UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

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

                  For the quarterly period ended: June 30, 2005

                                       OR

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

                        Commission file number: 000-23339

                            US GLOBAL NANOSPACE, INC.
             (Exact name of registrant as specified 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)

                                  775-841-3246
               (Registrant's telephone number including area code)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 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 |_|

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 3, 2005 the issuer had
114,185,178 shares of Common Stock issued and outstanding.

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

<PAGE>

                            US GLOBAL NANOSPACE, INC.

                                      INDEX

                                                                       PAGE
PAR   T I                                                             NUMBER

Item 1 - Financial Statements

         Balance Sheets as of June 30, 2005 (unaudited)
                  and March 31, 2005                                    3

         Statements of Operations - Three Months Ended
                  June 30, 2004 and 2005 and
                  since inception (March 20, 2002)                      4
                  through June 30, 2005 (unaudited)

         Statement of Stockholders' Deficit -
                  Three Months Ended June 30, 2005                      5
                  (unaudited)

         Statements of Cash Flows - Three Months Ended
                  June 30, 2004 and 2005 and
                  since inception (March 20, 2002)                      6
                  through June 30, 2005 (unaudited)

         Notes to the Financial Statements                              7  -  11

Item 2 - Management's Discussion and Analysis of
         Financial Condition and Results of Operations                 11  -  16

Item 3 - Controls and Procedures                                        17

PART II

Item 1 - Legal Proceedings                                              17

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds    17

Item 3 - Defaults Upon Senior Securities                                17

Item 4 - Submission of Matters to a Vote of Security Holders            17

Item 5 - Other Information                                              18

Item 6 - Exhibits                                                       18

Signature Page

<PAGE>

PART I - ITEM 1  FINANCIAL STATEMENTS

                            US GLOBAL NANOSPACE, INC.
                          (A development stage company)
                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                            June 30,        March 31,
                                                                              2005            2005
                                                                          (Unaudited)
                                                                          ------------    ------------
ASSETS
<S>                                                                       <C>             <C>
CURRENT ASSETS
    Cash                                                                  $      1,141    $     53,547
    Accounts receivable                                                         96,579         120,502
    Other receivables                                                          106,739          82,579
    Prepaid expenses                                                            35,000              --
    Inventory                                                                   62,579           1,729
                                                                          ------------    ------------

       Total current assets                                                    302,038         258,357

NONCURRENT ASSETS
    Deposits                                                                    11,000          11,000
                                                                          ------------    ------------

       Total assets                                                       $    313,038    $    269,357
                                                                          ============    ============


LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
    Current maturities of bank note payable                               $    240,988    $    237,608
    Accounts payable                                                           708,608         683,302
    Accrued salaries and expenses                                              963,166         787,547
    Accrued interest                                                             6,585          24,219
    Related party payable                                                      333,475         330,887
    Loans payable                                                              226,700         308,229
                                                                          ------------    ------------

       Total current liabilities                                             2,479,522       2,371,790
                                                                          ------------    ------------

BANK NOTE PAYABLE, less current portion                                        509,507         568,162
                                                                          ------------    ------------

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,
       114,185,178 and 105,752,751 issued and outstanding, respectively        113,227         104,794
    Additional paid-in capital                                              16,032,352      15,413,845
    Deferred compensation and services                                          (4,262)         (7,460)
    Deficit accumulated during the development stage                       (18,817,308)    (18,181,774)
                                                                          ------------    ------------

       Total stockholders' deficit                                          (2,675,991)     (2,670,595)
                                                                          ------------    ------------

       Total liabilities and stockholders' deficit                        $    313,038    $    269,357
                                                                          ============    ============
</TABLE>

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


                                       3
<PAGE>

                            US GLOBAL NANOSPACE, INC.
                          (A development stage company)
                      STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
                                                                               Cumulative
                                                                               results of
                                                                               operations
                                                                           from March 20, 2002
                                             Three Months    Three Months  (date of inception)
                                                Ended            Ended           through
                                            June 30, 2005    June 30, 2004    June 30, 2005
                                            -------------    -------------    -------------
<S>                                         <C>              <C>              <C>
REVENUES                                    $      93,577    $      94,688    $     950,127
COST OF REVENUES                                   37,552           73,271          445,834
                                            -------------    -------------    -------------

       Gross Profit                                56,025           21,417          504,293
                                            -------------    -------------    -------------

OPERATING EXPENSES
   Research and development
     Non-cash services                             33,828               --           85,873
     Other research and development               141,193          137,549        3,516,449
   General and administrative
     Non-cash compensation and services           129,078          488,049        8,091,172
     Other general and administrative             368,336          439,156        7,756,657
                                            -------------    -------------    -------------

       Total operating expenses                   672,435        1,064,754       19,450,151
                                            -------------    -------------    -------------

       Operating loss                            (616,410)      (1,043,337)     (18,945,858)
                                            -------------    -------------    -------------

OTHER INCOME (EXPENSE)
   Debt restructure                                    --               --          918,573
   Other income                                     7,500               --           65,452
   Interest expense                               (26,624)         (56,584)        (855,475)
                                            -------------    -------------    -------------

       Total other income (expense)               (19,124)         (56,584)         128,550
                                            -------------    -------------    -------------

       NET LOSS                             $    (635,534)   $  (1,099,921)   $ (18,817,308)
                                            =============    =============    =============

Net loss per share, basic and diluted       $       (0.01)   $       (0.01)   $       (0.22)
                                            =============    =============    =============
Basic and diluted weighted average
   number of common shares                    111,550,100       88,656,206       84,401,939

</TABLE>

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


                                       4
<PAGE>

                            US GLOBAL NANOSPACE, INC.
                          (A development stage company)
                       STATEMENT OF STOCKHOLDERS' DEFICIT
                        Three Months Ended June 30, 2005
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                                      Accumulated
                                                                       Additional       Deferred      During the         Total
                                               Common Stock              Paid-in      Compensation    Development     Stockholders'
                                          Shares          Amount         Capital      and Services       Stage          Deficit
                                       ------------    ------------    ------------   ------------    ------------    ------------
<S>                                    <C>             <C>             <C>            <C>             <C>             <C>
Balance at April 1, 2005                105,752,751    $    104,794    $ 15,413,845   $     (7,460)   $(18,181,774)   $ (2,670,595)

Issuance of common stock on April 1,
2005 in consideration for services at
$0.097 per share                          1,055,986           1,056         101,375                                        102,431

Issuance of common stock on April 8,
2005 in consideration for wages at
$0.09 per share                           1,822,090           1,822         162,166                                        163,988

Issuance of common stock on May 3,
2005 in consideration for services at
$0.08 per share                              94,325              94           7,452                                          7,546

Issuance of common stock on May 9,
2005 in consideration for accounts
payable at $0.069 per share                 346,522             347          23,563                                         23,910

Issuance of common stock on May 11,
2005 in consideration for notes
payable at $0.064 per share               4,734,704           4,735         298,286                                        303,021

Issuance of common stock on May 18,
2005 in consideration for services
at $0.07 per share                          300,000             300          20,700                                         21,000

Issuance of common stock on June 1,
2005 in consideration for services
at $0.064 per share                          78,800              79           4,965                                          5,044

Amortization of deferred compensation
and services                                                                                 3,198                           3,198

Net loss for the period                                                                                   (635,534)       (635,534)
                                       ------------    ------------    ------------   ------------    ------------    ------------
Balance at June 30, 2005                114,185,178    $    113,227    $ 16,032,352   $     (4,262)   $(18,817,308)   $ (2,675,991)
                                       ============    ============    ============   ============    ============    ============
</TABLE>

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


                                       5
<PAGE>


                            US GLOBAL NANOSPACE, INC.
                          (A development stage company)
                      STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
                                                                                                    Cumulative
                                                                                               results of operations
                                                                                                from March 20, 2002
                                                                  Three months    Three months  (date of inception)
                                                                     ended           ended           through
                                                                  June 30, 2005   June 30, 2004   June 30, 2005
                                                                  -------------   -------------   -------------
<S>                                                               <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
       Net loss                                                   $    (635,534)  $  (1,099,921)  $ (18,817,308)
       Adjustments to reconcile net loss to net
         cash used in operating activities
              Common stock issued for services                          162,906         488,049       8,177,045
              Forgiveness of loans and accounts payable                      --              --        (918,573)
      Changes in operating assets and liabilities:
                  Accounts receivable                                    23,923         (21,259)        (96,579)
                  Other receivables                                     (24,160)         19,318        (106,739)
                  Prepaid expenses                                      (35,000)             --         (35,000)
                  Inventory                                             (60,850)             --         (62,579)
                  Deposits                                                   --              --         (11,000)
                  Accounts payable                                       49,216         167,302       2,416,447
                  Accrued salaries and expenses                         315,920         313,234       4,673,256
                  Accrued interest                                       (6,842)         23,418         413,369
                  Related party payable                                   2,588           3,313         333,475
                                                                  -------------   -------------   -------------
                          Net cash used in operating activities        (207,833)       (106,546)     (4,034,186)
                                                                  -------------   -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES
          Cash acquired in conjunction with share
               exchange agreement                                            --              --           2,946
                                                                  -------------   -------------   -------------

          Net cash provided by investing activities                          --              --           2,946
                                                                  -------------   -------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES
         Proceeds from bank note payable                                     --              --       1,650,000
         Payments on bank note payable                                  (55,273)       (300,000)       (899,505)
         Proceeds from loans payable                                    210,700         396,600       3,139,805
         Payments on loans payable                                           --              --         (12,919)
         Proceeds from issuance of common stock                              --              --         155,000
                                                                  -------------   -------------   -------------

               Net cash provided by financing activities                155,427          96,600       4,032,381
                                                                  -------------   -------------   -------------

Net increase (decrease) in cash                                         (52,406)         (9,946)          1,141

Cash at beginning of period                                              53,547          18,437              --
                                                                  -------------   -------------   -------------

Cash at end of period                                             $       1,141   $       8,491   $       1,141
                                                                  =============   =============   =============

SUPPLEMENTAL CASH FLOW INFORMATION AND
  NON-CASH INVESTING AND FINANCING ACTIVITIES
          Cash paid for:
                    Interest                                      $      33,085   $      31,556   $     423,384
                                                                  =============   =============   =============
                    Income Taxes                                  $          --   $          --   $      13,288
                                                                  =============   =============   =============
         Accounts payable acquired in conjunction with share
           exchange agreement                                     $          --   $          --   $      (2,500)
                                                                  =============   =============   =============

         Common stock issued in exchange for accounts payable     $      23,910   $          --   $   1,709,459
                                                                  =============   =============   =============

         Common stock issued in exchange for loans payable
              and accrued interest                                $     303,021   $     378,823   $   2,389,278
                                                                  =============   =============   =============

         Common stock issued in exchange for wages                $     140,301   $     209,363   $   3,710,090
                                                                  =============   =============   =============
</TABLE>

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


                                       6
<PAGE>


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

                        NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. FINANCIAL STATEMENTS

The unaudited financial statements of US Global Nanospace,  Inc. (the "Company")
have been prepared by the Company  pursuant to the rules and  regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles  generally  accepted  in the  United  States  of  America  have  been
condensed or omitted pursuant to such rules and  regulations.  In the opinion of
management,   all  adjustments  (consisting  of  normal  recurring  adjustments)
necessary for a fair presentation have been included.  The results of operations
for interim periods are not necessarily indicative of the results to be expected
for the entire  fiscal year ending March 31, 2006.  The  accompanying  unaudited
financial  statements and related notes should be read in  conjunction  with the
audited  financial  statements and the Form 10-KSB of the Company for its fiscal
year ended March 31, 2005.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to expense 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 June 30, 2005, all options and warrants
have  expired and there were no shares of  potentially  issuable  common  stock.
Because of the net loss for the three months  ended June 30, 2005 and 2004,  and
from  inception  (March 20, 2002)  through June 30, 2005,  potentially  issuable
common  stock was not included in the  calculation  of diluted loss per share as
their inclusion would be anti-dilutive.

INVENTORY

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

REVENUE RECOGNITION

We recognize revenues in accordance with SEC Staff Accounting Bulletin (SAB) No.
101, "Revenue  Recognition in Financial  Statements",  and as amended by SAB No.
104, "Revenue Recognition".  Revenues are recognized when persuasive evidence of
an arrangement  exists,  delivery has occurred,  or services have been rendered,
the price is fixed and determinable and  collectibility  is reasonably  assured.
Revenue from product sales is recognized at the time of delivery of the product.
Revenue under contracts  based on a fixed fee is recognized  based on conditions
being met.  Revenue under contracts based on royalty fees is recognized when the
amounts are earned and  determinable,  which is  generally  when cash payment is
received.  However, since we are not able to forecast product sales by licenses,
royalty  payments  that are  based on  product  sales by the  licensees  are not
determinable until the licensee has completed their computation of the royalties
due and/or remitted their cash payment.  Should  information on licensee product
sales become  available so as to enable us to  recognize  royalty  revenue on an
accrual basis,  materially  different  revenues and results of operations  could
occur.

RECLASSIFICATIONS

Certain  reclassifications  were  made to  previously  reported  amounts  in the
accompanying  financial  statements and notes to make them  consistent  with the
current year presentation. In the June 30, 2004 10-QSB statements of cash flows,
we included an increase in other receivables of $19,318 in investing activities,
and an  incerase in related  party  payable of $3,313 in  financing  activities.
These amounts are now classified as operating activities.


                                       7
<PAGE>


NOTE 2. 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  solutions
oriented,  research and  development  company that  specializes in  identifying,
developing,   and  commercializing   advanced   technologies  and  products  for
integration  into the  defense  and health and safety  markets.  These  products
include complex polymer materials, polymer nanofiber materials, nanofiber filter
materials,   biological  and  chemical  decontaminants,   and  blast  mitigation
materials.  Currently,  most of the Company's  products are being  developed for
defense  and  health  and  safety  applications.  Operating  revenues  have been
generated  in the amount of $93,577 for the three  months  ended June 30,  2005.
Since  inception,  the  Company  obtained  loans  from a bank for  amounts up to
$1,650,000 and the Company has received  $3,139,805 in loans from third parties,
existing  shareholders  and  directors.  The  Company  does not  manufacture  or
distribute its products on a commercial scale. Under the Development and License
Agreement  between the Company and Kidde  Firefighting,  Inc. dated as of August
13,  2004,  Kidde  Firefighting,  Inc.  is  responsible  for all of the costs of
manufacturing, marketing and distribution of the Company's All-Clear product. In
addition,  the  Company is in the  process  of  negotiating  certain  licensing,
manufacturing or distribution arrangements with other international companies or
independent contractors that have the infrastructure to manufacture,  distribute
or sell its products on a commercial scale worldwide. The Company is also in the
process of  negotiating  directly with certain  government  agencies and private
sector  companies  for the sale or licensing of its  products.  In addition,  in
order to conserve the Company's  cash, the officers and employees of the Company
have been deferring  their  salaries,  and the employees  accepted shares of the
Company's  common  stock in lieu of cash.  During  the  next 12  months,  if the
Company cannot generate  sufficient  funds to operate its business from sales or
licenses of its products, it will be required to seek financing from its largest
shareholder,  who has provided financing and a loan guarantee for the Company in
the past.  The  shareholder  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 3. INTELLECTUAL PROPERTY ASSIGNMENT AND ROYALTY AGREEMENT

On May 14, 2002, USDR Aerospace,  Ltd.  ("Aerospace"),  a related party, 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.  As of June 30,
2005, the Company has incurred a total of $33,251 in royalties  associated  with
this agreement.

NOTE 4. 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 matured 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. On December 30,
2004,  the maturity  date was  extended to February  28, 2005.  The Company owed
Aerospace $112,869, including accrued interest, under this loan agreement and on
May 11, 2005,  Aerospace  accepted  restricted common stock in exchange for this
loan.

The  Chairman  of the  Company  has  continued  to provide  cash to support  the
Company's operations.  The Chairman 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.  On June 11,  2004,  the loan was amended to include
amounts up to $500,000.  The loan bears interest at 10% per annum and matured on
December  31, 2004.  On December  30,  2004,  the loan was amended to extend the
maturity date to February 28, 2005.  The Company owed USDR  $190,152,  including
accrued  interest,  under this loan agreement and on May 11, 2005, USDR accepted
restricted  common stock in exchange for this loan. On May 13, 2005, the Company
entered into a loan  agreement  with USDR for amounts up to  $350,000.  The loan
bears interest at 10% per annum and matures on August 13, 2005. The Company owed
USDR $211,444, as of June 30, 2005, 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  Company  owes the  shareholder
$19,547,  including accrued  interest,  as of June 30, 2005. The shareholder has
agreed to extend the loans, date to be determined.


                                       8
<PAGE>


NOTE 5. RELATED PARTY PAYABLE

The  Chairman  of  the  Company  controls  Aerospace,  which  has  licensed  the
intellectual  property to the Company as described in Note 3, under which we owe
Aerospace  $33,251 in  royalties  as of June 30,  2005.  Aerospace  has provided
employees  and product  development  services to the  Company.  Since  inception
(March 20, 2002),  Aerospace has provided such services,  based on actual costs,
totaling  approximately  $2.9  million  for which  the  Company  currently  owes
Aerospace   $300,224  as  of  June  30,  2005.   Aerospace   has  also  provided
manufacturing and office equipment to support operations. As of January 1, 2003,
Aerospace  substantially  discontinued  its  operations  and the  Company  hired
certain individuals previously employed by Aerospace.

NOTE 6. BANK NOTE 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,  which
bears  interest at 10% per annum and matures on May 15, 2008.  The terms require
principal and interest  payments of $25,400 due monthly,  beginning  October 15,
2004,  and one final  principal  and interest  payment of $11,779 due on May 15,
2008.  The loan is secured by the assets of the  Company and  guaranteed  by the
Company's  Chairman.  As of  June  30,  2005,  the  Company  had an  outstanding
principal balance of $750,495 and accrued interest totaled $2,294.

NOTE 7. STOCK-BASED COMPENSATION

The Company has a stock-based  compensation plan that is accounted for under APB
Opinion  No.  25,  "Accounting  for Stock  Issued  to  Employees",  and  related
Interpretations.  No options  have been granted  under the plan since  inception
(March 20,  2002).  Options that were  granted  under a stock option plan of the
Company  prior to its merger  with USDR Global  Aerospace,  Ltd. on May 17, 2002
have  all  expired.   Accordingly,  no  compensation  expense  would  have  been
recognized  under  the  recognition   provisions  of  FASB  Statement  No.  123,
"Accounting  for  Stock-Based  Compensation",  during the periods ended June 30,
2005 and 2004, and since inception  (March 20, 2002). In December 2004, the FASB
issued SFAS No. 123R,  which  eliminates the ability to account for  share-based
compensation transactions using the intrinsic value method under APB Opinion No.
25 and generally would require  instead that such  transactions be accounted for
using a fair-value-based  method. This statement is effective for the Company as
of the first interim  period or fiscal year  beginning  after December 15, 2005.
Management  is currently  assessing the effect of SFAS No. 123R on the Company's
financial statement.

On April 10, 2003, the Company  adopted the Amended and Restated 2002 Stock Plan
(as  amended,  the "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 30,000,000 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,
or in the absence of a committee, by the Board of Directors.

On April 8, 2005, the Company granted 1,822,090 shares of common stock under the
2002  Stock  Plan to  recipients  in lieu of wages  with an award  valuation  of
$140,301,  equaling  85% of the fair market value per share on the date of grant
of the award. The Company recognized $23,688 as additional  non-cash expense for
the difference between the fair value of the stock and the wages due.

The Company has accrued  payroll taxes  relating to the issuance of common stock
in lieu of wages in accrued salaries and expenses at the three months ended June
30,  2005,  and the  Company  recorded  $106,739  in other  receivables  for the
employee's portion of the taxes due to the Company.

NOTE 8. CONTINGENT LIABILITIES

Pending or Threatened Legal Proceedings

From time to time, claims are made against the Company in the ordinary course of
its business, which could result in litigation. Claims and associated litigation
are subject to inherent uncertainties and unfavorable outcomes could occur, such
as monetary  damages,  fines,  penalties or injunctions  prohibiting the Company
from  selling  one or  more  products  or  engaging  in  other  activities.  The
occurrence  of an  unfavorable  outcome  in any  specific  period  could  have a
material  adverse affect on the Company's  results of operations for that period
or future periods.


                                       9
<PAGE>


In connection  with the SEC matter  described in Part II, Item 1, the Company is
actively seeking a negotiated  settlement.  However,  no settlement has yet been
mutually accepted by the parties involved.  Due to the uncertainties inherent in
this matter,  the Company can provide no  assurance  that it or its officers and
directors  will settle the matter with the SEC. The Company  currently is unable
to estimate  with  reasonable  certainty  the possible loss or range of loss for
this matter.

If the matter does settle and the  Company's  officers and directors pay certain
amounts in settlement,  they may be entitled to  indemnification  by the Company
for  such  amounts.   The  Company's   Amended  and  Restated   Certificate   of
Incorporation,  as  amended,  provides  for  the  indemnification  of  officers,
directors  and agents of the  Company to the  fullest  extent  permitted  by the
Delaware General  Corporation Law. The Company does not maintain  directors' and
officers' liability insurance.

The indemnification  provision in the Company's Amended and Restated Certificate
of  Incorporation  may be sufficiently  broad to permit  indemnification  of the
Company's  officers and directors for liabilities  (including  reimbursement  of
expenses  incurred)  arising  under  the  Securities  Act of  1933.  Insofar  as
indemnification  for liabilities arising under the Securities Act of 1933 may be
permitted to our officers and directors pursuant to the foregoing provision,  or
otherwise,  the  Company  has been  advised  that in the opinion of the SEC such
indemnification  is against  public policy as expressed in the Securities Act of
1933  and  is,  therefore,   unenforceable.  In  the  event  that  a  claim  for
indemnification  for such liabilities (other than the payment by the Company for
expenses  incurred  or  paid  by the  Company's  officers  or  directors  in the
successful  defense of the SEC matter) is asserted by the officers or directors,
the Company intends to, unless in the opinion of the Company's legal counsel the
matter  has  been  settled  by  controlling  precedent,  submit  to a  court  of
appropriate  jurisdiction the question of whether the Company's  indemnification
of its  officers or  directors  is against  public  policy as  expressed  in the
Securities  Act of 1933 and will be  governed by the final  adjudication  of the
issue by the court.  The Company  cannot predict at this time whether any of its
officers and directors would seek  indemnification from the Company in the event
they bear any of the liability in connection with the SEC matter.

By letter dated May 27, 2005,  TIAX LLC notified the Company that TIAX  believed
that the  Company  was in  default  under  the  Patent  and  Technology  License
Agreement  dated July 25,  2003,  as amended,  between  TIAX and the Company for
failure to pay  $192,914  TIAX  alleged was due under the  agreement.  Under the
terms of the Agreement,  the Agreement terminates upon 30 days written notice of
default  if the  default  is not cured to the  satisfaction  of TIAX  within the
30-day notice period. On June 27, 2005, the Company  responded to TIAX,  stating
that it  disagreed  with  TIAX's  assessment  of the amounts due TIAX under this
agreement.  The Company also informed TIAX that the decontaminant  product being
marketed by Kidde had been jointly  developed by the Company and Kidde, and that
the Company did not believe  that this new product was subject to its  agreement
with TIAX. The Company has made a counter-proposal to TIAX, offering to pay TIAX
25% of  royalties  received by the Company from Kidde.  On July 19,  2005,  TIAX
rejected  the  Company's  counter-proposal  to modify the  payment  terms of the
agreement  and  notified  the  Company  that  TIAX  will  exercise  its right to
terminate the agreement,  unless the Company pays $196,344 in full by August 18,
2005.  Of this  $196,344,  the Company  has  received  invoices  from TIAX in an
aggregate  amount of  approximately  $165,000  that it has reflected as accounts
payable in its financial  statements  as of June 30, 2005,  although the Company
disputes  this  amount.  Upon  receipt of this notice from TIAX that the alleged
default  had not been  cured,  the  Company  is  taking  the  position  that the
agreement  has  already  terminated  as of June 28,  2005.  It is the  Company's
understanding  that TIAX disagrees with this position.  It is possible that this
dispute may result in litigation  initiated by TIAX.  The Company  believes that
the product that Kidde is producing  under license from the Company  comprises a
new formula that is the intellectual property of the Company and Kidde.

Other

On March 30, 2005, the Company issued to certain of its attorneys 957,706 shares
of common stock under the Amended and Restated  2002 Stock Plan as collateral to
secure an  obligation  to pay  outstanding  legal fees in the amount of $100,559
(the "Outstanding Obligation"). The holders of the shares have the right to sell
them  at  any  time,  subject  to  and  in  accordance  with  applicable  law or
regulation. All the proceeds from the sale of such shares will be applied to the
Outstanding Obligation. The holders of the shares may sell only enough shares to
cover the Outstanding Obligation,  or sell all the shares and apply any proceeds
in excess of the Outstanding Obligation to additional legal fees. If the holders
elect to sell only enough  shares to pay the  Outstanding  Obligation,  they may
return any excess shares to the Company for  cancellation.  If the proceeds from
the sale of such  shares  is not  equal to or  greater  than the  amount  of the
Outstanding Obligation,  then the holders will have the right to seek payment of
the difference in cash from the Company.


                                       10
<PAGE>


PART 1 - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATION

      This  section  and other  parts of this report on Form 10-QSB by US Global
Nanospace,  Inc. (the "Company) contains 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     our ability to  successfully  market the products we have  developed
            and to continue to develop  products with  demonstrated  competitive
            advantages for the defense and health and safety 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.

      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
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.

OVERVIEW

      We are a development stage company with expertise in the emerging field of
nanotechnology.  The Company is a solutions  oriented,  research and development
company  that  specializes  in  identifying,   developing,  and  commercializing
advanced  technologies  and products for integration into the defense and health
and safety markets.  These products include complex polymer  materials,  polymer
nanofiber  materials,  nanofiber  filter  materials,   biological  and  chemical
decontaminants, and blast mitigation materials. Currently, most of the Company's
products are being developed for defense and health and safety applications.  We
are currently  focusing our efforts on licensing and marketing the products that
we have  developed  for defense and health and safety  applications.  Our target
customers  for these  materials,  formulas,  and processes  include  agencies or
organizations  under the direct control of the federal  government of the United
States,  domestic  and foreign  businesses  and foreign  government  agencies or
organizations, to the extent permitted by applicable law or regulation.

      Since our inception on March 20, 2002, we have been unprofitable.  We have
incurred net losses of $18,817,308  since inception  through June 30, 2005. As a
development stage company, our limited history of operations makes prediction of
future operating results difficult. We believe that period-to-period comparisons
of our  operating  results  should not be relied on as  predictive of our future
results.


                                       11
<PAGE>


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

      Management's   discussion  and  analysis  of  results  of  operations  and
financial condition are based upon USGN's 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
certain  estimates  and  judgments  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   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.

      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  and  require  our  more  significant  judgments  and
estimates used in the preparation of our financial statements.

      We recognize  revenues in accordance  with SEC Staff  Accounting  Bulletin
(SAB) No. 101, "Revenue Recognition in Financial Statements",  and as amended by
SAB No. 104,  "Revenue  Recognition".  Revenues are recognized  when  persuasive
evidence of an arrangement exists,  delivery has occurred, or services have been
rendered,  the price is fixed and determinable and  collectibility is reasonably
assured.  During  the three  months  ended  June 30,  2005,  our  revenues  were
primarily  derived from product sales.  Revenue from product sales is recognized
at the time of delivery of the product. Revenue under contracts based on a fixed
fee is recognized  based on conditions  being met. Revenue under contracts based
on royalty  fees is  recognized  when the amounts  are earned and  determinable,
which is generally when cash payment is received. However, since we are not able
to  forecast  product  sales by  licenses,  royalty  payments  that are based on
product  sales by the  licensees  are not  determinable  until the  licensee has
completed  their  computation  of the royalties due and/or  remitted  their cash
payment.  Should information on licensee product sales become available so as to
enable us to recognize royalty revenue on an accrual basis, materially different
revenues and results of operations could occur.

RESULTS OF OPERATIONS

QUARTER ENDED JUNE 30, 2005 AS COMPARED TO THE QUARTER ENDED JUNE 30, 2004

      Our  revenues  from  operations  for the quarter  ended June 30, 2005 were
$93,577 as compared to revenues of $94,688 for the quarter  ended June 30, 2004.
Our  revenues  began to increase  during the  quarter  ended June 30, 2004 as we
began to offer some of our developed products in limited quantities. We continue
to offer  these  products  on a  limited  basis as we  focus  on  licensing  and
marketing  efforts.  During the three months  ended June 30, 2005,  our revenues
were primarily derived from the sales of our radomes. We anticipate our revenues
to increase over the following period.

      Our cost of revenues from  operations  for the quarter ended June 30, 2005
was $37,552 as compared  to cost of revenues of $73,271  from the quarter  ended
June  30,  2004.  The  cost of  revenues  includes  the  cost of raw  materials,
packaging  supplies,  shipping  charges,  royalties,   commissions,  direct  and
indirect  labor  and  other  indirect  manufacturing  costs.  This  decrease  is
attributable  to the fact that we have had to rely less on outside  vendors  and
contractors for the quarter end June 30, 2005.

      During the quarter ended June 30, 2005, we spent  $175,021 on research and
development  as compared to $137,549  for research  and  development  during the
quarter  ended June 30,  2004.  Of this amount  from the quarter  ended June 30,
2005,  $33,828  was  expense we  incurred  for  services in relation to non-cash
compensation. We paid our consultants with our common stock in order to conserve
cash. Our overall research and development  costs slightly  increased because we
focused on the development of our products during this period. We anticipate our
research and development costs will continue to be significant as we continue to
develop our products.

      During the quarter ended June 30, 2005,  we incurred  $129,078 in expenses
related to general  and  administrative  non-cash  compensation  as  compared to
$488,049 related to general and administrative  non-cash compensation during the
quarter  ended June 30,  2004.  Of this amount  from the quarter  ended June 30,
2004,  $399,743 was  non-cash  general and  administrative  expense for deferred
compensation  and services related to the issuance of 7,308,215 shares of common
stock  pursuant to consulting  agreements we entered into during the fiscal year
2002. We had continued to recognize such non-cash expense,  having a total value
of $6,560,317,  over a two-year  period.  At June 30, 2004, that two-year period
had ended.  During the quarter ended June 30, 2005, we paid our consultants with
our common stock in order to conserve cash.


                                       12
<PAGE>


      During the quarter ended June 30, 2005,  other general and  administrative
expenses  totaled  $368,336  as compared  to other  general  and  administrative
expenses  of  $439,156  for  the  quarter  ended  June  30,  2004.  General  and
administrative  expenses  consist of salaries,  legal fees,  facility rental and
utilities  expense.  This decrease  reflects the  implementation of cost cutting
measures  in  salaries  and  wage  expenses.  We  anticipate  that  general  and
administrative  expenses  will  continue to be  significant  as we continue  our
licensing and marketing efforts, and incur other increased costs associated with
operating as a public company.

      We had an operating  loss of $616,410 for the quarter ended June 30, 2005,
as opposed to an operating  loss of  $1,043,337  for the quarter  ended June 30,
2004.  We had a net loss of $635,534  for the quarter  ended June 30,  2005,  as
compared to a net loss of $1,099,921  for the quarter  ended June 30, 2004.  The
decrease in the  operating  loss and net loss is primarily  attributable  to the
reduction in cost of revenues,  the reduction in research and development costs,
and the completion of recognizing  non-cash general and administrative  expenses
for deferred  compensation  and services  related to the  consulting  agreements
entered into during the fiscal year 2002.

      Other income  (expense) for the quarter ended June 30, 2005 was made up of
$7,500 in other income we received from storage of equipment from third parties.
Also included was interest  expense for the quarter ended June 30, 2005 totaling
$26,624 as compared to interest  expense  totaling $56,584 for the quarter ended
June 30, 2004.  Interest expense  decreased  because we reduced the principal on
our bank note by $899,505, and reduced our loans payable.

      During  the next 12 months we expect to  continue  upgrading  our  current
products and developing new products and methods of using our existing products.
For the quarter  ended June 30,  2005,  our research  and  development  expenses
totaled $175,021.  We anticipate that our research and development expenses will
continue to be significant.

LIQUIDITY AND CAPITAL RESOURCES

      At June 30, 2005, we had cash on hand of $1,141.  Since our inception,  we
have incurred  significant losses, and as of June 30,2 005 we had an accumulated
deficit of $18,817,308.  We have not achieved  profitability and anticipate that
we will continue to incur net losses through the following  six-month period. We
expect that our research and development and general and administrative expenses
will  continue  to be  significant,  and as a result  we will  need to  generate
significant revenue to achieve profitability.

      From our inception  through  quarter ended June 30, 2005, we have financed
our  operations in the amount of $1,650,000  from a bank,  loans in an amount of
$3,139,805  from  third  parties,   existing   shareholders  and  directors  and
$1,015,579 of revenues and other income.  Our primary  source of cash during the
quarter  ended June 30, 2005 were loans  totaling  $210,700,  revenues  totaling
$93,577  and  other  income  totaling  $7,500.  As of  June  30,  2005,  we  had
outstanding  balances under loan agreements of $983,780,  consisting of $211,444
under a loan agreement with USDR,  Inc.,  $19,547 under a loan agreement with an
existing  shareholder,  and $750,495  principal  balance and accrued interest of
$2,294  under a loan  agreement  with a bank.  The bank loan is  secured  by our
assets and  personally  guaranteed by our Chairman,  and matures in May 2008. We
have no borrowing capacity under this bank loan.

      The Chairman of USGN controls USDR Aerospace,  Ltd.  ("Aerospace"),  which
has licensed  its  intellectual  property to USGN.  Since  inception  (March 20,
2002), based on actual costs, Aerospace has provided property and services to us
totaling  approximately  $2.9 million for which,  as of June 30,  2005,  we owed
Aerospace $300,224.

      Net cash used in operating  activities for the quarter ended June 30, 2005
was  $207,833 as compared to $106,546 in the quarter  ended June 30,  2004.  The
primary  uses of cash for the quarter  ended June 30, 2005  consisted of general
operating costs,  cost of revenues,  product research and development  expenses,
and reducing bank notes payable.

      In order to  conserve  our cash,  our  officers  and  employees  have been
deferring  their  salaries,  and during the  quarter  ended June 30,  2005,  the
employees accepted shares of our common stock in lieu of cash.

      We do not  manufacture or distribute  our products on a commercial  scale.
Under the Kidde agreement,  Kidde  Firefighting,  Inc. is responsible for all of
the costs of manufacturing, marketing and distribution of our All-Clear product.
In  addition,   we  are  in  the  process  of  negotiating   certain  licensing,
manufacturing or distribution arrangements with other international companies or
independent contractors that have the infrastructure to manufacture,  distribute
or sell our products on a commercial scale worldwide. We are also in the process
of  negotiating  directly with certain  government  agencies and private  sector
companies  for the sale or  licensing  of our  products.  We cannot be  certain,
however,  that sales or  licensing  of our products  will ever  generate  enough
revenues to fund our business.  During the next 12 months, if we cannot generate
sufficient funds to operate our business from product sales or licenses, we will
be required to seek  financing  from our largest  shareholder,  who has provided
financing and a loan guarantee for the us in the past. The  shareholder is under
no obligation to provide such funds. 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.


                                       13
<PAGE>


      During the quarter  ended June 30,  2005,  in order to conserve  cash,  we
issued our common stock to satisfy notes  payable  totaling  $303,021,  accounts
payable totaling $23,910, and wages totaling $140,301.

      The use of nanotechnology  is a novel and unproven  business model,  which
may or may not be  successful  and will  ultimately  depend on  demand  for such
products  and  cost-effectiveness  of  manufacturing.  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

In November  2004,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement of Financial  Accounting  Standards (SFAS) No. 151, "Inventory Costs",
which  clarifies the accounting for abnormal  amounts of idle facility  expense,
freight, handling costs, and wasted material. SFAS No. 151 will be effective for
inventory  costs incurred  during fiscal years beginning after June 15, 2005. We
do not believe the  adoption of SFAS No. 151 will have a material  impact on our
financial statements.

In December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  "Nonmonetary
Assets",  which  eliminates the exception for  nonmonetary  exchanges of similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary assets that do not have commercial  substance.  SFAS No. 153 will be
effective for nonmonetary asset exchanges  occurring in fiscal periods beginning
after June 15, 2005.  We do not believe the adoption of SFAS No. 153 will have a
material impact on our financial statements.

In December  2004,  the FASB issued SFAS No. 123R,  "Share-Based  Payment" which
eliminates  the ability to account  for  share-based  compensation  transactions
using the intrinsic value method under Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees",  and generally would require
instead that such transactions be accounted for using a fair-value-based method.
This  statement is effective for the Company as of the first  interim  period or
fiscal year beginning after December 15, 2005. Management is currently assessing
the effect of SFAS No. 123(R) on the Company's financial statement.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections".  SFAS No. 154 changes the  requirements for the accounting for and
reporting of a change in accounting  principle.  In addition, it carries forward
without  change the guidance  contained in APB Opinion No. 20 for  reporting the
correction of an error in previously issued financial statements and a change in
accounting estimate.  SFAS No. 154 requires  retrospective  application to prior
periods'  financial  statements  of  changes  in  accounting  principle  in most
circumstances.  The  provisions  of  SFAS  154 are  effective  in  fiscal  years
beginning  after  December 15, 2005.  We do not believe the adoption of SFAS No.
154 will have a material impact on our financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

      We do not have any off-balance sheet transactions.

FACTORS AFFECTING BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION

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.


                                       14
<PAGE>


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.

Current  management  acquired  control  of  USGN  on  May  17,  2002.  We  are a
development stage company and, to date, we have had limited  operations.  During
the quarter ended June 30, 2005 we had a net loss of $635,534.  Our  accumulated
deficit since inception through June 30, 2005 was $18,817,308.

SOME OF OUR PRODUCTS ARE STILL BEING  DEVELOPED  AND, AS YET, THEY ARE UNPROVEN,
THEREFORE, WE CANNOT ASSURE YOU THAT WE WILL BE SUCCESSFUL.

Our current  business model depends on generating  revenue  through sales of our
products or licensing of our  technology.  Some of these products are in varying
stages of development and testing. If we cannot  successfully  develop and prove
our products, we will not become profitable.

THE SUCCESS OF OUR BUSINESS  REQUIRES  CONTINUED  FUNDING.  IF WE DO NOT RECEIVE
ADEQUATE FUNDING, WE MAY BE FORCED TO CEASE OPERATIONS.

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.

WE HAVE RECEIVED A WELLS NOTICE AND SUBPOENAS FOR INFORMATION AND TESTIMONY FROM
THE SEC FOR CERTAIN PRIOR PUBLIC  STATEMENTS.  WE CANNOT  PREDICT THE OUTCOME OF
THIS MATTER.  IT COULD RESULT IN A CIVIL ACTION  INVOLVING,  AMONG OTHER THINGS,
MONETARY  RELIEF FROM US OR OUR OFFICERS  AND  DIRECTORS.  ANY SUCH  DEVELOPMENT
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS, AND
FINANCIAL CONDITION.

On January  3,  2005,  we  received  a Wells  Notice  from the staff of the U.S.
Securities and Exchange  Commission.  The Wells Notice  notified us that the SEC
staff intended to recommend that the SEC bring a civil action against us and our
officers and directors for alleged  violations of SEC laws.  The SEC's  concerns
principally  regard  certain  prior public  statements  made by us regarding the
marketability of our products.  We have been in ongoing dialog with the SEC, and
have  prepared and  submitted  initial and  supplemental  Wells  Submissions  in
response to the Wells Notice.  The SEC has also recently issued  subpoenas to us
seeking information and testimony regarding the technology incorporated into our
products,  which we are in the process of supplying.  Notwithstanding receipt of
the Wells Notice and the  information and testimony  currently being sought,  we
have cooperated and continue to cooperate with the SEC, and are actively seeking
a negotiated settlement.  However, we cannot predict the outcome of this matter,
or when a negotiated resolution,  if any, may be reached and the likely terms of
such a resolution.

Any civil action or any negotiated  resolution may involve,  among other things,
equitable  relief,  including  material  penalties,  which could have a material
adverse effect on our business, results of operations and financial condition.

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.

The use of nanotechnology  is a novel and unproven business model,  which may or
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  security and
health and safety 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.


                                       15
<PAGE>


      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.

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.

Until we are able to generate  significant  revenues from licensing and 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 shareholders. Unavailability of
funds  could have a material  adverse  effect on our  ability  to  continue  our
operations.

OUR  BUSINESS,  OPERATING  RESULTS AND FINANCIAL  CONDITION  COULD BE NEGATIVELY
IMPACTED IF DEMAND FOR OUR PRODUCTS IS LESS THAN WE ANTICIPATE.

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,   integrate  and  retain  qualified   marketing  and  sales
            representatives; and

      o     accurately assess the demands of the market.

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

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.

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.


                                       16
<PAGE>


PART 1 - ITEM 3 CONTROLS AND PROCEDURES

      Based on an evaluation under the supervision and with the participation of
our  management,  our Chief Executive  Officer and Chief Financial  Officer have
concluded  that our  disclosure  controls and  procedures  (as defined under the
Securities  Exchange Act of 1934, as amended ("Exchange Act")) were effective as
of June 30, 2005 to ensure that  information  required to be  disclosed by us in
the  reports  that  we  file or  submit  under  the  Exchange  Act is  recorded,
processed,  summarized  and  reported  within  the  time  periods  specified  in
accordance with the Securities and Exchange Commission's rules and forms.

      There were no changes in our internal  controls over  financial  reporting
identified in management's  evaluation  during first quarter ended June 30, 2005
that have materially  affected or are reasonably likely to materially affect our
internal controls over financial reporting.

PART II

      ITEM 1. LEGAL PROCEEDINGS

      On January 3, 2005,  we received a Wells  Notice from the U.S.  Securities
and  Exchange  Commission.  The  Wells  Notice  notified  us that the SEC  staff
intended  to  recommend  that the SEC bring a civil  action  against  us and our
officers and directors for alleged violations of U.S. securities laws. The SEC's
concerns principally regard certain prior public statements made by us regarding
the marketability of our products.  We have been in ongoing dialog with the SEC,
and have prepared and submitted  initial and supplemental  Wells  Submissions in
response to the Wells Notice.  The SEC has also recently issued  subpoenas to us
seeking information and testimony regarding the technology incorporated into our
products,  which we are in the process of supplying.  Notwithstanding receipt of
the Wells Notice and the  information and testimony  currently being sought,  we
have cooperated and continue to cooperate with the SEC, and are actively seeking
a negotiated settlement.

      ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

      On May 9, 2005, we issued  346,522  shares of our common  stock,  having a
value of $0.069 per share,  which was the closing  price of our common  stock on
May 9, 2005, to attorneys for legal  services.  The  consideration  received for
these shares was  extinguishment  of debt owed to the attorneys in the amount of
$23,910.

      On May 11, 2005, we issued 1,763,572 shares of our common stock,  having a
value of $0.064 per share,  which was the closing  price of our common  stock on
May 11,  2005,  to USDR  Aerospace,  Ltd. The  consideration  received for these
shares  was  extinguishment  of debt  owed to USDR  Aerospace  in the  amount of
$112,868.59.

      On May 11, 2005, we issued  2,971,132  shares our common  stock,  having a
value of $0.064 per share,  which was the closing  price of the common  stock on
May 11,2005, to USDR, Inc. The consideration for these shares was extinguishment
of debt owed to USDR,  Inc. in the amount of $190,152.42.  USDR Aerospace,  Ltd.
and USDR, Inc. are owned and controlled by John Robinson, our Chairman.

      We relied on the exemption from  registration as set forth in Section 4(2)
of the Securities Act of 1933 for the issuance of securities  described above as
transactions by an issuer not involving any public  offering.  The recipients of
securities in each  transaction made  representations  that they were accredited
investors within the meaning of Regulation D under the Securities Act. They also
represented  their intentions to acquire the securities for investment  purposes
without a view to  distribution  and had access to  information  concerning  the
Company and our business  prospects,  as required by the Securities Act of 1933,
as amended.  In addition,  there was no general  solicitation or advertising for
the acquisition of these securities.

      There were no  underwritten  offerings  employed in connection with any of
these transactions.

      ITEM 3. DEFAULTS UPON SENIOR SECURITIES

      Not applicable.

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

      Not applicable.


                                       17
<PAGE>


      ITEM 5. OTHER INFORMATION

      On May 13, 2005, we entered into a loan agreement with USDR for amounts up
to $350,000. Our Chairman controls USDR(NV), Inc. The loan bears interest at 10%
per annum and  matures  on August 13,  2005.  We owed USDR  $211,444,  including
interest, as of June 30, 2005, under this loan agreement

      ITEM 6. EXHIBITS

      The exhibits listed in the Exhibit Index are filed as part of this report.


                                       18
<PAGE>


                                   SIGNATURES
                                   ----------

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                      US GLOBAL NANOSPACE, INC.

                                      By: /s/ Carl Gruenler
                                          --------------------------------------
Date:  August 15, 2005                    Carl Gruenler, Chief Executive Officer


                                      By: /s/ Julie Seaman
                                          --------------------------------------
Date:  August 15, 2005                    Julie Seaman, Chief Financial Officer


                                       19
<PAGE>


                                  EXHIBIT INDEX
Exhibit No.       Description

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)

3.1.1       Amended and Restated Certificate of Incorporation (9)

3.1.2       First Amendment to Amended and Restated Certificate of Incorporation
            (9)

3.1.3       Second Amendment to Amended and Restated Certificate of
            Incorporation (9)

3.2         Bylaws (3)

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

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

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

10.4        Settlement Agreement and Mutual Release among ERBC Holdings, Ltd.,
            the Company, 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)

10.5        Promissory Note in the amount of $14,000 dated April 11, 2003 in
            favor of Wilford Simpson (5)

10.6        Promissory Note in the amount of $2,000 dated April 18, 2003 in
            favor of Wilford Simpson (5)

10.7        Promissory Note in the amount of $100,000 dated April 18, 2003 in
            favor of USDR Aerospace, Ltd. (5)

10.8        Gross Lease Agreement dated April 28, 2003 between the Company and
            West Harris Property, Inc. (4)

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

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

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

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

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

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

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

10.16       Master Agreement by and between Y2-Ultra-Filter, Inc. and the
            Company dated June 19, 2003 (6)

10.17       Promissory Note and Commercial Security Agreement between the
            Company and Western Security Bank dated June 30, 2003 (4)

10.18       Patent and Technology License Agreement dated July 24, 2003 between
            the Company and TIAX, LLC (11)

10.19       Promissory Note in the amount of $500,000 dated August 7, 2003, as
            amended on December 19, 2003, in favor of John Robinson (9)


                                       20
<PAGE>


10.20       Amendment No. 1 dated October 3, 2003 to Patent and Technology
            License Agreement between the Company and TIAX LLC (11)

10.21       Promissory Note in the amount of $100,000 dated October 3, 2003 in
            favor of Julie Seaman (9)

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

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

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

10.25       Agreement to Convert Debt between the Company and John Robinson
            dated April 23, 2004(9)

10.26       Agreement to Convert Debt between the Company and Julie Seaman dated
            April 23, 2004 (9)

10.27       Change in Terms Agreement dated June 11, 2004 to Promissory Note in
            the amount of $500,000 in favor of U.S.D.R. (NV), Inc. (9)

10.28       +Distribution Agreement between the Company and Vitusa Products,
            Inc. dated as of June 25, 2004 (10)

10.29       Change in Terms Agreement dated June 30, 2004 to Promissory Note in
            the amount of $200,000 in favor of USDR Aerospace, Ltd. (9)

10.30       Agreement to Convert Debt between the Company and John Robinson
            dated August 3, 2004 (9)

10.31       Agreement to Convert Debt between the Company and Julie Seaman dated
            August 3, 2004 (9)

10.32       Agreement to Convert Debt between the Company and Steve Squires
            dated August 3, 2004 (9)

10.33       Agreement to Convert Debt between the Company and Paula Boozer dated
            August 3, 2004 (9)

10.34       Agreement to Convert Debt between the Company and Robin Bailey dated
            August 3, 2004 (9)

10.35       +Development and License Agreement between the Company and Kidde
            Fire Fighting Inc. dated August 13, 2004 (8)

10.36       Change in Terms Agreement between the Company and Western Security
            Bank dated September 30, 2004 (9)

10.37       Change in Terms Agreement dated October 30, 2004 to Promissory Note
            in the amount of $500,000 in favor of USDR(NV) (9)

10.38       Change in Terms Agreement dated December 30, 2004 to Promissory Note
            in the amount of $500,000 in favor of USDR(NV).(12)

10.39       Change in Terms Agreement dated December 30, 2004 to Promissory Note
            in the amount of $200,000 in favor of USDR Aerospace, Ltd. (12)

10.40       Agreement to Convert Debt dated May 11, 2005 between the Company and
            USDR Aerospace, Ltd. (13)

10.41       Agreement to Convert Debt dated May 11, 2005 between the Company and
            USDR, Inc. (13)

10.42       Promissory Note in the amount of $350,000 dated May 13, 2005 in
            favor of U.S.D.R., Inc.

10.43       Employment Agreement between the Company and Carl Gruenler dated
            August 3, 2005

14          Code of Ethics (7)

31.1        Certification by Chief Executive Officer


                                       21
<PAGE>


31.2        Certification by Chief Financial Officer

32          Certification pursuant to 18 U.S.C. Section 1350

----------
+     Confidential treatment requested as to certain portions, which portions
      were omitted and filed separately with the Securities and Exchange
      Commission.

(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 Form 10-KSB filed with the Securities and
      Exchange Commission on July 11, 2003, as amended.

(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)   Incorporated by reference from a Form 10-KSB filed with the Securities and
      Exchange Commission on July 14, 2004.

(8)   Incorporated by reference from a Form 8-K/A filed with the Securities and
      Exchange Commission on June 1, 2005.

(9)   Incorporated by reference from a Form 10-QSB filed with the Securities and
      Exchange Commission on November 15, 2004.

(10)  Incorporated by reference from a Form 10-QSB/A filed with the Securities
      and Exchange Commission on November 16, 2004.

(11)  Incorporated by reference from a Form 10-QSB/A filed with the Securities
      and Exchange Commission on February 9, 2005.

(12)  Incorporated by reference from a Form 10-QSB filed with the Securities and
      Exchange Commission on February 25, 2005.

(13)  Incorporated by reference from a Form 8-K filed with the Securities and
      Exchange Commission on May 16, 2005


                                       22