200  aircraft per month The property
is an industrial park space, with runway access and is adjacent to the hangar we
lease under the Amended Hangar Lease.

                                       19

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The Company entered into a Lease Agreement with Plaza II Executive Center,  Inc.
on July 25, 2005.  Pursuant to the Lease  Agreement the Company leased 1,500 sq.
ft. of office space located at 125 Lincoln Avenue, Suite 400, 125 Lincoln Plaza,
Santa Fe, New Mexico for an initial term of eight (8) months beginning on August
1, 2005 and  ending on March 1,  2006.  The  lease  was  automatically  extended
pursuant  to its  terms to July 31,  2006 and was  amended  on August 1, 2007 to
again extend the term of the lease to July 31, 2008.  Pursuant to the amendment,
the monthly  rent on the extended  lease is $2,465 and the lease  provides for a
minimum $50 monthly  support service  charge,  and a $10 per month,  per person,
kitchen fee.

Risk Factors

We are  subject to a high degree of risk as we are  considered  to be in unsound
financial  condition.  These risks factors include,  but are not limited to, our
limited operating history,  history of operating losses, the inability to obtain
for additional capital,  the failure to successfully expand our operations,  the
competition in the aircraft industry from competitors with substantially greater
resources,  the legal and regulatory  requirements and uncertainties  related to
our  industry,  the loss of key  personnel,  adverse  economic  conditions,  the
classification of our common stock as "penny stock," the absence of any right to
dividends,  the costs  associated with the issuance of and the rights granted to
additional securities,  the unpredictability of the trading of our common stock.
If any one or more occurs,  it could  materially  harm our  business,  financial
condition or future results of  operations,  and the trading price of our common
stock could decline.

For a more detailed  discussion as to the risks related to Utilicraft  Aerospace
Industries,  Inc.,  our  industry and our common  stock,  please see the section
entitled, "Description of Business - Risk Factors," in our Annual Report on Form
10-KSB, as filed with the Securities and Exchange Commission on April 27, 2007.

Impact of Inflation

Management  does not  believe  that  general  inflation  has had or will  have a
material effect on operations.

Critical Accounting Policies and Estimates

     Use of Estimates

The discussion and analysis of the financial condition and results of operations
are based on the  financial  statements,  which have been prepared in accordance
with accounting  principles  generally accepted in the United States of America.
Note 2 of the Notes describes the significant  accounting  policies essential to
the financial statements. The preparation of these financial statements requires
management to make estimates and assumptions that affect the amounts reported in
the  financial  statements  and  accompanying  notes,  some of which may require
revision in future  periods.  Actual results could differ  materially from those
estimates.

We believe the following to be critical accounting policies and estimates.  That
is,  they  are  both  important  to the  portrayal  of the  Company's  financial
condition  and results,  and they require  significant  management  judgment and
estimates about matters that are inherently  uncertain.  As a result of inherent
uncertainty,  there is a likelihood that materially  different  amounts would be
reported under different conditions or using different assumptions.  Although we
believe  that our  judgments  and  estimates  are  reasonable,  appropriate  and
correct, actual future results may differ materially from our estimates.

     Stock Based Compensation

The Company  accounts for equity  instruments  issued to employees  for services
based on the fair value of the equity instruments issued and accounts for equity
instruments  issued  to other  than  employees  based  on the fair  value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably  measurable.  The determined  value is recognized as an expense in
the accompanying statements of operations.

     Contingencies

In the normal course of business,  the Company is subject to certain  claims and
legal  proceedings.  The Company records an accrued  liability for these matters
when an adverse outcome is probable and the amount of the potential liability is
reasonably estimable.  The Company does not believe that the resolution of these
matters will have a material  effect upon its  financial  condition,  results of
operations or cash flows for an interim or annual period.

     Recently Issued Accounting Pronouncements

Recently issued accounting  pronouncements  and their effect on us are discussed
in the notes to the  financial  statements  in our  December  31,  2006  audited
financial  statements that can be found in our Annual Report on Form 10-KSB,  as
filed with the Securities and Exchange Commission on April 27, 2007.


                                      -20-

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Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures

Based on an  evaluation  under the  supervision  and with the  participation  of
management, our principal executive officer and principal financial officer have
concluded  that our  disclosure  controls  and  procedures  as  defined in rules
13a-15(e) and 15d-15(e)  under the  Securities  Exchange Act of 1934, as amended
("Exchange  Act") were effective as of June 30, 2007 to ensure that  information
required  to be  disclosed  by us in  reports  that we file or submit  under the
Exchange Act is (i) recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange  Commission rules and forms and
(ii)  accumulated and  communicated  to our management,  including our principal
executive  officer and principal  financial  officer,  as  appropriate  to allow
timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal  control over financial  reporting  during
the  second  quarter  of  2007,   which  were   identified  in  connection  with
management's  evaluation  required by  paragraph  (d) of rules 13a-15 and 15d-15
under the Exchange Act, that have materially affected,  or are reasonably likely
to materially affect, our internal control over financial reporting.

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings

We are currently not a party to any material pending legal proceeding.

The Company did not make  adequate  provisions  for  withholding  FICA and other
taxes from employee  compensation  during 2005 and 2006 and the six months ended
June 30, 2007, and  anticipates  the total  under-funded  obligation,  including
estimated  interest  and  penalties,  to be  approximately  $437,667.  There are
possible civil and criminal  penalties that may be assessed  against the Company
and its officers unless this shortfall is promptly funded.

Item 2 - Changes in Securities.

Recent Sales of Unregistered Securities

During the  quarter  ending  June 30,  2007,  the  Company  offered and sold the
following  securities  pursuant to  securities  transaction  exemption  from the
registration requirements of the Securities Act of 1933, as amended.

     In June of 2007, the Company  issued  250,000  shares of restricted  common
stock to its Vice  President  and Chief  Financial  Officer as stipulated in his
employment agreement and valued the shares at $0.15 per share.

     In June of 2007, the Company  issued  500,000  shares of restricted  common
stock to a  consulting  firm for advisory and  investment  banking  services and
valued the shares at $0.15 per share.

     In June of 2007, the Company  issued  100,000  shares of restricted  common
stock which were subscribed for at the price of $0.25 per share.

     In the six months  ended June 30, 2007,  the Company has received  $160,000
from PacifiCorp for the exercise of 320,000  Warrants  (320,000  shares) in 2007
and also is in the process of issuing  430,000 shares for warrants  exercised in
2006.

These  securities  that  have  been and will be issued  above  were  issued in a
private  transaction  pursuant to Section 4(2) of the Securities Act of 1933, as
amended,  (the "Securities  Act").  These convertible  securities are considered
restricted  securities  and may not be publicly  resold  unless  registered  for
resale  with  appropriate  governmental  agencies  or  unless  exempt  from  any
applicable registration requirements.

Item 3 - Defaults Upon Senior Securities.

No Response required.

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

No response required.


                                       21

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Item 5 - Other Information.

No response required.


Item 6 - Exhibits and Reports on Form 8K.

31.1      Certification  by Chief Executive  Officer  pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002 *

31.2      Certification  by Chief Financial  Officer  pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002 *

32.1      Certification by Chief Executive Officer pursuant to 18 U.S.C. Section
          1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of
          2002 *


32.2      Certification by Chief Financial Officer pursuant to 18 U.S.C. Section
          1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of
          2002 *


--------------------------------------------------------------------------------


*    Filed herewith

     (b)  Reports on Form 8-K.

On May  11,  2007,  we  filed  a Form  8-K  announcing  the  appointment  of new
independent accountants.

On May 25, 2007, we filed a Form 8-K/A regarding the May 11, 2007 Form 8-K which
announced the appointment of new independent accountants.



                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.


                                          Utilicraft Aerospace Industries, Inc.




Dated:  August 10, 2007                   By:  /s/ John Dupont
                                                --------------
                                               John Dupont
                                               Chief Executive Officer



Dated:  August 10, 2007                   By:  /s/ Randy Moseley
                                               -----------------
                                               Randy Moseley
                                               Chief Financial Officer












                                       22

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