U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    For the Fiscal Year Ended March 31, 2004
                           Commission File No. 0-23339

                            US GLOBAL NANOSPACE, INC.
                 (Name of small business issuer in its charter)

                               Delaware 13-3720542
                (State or other jurisdiction of (I.R.S. Employer
               incorporation or organization) Identification No.)

                      2533 North Carson Street, Suite 5107
                            Carson City, Nevada 89706
                    (Address of principal executive offices)

                     Issuer's telephone number: 775-841-3246

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value

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.
Yes [X]; No [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  or  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. []

Issuer's revenues for its most recent fiscal year:  $140,349

Aggregate  market value of the voting stock held by  non-affiliates  computed by
reference to the price at which the stock was sold, or the average bid and asked
prices  of  such  stock,  as of a  specified  date  within  the  past  60  days:
$16,866,573 as of July 6 , 2004.

Check  whether the issuer has filed all  documents  and  reports  required to be
filed by Section 12, 13 and 15(d) of the Exchange Act after the  distribution of
securities under a plan confirmed by a court. Not applicable

At July 6, 2004, a total of 89,198,219 shares of registrant's  common stock were
outstanding.

Transitional Small Business Disclosure Format (check one):  Yes; [ ] No [X]



<PAGE>

                                TABLE OF CONTENTS
(TO BE ARRANGED AFTER FINAL)

PART I
                                                                            Page

Item 1.   Description of Business                                              1

Item 2.   Description of Properties                                            6

Item 3.   Legal Proceedings                                                    6

Item 4.   Submission of Matters to a Vote of Security Holders                  7

PART II

Item 5.   Market Information                                                   8

Item 6.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                            9

Item 7.   Financial Statements                                        F-1 - F-17

Item 8.   Changes In, and Disagreements with Accountants on Accounting and
          Financial Disclosure                                                18

Item 8A. Controls and Procedures                                              18

PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(a) of the Exchange Act                   33

Item 10.  Executive Compensation                                              34

Item 11.  Security Ownership of
           Certain Beneficial Owners and Management                           34

Item 12.  Certain Relationships and Related Transactions                      35

Item 13.  Exhibits, Lists and Reports on Form 8-K                             36



<PAGE>


PART I

ITEM 1.  DESCRIPTION OF BUSINESS

CORPORATE HISTORY

         US Global Nanospace,  Inc. (referred to in this report as "USGN",  "the
Company",  "we", "us" or "our") is a development stage company with expertise in
the emerging  field of  nanotechnology.  Through March 31, 2004,  the end of our
fiscal year, our operations  included  research and development of our products,
the acquisition and development of intellectual property, designing and building
prototype  materials,  and forming  strategic  partner  alliances for licensing,
manufacturing, and marketing our products.

         We were originally  incorporated in the Province of British Columbia in
1984 as First West Canada  Capital  Corporation,  or FWCC. On December 20, 1993,
FWCC became a Wyoming  corporation.  On December 23, 1993,  FWCC merged into its
wholly owned subsidiary,  FWCC Merger Corp., which was incorporated in the state
of Delaware.

         On November 4, 1992, Caring Products International, Inc. was
incorporated under the laws of the state of Delaware. On December 30, 1993,
Caring Products merged with and into FWCC Merger Corp., and FWCC Merger Corp.
became the surviving corporation. The name of the surviving entity was changed
to Caring Products International, Inc.

         On September 26, 2002, Caring Products International, Inc. changed its
name to US Global Aerospace, Inc.

         As  Caring  Products  International,  Inc.,  USGN and its  subsidiaries
designed a line of proprietary  urinary  incontinence  products with  disposable
liners  that were sold  under the  Rejoice  brand  name in the U.S.,  Canada and
Europe.  Due to a lack of funding necessary to support full retail  distribution
in chain stores and  hospitals,  we closed our marketing  offices and liquidated
our  remaining  inventory.   We  discontinued  all  operations  related  to  the
production,  marketing and sale of our  incontinence  products during the fiscal
year ended March 31, 2001.

         On March 30, 2001, we consummated a private  placement of 90,000 shares
of our common  stock to Raymond  Bills,  a  previously  unaffiliated  accredited
investor.  Mr. Bills paid  $250,000 in  consideration  for the  issuance.  After
giving effect to the transaction and including the 30,563  previously issued and
outstanding  shares of common  stock,  Mr.  Bills  was the  beneficial  owner of
approximately 75% of our issued and outstanding common stock. In connection with
the transaction, Mr. Bills joined our board of directors.  Concurrently, four of
the five  members  of the  board  resigned.  Ian Rice also  joined  the board of
directors, serving as its chairman.

         On May 17,  2002,  we  completed  a share  exchange  with  USDR  Global
Aerospace, Ltd., a Delaware corporation ("USDRGA"), and the USDRGA stockholders.
At the closing,  we issued an aggregate of 20,000,000  unregistered,  restricted
shares of our pre-split common stock to the USDRGA  stockholders in exchange for
all of the issued and outstanding shares of capital stock of USDRGA,  consisting
of an aggregate of 5,000,000 unregistered, restricted pre-split shares of common
stock.  The four to one exchange ratio was determined by taking into account the
fair market  value of USDRGA,  which  included an  evaluation  of the assets and
liabilities  and  management  expertise  of  USDRGA.  USDRGA  stockholders  John


<PAGE>

Robinson and Gerald  Wiener  exchanged  their shares of USDRGA  common stock for
12,000,000 and 8,000,000 pre-split shares of our common stock, respectively.  At
the closing of the share exchange,  Robinson and Wiener owned  approximately 48%
and  32% of our  issued  and  outstanding  pre-split  shares  of  common  stock,
respectively, and USDRGA became our wholly owned subsidiary.

Effective on the closing date, our two officers and directors, Raymond Bills and
Ian Rice, resigned as officers and appointed:

         John Robinson,  the Chairman and Chief Executive  Officer of USDRGA, as
         our Chairman of the Board and Chief Executive Officer;

         Gerald Wiener,  the President and Chief Operating Officer of USDRGA, as
         our President;

         Gaddy Wells, the Secretary of USDRGA, as our Secretary; and

         Julie Seaman,  the Treasurer and Chief Financial  Officer of USDRGA, as
         our Treasurer.

         In addition,  subject to and effective upon  compliance with Rule 14f-1
under  the  Securities  Exchange  Act of 1934,  Rice and Bills  resigned  as our
directors and appointed Robinson,  Wiener,  Wells and Seaman as our new board of
directors. However, effective June 14, 2002, Mr. Wells resigned his positions as
an officer and future  director of USGN,  as well as his positions as an officer
and director of USDGRA, as a result of issues regarding  potential  conflicts of
interest.  Effective  June 17, 2002,  Ms.  Seaman was  appointed as Secretary of
USGN, in addition to being Treasurer and a director of USGN.  Effective July 29,
2002,  Mr.  Wiener  resigned as a director and as President of USGN,  and as the
President and Chief Operating  Officer of USDRGA. As of the date of this report,
the  officers  and  directors  of USGN  are as  follows:  John  Robinson,  Chief
Executive  Officer and Chairman of the Board, and Julie Seaman,  Chief Financial
Officer, Secretary, and Treasurer.

         Effective December 31, 2002, USGN filed a Certificate of Ownership with
the Secretary of State of Delaware  effecting the merger of USDRGA with and into
USGN, and USGN assumed all the assets and liabilities of USDRGA.

         On February 13, 2003, our Board of Directors approved a 3 for 1 forward
split of our common  stock for  stockholders  of record as of February 24, 2003.
The 3 for 1 stock split  became  effective  on March 5, 2003.  Unless  otherwise
specified,  all  references  to the  number of shares and per share data in this
report give effect to this stock split.

          Effective July 21, 2003, US Global Aerospace, Inc. changed its name to
US Global Nanospace, Inc.

          On January 14, 2004,  our Board of Directors  approved an amendment to
the Company's Amended and Restated  Certificate of Incorporation to increase the
authorized  common stock from 100,000,000 to 300,000,000  shares and to increase
the authorized preferred stock from 1,000,000 to 10,000,000 shares.

          On January 21,  2004,  our Board of  Directors  approved and adopted a
Code of Business Conduct and Ethics.


                                       2
<PAGE>

          On June 2, 2004,  our Board of Directors  approved an amendment to the
Company's  Amended and  Restated  2002 Stock Plan (the  "Plan") to increase  the
shares of common stock included in the Plan from 15,000,000 shares to 30,000,000
shares.  The amendment also changed the references in the Plan document from "US
Global Aerospace,  Inc." to "US Global Nanospace,  Inc." and amended Section 7.2
of the Plan so that the calculation of the purchase price of Stock Awards may be
the same for all recipients of such awards.

OUR BUSINESS

         US  Global  Nanospace,   Inc.  is  a  development  stage  company  that
specializes in identifying,  developing,  and commercializing  advanced products
the core technologies of which are primarily nanoscience derived. These products
include  optimized  polymer  and organic  materials  and  nanofibers  to produce
variable threat armor solutions, advanced filtration systems for air, water, and
cigarettes,  biological and chemical  decontaminants,  and blast  mitigation and
fire protection  materials.  We are currently  focusing our efforts on licensing
and marketing the products we have developed for threat reduction and health and
safety  applications.  Our target customers for these materials,  formulas,  and
processes include agencies and/or  organizations under the direct control of the
federal  government of the United  States,  domestic and foreign  businesses and
foreign  government  agencies and/or  organizations,  to the extent permitted by
applicable law or regulation.

OUR PRODUCTS
         Many  of  our  products   incorporate   optimized  polymer  or  organic
nanofibers up to one micron in size. Our products, some of which are still being
developed, include the following:

         o        airborne  pathogen and  allergen  air filter and  purification
                  systems for use in commercial,  industrial  and  vehicle/craft
                  applications;

         o        toxin reducing, biodegradable cigarette filter;

         o        non-toxic,  environmentally  friendly  biological and chemical
                  decontamination  formula for use in  remediation  of terrorist
                  attacks,   industrial   accidents   or   naturally   occurring
                  pathogenic threats;

         o        nanoparticles  and  nanofibers  of  metals,  metallic  oxides,
                  polymers and  organics,  for light  weight  armor  systems and
                  various other applications; and

         o        blast  mitigation and fire blocking or  containment  materials
                  for defense, commercial, and industrial applications.

NANOFILTER (TM) PATHOGEN/ALLERGEN AIR FILTER PURIFICATION SYSTEMS

         The core of USGN's  NanoFilter  technology was initially  developed for
NASA for use during extended crewed space flight applications  lasting in excess
of 120 days,  to  provide  ultra-fine  particulate  matter  air  filtration  and
purification.

          The Nanofilter is comprised of advanced  polymeric  nanofiber combined
with a patented  particle  stimulation  mechanism.  The  result is an  optimized
porous  nanofilter  media that is enveloped with an electronic field causing the
airborne  particulate  matter to move in a churning motion  perpendicular to the
airflow  direction  without   ionization,   thus  significantly   enhancing  the
London/Van der Waals force interaction (a method of intermolecular  attraction),
resulting  in a  super-efficient  air  filtration  and  purification  system  to
effectively  capture  bacteria,   viruses,  smoke,  dust,  odorants,  and  other
sub-micron sized particulate matter.

     Unlike traditional  filter  technologies that rely on ever more restrictive
filter  elements  and reduced  flow rates in order to catch  smaller  particles,
nanofilter  technology provides nearly unrestricted  air-flow,  minimal pressure
drop, and a substantial  increase in energy  efficiency.  Applications  for this
technology currently exist in industrial, commercial, and residential buildings,
as well as mass transit vehicles.  We are currently developing prototype filters
intended for  commercial  and medical  facility  heating,  ventilation,  and air
conditioning applications.


                                       3
<PAGE>

NANOFILTERCX

         NanofilterCX offers a high-efficiency  mechanical  filtration means for
reduction of cigarette smoke toxins. We believe it features pricing  competitive
with  current  common   cigarette   filters,   seamless   integration  into  the
manufacturing process,  easier smoking action,  consistent taste and a reduction
of smoke toxin levels. This ability to filter toxins without impeding smoke flow
or requiring  excessive air dilution  results from the  slip-flow  effect of the
biodegradable  nanofiber  filter medium.  This effect  increases flow across the
filter fiber surface to provide for higher diffusion, interception and retention
of smoke toxins and dangerous  particulate matter without losing desired tobacco
taste.  Other recently developed filter products in the category of Less Harmful
Cigarettes (LHCs) or Reduced-Risk  Cigarettes are  chemical-based  and therefore
require lengthy government  approvals to evaluate any residual ingestion effects
of the  chemical  additives.  Due to its  purely  mechanical  filtering  action,
NanofilterCX  is designed to  eliminate  such  residual  ingested  effect to the
smoker.

         In  addition  to the direct  benefit to  smokers  of  reducing  toxins,
NanoFilterCX  can be  manufactured  from  a  variety  of  polymers  to  optimize
biodegradability, in contrast with alternative filter products.

ALL-CLEAR(TM) CHEM/BIO DECONTAMINATION FOAM

         ALL-CLEAR(TM) is a non-toxic  decontaminant foam for the neutralization
of Chemical and Biological Weapons (CBW) agents and contaminants  introduced via
natural or  industrial  processes.  ALL-CLEAR(TM)  was  developed by TIAX LLC, a
collaborative  product and  technology  development  company based in Cambridge,
Massachusetts.  On July 24, 2003 we entered into a Patent and Technology License
Agreement  with TIAX,  pursuant  to which we  acquired  the  exclusive  right to
produce and market ALL-CLEAR(TM) internationally.

         ALL-CLEAR(TM)  Chem/Bio Decon Foam is an  environmentally  friendly and
non-toxic   decontaminant  that  neutralizes  agents  without  the  harmful  and
potentially   deadly   effects  that  most   chlorine   and   formaldehyde-based
decontamination  agents have on sensitive  apparatus like landing gear and brake
assemblies.

         TIAX developed the non-hazardous,  environmentally  friendly foam under
the sponsorship of the Technical  Support Working Group (TSWG) in 1999. The TSWG
(www.TSWG.gov)  is the  U.S.  government's  national  forum to  rapidly  develop
technologies  and  equipment  to  meet  the  high-priority  needs  of  combating
terrorism.

         Unlike other  decontamination  products that rely on chemical reactions
to oxidize agents,  this two-part product uses an enzyme to selectively  destroy
nerve agents and a biocide mixture to sanitize biological agents. Chem/Bio Decon
Foam's  active  ingredients  are not rapidly  depleted  by  reaction  with other
materials,  such as dirt and grease,  resulting in a long-lasting  product.  The
foam can be  dispensed  using  commonly  available  fire-fighting  equipment  in
addition to numerous readily available commercial applicators.

G-LAM ARMOR SYSTEMS

GARDS(TM)-GUARDIAN(TM) ANTIBALLISTIC REPLACEMENT DOOR SKINS

         The new  Guardian(TM)  Antiballistic  Replacement Door Skin (GARDS(TM))
for the AM General High Mobility Multipurpose Wheeled Vehicle ("HMMWV", commonly
pronounced Hum-Vee) are lightweight and flexible  antiballistic  panels designed
to protect vehicle occupants in elevated-threat locations.

         GARDS(TM)  are  designed to be attached in the field to the interior of
the existing HMMWV  doorframe,  upgrading  threat level  protection to NIJ Level
IIIA or higher,  providing for a radical  increase in protection from small arms
fire,  projectiles,  fragmentation  and shrapnel  when  compared to the original
equipment  fabric doors.  GARDS are designed to be installed in fifteen minutes.
They  weigh  under six  pounds per  panel,  require  no  maintenance  and as the
original  door  structure  and canvas  cover  remain  intact are  intended to be
unnoticeable  from the outside of the vehicle.  GARDS' strength,  durability and
low  weight  is a  result  of US  Global's  G-Lam(TM)  anti-ballistic  material.
G-Lam(TM) is created with a process that results in mechanical  properties that,
to our knowledge, are far superior to common anti-ballistic composite materials.
US Global has  developed  G-Lam(TM)  advanced  materials  specifically  for such
applications.  GARDS are designed to provide  maximum  protection  against small
arms  fire,  fragmentation  and  shrapnel.  G-Lam(TM)  is  also  designed  to be
impervious to petroleum  distillates and to maintain performance at temperatures
in excess of 400 degrees Fahrenheit.


                                       4
<PAGE>

SAVE-A GUNNER (SAG) HUMMVEE TURRET

         The  S.A.G.(TM)  Turret has been  designed  as a  durable,  lightweight
shielded turret for the HMMWV.

         The S.A.G.(TM) Turret weighs  approximately 195 pounds and offers rapid
rotational  capability.  The  S.A.G.(TM)  Turret  is  approximately  4  feet  in
diameter, is designed to interface precisely with military HMMWV rotating turret
rings and is designed to be  installed by two people in less than one hour using
common  hand  tools.  As in other  applications,  USGN's  proprietary  G-Lam(TM)
material  used  in  the  turret  is  designed  to  be  impervious  to  petroleum
distillates and to maintain performance at temperatures in excess of 400 degrees
Fahrenheit. The S.A.G.(TM) turrets are currently being tested by the U.S. Army.

RADOMEX ANTIBALLISTIC AIRCRAFT RADOME

        USGN has developed radomes - a protective  housing for radar antenna for
helicopters. In addition, USGN has developed an antiballistic radome, "RadomeX",
that  is  designed  to be  almost  indestructible  and  to  provide  significant
ballistic  protection to the flight crew,  the radar  equipment and the aircraft
while  allowing  the radar to operate  without  interference.  We are  currently
supplying radomes for the AB412 Series Military  Helicopters to Agusta Aerospace
and Bell Helicopter.

BLAST-X(TM) EXPLOSION MITIGATION MATERIAL

         Blast-X(TM) is a lightweight  blast  mitigation  material  available in
flat  and  conformable  panels.   Blast-X(TM)  integrates  four  distinct  blast
mitigation and containment  technologies  into a single product that is designed
to reduce the risk of death and injury,  preserve  forensic  evidence,  increase
safe working environments and reduce litigation exposure.

         Blast-X(TM) is designed to be an environmentally  safe,  cost-effective
technical  solution for countering the threat of criminal and terrorist  bombing
incidents by  dramatically  reducing shock waves and blast impulse,  suppressing
fireballs and killing  after-burn,  thus significantly  enhancing  protection of
facilities,   structures,   vehicle  and  craft,  and  most  importantly,  their
occupants.  Blast-X(TM)  wallboard  is designed for  original  installation  and
retrofit  in  building  construction  and is easily  installed  using  customary
wallboard installation techniques.

DISTRIBUTION/MANUFACTURING

         We will not  engage  in  manufacturing  the  products  we  develop.  As
products are ordered, we will contract with third parties for their manufacture.
The primary market for our products is the defense  industry,  and we anticipate
that some of our products may  eventually  be sold for  commercial  and consumer
uses. As the market for our products will be worldwide,  manufacturers are being
chosen based on quality, location and price.

        We will continue to use consultants  knowledgeable  in the industries we
target to obtain orders.

COMPETITION

         Nanotechnology  is an  emerging  industry.  We believe  that the global
number  of   development-stage   companies   involved  in  the   development  of
nanomaterials  will  continue to grow.  We believe that most of these  companies
will be engaged  primarily in funded research,  and we are not aware of any that
have commercial production capabilities, however, they may represent competitive
risks in the future.  Some of these development  stage companies,  especially in
other countries, are receiving significant government assistance.

         The manufacture of the products made with nanotechnology is intense. We
face current and potential  competition from companies that develop products for
similar uses, as well as the in-house  capabilities  of several of our potential
customers,  such as the military.  Many of these competitors are larger and more
diversified than we are. Although we believe that our materials and technologies
are superior to other products,  competitive  companies pose risks to us because
they may have substantially  greater financial and technical  resources,  larger
research  and  development  staffs,  and  greater  manufacturing  and  marketing
capabilities.


                                       5
<PAGE>

         We have a continuing  need for skilled and  professional  personnel for
the  research  and  development  of our  products.  The demand for workers  with
specialized  engineering and technical  skills is high and we anticipate that it
will  remain so for the  foreseeable  future.  We will be  competing  with other
companies  with  similar  needs in hiring  skilled  employees,  and we may incur
increased  labor,  recruiting  or  training  costs so as to have  access  to the
required skills.

SOURCES AND AVAILABILITY OF RAW MATERIALS AND NAMES OF PRINCIPAL SUPPLIERS

         The raw materials used to produce our products are easily obtained from
multiple sources at competitive  prices.  If any of these supply sources becomes
unavailable, we believe that we would be able to secure alternate supply sources
within a short period of time and with minimal or no disruption.

INTELLECTUAL PROPERTY

         As our products are developed we may apply for patents if we believe it
advantageous.  We do not believe that our business would be materially  affected
by the  expiration  of any  patents,  if they are  issued.  We have  applied for
registration  of two marks,  ALL-CLEAR  (word mark) and ALL-CLEAR  (design mark)
with the United States Patent & Trademark  Office.  To date,  the  registrations
have  not  been  issued.  We do not  have  franchises  or  concessions  that are
considered  to be of material  importance  to us in the conduct of our business.
When we consider it to be advantageous,  we enter into patent license agreements
for technologies  that are synergistic to our current  products,  or that expand
the range of our security products.

GOVERNMENT REGULATION

         In  general,  the  development  of  our  products  is  not  subject  to
government  regulation.  However,  because  we  intend to sell our  products  in
countries  other than the United States,  we are required to comply with federal
rules governing such sales.

RESEARCH AND DEVELOPMENT

         Research and development is a critical component of our business and is
ongoing.  During the last fiscal  year,  we spent  $1,264,867  on  research  and
development. Our research and development costs will continue to be substantial.

EMPLOYEES

         We currently have 10 full-time employees.  Depending on the project, we
also retain the services of between 10 and 13 consultants.

ITEM 2.  DESCRIPTION OF PROPERTY

         Our corporate  office will continue to be based in Nevada as management
believes that the state strongly supports small business.  However,  because the
majority of our existing  research  personnel are  domiciled in Texas,  we lease
approximately  39,000 square feet of industrial  space on 2.4 acres,  located at
1016 Harris Road, Arlington, Texas, at a gross rental rate of $11,000 per month,
which is at a market rate.  The lease term ends on May 31, 2006. The property is
in satisfactory condition for USGN's operations.  USGN expects that the property
will be adequate for its needs for the lease term.

ITEM 3.  LEGAL PROCEEDINGS

         There is no current  outstanding  legal action in which we are involved
and we are unaware of any pending actions or claims against us.

                                       6
<PAGE>


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Delaware  General  Corporation Law sections 228(a) and (c) provide that
any action  that may be taken at a special  meeting of the  stockholders  may be
taken by written  consent of  stockholders  holding a  majority  of a  company's
shares. On May 29, 2003,  January 14, 2004 and June 2, 2004,  stockholder action
was taken by written consent.

         On May 29, 2003, we received  stockholder consent approving our Amended
and  Restated  2002  Stock  Plan  and  an  amendment  to  our   Certificate   of
Incorporation  effecting a change of our name to US Global  Nanospace,  Inc. and
changing our registered  address in the State of Delaware.  A stockholder owning
and  having  the  right  to  vote  46,500,000  shares  of  common  stock,  which
constituted  a  majority  of the then  outstanding  shares,  consented  to these
matters.  There were no votes cast against or withheld,  and no  abstensions  or
broker non-votes regarding this matter. Notice of these actions was given to our
stockholders on or about June 24, 2003.

         On January 14, 2004,  we received  stockholder  consent  approving  our
Amended and Restated  Certificate of  Incorporation,  which was originally filed
with the  Secretary of State of Delaware on September  26, 2002, to increase the
authorized  common stock from  100,000,000  shares to 300,000,000  shares and to
increase the  authorized  preferred  stock from  1,000,000  shares to 10,000,000
shares. A stockholder  owning and having the right to vote 46,425,000  shares of
common  stock,  which  constituted  a majority of the then  outstanding  shares,
consented to this matter.  There were no votes cast against or withheld,  and no
abstensions or broker non-votes regarding this matter. We have begun the process
of giving  notice of this  action to our  stockholders,  as  required by section
228(e) of the Delaware General Corporation Law.

         On June 2, 2004, we received stockholder consent approving an amendment
to our Amended and Restated  2002 Stock Plan (the "Plan") to increase the shares
of common  stock  included  in the Plan  from  15,000,000  shares to  30,000,000
shares,  to reflect  our name  change  from "US Global  Aerospace,  Inc." to "US
Global  Nanospace,  Inc."  and to  amend  Section  7.2 of the  Plan so that  the
calculation  of the  purchase  price  of  Stock  Awards  may be the same for all
recipients  of such awards.  A  stockholder  owning and having the right to vote
46,686,658  shares of common  stock,  which  constituted  a majority of the then
outstanding shares,  consented to this matter.  There were no votes cast against
or withheld, and no abstensions or broker non-votes regarding this matter.

         We have  begun  the  process  of giving  notice  of this  action to our
stockholders,  as required by section 228(e) of the Delaware General Corporation
Law.


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<PAGE>

PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

MARKET INFORMATION

         Our common  stock has traded on the NASD OTC  Bulletin  Board under the
symbol USGA since  October 4, 2002.  From July 12, 2001 to October 4, 2002,  our
common stock traded on the NASD OTC Bulletin  Board under the symbol CPRD.  From
June 21, 1999 to July 12, 2001 our common stock traded on the OTC Bulletin Board
under the symbol BDYR.  From December 15, 1997 through June 20, 1999, our common
stock traded on the Nasdaq  SmallCap  Market under the symbol BDRY.  Previously,
our common  stock  traded on the OTC  Bulletin  Board under the symbol CGPD from
November 21, 1997 through December 14, 1997, under the symbol CGPDD from October
21,  1997  through  November  20, 1997 and under the symbol CGPD from August 14,
1997 through  October 20, 1997. We  voluntarily  delisted our common shares from
the  Vancouver  Stock  Exchange in January 1998,  and from the British  Columbia
Stock Exchange on June 17, 2002. We also voluntarily  delisted our common shares
from the Berlin Bremen Stock Exchange on May 26, 2004, after discovering we were
listed without our consent or approval.

         The table  below sets forth the range of high and low bid quotes of our
common stock for each quarter for the last two fiscal years as reported by Yahoo
Finance. The bid prices represent inter-dealer  quotations,  without adjustments
for retail mark-ups,  markdowns or commissions and may not necessarily represent
actual transactions.

                                                PERIOD           HIGH     LOW
                                                -------------    ------   ------
         Fiscal Year Ended March 31, 2004       First Quarter    $0.031   $0.005
                                                Second Quarter   $0.510   $0.130
                                                Third Quarter    $1.390   $0.120
                                                Fourth Quarter   $3.050   $0.610

         Fiscal Year Ended March 31, 2003       First Quarter    $2.083   $0.283
                                                Second Quarter   $0.933   $0.083
                                                Third Quarter    $0.216   $0.116
                                                Fourth Quarter   $0.183   $0.080

HOLDERS

         There were  approximately  6,854 stockholders of record of common stock
as of June 4, 2004.

DIVIDENDS

         We have never declared or paid cash dividends on our common stock,  and
our present policy is not to pay cash dividends on our common stock. Any payment
of cash  dividends  in the future will be wholly  dependent  upon our  earnings,
financial  condition,  capital requirements and other factors deemed relevant by
our Board of Directors. It is not likely that cash dividends will be paid in the
foreseeable future.


                                       8
<PAGE>

SALE OF UNREGISTERED SHARES

         During the last fiscal year we sold securities that were not registered
under the Securities Act of 1933. The following  transactions  were not reported
in our previously filed quarterly reports. The transactions are as follows:

         On September 24, 2002 we issued  1,687,500  shares to an individual for
business  consulting  services,  of which  1,265,625  were  subject  to  vesting
conditions to be met by the consultant.  On December 3, 2003 the Company and the
consultant  mutually  agreed to terminate the  consulting  agreement and 843,750
shares were returned to the Company and cancelled.

         From July through December 2003, we issued a total of 125,000 shares to
an individual for business consulting services.

         We relied on the exemption  provided by Section 4(2) of the  Securities
Act of 1933, as amended, to issue the stock in the above-reported transactions.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY INCENTIVE PLAN

         Set forth in the  table  below is  information  regarding  awards  made
through  compensation  plans or  arrangements  through March 31, 2004,  the most
recently completed fiscal year.

<TABLE>
<CAPTION>
                                                                                   Number of securities
                                                                                   remaining available for
                                                                                   future issuance under
                              Number of securities to    Weighted average          equity compensation
                              be issued upon exercise    exercise price of         plans (excluding
                              of outstanding options,    outstanding options,      securities reflected in
Plan Category                 warrants and rights        warrants and rights       column 2)
----------------------------- -------------------------- ------------------------- --------------------------
<S>                           <C>                        <C>                       <C>
Equity Compensation Plans
Approved by Security Holders     0(1)                      N/A                       624,062(1)
----------------------------- -------------------------- ------------------------- --------------------------
Equity Compensation Plans
Not Approved by Security
Holders                          N/A                       N/A                       N/A
----------------------------- -------------------------- ------------------------- --------------------------
</TABLE>

(1)  As of March 31, 2004, no options, warrants or rights were granted under the
     US Global Aerospace,  Inc. Amended and Restated 2002 Stock Plan, however we
     have awarded  14,375,938 shares of common stock to officers,  employees and
     consultants in exchange for services rendered to us. Therefore, as of March
     31,  2004  there was  available  for  future  issuance  under the US Global
     Aerospace,  Inc.  Amended and Restated  2002 Stock Plan  624,062  shares of
     common stock.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

         Management's  discussion  and  analysis  of results of  operations  and
financial  condition are based upon our financial  statements.  These statements
have been prepared in accordance with accounting  principles  generally accepted
in the United States of America.  These  principles  require  management to make


                                       9
<PAGE>

certain estimates, judgments and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates based on
historical  experience  and various  other  assumptions  that are believed to be
reasonable  under the  circumstances,  the  results  of which form the basis for
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent from other  sources.  Actual results may differ from these
estimates under different assumptions or conditions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         In  consultation  with our Board of Directors,  we have  identified the
following  accounting  principles that we believe are key to an understanding of
our  financial   statements.   These  important   accounting   policies  require
management's most difficult, subjective judgments.

         The  Chairman  and  Chief  Executive  Officer  of  USGN  controls  USDR
Aerospace,  Ltd. ("Aerospace"),  which has licensed its intellectual property to
USGN.  During the period from May 17, 2002  through May 1, 2003  management  was
required to estimate the value of the property and services  (including  product
development  services)  provided to us by Aerospace.  Since inception (March 20,
2002),  management estimated that Aerospace provided property and services to us
totaling  approximately  $2.9 million for which,  as of March 31, 2004,  we owed
Aerospace $307,114.

PLAN OF OPERATION

         We are a development stage company with expertise in the emerging field
of nanotechnology. We specialize in identifying, developing, and commercializing
advanced  products  the core  technologies  of which are  primarily  nanoscience
derived.  These products  include  optimized  polymer and organic  materials and
nanofibers  to produce  variable  threat armor  solutions,  superior  filtration
systems for air, water, and cigarettes,  biological and chemical decontaminants,
and blast mitigation and fire protection  materials.  We are currently  focusing
our efforts on licensing and  marketing the products that we have  developed for
threat  reduction and health and safety  applications.  Our target customers for
these materials,  formulas,  and processes include agencies and/or organizations
under the  direct  control  of the  federal  government  of the  United  States,
domestic  and  foreign  businesses  and  foreign   government   agencies  and/or
organizations, to the extent permitted by applicable law or regulation.

         Our  capital  requirements,  particularly  as they  relate  to  product
research and  development,  have been and will continue to be  significant.  Our
future cash requirements and the adequacy of available funds will depend on many
factors, including the pace at which we are able to launch our products, whether
or not a market develops for our products and, if a market develops, the pace at
which it develops,  and the pace at which the technology  involved in making our
products changes.

         To date, we have funded our  operations  through loans in the amount of
$1,650,000  from a bank and loans in the  amount of  $2,494,445  from  unrelated
third parties and existing  stockholders.  During the next 12 months, if we fail
to earn revenues in an amount  sufficient to fund our  operations,  we intend to
raise capital through an offering of our securities or from additional loans. We
cannot  guarantee that financing will be available to us, on acceptable terms or
at all. If we do not earn  revenues  sufficient  to support our  business and we
fail to obtain other financing,  either through an offering of our securities or
by obtaining additional loans, we may be unable to maintain our operations.


                                       10
<PAGE>

RESULTS OF OPERATIONS

          Our revenues  from  operations  for the year ended March 31, 2004 were
$140,349 as compared  to revenues of $0 for the year ended March 31,  2003.  Our
cost of revenues from  operations for the year ended March 31, 2004 were $26,728
as compared to cost of revenues of $0 from the year ended March 31,  2003.  This
increase in revenues was due to sales of our products.

          During the year ended March 31, 2004, we spent  $1,264,867 on research
and  development as compared to $1,627,662 for research and  development  during
the year ended March 31,  2003.  Our  research and  development  costs  declined
because many of our products are developed and are now ready to market.

         During the year ended March 31, 2004, we incurred $3,695,264 in expense
related to non-cash  compensation as compared to $3,088,327  related to non-cash
compensation  during the year ended March 31, 2003.  During the year ended March
31, 2004, we paid our  consultants  and employees with our common stock in order
to conserve cash.

         During the year ended March 31, 2004,  other operating  expense totaled
$2,213,172 as compared to other  operating  expense of $2,805,665 for the fiscal
year ended  March 31,  2003,  a decrease of  approximately  21%.  This  decrease
reflects the  implementation of cost cutting measures during the year as well as
a reduction in research and development costs for products that are completed.

         We had an  operating  loss of  $7,059,682  for the year ended March 31,
2004, as opposed to an operating loss of $7,521,654 for the year ended March 31,
2003, a decrease of  approximately  6%. The  decrease in operating  loss is also
attributable to cost cutting  measures during the year as well as a reduction in
research and development costs for products that are completed.

         We had a net loss of  $7,285,341  for the year ended March 31, 2004, as
compared  to a net loss of  $7,046,303  for the year ended  March 31,  2003,  an
increase of approximately  3%. This overall increase in net loss is attributable
to interest  expense incurred from borrowings and to a restructure of debt which
took place in the year ended March 31, 2003.

         Other income (expense) for the year ended March 31, 2004 was made up
of $300,669 in debt restructuring costs and $526,328 of other expense.  The debt
restructuring  related to loan fees from a bank that were subsequently waived in
the amount of $300,669.  Other expense consisted of bank loan fees in the amount
of $300,669 and interest expense in the amount of $225,659 from loans.

         During  the next 12  months  we will  continue  upgrading  our  current
products  and  developing  new  products  and methods of using our  lightweight,
anti-ballistic material,  G-Lam. For the year ended March 31, 2004, our research
and development expenses totaled $1,264,867. We anticipate that our research and
development expenses will continue to be significant.

         At March 31, 2004, we had cash on hand of $18,437.  Our primary  source
of cash  during the  fiscal  year was loans  totaling  $1,214,445  and  revenues
totaling  $140,349.  Net cash used in operating  activities  was  $761,328.  The
primary  uses of cash for the year ended  March 31,  2004  consisted  of general
operating costs,  product research and development  expenses,  and reducing bank
notes payable.


                                       11
<PAGE>

         At this time, to conserve  cash, we outsource  the  manufacture  of our
products and our sales and marketing functions.  We are negotiating with various
government  agencies  and private  companies  in the areas of defense,  homeland
security,  law enforcement and aerospace for the sale of our products. We cannot
be certain,  however,  that sales of our products will ever generate enough cash
to  fund  our  business.  During  the  next 12  months,  if we  cannot  generate
sufficient funds to operate our business from product sales, we will be required
to seek financing from our largest stockholder, who has provided financing and a
loan  guarantee for us in the past. We may also consider  selling debt or equity
securities.  We  cannot  be  certain  that we will be  successful  in  obtaining
financing if we need it. If we cannot obtain  financing  when we need it, we may
be unable to maintain our operations.

         We had no investing  activities  that used or generated cash during the
year ended March 31, 2004.  Cash flows from  financing  activities  for the year
ended March 31, 2004 included  loan  proceeds in the amount of  $1,214,445  from
third parties, existing stockholders, and directors.

         The use of nanotechnology is a novel and unproven business model, which
may not be successful  and will  ultimately  depend on demand for such products,
primarily by the military. We anticipate that any business model we develop will
be subject to change. At this time it is impossible for us to predict the degree
to which demand for our  products  will evolve or whether any  potential  market
will be large enough to provide any meaningful revenue or profit for us.

NEW ACCOUNTING PRONOUNCEMENTS

         The  Financial  Accounting  Standards  Board  (FASB)  has  published  a
revision to  Interpretation 46 ("46R") to clarify some of the provisions of FASB
Interpretation  No. 46,  "Consolidation of Variable Interest  Entities",  and to
exempt certain entities from its requirements.  The additional guidance is being
issued in response to input received from constituents  regarding certain issues
arising in  implementing  Interpretation  46.  Under the new  guidance,  special
effective  date  provisions  apply to  enterprises  that have fully or partially
applied  Interpretation  46 prior to  issuance of this  revised  Interpretation.
Otherwise,  application of Interpretation 46R (or Interpretation 46) is required
in financial  statements of public  entities  that have  interests in structures
that are commonly  referred to as  special-purpose  entities for periods  ending
after  December  15,  2003.  Application  by public  entities,  other than small
business issuers,  for all other types of variable interest entities is required
in financial statements for periods ending after March 15, 2004.  Application by
small business issuers to variable interest entities other than  special-purpose
entities and by nonpublic entities to all types of variable interest entities is
required at various dates in 2004 and 2005. In some instances,  enterprises have
the option of  applying or  continuing  to apply  Interpretation  46 for a short
period of time before applying this revised Interpretation. The Company believes
that  adoption  of  Interpretation  46 will  have  no  effect  on its  financial
statements.

         In April 2003,  the FASB issued  Statement  No.  149,  "Accounting  for
Amendment of Statement 133 on Derivative  Instruments  and Hedging  Activities,"
which amends and clarifies  financial  accounting  and reporting for  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts and for hedging  activities  under FASB Statement No. 133,  Accounting
for Derivative  Instruments and Hedging Activities.  This Statement is generally
effective for contracts  entered into or modified  after June 30, 2003,  and all
provisions  should be applied  prospectively.  The adoption of Statement 149 did
not have any effect on the Company's financial position,  results of operations,
or cash flows.

         In May  2003,  FASB  issued  Statement  150,  "Accounting  for  Certain
Financial  Instruments  with  Characteristics  of both  Liabilities and Equity".
Statement 150 requires that certain financial instruments,  which under previous
guidance were accounted for as equity, must now be accounted for as liabilities.
Statement  150 is  effective  for  all  financial  instruments  entered  into or
modified after May 31, 2003. The Company adopted  Statement 150 on June 1, 2003.
The adoption of Statement 150 did not have any effect on the Company's financial
position, results of operations, or cash flows.


                                       12
<PAGE>

FORWARD-LOOKING STATEMENTS

      This Form 10-KSB  report and other  reports and  statements  filed by USGN
with  the  Securities   and  Exchange   Commission   include   "forward-looking'
statements.  These are statements regarding financial and operating  performance
and  results  and other  statements  that are not  historical  facts.  The words
"expect,"  "project,"  "estimate,"  "believe,"  "anticipate,"  "intend," "plan,"
"forecast,"  and similar  expressions  are intended to identify  forward-looking
statements.  Certain  important  risks could cause results to differ  materially
from those anticipated by some of the forward-looking statements.  Some, but not
all, of the risks that could cause actual results to differ from those suggested
by the forward-looking statements include, among other things:

         o        the loss of the services of any member of our management  team
                  and, in particular, the loss of the services of John Robinson,
                  our Chairman and Chief Executive Officer;

         o        our  ability  to  successfully  market  the  products  we have
                  developed   and  to   continue   to  develop   products   with
                  demonstrated   competitive  advantages  for  the  defense  and
                  homeland security markets;

         o        whether or not our products  are able to compete  successfully
                  with  products of other  suppliers  and whether or not some or
                  all of our products are rendered obsolete by newer products;

         o        the  implementation  of any government  regulation  that could
                  make it more difficult or more costly to bring our products to
                  market;

         o        our ability to obtain financing as and when we need it; and

other  factors,  all of which are  difficult  to  predict  and many of which are
beyond our control.

      You are  cautioned  not to place undue  reliance on these  forward-looking
statements,  which relate only to events as of the date on which the  statements
are made. We undertake no obligation  to publicly  revise these  forward-looking
statements to reflect events or circumstances  that arise after the date hereof.
You should refer to and carefully  review the information in future documents we
file with the Securities and Exchange Commission.

FACTORS AFFECTING  BUSINESS,  OPERATING  RESULTS AND FINANCIAL  CONDITION AND AN
INVESTMENT IN OUR SECURITIES

         An investment in our securities is very speculative and involves a high
degree of risk. You should carefully consider the following risk factors,  along
with the other matters  referred to in this Annual Report,  before you decide to
buy our securities.  If you decide to buy our securities,  you should be able to
afford a complete loss of your investment.

RISKS ASSOCIATED WITH OUR BUSINESS

WE ARE A  DEVELOPMENT  STAGE  COMPANY AND HAVE HAD LIMITED  OPERATIONS  TO DATE,
THEREFORE  YOU  HAVE NO  BASIS ON WHICH  TO  DETERMINE  IF OUR  BUSINESS  CAN BE
SUCCESSFUL. IF WE ARE NOT SUCCESSFUL, YOUR SECURITIES MAY BECOME WORTHLESS.

         We are a  development  stage  company and, to date, we have had limited
operations.  During the fiscal  year ended  March 31,  2004 we had a net loss of
$7,285,341 and on that date our  liabilities  exceeded our assets by $3,061,610.
Our auditor,  Grobstein,  Horwath & Company  LLP,  has issued a "going  concern"
opinion for our financial  statements  at March 31 2004.  In that  opinion,  the
auditor noted that we have  generated  limited  revenues and that  attainment of
profitable  operations is dependent upon obtaining adequate financing to fulfill
our  development  activities.  These factors raise  substantial  doubt about our
ability to continue as a going concern. If we are unsuccessful in developing and
selling our products, your securities may become worthless.


                                       13
<PAGE>

SOME OF OUR PRODUCTS ARE STILL BEING  DEVELOPED  AND, AS YET, THEY ARE UNPROVEN,
THEREFORE,  WE  CANNOT  ASSURE  YOU  THAT WE WILL BE  SUCCESSFUL.  IF WE ARE NOT
SUCCESSFUL, THE SECURITIES YOU ACQUIRE MAY BECOME WORTHLESS.

         Our current business model depends on generating  revenue through sales
of our  products.  These  products  are in  varying  stages of  development  and
testing.  Our products have not been proven. If we cannot  successfully  develop
and prove our products,  we may not become  profitable  and the  securities  you
acquire may become worthless.

THE SUCCESS OF OUR BUSINESS  REQUIRES  CONTINUED  FUNDING.  IF WE DO NOT RECEIVE
ADEQUATE FUNDING, THE SECURITIES YOU ACQUIRE MAY BECOME WORTHLESS.

         Our  ability to  continue  in  existence  and to develop  our  business
depends  upon our  ability to obtain  funding for our  operations.  If we do not
receive adequate funding, it is unlikely that we could continue our business, in
which case you would lose your entire investment.

THE  SUCCESS  OF  OUR  BUSINESS  REQUIRES  ACCEPTANCE  OF  OUR  PRODUCTS  IN THE
MARKETPLACE. IF A DEMAND FOR OUR PRODUCTS DOES NOT DEVELOP, OUR BUSINESS WILL BE
UNSUCCESSFUL AND YOU MAY LOSE YOUR ENTIRE INVESTMENT.

         The use of nanotechnology is a novel and unproven business model, which
may not be successful and will ultimately depend on demand for our products. Our
ability to grow and sustain our business is  dependent  upon our ability to gain
significant  acceptance of our  products,  primarily in the defense and homeland
security markets.  Without significant  acceptance in these markets, we will not
be able to achieve and sustain  profitable  operations and your  securities will
likely become  worthless.  At this time it is  impossible  for us to predict the
degree to which  demand for our  products  will evolve or whether any  potential
market will be large enough to provide any meaningful revenue or profit for us.

WE ARE SUBJECT TO THE RISKS AND  UNCERTAINTIES  INHERENT IN NEW BUSINESSES.  OUR
FAILURE TO PLAN OR FORECAST  ACCURATELY  COULD HAVE A MATERIAL ADVERSE IMPACT ON
OUR  DEVELOPMENT,  WHICH  MAY  CAUSE THE  VALUE OF YOUR  SECURITIES  TO  DECLINE
SUBSTANTIALLY OR BECOME WORTHLESS.

         We  are  subject  to  the  risks  and  uncertainties  inherent  in  new
businesses, including the following:

         o        Our projected capital needs may be inaccurate,  and we may not
                  have enough  money to develop our  products  and bring them to
                  market;

         o        We  may  experience  unanticipated  development  or  marketing
                  expenses,  which may make it more  difficult  to  develop  our
                  products and bring them to market;

         o        Even if we are able to develop our  products and bring them to
                  market,  we may not earn enough  revenue from the sales of our
                  products to cover the costs of operating our business.

         If,  because  of our  failure  to plan or  project  accurately,  we are
unsuccessful  in our  efforts to develop  our  products  or if the  products  we
provide do not produce revenues as we project,  we are not likely to ever become
profitable and we may be required to curtail some or all of our  operations.  In
that event, the value of your investment  could decline  substantially or become
worthless.


                                       14
<PAGE>

WE WILL CONTINUE TO NEED MONEY TO FUND FUTURE  OPERATIONS.  IF WE DO NOT RECEIVE
ADEQUATE  FINANCING  WE WOULD BE  UNABLE TO  CONTINUE  OUR  OPERATIONS  AND YOUR
SECURITIES WOULD BECOME WORTHLESS.

         Until we are able to generate significant revenues from the sale of our
products,  we will require  financing for our  operations.  We cannot assure you
that funds will be available to us on favorable  terms, or at all. To the extent
that money is raised through the sale of our  securities,  the issuance of those
securities could result in dilution to our stockholders. Unavailability of funds
could have a material  adverse effect on our ability to continue our operations.
If we  were  not  able  to  continue  our  operations,  your  securities  become
worthless.

WE ARE DEPENDENT FOR OUR SUCCESS ON OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
MR. JOHN ROBINSON. THE LOSS OF MR. ROBINSON'S SERVICES WOULD HAVE AN ADVERSE
EFFECT ON OUR OPERATIONS, AND ON THE VALUE OF YOUR SECURITIES.

         Our future success will depend, to a significant degree, on the
continued services of our Chairman and Chief Executive Officer, Mr. John
Robinson. We do not have, and currently we do not intend to acquire, key-man
life insurance on the life of Mr. Robinson. The loss of Mr. Robinson's services
would have a material adverse effect on our business and operations.

OUR  BUSINESS,  OPERATING  RESULTS AND FINANCIAL  CONDITION  COULD BE NEGATIVELY
IMPACTED IF DEMAND FOR OUR PRODUCTS IS LESS THAN WE ANTICIPATE. AS A RESULT, THE
VALUE OF YOUR SECURITIES MAY DECLINE.

         Our growth  depends on our ability to  successfully  develop and market
our products.  The  development  and marketing of our products is dependent on a
number of factors, including our ability to:

         o        recruit  and  maintain  a base  of  qualified  scientists  and
                  engineers;

         o        initiate,   develop  and  sustain   corporate  and  government
                  relationships;

         o        attract,  hire, integrate and retain qualified sales and sales
                  support employees; and

         o        accurately assess the demands of the market.

         Demand for our products might be less than we anticipate, or we may not
be successful in recruiting and maintaining the personnel we need to develop and
sell our products. In either case, our business, operating results and financial
condition  could be  negatively  impacted and the value of your  securities  may
decline.

WE ARE  DEPENDENT  ON  PROPRIETARY  TECHNOLOGY,  WHICH  WE MAY  NOT BE  ABLE  TO
ADEQUATELY PROTECT.  ADDITIONALLY,  THIRD PARTIES MAY ALLEGE THAT WE INFRINGE ON
THEIR  INTELLECTUAL  PROPERTY.  IF WE WERE TO BECOME INVOLVED IN LITIGATION,  IT
WOULD BE COSTLY  AND  WOULD  DIVERT  MANAGEMENT'S  ATTENTION  FROM OUR  BUSINESS
OPERATIONS.  THIS COULD HAVE AN ADVERSE  EFFECT ON OUR BUSINESS AND ON THE VALUE
OF YOUR SECURITIES.


                                       15
<PAGE>

         We rely on a combination of trade secret and patent laws, nondisclosure
and other contractual and technical  measures to protect our proprietary  rights
in our products.  However,  we cannot assure you that these  provisions  will be
adequate to protect our  proprietary  rights.  In addition,  the laws of certain
foreign countries do not protect intellectual property rights to the same extent
as the laws of the United  States.  Although  we believe  that our  intellectual
property rights do not infringe upon the proprietary  rights of third parties, a
competitor  may claim that we have  infringed on its  products.  Any  litigation
relating to our intellectual  property could result in substantial expense to us
and result in  significantly  diverting our technical and  management  personnel
from their routine activities. This could have an adverse effect on our business
and the value of your securities.

RISKS ASSOCIATED WITH OWNERSHIP OF OUR SECURITIES

WE HAVE  NOT  PAID  CASH  DIVIDENDS  AND IT IS  UNLIKELY  THAT WE WILL  PAY CASH
DIVIDENDS IN THE FORESEEABLE FUTURE.

         We plan to use all of our earnings,  to the extent we have earnings, to
fund our operations. We do not plan to pay any cash dividends in the foreseeable
future.  We cannot  guarantee  that we will,  at any time,  generate  sufficient
surplus  cash that would be  available  for  distribution  as a dividend  to the
holders of our common stock.  You should not expect to receive cash dividends on
our common stock.

WE HAVE THE  ABILITY  TO ISSUE  ADDITIONAL  SHARES OF OUR COMMON  STOCK  WITHOUT
ASKING  FOR  STOCKHOLDER  APPROVAL,  WHICH  COULD  CAUSE YOUR  INVESTMENT  TO BE
DILUTED.

         On January 14,  2004,  our Board of  Directors  adopted and approved an
amendment  to our  Articles of  Incorporation  to increase our common stock from
100,000,000 to 300,000,000.  The power of the Board of Directors to issue shares
of common  stock or warrants or options to  purchase  shares of common  stock is
generally  not subject to  stockholder  approval.  Accordingly,  any  additional
issuance  of our  common  stock may have the  effect of  further  diluting  your
investment.

WE MAY  RAISE  ADDITIONAL  CAPITAL  THROUGH A  SECURITIES  OFFERING  THAT  COULD
DILUTEYOUR OWNERSHIP INTEREST.

         We require  substantial  working  capital to fund our  business.  If we
raise  additional  funds  through  the  issuance  of equity,  equity-related  or
convertible  debt securities,  these securities may have rights,  preferences or
privileges  senior to those of the holders of our common stock.  The issuance of
additional  common  stock or  securities  convertible  into common  stock by our
management  will also have the  effect of  further  diluting  the  proportionate
equity interest and voting power of holders of our common stock.

A  MAJORITY  OF OUR  CAPITAL  STOCK  IS  OWNED  BY OUR  EXECUTIVE  OFFICERS  AND
DIRECTORS,  WHICH WILL ALLOW THEM TO CONTROL THE OUTCOME OF MATTERS SUBMITTED TO
OUR STOCKHOLDERS FOR VOTE.

         As of the date of this Annual Report,  management  owns the majority of
our issued and outstanding  shares of capital stock.  Because  management owns a
majority of the  capital  stock,  management  will retain the ability to elect a
majority of the Board of Directors and thereby control our management.  Although
they are under no obligation  to do so, if our executive  officers and directors
(and their  affiliates) were to vote together,  they would also have the ability
to control the outcome of  corporate  actions  requiring  stockholder  approval,
including  mergers  and  other  changes  of  corporate  control,  going  private
transactions,  and  other  extraordinary  transactions.  This  concentration  of
ownership  may have the effect of  delaying or  preventing  a change of control,
even if a change of control would benefit stockholders.


                                       16
<PAGE>

THERE IS NO ACTIVE PUBLIC MARKET FOR OUR  SECURITIES,  SO YOU MAY NOT BE ABLE TO
LIQUIDATE YOUR SECURITIES IF YOU NEED MONEY.

         Trading of our common stock is sporadic.  We cannot  guarantee  that an
active  market for our common stock will develop or be sustained  soon.  You may
not be able to liquidate our securities if you need money.

WE ARE SUBJECT TO THE PENNY STOCK  RULES AND THESE  RULES MAY  ADVERSELY  AFFECT
TRADING IN OUR COMMON STOCK.

         Our common stock is a  "low-priced"  security  under rules  promulgated
under the  Securities  Exchange  Act of 1934.  In  accordance  with these rules,
broker-dealers participating in transactions in low-priced securities must first
deliver a risk  disclosure  document which  describes the risks  associated with
such stocks,  the  broker-dealer's  duties in selling the stock,  the customer's
rights and remedies and certain market and other information.  Furthermore,  the
broker-dealer must make a suitability  determination  approving the customer for
low-priced  stock  transactions  based on the  customer's  financial  situation,
investment  experience and objectives.  Broker-dealers  must also disclose these
restrictions in writing to the customer,  obtain  specific  written consent from
the customer, and provide monthly account statements to the customer. The effect
of these  restrictions  probably  decreases the willingness of broker-dealers to
make a market in our common stock,  decreases  liquidity of our common stock and
increases  transaction  costs for sales and  purchases  of our  common  stock as
compared to other securities.

ITEM 7.  FINANCIAL STATEMENTS


                                       17
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm                      F-1
     (Grobstein, Horwath, & Company LLP)

Report of Independent Certified Public Accountants (Grant Thornton LLP)      F-2

Balance Sheet as of March 31, 2004                                           F-3

Statements of Operations for the years ended March 31, 2004
 and March 31, 2003 and for the period from inception through
    March 31, 2004                                                           F-4

Statement of Stockholders' Deficit for the period from inception
  through March 31, 2004                                               F-5 - F-7

Statements of Cash Flows for the fiscal years ended March 31, 2004
  and March 31, 2003 and for the period from inception
   through March 31, 2004                                              F-8 - F-9

Notes to Financial Statements                                        F-10 - F-17


<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders
US Global Nanospace, Inc.

We have audited the accompanying balance sheet of US Global Nanospace, Inc. (the
Company),  a development  stage  company,  as of March 31, 2004, and the related
statements of  operations,  stockholders'  deficit,  and cash flows for the year
then ended.  These financial  statements are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of US Global Nanospace, Inc. as of
March 31,  2004,  and the results of its  operations  and its cash flows for the
year  then  ended,  in  conformity  with  U.S.  generally  accepted   accounting
principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As shown in the financial  statements,
the Company incurred a net loss of $7,285,341 for the year ended March 31, 2004,
and, as of that date, the Company's total liabilities  exceeded its total assets
by  $3,061,610.  These  factors,  among  others,  as  discussed in Note 3 to the
financial  statements,  raise  substantial  doubt about the Company's ability to
continue as a going concern.  Management's  plans in regard to these matters are
also  described  in  Note  3.  The  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.

/S/  GROBSTEIN, HORWATH, & COMPANY LLP


June 16, 2004
Sherman Oaks, California

                                      F-1
<PAGE>

               Report of Independent Certified Public Accountants


The Board of Directors and Stockholders
US Global Nanospace, Inc.

We  have  audited  the  accompanying  statements  of  operations,  stockholders'
deficit,  and cash flows for the year ended  March 31,  2003 and from  inception
(March 20,  2002)  through  March 31,  2003 of US Global  Nanospace,  Inc.  (the
Company),  a development  stage  company.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the results of operations of US Global Nanospace,  Inc.
and its cash flows for the year ended March 31, 2003 and from  inception  (March
20, 2002)  through  March 31, 2003, in  conformity  with  accounting  principles
generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As shown in the financial  statements,
the Company incurred a net loss of $7,046,303 for the year ended March 31, 2003,
and, as of that date, the Company's total liabilities  exceeded its total assets
by  $2,699,198.  These  factors,  among  others,  as  discussed in note 3 to the
financial  statements,  raise  substantial  doubt about the Company's ability to
continue as a going concern.  Management's  plans in regard to these matters are
also  described  in  note  3.  The  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.

/s/ GRANT THORNTON LLP

Seattle, Washington
May 31, 2003


                                      F-2
<PAGE>

                            US GLOBAL NANOSPACE, INC.
                          (A development stage company)
                                  BALANCE SHEET
                                 March 31, 2004


ASSETS

CURRENT ASSETS
  Cash                                                             $     18,437
  Accounts receivable                                                    11,405
  Other receivables                                                      71,278
  Inventory                                                               4,695
                                                                   -------------
   Total current assets                                                 105,815
                                                                   -------------
NONCURRENT ASSETS
  Deposits                                                               13,485
                                                                   ------------
      Total assets                                                 $    119,300
                                                                   ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
   Bank note payable                                               $  1,225,000
   Accounts payable                                                     258,673
   Shareholder loans payable                                          1,201,526
   Related party payable                                                307,114
   Accrued salaries and expense                                         125,158
   Accrued interest                                                      63,439
                                                                   -------------
       Total current liabilities                                      3,180,910
                                                                   ------------

STOCKHOLDERS' DEFICIT
  Preferred stock authorized, 10,000,000 shares $0.01 par value,
      none issued or outstanding

  Common stock authorized, 300,000,000 shares $0.001 par value,
      87,429,116 issued and outstanding                                  87,428
  Additional paid-in capital                                         11,590,401
  Deferred compensation and services                                   (399,743)
  Deficit accumulated during the development stage                  (14,339,696)
                                                                   -------------
      Total stockholders' deficit                                    (3,061,610)
                                                                   -------------
      Total liabilities and stockholders' deficit                  $    119,300
                                                                   ============

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


                                      F-3
<PAGE>

                            US GLOBAL NANOSPACE, INC.
                          (A development stage company)
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                       Cumulative results
                                                                         of operations
                                                                         from March 20,
                                                                              2002
                                           Year ended      Year ended  (date of inception)
                                            March 31,       March 31,  through March 31,
                                               2004            2003           2004
                                         ------------    ------------    -------------
<S>                                      <C>             <C>             <C>
REVENUES                                 $    140,349    $       --       $    140,349
COST OF REVENUES                               26,728            --             26,728
                                         ------------    ------------    -------------
  Gross Profit                                113,621            --            113,621

OPERATING EXPENSES
   Research and development                 1,264,867       1,627,662        2,892,529
   General and administrative
      Non-cash compensation and
        services                            3,695,264       3,088,327        6,783,591
      Other general and administrative      2,213,172       2,805,665        5,026,889
                                         ------------    ------------    -------------
      Total operating expenses              7,173,303       7,521,654       14,703,009
                                         ------------    ------------    -------------
      Operating loss                       (7,059,682)     (7,521,654)     (14,589,388)

OTHER INCOME (EXPENSE)
    Debt restructure                          300,669         617,904          918,573
    Other income                                 --            10,045           10,045
    Interest expense                         (526,328)       (152,598)        (678,926)
                                         ------------    ------------    -------------
     Total other income (expense)            (225,659)        475,351          249,692
                                         ------------    ------------    -------------
    NET LOSS                             $ (7,285,341)   $ (7,046,303)    $(14,339,696)
                                         ============    ============     ============
    Net loss per share, basic and
      diluted                            $      (0.09)   $      (0.10)    $      (0.17)
                                         ============    ============     ============

    Basic and diluted weighted average
      number of common shares              83,145,742      68,917,889      86,839,927

</TABLE>


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


                                      F-4
<PAGE>

                            US GLOBAL NANOSPACE, INC.
                          (A development stage company)
                     Statement of Stockholders' Deficit From
                inception (March 20, 2002) through March 31, 2004

<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                                                           Accumulated
                                                      Common                 Additional         Deferred    During the         Total
                                                       Stock                    Paid-in     Compensation   Development Stockholders'
                                                      Shares       Amount       Capital     and Services         Stage       Deficit
                                                 -----------   ----------   -----------     ------------   ----------- -------------
<S>                                              <C>           <C>          <C>             <C>            <C>         <C>
Balance at inception (March 20, 2002)                      -   $        -   $         -     $          -   $         - $         -

Issuance of common stock on March 20, 2002
to founder for cash                               15,000,000        5,000             -                -             -        5,000

Exchange of common stock of USDR Global
Aerospace, Ltd. for CPI common stock             (15,000,000)      (5,000)            -                -             -       (5,000)

Issuance of CPI common stock in conjunction
with share exchange with USDR Global Aerospace,
Ltd.                                              60,362,157       60,362       (55,362)               -             -         5,000

Net loss for the period                                    -            -             -                -        (8,052)      (8,052)
                                                 -----------   ----------   -----------     ------------   ----------- -------------
Balance at March 31, 2002                         60,362,157       60,362       (55,362)               -        (8,052)      (3,052)

Issuance of common stock on May 16, 2002
in conjunction with consulting agreements          5,437,500        5,438     6,338,312       (6,343,750)            -            -

Net assets acquired in share exchange agreement
on May 17, 2002                                            -            -           446                -             -          446

Issuance of common stock on July 23, 2002
in consideration for legal services                  210,486          210       140,114                -             -      140,324

Issuance of common stock on August 22, 2002
in consideration for legal and consulting
services                                             211,638          212        75,272                -             -       75,484

Issuance of common stock on September 17, 2002
in consideration for legal services                  349,212          349        55,525                -             -       55,874

Issuance of common stock on September 24, 2002
in consideration for consulting services           1,687,500        1,688       307,687         (309,375)            -            -

Issuance of common stock on September 25, 2002
in consideration for legal services                  635,889          636       126,542                -             -      127,178

Issuance of common stock on September 30, 2002
in consideration for professional services           150,000          150        29,850                -             -       30,000

Issuance of common stock on October 23, 2002,
in consideration for professional services            45,000           45         6,105                -             -        6,150

Issuance of common stock on November 11, 2002,
in consideration for legal services                  549,999          550        54,450                -             -       55,000

Issuance of common stock on November 19, 2002,
in settlement of outstanding notes payable         4,163,928        4,164       648,185                -             -      652,349

Issuance of common stock on November 19, 2002,
in consideration for professional services            87,996           88        13,698                -             -       13,786
</TABLE>


                                       F-5
<PAGE>

<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                                                           Accumulated
                                                      Common                 Additional         Deferred    During the         Total
                                                       Stock                    Paid-in     Compensation   Development Stockholders'
                                                      Shares       Amount       Capital     and Services         Stage       Deficit
                                                 -----------   ----------   -----------     ------------   ----------- -------------
<S>                                              <C>           <C>          <C>             <C>            <C>         <C>
Issuance of common stock on December 27, 2002,
in consideration for legal services                  468,381          468        65,105                -             -       65,573

Issuance of common stock on January 1, 2003,
in consideration for consulting services             122,502          123        20,377                -             -       20,500

Issuance of common stock on January 16, 2003,
in consideration for consulting services             453,948          454        57,046                -             -       57,500

Issuance of common stock on February 1, 2003,
in settlement of outstanding notes payable            30,000           30         4,170                -             -        4,200

Issuance of common stock on February 3, 2003,
in settlement of outstanding notes payable           323,121          323        48,145                -             -       48,468

Issuance of common stock on March 5, 2003,
in consideration for legal services                  316,418          316        40,818                -             -       41,134

Issuance of common stock on March 5, 2003,
in consideration for services                        183,215          183        23,635          (23,818)            -            -

Amortization of deferred compensation and
services                                                   -            -             -        2,956,191             -    2,956,191

Net loss for the year                                      -            -             -                -    (7,046,303)  (7,046,303)
                                                 -----------   ----------   -----------     ------------   ----------- -------------

Balance at March 31, 2003                         75,788,890       75,789     8,000,120       (3,720,752)   (7,054,355)  (2,699,198)

Issuance of common stock on April 10, 2003 in
consideration for wages at $0.10 per share         2,794,684        2,795       276,674                                     279,469

Issuance of common stock on May 13, 2003 in
consideration for accounts payable at $0.06 per
share                                                583,334          583        34,417                                      35,000

Issuance of common stock on June 23, 2003 in
consideration for services at $0.06 per share         60,000           60         3,540                                       3,600

Issuance of common stock on July 8, 2003 in
consideration for accounts payable at $0.20 per
share                                                388,622          389        77,335                                      77,724

Issuance of common stock on July 9, 2003 in
consideration for accounts payable at $0.22 per
share                                                136,364          136        29,864                                      30,000

Issuance of common stock on July 9, 2003 in
consideration for accounts payable at $0.22 per
share                                                500,000          500       109,500                                     110,000

Issuance of common stock on July 14, 2003 in
consideration for services at $0.06 per share         20,000           20         1,180                                       1,200

Issuance of common stock on July 18, 2003 in
consideration for wages at $0.40 per share           860,343          860       343,277                                     344,137

Issuance of common stock on July 23, 2003 in
consideration for services at $0.34 per share         20,000           20         6,780                                       6,800

Issuance of common stock on July 25, 2003 in
consideration for wages at $0.29 per share         1,000,000        1,000       249,000                                     250,000

Redemption of common stock on July 28, 2003 in
consideration for wages at $0.40 per share           (13,647)         (14)       (5,445)                                     (5,459)

Issuance of common stock on July 30, 2003 in
consideration for services at $0.34 per share         60,000           60        20,340                                      20,400
</TABLE>


                                       F-6
<PAGE>

<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                                                           Accumulated
                                                      Common                 Additional         Deferred    During the         Total
                                                       Stock                    Paid-in     Compensation   Development Stockholders'
                                                      Shares       Amount       Capital     and Services         Stage       Deficit
                                                 -----------   ----------   -----------     ------------   ----------- -------------
<S>                                              <C>           <C>          <C>             <C>            <C>         <C>
Issuance of common stock on August 23, 2003
in consideration for services at $0.23 per share      20,000           20         4,580                                       4,600

Issuance of common stock on September 22,
2003 in consideration for services at $0.22 per       60,000           60        13,140                                      13,200

Issuance of common stock on September 22,
2003 in consideration for services at $0.23 per       65,218           65        14,935                                      15,000

Issuance of common stock on September 23, 2003
in consideration for accounts payable at 0.23 per    327,134          327        74,914                                      75,241

Issuance of common stock on October 1, 2003 in
consideration for wages at $0.17 per share         3,390,138        3,390       572,933                                     576,323

Redemption of common stock on October 14, 2003
in consideration for wages at $0.17 per share        (71,120)         (71)      (12,019)                                    (12,090)

Issuance of common stock on October 22, 2003 in
consideration for accounts payable at $0.17 per      187,879          188        30,812                                      31,000
share

Issuance of common stock on October 23, 2003 in
consideration for services at $0.16 per share         20,000           20         3,180                                       3,200

Issuance of common stock on October 27, 2003 in
consideration for services at $0.16 per share         60,000           60         9,540                                       9,600

Issuance of common stock on November 18, 2003 in
consideration for services at $0.21 per share         20,000           20         4,180                                       4,200

Issuance of common stock on November 21, 2003 in
consideration for accounts payable at $0.55 per       32,521           33        17,853                                      17,886
share

Issuance of common stock on November 24, 2003 in
consideration for services at $0.46 per share         20,000           20         9,180                                       9,200

Cancellation of common stock on December 3,
2003 originally issued for services at $0.18 per
share                                               (843,750)        (844)     (115,782)         116,626                          -

Issuance of common stock on December 15, 2003 in
consideration for wages at $1.06 per share         1,328,070        1,328     1,406,426                                   1,407,754

Issuance of common stock on December 18, 2003 in
consideration for services at $0.805 per share        15,000           15        12,060                                      12,075

Issuance of common stock on March 16, 2004 in
consideration for wages at $0.66 per share           504,132          504       332,223                                     332,727

Issuance of common stock on March 31, 2004 in
consideration for accounts payable at $0.69 per       95,304           95        65,664                                      65,759
share

Amortization of deferred compensation and
services                                                                                       3,204,383                  3,204,383

Net loss for the year                                                                                       (7,285,341)  (7,285,341)
                                                 ----------------------------------------------------------------------------------
Balance at March 31, 2004                         87,429,116      $87,428   $11,590,401     $   (399,743) $(14,339,696) $(3,061,610)
                                                 ==================================================================================
</TABLE>


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


                                       F-7
<PAGE>

                            US GLOBAL NANOSPACE, INC.
                          (A development stage company)
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                   Cumulative
                                                                                                   results of operations
                                                                                                   from March 20, 2002
                                                                     Year ended      Year ended    (date of inception)
                                                                   March 31, 2004  March 31, 2003  March 31, 2004
                                                                   --------------  --------------  --------------------
<S>                                                                <C>             <C>             <C>
Increase  (Decrease) in Cash

CASH FLOWS FROM OPERATING ACTIVITIES
       Net loss                                                     $ (7,285,341)   $ (7,046,303)  $        (14,339,696)
       Adjustments to reconcile net loss to net
        cash used in operating activities
              Common stock issued for services                         3,695,264       3,088,327              6,783,591

              Forgiveness of loans and accounts payable                 (300,669)       (617,904)              (918,573)

              Changes in assets and liabilities
                   Accounts receivable                                   (11,405)           --                  (11,405)
                  Inventories                                             (4,695)           --                   (4,695)
                  Accrued interest                                       282,411         119,537                401,948
                  Accounts payable                                       335,042         917,137              1,260,231
                  Accrued salaries                                     2,612,233         297,980              2,910,213
                                                                   --------------  --------------  --------------------
                 Net cash used in operating activities                  (677,160)     (3,241,226)            (3,918,386)
                                                                   --------------  --------------  --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
         Increase in other receivables                                   (71,278)           --                  (71,278)
         Increase in deposits                                            (13,485)           --                  (13,485)
         Cash acquired in conjunction with share                             --            2,946                  2,946
              exchange agreement
                                                                   --------------  --------------  --------------------
          Net cash provided by (used in) investing                       (84,763)          2,946                (81,817)
              activities
                                                                   --------------  --------------  --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
         Increase in related party payable                                   595         306,519                307,114
         Proceeds from issuance of common stock                              --             --                    5,000
         Proceeds from shareholder and other loans payable             1,214,445       1,280,000              2,494,445
         Proceeds from lines of credit                                       --        1,650,000              1,650,000
         Payments on bank note payable                                  (425,000)           --                 (425,000)
         Payments on loans payable                                       (12,919)           --                (12,919)
                                                                   --------------  --------------  --------------------
         Net cash provided by financing activities                       777,121       3,236,519              4,018,640
                                                                   --------------  --------------  --------------------
Net increase (decrease) in cash                                           15,198          (1,761)                18,437

Cash at beginning of period                                                3,239           5,000                    --
                                                                   --------------  --------------  --------------------
Cash at end of period                                               $     18,437    $      3,239    $            18,437
                                                                   ==============  ==============  ====================
</TABLE>


                                       F-8
<PAGE>

<TABLE>
<CAPTION>
                                                                                                   Cumulative
                                                                                                   results of operations
                                                                                                   from March 20, 2002
                                                                     Year ended      Year ended    (date of inception)
                                                                   March 31, 2004  March 31, 2003  March 31, 2004
                                                                   --------------  --------------  --------------------
<S>                                                                <C>             <C>             <C>

NON-CASH INVESTING AND FINANCING ACTIVITIES

Accounts payable acquired in conjunction
  with share exchange agreement                                               -                -   $              2,500
                                                                   ==============  ==============  ====================

         Common stock issued in exchange for accounts payable      $    442,611    $     560,567   $          1,003,178
                                                                   ==============  ==============  ====================
         Common stock issued in exchange for loans
              payable and accrued interest                                    -          700,817   $            700,817
                                                                   ==============  ==============  ====================
         Common stock issued in exchange for wages                 $  2,785,055    $       --      $          2,785,055
                                                                   ==============  ==============  ====================
</TABLE>

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

                                       F-9

<PAGE>

                            US Global Nanospace, Inc.
                          (A development stage company)
                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 2004


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USDR Global  Aerospace,  Ltd.  ("USDRGA"),  a  development  stage  company,  was
incorporated  in the state of Delaware on March 20, 2002.  USDRGA entered into a
share  exchange  agreement  with  US  Global  Nanospace,  Inc.  ("USGN"  or  the
"Company")  (formerly known as Caring Products  International,  Inc.) on May 17,
2002,  which resulted in the exchange of one share of the Company's common stock
for four shares of USGN. As a result of the  transaction,  the Company  became a
wholly owned  subsidiary  of USGN.  Effective  September  26, 2002,  the Company
changed  its  name  from  Caring  Products  International,  Inc.  to  US  Global
Aerospace,  Inc. On December  31,  2002,  the Company  completed a merger of its
wholly owned subsidiary,  USDR Global Aerospace, Ltd. with and into the Company.
US Global Aerospace, Inc. was the resulting company from the mergers.

Effective July 21, 2003, the Company changed its name from US Global  Aerospace,
Inc. to US Global Nanospace, Inc.

On January  14,  2004,  our Board of  Directors  approved  an  amendment  to the
Company's  Amended and Restated  Certificate  of  Incorporation  to increase the
authorized  common stock from 100,000,000 to 300,000,000  shares and to increase
the authorized preferred stock from 1,000,000 to 10,000,000 shares.

USGN is a  development  stage  company with  expertise in the emerging  field of
nanotechnology.  Activities to date include conducting  research and development
of our products,  acquiring and developing intellectual property,  designing and
building  prototype  materials,  and forming strategic partner alliances for the
licensing, manufacturing, and marketing our products.

A summary of the significant  accounting  policies  consistently  applied in the
preparation of the accompanying financial statements follows.

CONCENTRATION OF CREDIT RISK
The Company provides credit,  in the normal course of business,  to customers in
the aerospace  industry.  The Company performs ongoing credit evaluations of its
customers.  At March 31, 2004, the Company considers all accounts  receivable to
be fully collectible.

RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.

NET LOSS PER SHARE
Basic  loss per  share  is  based  on the  weighted  average  number  of  shares
outstanding during each period and income available to common shareholders. Loss
per share assuming  dilution is based on the assumption that  outstanding  stock
options and warrants were exercised. At March 31, 2004, all options and warrants
have expired and there were no shares of  potentially  issueable  common  stock.
Because of the net loss for the years and period  ended  March 31, 2004 and 2003
and since  inception  (March  20,  2002)  through  March 31,  2004,  potentially
issueable  common stock was not included in the  calculation of diluted loss per
share as their inclusion would be anti-dilutive.


                                      F-10
<PAGE>

STOCK-BASED COMPENSATION

The Company has a stock-based  compensation  plan, which is described more fully
in Note 13, that is accounted  for under APB Opinion 25,  "Accounting  for Stock
Issued to Employees",  and related  Interpretations in accounting for its plans.
No options were  granted  under the plan for the year and period ended March 31,
2004 and 2003 and since  inception  (March 20,  2002)  through  March 31,  2004.
Options  outstanding as of March 31, 2004, as described in Note 13, were granted
under the stock option plan of US Global  Aerospace,  Inc. (fka Caring  Products
International)  prior to the merger with the Company were fully vested as of the
merger date (May 17, 2002), and have all expired.  Accordingly,  no compensation
expense  would have been  recognized  under the  recognition  provisions of FASB
Statement 123,  "Accounting for Stock-Based  Compensation",  during the year and
period ended March 31, 2004 and 2003 and since inception (March 20, 2002).

ADVERTISING

Advertising costs are expensed as incurred. Advertising costs for the year ended
March 31, 2004 were $44,969.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that affect the amounts  reported in the  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.

NOTE 2.  BASIS OF PRESENTATION

The share exchange  transaction  resulted in the owners and management of USDRGA
having  effective  operating  control of the combined  entity.  Under accounting
principles  generally  accepted  in the  United  States  of  America,  the share
exchange is considered to be a capital  transaction in substance,  rather than a
business combination.  That is, the share exchange is equivalent to the issuance
of stock by USDRGA  for the net  monetary  assets of US Global  Nanospace,  Inc.
(USGN fka Caring Products International) accompanied by a recapitalization,  and
is accounted for as a change in capital structure.  Accordingly,  the accounting
for  the  share   exchange  is  identical  to  that  resulting  from  a  reverse
acquisition,  except  that no  goodwill  is  recorded.  Under  reverse  takeover
accounting,  the  post-reverse-acquisition  financial  statements  of the "legal
acquirer"  USGN,  are  those  of  the  "legal  acquiree"  (USDRGA),   (i.e.  the
"accounting acquirer").

Accordingly,  the financial statements of USGN as of and for the year and period
ended  March 31,  2003,  2002 and since  inception  (March  20,  2002),  are the
historical  financial  statements of USDRGA. All references to common stock have
been retroactively  restated to reflect the share exchange and  recapitalization
of the Company. In conjunction with the share exchange and recapitalization, the
Company recorded net assets of USGN totaling $446, which included cash of $2,946
and payables of $2,500.


                                      F-11
<PAGE>

NOTE 3 - MANAGEMENT PLANS

The Company is  considered  a  development  stage  enterprise  as defined  under
Statement of Financial  Accounting  Standards  ("SFAS") No. 7,  "Accounting  and
Reporting by Development  Stage  Enterprises."  The Company is a  nanotechnology
company  that  specializes  in  identifying,   developing,  and  commercializing
advanced  products  the core  technologies  of which are  primarily  nanoscience
derived.  These products include complex polymer  materials,  polymer  nanofiber
materials,  nanofiber filter materials,  biological and chemical decontaminants,
and  blast  mitigation  materials.  The  Company  is  focusing  its  efforts  on
developing  a broad range of defense and law  enforcement  applications  for the
materials  it  creates.  Currently,  most of the  Company's  products  are being
developed for use by the military and homeland security.  Upon completion of the
development  of such  products,  the  Company  intends to market and sell to the
aerospace and defense industries.  Operating revenues have been generated in the
amount of  $140,349  for the year ended  March 31,  2004.  In fiscal  2003,  the
Company  obtained loans from a bank for amounts up to  $1,650,000.  In addition,
the Company has received $2,494,445 in loans since inception from third parties,
existing  shareholders and directors.  At this time, to conserve  revenues,  the
Company  does not  manufacture  its products nor does it maintain a sales force.
These functions are outsourced. In addition, officers of the Company and certain
employees  have  been  deferring  their  salaries  and  accepting  shares of the
Company's  common stock in lieu of cash. The Company is negotiating with various
government  agencies and private companies for the sale of its products.  During
the next 12 months,  if the Company cannot generate  sufficient funds to operate
its business from product sales,  it will be required to seek financing from its
largest  stockholder,  who has provided  financing and a loan  guarantee for the
Company in the past.  The  stockholder  is under no  obligation  to provide such
funds. The Company may also consider selling debt or equity securities. There is
no  guarantee  that the Company  will obtain  funds  sufficient  to continue its
operations during the next 12 months.

NOTE 4.  INVENTORIES

Inventories  consist  of  finished  goods and are stated at the lower of cost or
market. Cost is determined using the first-in, first-out method.

NOTE 5.  INTELLECTUAL PROPERTY ASSIGNMENT AND ROYALTY AGREEMENT

On May 14, 2002, USDR Aerospace,  Ltd.  ("Aerospace")  entered into an agreement
with the Company to assign certain of its  Intellectual  Property to the Company
for  consideration  of $10, and a promise to pay a royalty of 3.5% on all of the
Company's  sales  until  Aerospace  has  received a total of $15  million  and a
royalty of 1% of all of the Company's sales  thereafter  until all patent rights
of the  Intellectual  Property have expired.  For the year ended March 31, 2004,
the Company has  incurred a total of $4,893 in  royalties  associated  with this
agreement.

NOTE 6.  RELATED PARTY PAYABLE

The Chairman and CEO of the Company controls  Aerospace,  which has licensed the
intellectual  property  to the Company as  described  in Note 5.  Aerospace  has
provided  employees  and  product  development  services to the  Company.  Since
inception  (March 20,  2002),  Aerospace  has provided  such  services  totaling
approximately  $2.9  million  for which the  Company  currently  owes  Aerospace
$307,114 as of March 31, 2004.  As of January 1, 2003,  Aerospace  substantially
discontinued  all of its  operations  and the Company hired certain  individuals
previously  employed through Aerospace.  Aerospace  continues to provide certain
supplies and services to the Company.


                                      F-12
<PAGE>

NOTE 7.  SHAREHOLDER LOANS PAYABLE

On April 18, 2003, the Company  entered into a loan agreement with Aerospace for
amounts up to $100,000.  The loan bears interest at 10% per annum and matures on
June 30, 2004. On June 30, 2004,  the loan was amended to include  amounts up to
$200,000, and to extend the maturity date to December 31, 2004. The Company owes
Aerospace $108,524,  including accrued interest, as of March 31, 2004 under this
loan agreement.

The Chairman and CEO of the Company has continued to provide cash to support the
Company's  operations until such time as the Company  generates  sufficient cash
through operations or financing is obtained from the issuance of debt or equity.
The Chairman and CEO of the Company also controls USDR(NV),  Inc.  ("USDR").  On
June 6, 2003, the Company entered into a loan agreement with USDR for amounts up
to $125,000.  The loan bears  interest at 10% per annum and matured on April 30,
2004.  USDR has extended  this loan through  October 31, 2004.  The Company owes
USDR $108,811,  including accrued interest, as of March 31, 2004 under this loan
agreement.

On April  11,  2003 and April  18,  2003,  the  Company  entered  into two loans
totaling  $16,000 from an existing  shareholder.  The loans bear interest at 10%
per annum and matured on April 30, 2004.  The  shareholder  has agreed to extend
the loans, date to be determined.

On April 29,  2003,  April 30, 2003 and May 9, 2003,  the Company  entered  into
three loans totaling $35,000 from Directors.  The loans bear interest at 10% per
annum  and  mature  on June 30,  2004.  The  Directors  have  agreed  to  accept
restricted  common  stock in exchange for these  loans.  On August 7, 2003,  the
Company  entered  into a  loan  agreement  with a  Director  for  amounts  up to
$150,000,  and on December 19, 2003, the loan was amended to include  amounts up
to  $500,000.  The loan bears  interest at 10% per annum and matures on June 30,
2004. The Company owes the Director $429,834,  including accrued interest, as of
March 31,  2004 under this loan  agreement.  The  Director  has agreed to accept
restricted  common  stock in  exchange  for this loan.  On October 3, 2003,  the
Company  entered  into a  loan  agreement  with a  Director  for  amounts  up to
$100,000. The loan bears interest at 10% per annum and matures on June 30, 2004.
The  Company  owes  the  Director  $269,709  as of March  31,  2004  under  this
agreement. The Director has agreed to accept restricted common stock in exchange
for this loan.

On January 8, 2004,  January 9, 2004 and January 27, 2004,  the Company  entered
into three loans totaling  $292,934 from existing  shareholders.  The loans bear
interest at 10% per annum and mature on June 30,  2004.  The  shareholders  have
agreed to accept restricted common stock in exchange for these loans.

NOTE 8.  BANK NOTES PAYABLE

The  Company  previously  had  lines of  credit  with a bank for  amounts  up to
$1,650,000.  The lines of credit have been consolidated  into one loan,  bearing
interest at 13% per annum and matured on December  31, 2003.  The interest  rate
has been  reduced to 10% per annum and the loan has been  extended  to March 31,
2005. The terms require four principal  payments of $300,000,  plus interest per
quarter  beginning  on March 31,  2004,  and one final  principal  and  interest
payment of $25,625 due on March 31,  2005.  The loan is secured by the assets of
the Company and guaranteed by the Company's largest shareholder. As of March 31,
2004, the Company had a total  outstanding  principal  balance of $1,225,000 and
accrued interest totaled $31,896. During the year ended March 31, 2004, the bank
forgave $300,669 of interest and fees related to the loan.

NOTE 9.  CONSULTING AGREEMENTS

On May 15, 2002,  the Company  entered into various  consulting  agreements  for
services in exchange for 15,000,000 shares of the Company's common stock,  which
were issued under the 2001 Employee Stock Compensation Plan.  However, in August
2002, the Company and certain of the  consultants  mutually  agreed to terminate
their  respective  consulting  agreements  and 9,562,500 of shares that had been
issued were returned to the Company and  cancelled.  Accordingly,  the 9,562,500
cancelled shares are not considered issued or outstanding at March 31, 2003. The
remaining 5,437,500 shares issued under the consulting  agreements were recorded
at their fair value totaling  $6,343,750 as deferred  compensation and services.
The deferred  compensation  and services is being  recognized over the period of
the  consulting  agreement of two years.  For the years ended March 31, 2004 and
2003,  the  Company  recognized  $3,204,383  and  $2,956,191,  respectively,  of
non-cash expense relating to these agreements.


                                      F-13
<PAGE>

On  September  30, 2002 the Company  entered  into an  agreement  incident to an
existing  consulting  agreement  pursuant to which 562,500  shares of restricted
common stock were issued subject to vesting conditions. The shares were recorded
at their fair value totaling $309,375 as deferred  compensation and services and
the expense was being amortized over the service period. However, on December 3,
2003, the Company and the consultant mutually agreed to terminate the consulting
agreement, and 843,750 unvested shares that had been issued were returned to the
Company and cancelled.  As a result, the Company reversed  unrecognized deferred
compensation  and services under this consulting  agreement  totaling  $116,626.
Accordingly,   the  843,750  cancelled  shares  are  not  considered  issued  or
outstanding at March 31, 2004.

From July 2003 through  December  2003, we issued a total of 125,000  restricted
shares of common stock to an individual for business  consulting  services.  The
shares were  recorded at 100% fair market value on the date of issuance,  with a
total valuation of $33,225.


NOTE 10.  COMMITMENTS

On April 28, 2003,  the Company  entered into an operating  lease for its office
space and research  facilities expiring in May 2006. The following is a schedule
by years of future minimum lease payments under operating the lease.

                Years ending March 31,

                2005                      132,000
                2006                      132,000
                2007                       11,000
                                         --------
      Future minimum lease payments      $275,000
                                         ========

NOTE 11.  INCOME TAXES

The Company  accounts for income taxes using the liability  method as prescribed
by SFAS No.109, "Accounting for Income Taxes." The income tax benefit reconciled
to the tax computed at the statutory rate was  approximately  as follows for the
year ended March 31, 2004:

         Tax benefit computed at federal statutory rate      $    (2,477,000)
         Research and development tax credit
                                                                     (82,000)
         Increase in valuation allowance                           2,559,000
                                                             ---------------
                                                             $             0
                                                             ===============

The Company's tax benefit computed at the federal  statutory rate for the period
ended March 31, 2003 totaled approximately $2,396,000.

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax assets are as follows at March 31, 2004:


                                      F-14
<PAGE>


         Net  operating loss carryforwards      $  11,069,000
         Research and development tax credits         131,000
                                                -------------
                                                   11,200,000

         Less valuation allowance                 (11,200,000)
                                                -------------

                                                $           0
                                                -------------

The Company has established a valuation  allowance of approximately  $11,200,000
to offset the deferred tax asset, due to the uncertainty of future  utilization.
Internal  Revenue Code Section 382 places a limitation  on the amount of taxable
income that can be offset by carryforwards or built-in deductions after a change
in control  (generally  greater  than 50% change in  ownership).  As a result of
these  provisions,  utilization  of the  net  operating  loss  carryover  may be
limited.

NOTE 12. LICENSE AND TECHNOLOGY AGREEMENTS

On June 19, 2003, the Company  entered into an agreement  with Y2  Ultra-Filter,
Inc. The Company has the exclusive world rights for the Ultra-Filter  technology
for all aircraft applications  worldwide and will offer our new Nanofilters (TM)
for long-range  commercial aircraft including the Boeing 7X7 series, Airbus A3X0
series and the MD 11.

On July 24, 2003, the Company entered into an exclusive  license  agreement with
TIAX LLC, to market and sell "All Clear" Chem/Bio  Decontaminant Foam. A license
fee in the amount of $21,751  was paid prior to October  25, 2003 and $60,000 is
due and payable in four installments beginning January 31, 2004, March 31, 2004,
June 30,  2004,  and  December  31,  2004.  A royalty  fee of 6% on net sales is
applicable on net sales in excess of the first one million dollars.


NOTE 13. STOCK-BASED COMPENSATION

The Company has a stock-based  compensation plan that is accounted for under APB
Opinion  25,   "Accounting   for  Stock  Issued  to   Employees",   and  related
Interpretations.  No options  were  granted  under the plan for the years  ended
March  31,  2004  and  2003  and  since  inception  (March  20,  2002).  Options
outstanding that were granted under the stock option plan of US Global Aerospace
(fka  Caring  Products  International)  prior to the merger with the Company and
were  fully  vested as of the  merger  date  (May 17,  2002)  have all  expired.
Accordingly,  no  compensation  expense  would  have been  recognized  under the
recognition  provisions  of FASB  Statement  123,  "Accounting  for  Stock-Based
Compensation",  during  the  years  ended  March  31,  2004 and  2003 and  since
inception (March 20, 2002).

On April 10, 2003, the Company  adopted the Amended and Restated 2002 Stock Plan
(2002 Stock Plan). Under the 2002 Stock Plan,  officers,  directors,  employees,
consultants, advisors and others related to the Company may be granted incentive
stock  options or  nonqualified  stock  options to purchase up to an  authorized
15,000,000  shares of the Company's  common stock. The options are to be granted
at not less than 85% of the fair value of the Company's common stock on the date
of the grant.  The options  generally  vest over five years and expire ten years
from date of grant.  The plan also  allows  for the  granting  of a stock  award
whereby the purchase  price of the stock award granted also may not be less than
85% of the fair value of the Company's common stock. In addition the plan allows
for the granting of stock bonuses. The terms of the awards and bonuses are to be
determined by a committee appointed by the Board of Directors.


                                      F-15
<PAGE>

On April 10, 2003, the Company  granted  2,794,684  shares of common stock under
the 2002 Stock Plan to employees in lieu of salaries and expenses  with an award
valuation  of  $237,547,  equaling 85% of the fair market value per share on the
date of grant of the award. When granting stock, accounting principles generally
accepted  in the  United  States of  America  requires  companies  to record the
issuance  of stock for  services  at the fair  market  value of the stock on the
grant date,  and as a result,  the Company  recognized an additional  $41,922 as
additional  non-cash  expense for the  difference  between the fair value of the
stock and the salaries due.

On July 18, 2003, the Company  granted  860,343 shares of common stock under the
2002 Stock Plan to  employees  in lieu of salaries  and  expenses  with an award
valuation of $344,137,  equaling  100% of the fair market value per share on the
date of grant of the award. However, on July 28, 2003, the Company cancelled and
redeemed 13,647 of these shares from an employee in exchange for monies owed the
Company, having a total value of $5,459.

On July 25, 2003, the Company granted 1,000,000 shares of common stock under the
2002  Stock  Plan to our  CEO in lieu of  salary  with  an  award  valuation  of
$250,000, which was 100% of the fair market value per share on the date of grant
of the award.

On October 1, 2003, the Company granted  3,390,138  shares of common stock under
the 2002 Stock Plan to employees  and our CEO in lieu of salaries  with an award
valuation  of  $491,568,  equaling 85% of the fair market value per share on the
date of grant of the award.  The Company  recognized  an  additional  $84,754 as
additional  non-cash  expense for the  difference  between the fair value of the
stock and the salaries due. However,  on October 14, 2003, the Company cancelled
and redeemed 71,120 of these shares from an employee by mutual agreement, having
a total value of $12,090.

On December 15, 2003, the Company granted 1,328,070 shares of common stock under
the 2002  Stock  Plan to  employees  and our CEO as a stock  bonus for  services
during  January 1, 2003  through  December  31, 2003 with an award  valuation of
$1,407,754, equaling 85% of the fair market value per share on the date of grant
of the award.  The Company  recognized  an  additional  $212,494  as  additional
non-cash expense for the difference  between the fair value of the stock and the
bonus amount due.

On March 16, 2004, the Company  granted 504,132 shares of common stock under the
2002  Stock  Plan to  employees  and our CEO in lieu of  salaries  with an award
valuation  of  $282,312,  equaling 85% of the fair market value per share on the
date of grant of the award.  The Company  recognized  an  additional  $50,415 as
additional  non-cash  expense for the  difference  between the fair value of the
stock and the salaries due.

During the year ended March 31, 2004, the Company granted a total of 1,003,097
shares of common stock to consultants in  consideration  for services,  having a
total fair market value of $210,850.

During the year ended March 31, 2004,  the Company  granted a total of 1,563,279
shares of common stock to attorneys in consideration for legal services,  having
a total fair market value of $301,611.

The Company has accrued  payroll taxes relating to the issuance of stock in lieu
of wages in accrued  salaries  and  expense as of March 31, 2004 and the Company
has recorded employee  receivables for the employees portion of the taxes due to
the Company.

NOTE 14.  SUBSEQUENT EVENTS

On April 23, 2004, the Company entered into agreements resulting in the issuance
of 1,147,950 shares of restricted  common stock for the repayment of $378,823 in
principal related to loans advanced to us by our Directors.

On June 2, 2004, the Board of Directors approved an amendment to the 2002 Stock
Plan to increase the shares of common stock included in the 2002 Stock Plan from
15,000,000 shares to 30,000,000  shares.  The amendment also changed the name of
the 2002 Stock Plan from "US Global  Aerospace,  Inc." to "US Global  Nanospace,
Inc.", and changed  paragraph 7.2 of the 2002 Stock Plan so that the calculation
of the purchase price of stock awards may be the same for all recipients of such
awards.


                                      F-16
<PAGE>

NOTE 15.  RECENTLY ISSUED ACCOUNTING STANDARDS

In  January  2003,   the  FASB  issued  FASB   Interpretation   46  ("FIN  46"),
"Consolidation of Variable Interest  Entities." FIN 46 clarifies the application
of Accounting Research Bulletin 51,  "Consolidated  Financial  Statements",  for
certain  entities that do not have  sufficient  equity at risk for the entity to
finance its activities  without additional  subordinated  financial support from
other parties or in which equity investors do not have the  characteristics of a
controlling financial interest ("variable interest entities"). Variable interest
entities within the scope of FIN 46 will be required to be consolidated by their
primary  beneficiary.  The primary  beneficiary of a variable interest entity is
determined  to be the party that  absorbs a majority  of the  entity's  expected
losses,  receives a majority of its expected  returns,  or both.  FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable  interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company is in the process
of  determining  what impact,  if any, the adoption of the  provisions of FIN 46
will have upon its financial condition or results of operations.

In April 2003, the FASB issued  Statement No. 149,  "Accounting for Amendment of
Statement 133 on Derivative  Instruments and Hedging  Activities,"  which amends
and clarifies  financial  accounting and reporting for  derivative  instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging  activities  under FASB  Statement No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities." This Statement is generally  effective for
contracts  entered  into or modified  after June 30,  2003,  and all  provisions
should be applied prospectively.  The adoption of Statement 149 did not have any
effect on the  Company's  financial  position,  results of  operations,  or cash
flows.

In May  2003,  the FASB  issued  Statement  No.  150,  "Accounting  for  Certain
Financial  Instruments  with  Characteristics  of both  Liabilities and Equity".
Statement  No. 150 requires  that  certain  financial  instruments,  which under
previous  guidance were  accounted  for as equity,  must now be accounted for as
liabilities.  Statement  No.  150 is  effective  for all  financial  instruments
entered into or modified after May 31, 2003. The Company  adopted  Statement No.
150 on June 1, 2003.  The adoption of Statement  No. 150 did not have any effect
on the Company's financial position, results of operations, or cash flows.


                                       F-17
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

 Grant Thornton,  LLP, the  independent  accountants who had been engaged by the
Company  as the  principal  accountants  to  audit  the  Company's  consolidated
financial  statements,  resigned  effective April 14, 2004.  Effective April 21,
2004, the Company engaged Grobstein, Horwath, & Company LLP as the Company's new
independent auditors. The dismissal of Grant Thornton, LLP and the engagement of
Grobstein,  Horwath,  & Company LLP were each approved by the Company's Board of
Directors.

       Prior to the engagement of Grobstein, Horwath, & Company LLP, neither the
Company  nor  anyone  on its  behalf  consulted  with such  firm  regarding  the
application  of  accounting  principles  to  a  specified  transaction,   either
completed or uncompleted, or type of audit opinion that might be rendered on the
Company's financial statements.

       Grant Thornton,  LLP audited the Company's  financial  statements for the
period from March 20, 2002 (date of  inception)  to March 31, 2003 and  reviewed
the Company's  interim  financial  statements  through  December 31, 2003. Grant
Thornton,  LLP's  independent  auditors`  report as of March  31,  2003 for this
period did not contain an adverse  opinion or a disclaimer  of opinion,  nor was
the report  qualified or modified as to  uncertainty,  audit scope or accounting
principles,  except  for the  ability  of the  Company  to  continue  as a going
concern.

       During the period  from March 20, 2002 to April 14,  2004,  there were no
disagreements with Grant Thornton, LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Grant Thornton, LLP, would
have  caused  such  firm  to  make  reference  to  the  subject  matter  of  the
disagreements  in  connection  with  its  independent  auditors'  report  on the
Company's  financial  statements.  In  addition,  there  were no such  events as
described under Item  304(a)(1)(IV)(B)  of Regulation S-B during the period from
inception to April 14, 2004.


                                      18
<PAGE>

ITEM 8A.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

         Regulations  under the  Securities  Exchange Act of 1934 require public
companies to maintain "disclosure controls and procedures," which are defined to
mean a company's  controls and other procedures that are designed to ensure that
information  required to be  disclosed  in the reports  that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms.

         The Company  carried out an evaluation,  under the supervision and with
the  participation  of the Company's  management,  including the Company's Chief
Executive  Officer and Chief  Financial  Officer,  of the  effectiveness  of the
design and operation of the Company's  disclosure  controls and procedures as of
the year ended March 31, 2004. The  evaluation  was  undertaken in  consultation
with the Company's  accounting  personnel.  Based on that evaluation,  the Chief
Executive  Officer and Chief  Financial  Officer  concluded  that the  Company's
disclosure  controls and  procedures  are  effective to ensure that  information
required to be  disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported in accordance with the Securities and Exchange  Commission's  rules. We
have  experienced   considerable  problems  from  our  accounting  software  and
equipment. We have upgraded our equipment in response to these problems. We have
also  improved  our  segregation  of duties among  personnel  by hiring  another
individual  to  assist  in  finance  and  accounting  procedures.  Our  internal
procedures have been adjusted to reflect these changes.

         There  were no other  significant  changes  in the  Company's  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of their evaluation.

PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

DIRECTORS AND OFFICERS

         As of March 31, 2004, our officers and directors were:

NAME             AGE     TITLE
----             ---     -----
John Robinson     50     Chief Executive Officer, Chairman of the Board

Julie Seaman      44     Chief Financial Officer, Treasurer, Secretary and
                         Director

         There is a family  relationship  of marriage  between our two directors
and officers.

         The size of our board of directors  is currently  fixed at two members.
Members of the board  serve until the next annual  meeting of  stockholders  and
until their successors are elected and qualified. Meetings of the board are held
when and as deemed necessary or appropriate. Officers are appointed by and serve
at the discretion of the board.

         John  Robinson,  Chief  Executive  Officer,  Chairman  of the  Board of
Directors.  Mr. Robinson  became a director and our Chief  Executive  Officer in
conjunction with the share exchange that took place with USDR Global  Aerospace,
Ltd. on May 17, 2002. Prior to joining USGN, Mr. Robinson served from March 1997
until May 17, 2002 as President and Chief  Executive  Officer to USDR,  Inc. Mr.
Robinson  served  in the  same  capacities  to each of USDR  Inc.'s  affiliates,
including  USDR  Aerospace,  Ltd.,  from October  2001.  From 1993 to 1996,  Mr.
Robinson was President  and Chief  Executive  Officer of United  States  Defense
Research,  Inc., a U.S. Government contractor that manufactured  precision parts
for military equipment.


                                       19
<PAGE>

         Julie  Seaman,  Chief  Financial  Officer,  Treasurer,   Secretary  and
director.  Ms. Seaman  became a director and officer on June 17, 2002.  Prior to
joining USGN, Ms. Seaman served as Treasurer and Director of  Administration  to
USDR, Inc. from March 1997, and held the same positions for each of USDR, Inc.'s
affiliates,  including USDR  Aerospace,  Ltd.,  since October 2001. From 1993 to
1996, Ms. Seaman was Treasurer and Director of  Administration  to United States
Defense Research, Inc., a U.S. government contractor that manufactured precision
parts for military equipment.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         Section 16(a) of the Exchange Act requires our  executive  officers and
directors, and persons who own more than ten percent of our common stock to file
reports of ownership and change in ownership  with the  Securities  and Exchange
Commission  and the  exchange on which the common  stock is listed for  trading.
Executive  officers,  directors  and more  than  ten  percent  stockholders  are
required by  regulations  promulgated  under the Exchange Act to furnish us with
copies of all Section 16(a) reports filed.  Based solely on our review of copies
of the Section  16(a) reports filed for the fiscal year ended March 31, 2004, we
believe that all reporting  requirements  applicable to our executive  officers,
directors and more than ten percent stockholders were complied with for the
fiscal year ended March 31, 2004 with the exception of the  following.  In order
to bring their  filings  current,  John  Robinson  and Julie  Seaman  filed late
reports.  John Robinson filed a total of 13 reports late, covering a total of 29
transactions.  Julie Seaman filed a total of 9 reports late, covering a total of
17 transactions.

ITEM 10.  EXECUTIVE COMPENSATION

         The following tables and discussion set forth  information with respect
to all incentive stock option plan and non-plan  compensation awarded to, earned
by or paid to our Chief Executive  Officer and our Chief  Financial  Officer for
all  services  rendered  in all  capacities  to us for  each of our  last  three
completed fiscal years.

<TABLE>
<CAPTION>
                                                 SUMMARY COMPENSATION TABLE

                                                                                                 LONG TERM COMPENSATION
                                                                              ------------------------------------------------------
                                         ANNUAL COMPENSATION                             AWARDS                  PAYOUTS
                             -------------------------------------------------------------------------------------------------------
                                                              Other            Restricted                               All Other
                                                               Annual          Stock Awards  Securities      LTIP      Compen-sation
Name and Principal           Salary            Bonus          Compensation     ($)           Underlying      Payout     ($)
Position             Year    ($)               ($)            ($)                            Options/SAR     ($)
-------------------  -----   ----------      ------------     --------------   ------------  ------------  ---------   -------------
<S>                  <C>     <C>             <C>               <C>             <C>           <C>           <C>          <C>
John Robinson        2004     $472,561(1)      $400,000(1)               0               0              0             0           0
CEO                  2003     $125,000(2)             0                  0               0              0             0           0
                     2002            0                0                  0               0              0             0           0

Susan Schreter       2002            0                0                  0               0              0             0           0
President

Julie Seaman         2004    $135,715(3)        $125,000(3)
CFO                  2003
                     2002           0                  0                 0               0              0             0           0
</TABLE>

(1)  Mr. Robinson received no cash compensation  during the year ended March 31,
     2004.  Instead,  he received a total of 2,523,313  shares of the  Company's
     common  stock as  compensation  (i) for  ordinary  services  rendered to us
     during that period,  (ii) as a bonus for  extraordinary  services  rendered
     during that period, and (iii) in payment of compensation  totaling $125,000
     accrued but unpaid  during the year ended March 31,  2003.  The stock had a
     fair market value of $872,561.


                                       20
<PAGE>

(2)  Mr. Robinson's salary was accrued but unpaid as of March 31, 2003.

(3)  Ms. Seaman  received no cash  compensation  during the year ended March 31,
     2004.  Instead,  she  received a total of 770,338  shares of the  Company's
     common stock as compensation for ordinary services rendered during the year
     ended March 31, 2004 and for  extraordinary  services  rendered  during the
     same period. The stock had a total fair market value of $260,715.

STOCK OPTIONS

         There were no stock options  granted to executive  officers  during the
fiscal year ended March 31,  2004 and there was no exercise of  incentive  stock
options during the last completed fiscal year by the executive officers.

DIRECTOR COMPENSATION

         There is no standard or individual  compensation package for any of the
directors.

EMPLOYMENT CONTRACTS

         We have no employment  contracts with our Chief Executive Officer,  Mr.
John Robinson, or with our Chief Financial Officer, Ms. Julie Seaman.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The following  table sets forth  information as of June 25, 2004 as to
each person who is known to us to be the beneficial owner of more than 5% of our
outstanding common stock and as to the security and percentage ownership of each
executive  officer and director of USGN and all of our officers and directors as
a group.  Except where  specifically  noted, each person listed in the table has
sole voting and investment power with respect to the shares listed.

<TABLE>
<CAPTION>

                             Name and Address               Security Ownership             Percentage
     Title of                       Of                       Amount and Nature                 Of
      Class                  Beneficial Owners            Of Beneficial Ownership            Class
---------------     -------------------------------       ------------------------        -------------
<S>                 <C>                                   <C>                             <C>
      Common        John Robinson
                    2533 North Carson Street, #5107             46,686,658                   52.34%
                    Carson City, NV 89706

      Common        Julie Seaman
                    2533 North Carson Street #5107               1,373,579                   1.54%
                    Carson City, NV 89706
                    Officers and Directors as a group
                    (2 persons)                                 48,060,237                   53.88%

</TABLE>

(1)  There are no shares that would be required to be reported  pursuant to Rule
     13d-3 of the Securities Exchange Act of 1934.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         On May 14,  2002,  USDR  Aerospace,  Ltd.  (Aerospace)  entered into an
agreement with the Company to assign certain of its intellectual property to the
Company for  consideration of $10, and a promise to pay a royalty of 3.5% on all
of the Company's sales until Aerospace has received a total of $15 million,  and
a royalty of 1% of all of the Company's sales thereafter until all patent rights
of the intellectual property have expired. For the year ended December 31, 2004,
the Company has incurred a total of $4,893 in royalties from this agreement.

         John Robinson,  our Chief  Executive  Officer and a director,  controls
Aerospace,  which  has  licensed  intellectual  property  to us.  Aerospace  has
provided  employees  and product  development  services to us.  Since  inception
(March 20, 2002),  Aerospace has provided services totaling  approximately  $2.9
million for which we currently owe  Aerospace  $307,114 as of March 31, 2004. As
of January 1, 2003, Aerospace  substantially  discontinued all of its operations
and  we  hired  certain  individuals   previously  employed  through  Aerospace.
Aerospace continues to provide certain supplies and services to us.


                                       21
<PAGE>

         As of March 31, 2004,  John  Robinson  guaranteed  our bank loan in the
amount of  $1,225,000.  The loan is due to be repaid  on March 31,  2005.  As of
March 31, 2004, interest accrued on the loan was $31,896.

         On April 29, 2003,  Julie  Seaman,  our Chief  Financial  Officer and a
director, loaned us the sum of $12,000. The loan bears interest at 10% per annum
and matured on June 30, 2004. Ms. Seaman has agreed to accept  restricted common
stock in exchange for this loan.

         On April 30, 2003,  John Robinson,  our Chief  Executive  Officer and a
director, loaned us the sum of $10,000. The loan bears interest at 10% per annum
and  matured on June 30,  2004.  Mr.  Robinson  has agreed to accept  restricted
common stock in exchange for this loan.

         On May 1, 2003, Julie Seaman  guaranteed our payment and performance of
a lease entered into for our research division.

         On May 9, 2003,  Julie  Seaman  loaned us the sum of $13,000.  The loan
bears  interest at 10% per annum and matured on June 30,  2004.  Ms.  Seaman has
agreed to accept restricted stock in exchange for this loan.


         On August 7, 2003, we entered into a loan  agreement with John Robinson
for amounts up to  $150,000,  and on  December  19, 2003 the loan was amended to
allow us to  borrow  up to  $500,000.  As of  March  31,  2004 we owed  $429,834
(including accrued interest) under this loan agreement.  The loan bears interest
at 10% per annum and matured on June 30, 2004. Mr. Robinson has agreed to accept
restricted stock in exchange for this loan.

                  On October 3, 2003,  we  entered  into a loan  agreement  with
Julie Seaman for amounts up to $100,000.  As of March 31, 2004 we owed  $269,709
(including accrued interest) under this loan agreement.  The loan bears interest
at 10% per annum and matured on June 30, 2004.  Ms.  Seaman has agreed to accept
restricted stock in exchange for this loan.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

2.       Agreement  and  Plan  of  Share  Exchange   between   Caring   Products
         International,   Inc.   and  USDR  Global   Aerospace,   Ltd.  and  the
         stockholders of US Global Aerospace, Ltd. dated as of May 15, 2002 (1)

3.1      Certificate of Incorporation, as amended (2)

3.2      Bylaws (3)

10.1     Gross Lease Agreement dated April 28, 2003 between USGN and West Harris
         Property, Inc. (4)

10.2     Addendum E to Lease/Guarantee executed by Julie Seaman (4)

10.3     Intellectual  Property  Assignment and Royalty  Agreement dated May 14,
         2002 between USDR Aerospace, Ltd. and USDR Global Aerospace, Ltd. (4)

10.4     US Global Nanospace, Inc. Amended and Restated 2002 Stock Plan (7)

10.5     Settlement  Agreement  and Mutual  Release among ERBC  Holdings,  Ltd.,
         USGN,  USDR Global  Aerospace,  Ltd.,  USDR  Aerospace,  Ltd., Live Oak
         Capital,  LLC,  Nicholas  Lattanzio,  Margaret K.  Curtis,  Smith Point
         Capital, LTD. and Daniel T. Guilfoile dated November 20, 2002. (4)

10.6     Settlement  Agreement  and  Mutual  Release  among  USGN,  USDR  Global
         Aerospace,  Ltd., USDR Aerospace,  Ltd. and Richard Wall dated November
         19, 2002. (4)

10.7     Settlement  Agreement  and  Mutual  Release  among  USGN,  USDR  Global
         Aerospace,  Ltd., USDR Aerospace,  Ltd., Richard A. Wall, ECON Investor
         Relations, Inc. and Dawn Van Zant dated November 19, 2002 (4)



                                       22
<PAGE>

10.8     Promissory  Note and  Commercial  Security  Agreement  between USGN and
         Western Security Bank dated June 30, 2003 (4)

10.9     Commercial  Guaranty between John D. Robinson and Western Security Bank
         (4)

10.10    Promissory  Note in the amount of $12,000 dated April 29, 2003 in favor
         of Julie Seaman (5)

10.11    Promissory  Note in the amount of $10,000 dated April 30, 2003 in favor
         of John Robinson (5)

10.12    Promissory  Note in the amount of $13,000 dated May 9, 2003 in favor of
         Julie Seaman (5)

10.13    Promissory  Note in the amount of $125,000  dated June 6, 2003 in favor
         of U.S.D.R. (NV), Inc. (5)

10.14    Promissory  Note in the amount of $100,000 dated April 8, 2003 in favor
         of USDR Aerospace, Ltd. (5)

10.15    Patent and  Technology  License  Agreement  dated July 24, 2003 between
         USGN and TIAX, LLC (6)

10.16    Amendment No. 1 dated October 3, 2003 to Patent and Technology  License
         Agreement between USGN and TIAX LLC(6)

10.17    Master  Agreement by and between  Y2-Ultra-Filter,  Inc. and USGN dated
         June 19, 2003 (6)

10.18    Promissory Note in the amount of $195,649.94  dated January 27, 2004 in
         favor of Steve Squires (7)

10.19    Promissory Note in the amount of $50,000 dated January 9, 2004 in favor
         of Paula Boozer (7)

10.20    Promissory  Note in the amount of  $47,283.50  dated January 8, 2004 in
         favor of Robin Bailey (7)

14       Code of Ethics (7)

16       Letter on change in certifying accountant (8)

21.1     Consent of Grobstein, Horwath,& Company LLP (7)

21.2     Consent of Grant Thornton LLP (7)

31.1     Certification by Chief Executive Officer (7)

31.2     Certification by Chief Financial Officer (7)

32       Certification pursuant to 18 U.S.C. section 1350 (7)

(1)  Incorporated  by reference  from a Form 8-K filed with the  Securities  and
     Exchange Commission on May 30, 2002.

(2)  Incorporated  by  reference  from  Amendment  No.  1  to  the  Registration
     Statement on Form SB-2 filed with the Securities and Exchange Commission on
     March 20, 1996.

(3)  Incorporated  by  reference  from the  Registration  Statement on Form SB-2
     filed with the Securities and Exchange Commission on September 12, 1995.

(4)  Incorporated  by reference from a definitive  Information  Statement  filed
     with the Securities and Exchange Commission on June 20, 2003.

(5)  Incorporated  by reference from a Form 10-QSB filed with the Securities and
     Exchange Commission on September 10, 2003.

(6)  Incorporated  by reference from a Form 10-QSB filed with the Securities and
     Exchange Commission on November 14, 2003.

(7)  Filed herewith.

(8)  Incorporated  by reference  from a Form 8-K filed with the  Securities  and
     Exchange Commission on April 21, 2004

(b)  Reports on 8-K

On February 12, 2004, the Company filed a Current Report  announcing that it had
received a written  request for  information  from the  Securities  and Exchange
Commission  and that the Registrant is cooperating to provide the Securities and
Exchange Commission the requested information.

On April 21,  2004,  the  Company  filed a Current  Report  announcing  that its
independent  auditor,  Grant Thornton LLP, had resigned and that it had retained
the services of Grobstein, Horwath, & Company LLP as its independent auditor.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

         (1) AUDIT FEES

         The  aggregate  fees  billed  by the  Company's  principal  accountant,
         Grobstein, Horwath, & Company LLP for the audit of the Company's annual
         financial  statements at March 31, 2004, were $25,000 as of this filing
         date.


                                       23
<PAGE>

         The aggregate fees billed by the Company's principal accountant,  Grant
         Thornton   LLP  for  the  audit  and  review  of the  Company's  annual
         financial statements at March 31, 2003, and for review of the Company's
         quarterly 10-QSBs and services  provided for regulatory  filings during
         the period April 1, 2003 through December 31, 2003, were $109,514.

         (2) AUDIT-RELATED FEES

         NONE

         (3) TAX FEES

         The aggregate fees billed by the Company's principal accountant,  Grant
         Thornton  LLP  for tax preparation and advice for years ended March 31,
         2004 and 2003 was $13,288.

         (4) ALL OTHER FEES

         None



                                       24
<PAGE>


         In  accordance  with  Section  13 of 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
hereunto duly authorized.


Date:  July 13, 2004                         US GLOBAL NANOSPACE, INC.


                                             By:/s/ John Robinson
                                             -----------------------------
                                             John Robinson, Chairman and
                                             Chief Executive Officer

                                             By:/s/ Julie Seaman
                                             -----------------------------
                                             Julie Seaman, Secretary and
                                             Chief Financial Officer


         In accordance  with the  requirements  of the Exchange Act, this report
has been signed by the following  persons on behalf of the registrant and in the
capacities and on the dates indicated:

Name                                 Title                        Date


/s/John Robinson                     Chief Executive Officer      July 13, 2004
---------------------------          and Director



/s/Julie Seaman                      Treasurer,                   July 13, 2004
---------------------------          Chief Financial Officer
                                     and Director



                                       25