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, 2006

                                       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 |_|

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

                      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 11, 2006 the issuer had
193,292,856 shares of Common Stock issued and outstanding.

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

<PAGE>

                            US GLOBAL NANOSPACE, INC.

                                      INDEX

                                                                            PAGE
PART I                                                                    NUMBER

Item 1 - Financial Statements

         Balance Sheets as of June 30, 2006 (unaudited)
                 and March 31, 2006                                            3

         Statements of Operations - Three Months Ended
                 June 30, 2005 and 2006 and
                 since inception (March 20, 2002)                              4
                 through June 30, 2006 (unaudited)

         Statement of Stockholders' Deficit -
                 Three Months Ended June 30, 2006                              5
                 (unaudited)

         Statements of Cash Flows - Three Months Ended
                 June 30, 2005 and 2006 and
                 since inception (March 20, 2002)                              6
                 through June 30, 2006 (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,
                                                                                         2006            2006
                                                                                     (Unaudited)
                                                                                     ------------    ------------
<S>                                                                                  <C>             <C>
           ASSETS
           CURRENT ASSETS
               Cash                                                                  $     58,159    $     21,256
               Accounts receivable                                                         27,000          51,379
               Other receivables                                                           45,284          75,130
               Prepaid expenses                                                               989           1,489
               Inventory                                                                       --           4,134
                                                                                     ------------    ------------

                  Total current assets                                                    131,432         153,388



                  Total assets                                                       $    131,432    $    153,388
                                                                                     ============    ============


           LIABILITIES AND STOCKHOLDERS' DEFICIT

           CURRENT LIABILITIES
               Current maturities of bank note payable                               $    710,114    $    710,114
               Accounts payable                                                           560,764         672,122
               Accrued salaries and expenses                                            1,573,770       1,451,730
               Accrued interest                                                            72,728          38,086
               Related party payable                                                       77,542          39,108
               Loans payable                                                              141,560         141,560
                                                                                     ------------    ------------

                  Total current liabilities                                             3,136,478       3,052,720
                                                                                     ------------    ------------

           COMMITMENTS & CONTINGENCIES                                                     65,963          65,963
                                                                                     ------------    ------------

           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,
                  192,774,221 and 176,487,425 issued and outstanding, respectively        192,774         176,487
               Additional paid-in capital                                              21,657,498      20,874,108
               Deferred compensation and services                                        (139,110)       (388,277)
               Deficit accumulated during the development stage                       (24,782,171)    (23,627,613)
                                                                                     ------------    ------------

                  Total stockholders' deficit                                          (3,071,009)     (2,965,295)
                                                                                     ------------    ------------

                  Total liabilities and stockholders' deficit                        $    131,432    $    153,388
                                                                                     ============    ============
</TABLE>

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

<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, 2006    June 30, 2005    June 30, 2006
                                                            -------------    -------------    -------------
<S>                                                         <C>              <C>              <C>
                REVENUES                                    $      98,384    $      93,577    $   1,214,903
                COST OF REVENUES                                   25,659           37,552          519,933
                                                            -------------    -------------    -------------

                       Gross Profit                                72,725           56,025          694,970
                                                            -------------    -------------    -------------

                OPERATING EXPENSES

                     Research and development                     512,432          175,021        5,510,755


                     General and administrative                   679,638          497,414       19,972,074
                                                            -------------    -------------    -------------

                       Total operating expenses                 1,192,070          672,435       25,482,829
                                                            -------------    -------------    -------------

                       Operating loss                          (1,119,345)        (616,410)     (24,787,859)
                                                            -------------    -------------    -------------

                OTHER INCOME (EXPENSE)
                   Debt restructure                                    --               --          918,573
                   Other income                                        --            7,500           80,488
                   Interest expense                               (35,213)         (26,624)        (993,373)
                                                            -------------    -------------    -------------

                       Total other income (expense)               (35,213)         (19,124)           5,688
                                                            -------------    -------------    -------------

                       NET LOSS                             $  (1,154,558)   $    (635,534)   $ (24,782,171)
                                                            =============    =============    =============

                Net loss per share, basic and diluted       $       (0.01)   $       (0.01)
                                                            =============    =============
                Basic and diluted weighted average
                   number of common shares                    186,111,333      111,550,100

</TABLE>

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

<PAGE>

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

                       STATEMENT OF STOCKHOLDERS' DEFICIT
                        Three Months Ended June 30, 2006
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                            Deficit
                                                                                                          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, 2006                          176,487,425  $   176,487  $ 20,874,108   $   (388,277) $(23,627,613)  $(2,965,295)

Issuance of common stock on April 6, 2006 in
consideration for accounts payable at $.045 per
share                                               1,154,539        1,155        50,799                                     51,954

Issuance of common stock on April 10, 2006 in
consideration for services at $0.041 per share        714,286          714        28,572                                     29,286

Issuance of common stock on April 10, 2006 in
consideration for services at $0.041 per share      2,704,574        2,705       108,145                                    110,850

Issuance of common stock on April 12, 2006 in
consideration for services at $0.041 per share        365,854          366        14,634                                     15,000

Issuance of common stock on May 4, 2006 in
consideration for services at $0.063 per share      1,111,111        1,111        68,889                                     70,000

Issuance of common stock on May 4, 2006 in
consideration for services at $0.063 per share      1,190,476         1190        73,810                                     75,000

Issuance of common stock on May 4, 2006 in
consideration for services at $0.049 per share      1,546,392         1546        73,454                                     75,000

Issuance of common stock on May 16, 2006 in
consideration for accounts payable at $0.05 per
share                                               2,337,879         2338       114,556                                    116,894

Issuance of common stock on May 19, 2006 in
consideration for services at $0.046 per share        412,343          412        18,556                                     18,968

Issuance of common stock on May 23, 2006 in
consideration for accounts payable at $0.048 per
share                                                 621,630          622        28,905                                     29,527

Issuance of common stock on May 24, 2006 in
consideration for services at $0.062 per share      1,209,678         1210        73,790                                     75,000

Issuance of common stock on June 6, 2006 in
consideration for wages at $0.047 per share           443,263          443        20,390                                     20,833

Issuance of common stock on June 16, 2006 in
consideration for services at $0.045 per share      2,474,771         2475       108,890                                    111,365

Amortization of deferred compensation and
Services                                                                                        249,167                     249,167

Net loss for the period                                                                                    (1,154,558)   (1,154,558)

                                                  ------------  -----------  ------------   ------------  -----------    ----------
Balance at June 30, 2006
                                                  192,774,221  $   192,774  $ 21,657,498   $   (139,110) $(24,782,171)  $(3,071,009)
                                                  ============  ===========  ============   ===========   ===========    ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.

<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, 2006    June 30, 2005      June 30, 2006
                                                                     -------------    -------------      -------------
<S>                                                                  <C>              <C>                <C>
   CASH FLOWS FROM OPERATING ACTIVITIES
          Net loss                                                   $  (1,154,558)   $   (635,534)      $ (24,782,171)
          Adjustments to reconcile net loss to net
            cash used in operating activities
                 Common stock issued for services and wages                850,469         303,207          16,274,405
                 Forgiveness of loans and accounts payable                      --              --            (918,573)
         Changes in operating assets and liabilities:
                     Accounts receivable                                    24,379          23,923             (27,000)
                     Other receivables                                      29,846         (24,160)            (45,284)
                     Prepaid expenses                                          500         (35,000)               (989)
                     Inventory                                               4,134         (60,850)                 --
                     Deposits                                                   --              --                  --
                     Accounts payable                                       87,017          49,216           2,967,291
                     Accrued salaries and expenses                         122,040         175,619           1,583,084
                     Accrued interest                                       34,642          (6,842)            484,727
                     Related party payable                                  38,434           2,588             378,262
                     Commitments and Contingencies                              --              --              65,963
                                                                     -------------    ------------       -------------

                         Net cash provided by (used in)
                            operating activities                            36,903        (207,833)         (4,020,285)
                                                                     -------------    ------------       -------------

   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)          (939,886)
            Proceeds from loans payable                                         --          210,700          3,241,818
            Payments on loans payable                                           --               --            (31,434)
            Proceeds from issuance of common stock                              --               --            155,000
                                                                     -------------    -------------      -------------

                  Net cash provided by financing activities                     --          155,427          4,075,498
                                                                     -------------    -------------      -------------

   Net increase (decrease) in cash                                          36,903          (52,406)            58,159

   Cash at beginning of period                                              21,256           53,547                 --
                                                                     -------------    -------------      -------------

   Cash at end of period                                             $      58,159    $       1,141      $      58,159
                                                                     =============    =============      =============

   SUPPLEMENTAL CASH FLOW INFORMATION AND
     NON-CASH INVESTING AND FINANCING ACTIVITIES
             Cash paid for:
                       Interest                                      $          --    $      33,085      $     461,992
                                                                     =============    =============      =============
                       Income Taxes                                  $          --    $          --      $      13,288
                                                                     =============    =============      =============
            Accounts payable acquired in conjunction with share
              exchange agreement                                     $          --    $          --      $      (2,500)
                                                                     =============    =============      =============

            Common stock issued in exchange for accounts payable     $     198,375    $      23,910      $   2,408,147
                                                                     =============    =============      =============

            Common stock issued in exchange for loans payable
                 and accrued interest                                $          --    $     303,021      $   2,863,851
                                                                     =============    =============      =============

            Common stock issued in exchange for former officer
                 bank loan and lease guarantees                      $          --    $          --      $       9,314
                                                                     =============    =============      =============

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

</TABLE>

<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, 2007.  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, 2006.

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.  Because of the net losses for each of the
periods presented,  6,500,000  potentially  issuable shares of common stock were
excluded from the computation of diluted earnings per share.

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 its  computation of the royalties
due and/or  remitted its 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.

<PAGE>

NOTE 2. MANAGEMENT PLANS

We are a development  stage  enterprise as defined under  Statement of Financial
Accounting  Standards  ("SFAS")  No.  7. We  remain  committed  to  identifying,
developing, and commercializing advanced nanotechnology and defense and security
products.  These products include complex polymer  materials,  polymer nanofiber
materials,  nanofiber filter materials,  biological and chemical decontaminants,
blast  mitigation  materials,  and  autonomous  wide area security  systems.  We
believe  there  is  synergy  between  advanced  security  solutions  to  protect
infrastructure   and  nanofiber  based   materials  for  blast   mitigation  and
filtration,  and we are  exploring  ways in  which  these  products  may be used
together.  One such effort is underway for providing blast mitigation protection
for pipelines and storage facilities.

During the last fiscal year with the  introduction of  MAPSANDS(TM),  we shifted
our  primary  market and  licensing  efforts to  autonomous  wide area  security
systems worldwide.  We believe that MAPSANDS(TM) represents a new and innovative
approach to wide area perimeter  security.  In  MAPSANDS(TM)  we have developed,
integrated and  commercialized an advanced set of technologies  which we believe
will change the landscape  and  economics of the border and  perimeter  security
market.  The integration of advanced  technologies  into an autonomous  security
system should generate both significant economic advantages and superior mission
effectiveness,  thereby  helping our customers to  effectively  secure  critical
infrastructure and take control of borders.

We generated  operating  revenues in the amount of $98,384 for the quarter ended
June 30, 2006,  primarily  from the sales of radomes.  We do not  manufacture or
distribute  our  products  on a  commercial  scale.  We are in  the  process  of
negotiating  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 government agencies and
private sector companies for the sale or licensing of our products.

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  from  inception  through  loans in the
amount  of  $1,650,000  from a bank,  loans in the  amount  of  $3,241,818  from
unrelated third parties,  existing shareholders and directors, and $1,295,391 of
revenues  and other  income.  Furthermore,  in an effort to conserve  cash,  our
officers have  deferred  their  salaries or have  accepted  shares of our common
stock in lieu of cash for their  compensation.  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.

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.  On December 8,
2005,  our Board of Directors  ratified an Amendment  to  Intellectual  Property
Assignment  and Royalty  Agreement  dated  November 28, 2005 (the  "Amendment"),
which amends the Intellectual Property Assignment and Royalty Agreement dated as
of May 14, 2002 (the "Royalty  Agreement") between USDR Aerospace,  Ltd. and the
Company.  The purpose of the Amendment is to clarify the original  intent of the
parties to the Royalty Agreement,  which is that the term "sales" as used in the
Royalty Agreement shall include all net revenues received by us from any and all
sales  and/or  licensing  of our  products  and/or  services,  subject to and in
accordance  with the terms and conditions of the Royalty  Agreement.  As of June
30, 2006,  the Company has  incurred a total of $42,551 in royalties  associated
with this agreement.

<PAGE>

NOTE 4. RELATED PARTY PAYABLE

The former 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 $42,551 in royalties as of June 30, 2006.

On  December  8, 2005 the  Company  entered  into an  agreement  with the former
Chairman of the Company to compensate  him in  consideration  of his  continuing
loan  guaranty of the bank note  payable.  The bank note payable is described in
Note 6. The fair amount of equity based  compensation  was deemed to be $174,953
to be earned in equal  increments  over the course of 30 months.  As of June 30,
2006, we owe the former Chairman equity based compensation of $34,991.

NOTE 5. LOANS PAYABLE

The former Chairman of the Company also controls USDR, Inc. ("USDR"). 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  matured on March 31,
2006.  As of June 30, 2006,  the Company owed USDR  $130,501  including  accrued
interest  under this loan  agreement.  Extension  of terms is subject to further
negotiation.

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
$21,147  including  accrued  interest,  as of June 30, 2006. The shareholder has
agreed to extend the loans to a date to be determined.

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 bank is a subsidiary of a holding  company,  Western  Security Holding
Co. Ltd.,  which is a  shareholder  of the  Company.  The loan is secured by the
assets of the Company and  guaranteed by the Company's  former  Chairman and CEO
(See Note 4). As of June 30,  2006,  the  Company had an  outstanding  principal
balance of $710,114 and accrued interest and fees totaled $123,514. On August 9,
2006 we learned that Western Security Bank (the "Bank"), an Arizona corporation,
filed a suit  against  us for  default  on the  balance  owed of the  $1,650,000
promissory note signed on June 30, 2003. The suit seeks the accelerated  payment
of $880,708 in principal,  accrued interest, and penalties owed the Bank through
July 7, 2006 due to our failure to make all required monthly amounts,  plus $375
per day from July 8, 2006 until paid, plus attorney's  fees. The promissory note
calls for payments of $25,400 per month,  some of which have not been paid.  The
suit also names John D. Robinson, our former Chairman and CEO, and United States
Defense  Research,  Ltd., a Nevada limited liability  company,  as defendants in
their capacities as personal  guarantors.  We have been in frequent contact with
the Bank and we continue to seek an amicable resolution of the matter.

NOTE 7. STOCK-BASED COMPENSATION

On April 10, 2003, the Company adopted its 2002 Amended and Restated Stock Plan.
The  purpose of the 2002 Plan is to enable the  Company to  attract,  retain and
motivate  key   employees,   officers,   directors,   consultants,   independent
contractors  and  advisors by  allowing  them to share in the  Company's  growth
through  ownership of our securities.  Stock options granted under the 2002 Plan
may be either  incentive  stock  options,  as  defined  in  Section  422A of the
Internal  Revenue Code of 1986, or non-qualified  stock options.  As of June 30,
2006,  there are  currently  6,500,000  shares  reserved  for the stock  options
granted to our officers on January 31, 2006. The Company granted 6,500,000 stock
options all of which were issued in connection with  employment  agreements with
our Chief Executive Officer and Chief Financial Officer. These shares vest based
on certain milestones as noted in their Employment Agreements. At June 30, 2006,
1,000,000 have vested and 5,500,000 remain unvested.  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  requires  instead  that  such  transactions  be  accounted  for  using a
fair-value-based  method. The Company adopted Statement of Financial  Accounting
Standards No. 123R,  Share-Based Payment, at the beginning of the second quarter
of fiscal 2006.

On August 25, 2005,  our Board of  Directors  approved and adopted the US Global
Nanospace, Inc. 2005 Stock Plan (the "2005 Plan"). Pursuant to the 2005 Plan, we
may issue up to  25,000,000  shares of our common  stock (the "Plan  Shares") to
employees,  officers,  directors,   consultants,   independent  contractors  and
advisors  who provide  services  to us that do not relate to capital  raising or
stock support activities. Awards under the 2005 Plan may be in the form of stock
options, stock awards subject to payment of consideration, or stock bonuses, and
may be subject to vesting  conditions.  Incentive stock options  ("ISOs") may be
granted to employees only. The Board of Directors administers and interprets the
2005 Plan in the absence of a committee  of the Board  formed for such  purpose.
The  term of the 2005  Plan is 10  years.  As of March  31,  2006,  no  options,
warrants or rights were granted under the US Global  Nanospace,  Inc. 2005 Stock
Plan,  however,  we have awarded 19,850,000 shares of common stock to our former
Chief  Financial  Officer  and various  consultants  in  exchange  for  services
rendered to us.  Therefore,  as of June 30, 2006 there was  available for future
issuance under the US Global Nanospace, Inc. 2005 Stock Plan 5,150,000 shares of
common stock.

<PAGE>

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.

On January 3, 2005,  we first  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  dialogue with the
SEC, and prepared and submitted  initial and supplemental  Wells  Submissions in
response to the  original  Wells  Notice.  Notwithstanding  receipt of the Wells
Notice,  we have  cooperated  and continue to cooperate with the SEC. On January
20, 2006, the SEC staff re-issued a Wells Notice to us, Julie Seaman, who is one
of our current  directors,  and John  Robinson,  who is our former  Chairman and
Chief  Executive  Officer,  in  connection  with the  previously  announced  SEC
inquiry.  The re-issued Wells Notices  against us and Mr.  Robinson  alleged the
same violations of U.S. securities laws as those violations that the SEC alleged
in its prior Wells Notices. The January 20, 2006 Wells Notice against Ms. Seaman
alleged  substantially  fewer  violations than the Wells Notice issued to her on
January 3, 2005. On July 20, 2006 we, separate from the other parties identified
in the  previously  issued Wells  Notice,  agreed to a  settlement  with the SEC
staff. The settlement is subject to the final approval of the SEC Commissioners.

We previously  entered into a license  agreement  with TIAX, LLC on an exclusive
basis for  technology  related  to a  decontamination  system we hoped  would be
usable for our  All-Clear(TM)  product.  By letter dated May 27, 2005,  TIAX LLC
notified  us that TIAX  believed  that we were in  default  under the Patent and
Technology License Agreement dated July 24, 2003 (the "Agreement"),  as amended,
between TIAX and us 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, we responded to TIAX
stating that we disagreed  with TIAX's  assessment of the amounts due TIAX under
this  agreement.  We also  informed  TIAX that the  decontaminant  product being
marketed by Kidde had been jointly  developed  by us and Kidde,  and that we did
not believe that this new product was subject to our agreement with TIAX. We had
made a counter-proposal  to TIAX, offering to pay TIAX 25% of royalties received
by us from Kidde. On July 19, 2005, TIAX rejected our counter-proposal to modify
the payment terms of the Agreement and notified us that TIAX would  exercise its
right to terminate  the  agreement  unless the Company paid  $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, we took the position that the Agreement had
already  terminated as of June 28, 2005.  While  collaborating on development of
the  All-Clear(TM)  product,  we  and  Kidde  discovered  that  the  formulation
developed  by TIAX did not  meet  the  requirements  for a  commercial  product.
Accordingly,  we and Kidde  developed an  alternative  formulation  that is more
effective  against chemical and biological  pathogens than the TIAX formulation,
and that, in addition, is non-toxic and non-corrosive. We terminated our license
agreement  with TIAX because we are not using the TIAX licensed  technology.  On
January  2,  2006,  we  learned  that TIAX LLC filed a  complaint  for breach of
contract  in  Middlesex  Superior  Court in  Massachusetts  (the  "Court").  The
complaint  seeks  payment of $226,344  that TIAX alleges  remains  payable by us
under the Agreement.  Our position is that the Agreement  terminated on June 28,
2005, and that TIAX's claims are without merit. On February 6, 2005, we filed an
answer  to  the  complaint  and  a  counterclaim  against  TIAX  for  fraudulent
misrepresentation and breach of covenant of good faith and fair dealing. On June
30, 2006, the Court granted TIAX's motion for dismissal of our  counterclaim for
breach  of the  covenant  of  good  faith  and  fair  dealing,  but  upheld  our
counterclaim  of fraudulent  misrepresentation  which stands pending  trial.  We
received a request  from TIAX to meet and discuss a  settlement  to preclude the
costs of trial. We are working towards a negotiated settlement of this matter.

On August 9, 2006 we learned that Western Security Bank (the "Bank"), an Arizona
corporation,  filed a suit  against us for  default of the  balance  owed of the
$1,650,000  promissory  note  signed  on June  30,  2003.  The  suit  seeks  the
accelerated  payment of $710,114 in principal,  accrued interest,  and penalties
owed the Bank  through  July 7,  2006 due to our  failure  to make all  required
monthly amounts,  which amount is alleged to have totaled $880,708 on that date,
plus  $375  per day from  July 8,  2006  until  paid and  attorney's  fees.  The
promissory note calls for payments of $25,400 per month,  some of which have not
been  paid.  The suit also  names  John D.  Robinson,  our  former  officer  and
director,  and United States Defense Research,  Ltd., a Nevada limited liability
company, as defendants in their capacities as personal guarantors.  We have been
in frequent contact with the Bank and we continue to seek an amicable resolution
of the matter.

Other

On January 11, 2006, we learned that Everest  International,  Inc.  ("Everest"),
the owner of our business facility in Arlington,  Texas, filed a suit against us
for breach of the Gross  Lease  Agreement  dated  April 28,  2003 (the  "Lease")
between West Harris  Property,  Inc. and us. The suit sought  damages for unpaid
rent and late fees totaling  $52,900.  Additionally,  the suit sought payment of
the rent specified in the Lease for the remainder of the Lease term,  reduced to
present worth,  beginning from January 1, 2005 through the end of the lease term
on May 31, 2006, plus interest,  attorneys' fees and costs. The monthly rent due
under the lease was $11,000.  Since Everest filed the suit, Everest had received
$12,500  against the balance owed.  Everest was also in possession of an $11,000
security  deposit  paid by us upon  execution  of the Lease,  which  Everest had
applied to any charges in default.  The suit also named Julie Seaman, one of our
directors,  as a defendant in her capacity as a personal guarantor of the Lease.
On June 15, 2006 we and Ms.  Seaman,  entered  into a Settlement  Agreement  and
Mutual  Release  (the  "Settlement  Agreement")  with  Everest.  The  Settlement
Agreement  was  modified on June 21, 2006.  Pursuant to the Modified  Settlement
Agreement,  we agreed to convey certain tangible assets located in the Arlington
facility  to  Everest  by June 21,  2006,  and we (i) agreed to issue to Everest
893,617  unregistered shares of common stock within 10 calendar days of June 21,
2006,  (ii)  agreed  to pay  Everest  $10,000  in cash by June 21,  2006,  (iii)
forfeited all claims to the $11,000 security deposit,  and (iv) agreed to tender
to Everest a cash payment of $32,000 at 10% per year via monthly installments of
$1,464.43  commencing  on October  1, 2006 with no  prepayment  penalty,  all in
consideration of a full release and dismissal of the lawsuit previously filed by
Everest.  Also, in connection with the  settlement,  the Company entered into an
agreement  with USDR,  Inc., a company which the former  Chairman of the Company
controls,  to purchase  certain  assets  located at the  business  facility  for
731,707  shares of restricted  common stock.  These assets have been conveyed to
Everest as part of the settlement  above.  As of June 30, 2006,  issuance of the
shares to USDR, Inc. is pending. As all requirements of the Settlement Agreement
have been met, the action has been dismissed without prejudice.

<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

US Global  Nanospace,  Inc. is a development  stage company that  specializes in
identifying,  developing,  and commercializing products the core technologies of
which relate to wide area perimeter  security or are  nanoscience  derived.  Our
products include our MAPSANDS(TM)  technology,  an integrated  system to protect
against  the breach of  protected  property  boundaries,  and  All-Clear(TM),  a
biological and chemical decontaminant.  Other products include optimized polymer
and organic  materials  and  nanofibers,  advanced  filtration  systems for air,
water, and cigarettes,  and blast mitigation and fire protection  materials.  We
are currently focusing our efforts on securing global partners and marketing the
products  that we have  developed for defense,  security,  and health and safety
applications.  Our target customers for these systems, materials,  formulas, and
processes  include  agencies or  organizations  under the direct  control of the
federal  government of the United States,  plus domestic and foreign  businesses
and foreign  government  agencies or  organizations,  to the extent permitted by
applicable law or regulations.

Since our  inception  on March 20,  2002,  we have  been  unprofitable.  We have
incurred net losses of $24,782,171  since inception  through June 30, 2006. 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.

<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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 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
experiences  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.

We have identified the following  accounting  principles that we believe are key
to an  understanding  of our  financial  statements  and that  require  our more
significant judgments and estimates in preparing our financial statements.

Revenue  Recognition.  We  recognize  revenues  in  accordance  with  SEC  Staff
Accounting  Bulletin (SAB) No. 101, and as amended by SAB No. 104.  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,
2006,  our revenues  were  primarily  derived from  product  sales.  Revenue for
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 licensees,
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

THREE  MONTHS  ENDED  JUNE  30,  2006  AS  COMPARED  TO  THE  THREE MONTHS ENDED
JUNE 30, 2005

Our  revenues  from  operations  for the three  months  ended June 30, 2006 were
$98,384 as compared to revenues of $93,577 for the three  months  ended June 30,
2005. The revenue increase was related primarily to the timing of radome orders.
We continue to offer these products on a limited basis as we focus on developing
and marketing the  MAPSANDS(TM)  system along with other licensing and marketing
efforts.

Our cost of revenues  from  operations  for the three months ended June 30, 2006
was $25,659 as  compared  to cost of  revenues  of $37,552 for the three  months
ended June 30, 2005.  The cost of revenues  includes the cost of raw  materials,
packaging supplies, shipping charges, royalties, commissions, and other indirect
manufacturing  costs.  This  decrease is  attributable  primarily to an indirect
charge in the prior period.

During the three months ended June 30, 2006,  we spent  $512,432 on research and
development  as compared to $175,021  for research  and  development  during the
three months ended June 30, 2005. The increase is primarily  attributable to the
focus  on  continued  development  of  MAPSANDS(TM)  and  preparations  for  the
MAPSANDS(TM)  system  demonstration  in the Middle East.  We continue to pay our
consultants  with our common stock in order to conserve  cash. We anticipate our
research and development costs will continue to be significant as we continue to
develop our products.

During the three months ended June 30,  2006,  we incurred  $679,638 in expenses
related to general and  administrative  as compared to $497,414 during the three
months ended June 30, 2005. The increase is primarily attributable to additional
marketing expense for MAPSANDS(TM). During the three months ended June 30, 2006,
we paid our  consultants  with our common  stock in order to conserve  cash.  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 $1,119,345 for the three months ended June 30, 2006,
as opposed to an operating  loss of $616,410 for the three months ended June 30,
2005. We had a net loss of $1,154,558  for the three months ended June 30, 2006,
as compared to a net loss of $635,534  for the three months ended June 30, 2005.
The increase in the operating loss and net loss is primarily attributable to the
increase  in  research  and  development  and  marketing   expenses  related  to
MAPSANDS(TM)  and  non-cash  general and  administrative  expenses  for deferred
compensation and services.

Other  income  (expense)  for the three  months  ended June 30, 2006 was $35,213
compared to $19,124 for the three  months  ended June 30, 2005 due  primarily to
higher interest expense for our bank loan.

During the next 12 months we expect to continue  upgrading our current  products
and  developing  new  products  and  methods  of using  our  existing  products.
Autonomous  wide area  security  systems and  nanotechnology  reflect  novel and
unproven business models, 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.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2006 we had cash on hand of $58,159.  Since our  inception,  we have
incurred  significant  losses,  and as of June  30,  2006 we had an  accumulated
deficit of  $24,782,171.  Due to the nature of our business,  we incur  sizeable
research and development and general and  administrative  expenses and we expect
these expenses to continue in the future. We have not achieved profitability and
anticipate  that  we will  continue  to  incur  a net  loss  until  we  generate
substantial  revenues from our products  which,  to date, we have been unable to
do.

From inception  through the three months ended June 30, 2006, we have funded our
operations  through loans in the amount of $1,650,000 from a bank,  loans in the
amount of $3,241,818 from unrelated  third parties,  existing  shareholders  and
directors,  and  $1,295,391 of revenues and other income.  Our primary source of
cash  during the three  months  ended June 30, 2006 was  collection  of accounts
receivable totaling $122,763.  As of June 30, 2006, we had outstanding  balances
under loan  agreements  of  $985,276.  This amount is  comprised  of $710,114 of
principal and accrued interest and fees of $123,514, under a loan agreement with
a bank, $130,501 under a loan agreement with USDR, Inc. and $21,147 under a loan
agreement with an existing  shareholder.  The bank loan is secured by our assets
and personally  guaranteed by our former Chairman and Chief  Executive  Officer,
and matures in May 2008. We have no borrowing  capacity under this bank loan and
the bank has notified us of its  determination  that we are currently in default
of our payment obligation. At June 30, 2006, we also owed USDR Aerospace,  Ltd.,
an  entity  controlled  by our  former  Chairman  and Chief  Executive  Officer,
royalties in the amount of $42,551 for intellectual property licensed to us.

We are severely  hampered by a shortage of cash. In order to conserve  cash, our
officers have deferred  their  salaries,  and during the three months ended June
30, 2006, our officers  accepted shares of our common stock in lieu of cash. Our
officers  will  continue to be paid with our common stock until we reach certain
milestones,  the achievement of which will allow us to pay them in cash. We also
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(TM)  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.  However, because we cannot
predict if, or when, our products such as MAPSANDS(TM)  and  All-Clear(TM)  will
generate  revenues  that will be sufficient  to sustain our  operations,  we may
pursue  equity or debt  financing.  In order to  generate  significant  investor
interest,  we believe  that we must  resolve  the issues  relating  to the Wells
Notice,  which we are  actively  attempting  to do. We also  intend to  continue
trying  to  find  strategic   partners  to  assist  us  with  the  marketing  of
MAPSANDS(TM),  which should produce substantial revenues. However,  MAPSANDS(TM)
is a new technology that approaches  perimeter security in an innovative way. As
such, it may not be immediately  adopted over other,  more  traditional  ways of
maintaining  security.  We  cannot  be  certain  that we will be  successful  in
obtaining  financing.  If we cannot obtain  financing when and as we need it, we
may be unable to maintain our operations.

Net cash  provided by operating  activities  for the three months ended June 30,
2006 was  $36,903 as  compared  net cash used in  operations  of $207,833 in the
three months ended June 30, 2005.  The primary uses of cash for the three months
ended June 30, 2006 consisted of general  operating  costs and product  research
and  development  expenses.  We do not see this trend  continuing as the primary
reason for the net cash  provided  by  operating  activities  is an  increase in
accrued salaries and expenses.

During the three  months  ended June 30,  2006,  in order to conserve  cash,  we
issued our common  stock to  satisfy  accounts  payable  totaling  $198,375  and
services and wages totaling $850,469.

Autonomous  wide area  security and  nanotechnology  reflect  novel and unproven
business models,  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.  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 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 Financial  Accounting  Standards  Board (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.

<PAGE>

In December 2004, the Financial  Accounting  Standards  Board (FASB) issued SFAS
No. 123R, 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 has adopted this statement as of July 1, 2005.

In May 2005,  the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
154, "Accounting Changes and Error Corrections, A Replacement of APB Opinion No.
20 and FASB  Statement No. 3." SFAS 154 requires  retrospective  application  to
prior periods' financial statements for changes in accounting principles, unless
it is  impracticable  to  determine  either the  period-specific  effects or the
cumulative  effect of the  change.  SFAS 154 also  requires  that  retrospective
application of a change in accounting principle be limited to the direct effects
of the change.  Indirect effects of a change in accounting principle,  such as a
change in non-discretionary profit-sharing payments resulting from an accounting
change,  should be recognized in the period of the accounting  change.  SFAS 154
also requires that a change in depreciation,  amortization,  or depletion method
for long-lived,  non-financial assets be accounted for as a change in accounting
estimate affected by a change in accounting principle. SFAS 154 is effective for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after December 15, 2005. Early adoption is permitted for accounting  changes and
corrections  of  errors  made in  fiscal  years  beginning  after  the date this
Statement is issued.  The Company does not  anticipate a material  impact on the
financial statements from the adoption of this consensus.

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.

<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 fiscal three months ended June 30, 2006 we had a net loss of $1,154,558. Our
accumulated deficit since inception through June 30, 2006 was $24,782,171.

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

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 UNABLE TO CONTINUE OUR 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.  ALTHOUGH  WE  HAVE  SIGNED  A
SETTLEMENT  AGREEMENT  WITH THE SEC, WE CANNOT FULLY PREDICT THE OUTCOME OF THIS
MATTER UNTIL THE AGREEMENT IS REVIEWED BY THE SEC COMMISSIONERS. 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  dialogue with the SEC,
and  prepared  and  submitted  initial and  supplemental  Wells  Submissions  in
response to the original Wells Notice.  On July 20, 2006, the Company,  separate
from the other parties  identified  in the  previously  announced  Wells Notice,
agreed to a settlement with the staff of the SEC of the proceeding  commenced by
the Wells Notice.  The  settlement  is subject to the final  approval of the SEC
Commissioners.

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.

Autonomous  wide area  security and  nanotechnology  reflect  novel and unproven
business models,  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.  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.

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.

<PAGE>

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 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 RESULTS OF
OPERATIONS.

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 such claims
could be time-consuming,  divert management from our daily operations, result in
litigation, or cause product shipment delays.

WE HAVE BEEN NAMED AS A DEFENDANT  IN A LEGAL  PROCEEDING  INITIATED  BY WESTERN
SECURITY  BANK.  IF THIS MATTER IS NOT SETTLED AND THE BANK RECOVERS A JUDGMENT,
WE COULD BE REQUIRED TO SEVERELY CURTAIL, OR COMPLETELY CEASE, OUR OPERATIONS.

We have been sued by Western  Security Bank for failure to pay a loan.  The bank
is seeking a judgment in the amount of $880,708 in principal,  accrued  interest
and late charges plus daily interest and attorney's fees. If the bank is able to
recover  a  judgment  against  us,  and we are not able to work out a  realistic
payment schedule, the bank may exercise its rights to enforce its judgment. This
could  result in the bank  taking  possession  of our  property,  including  our
intellectual  property. If that were to happen, we could be required to severely
curtail, or even to cease, our operations.

<PAGE>

                     PART 1 - ITEM 3 CONTROLS AND PROCEDURES

We carried out an evaluation,  under the supervision and with the  participation
of our  management,  including our Chief  Executive  Officer and Chief Financial
Officer,  of the  effectiveness  of the design and  operation of our  disclosure
controls and  procedures,  as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities  Exchange  Act of 1934,  as amended,  as of the period ended June 30,
2006.  The  conclusion of  management  is that,  due to our lack of cash, we are
unable to ensure that information required to be disclosed by the Company in the
reports  that we file or submit  under the  Securities  Exchange  Act of 1934 is
recorded,  processed,  summarized and reported within the time periods specified
in  Securities  and Exchange  Commission  rules and forms.  For  example,  until
recently, we did not have the funds to have our financial statements audited. As
a result,  our audit was not completed until  immediately prior to the date that
our Annual Report on Form 10-KSB was filed. Our lack of capital has also left us
without  sufficient  staff to assist our officers.  While management is aware of
the  information  that is to be  disclosed in the reports that we file or submit
under the Securities  Exchange Act of 1934, our officers may be unable to review
and report it on a timely basis. Until our cash situation improves,  we will not
be able to make  significant  changes  to  improve  our  internal  controls  and
procedures.  There were no  significant  changes in our internal  controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of the evaluation.

                                     PART II

ITEM 1. LEGAL PROCEEDINGS

Not applicable

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

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

On August 9, 2006 we learned that  Western  Security  Bank (the "Bank")  filed a
suit  against us for default of the balance  owed of the  $1,650,000  promissory
note signed on June 30, 2003. The suit seeks the accelerated payment of $710,114
in principal, accrued interest, and penalties owed the Bank through July 7, 2006
due to our failure to make all required monthly amounts, which amount is alleged
to have totaled $880,708 on that date, plus $375 per day from July 8, 2006 until
paid and attorney's  fees. The promissory note calls for payments of $25,400 per
month, some of which have not been paid.

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

Not applicable.

<PAGE>

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

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

<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:  September 21, 2006        Carl Gruenler, Chief Executive Officer


                                      By: /s/ Kevin Cronin
                                          --------------------------------------
         Date:  September 21, 2006        Kevin Cronin, Chief Financial Officer

<PAGE>

                                  EXHIBIT INDEX










<PAGE>

   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 (2)

   3.1.2           First  Amendment  to  Amended  and  Restated  Certificate  of
                   Incorporation (2)

   3.1.3           Second  Amendment  to  Amended  and  Restated  Certificate of
                   Incorporation (2)

   3.2             Bylaws (3)

   31.1            Certification by Chief Executive Officer*

<PAGE>

   31.2            Certification by Chief Financial Officer*

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

----------
*Filed herewith.

(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 a Form 10-QSB filed with the Securities and
Exchange Commission on November 15, 2004.

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