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: December 31, 2004

                                       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 February 22, 2005 the issuer
had 101,893,592 shares of Common Stock issued and outstanding.

Transitional Small Business Disclosure Format (Check one):    Yes [ ] No [x]
<PAGE>

                            US GLOBAL NANOSPACE, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                        PAGE
PART I                                                                                  NUMBER
<S>                                                                                     <C>
Item 1 - Financial Statements

         Balance Sheets as of December 31, 2004 (unaudited) and March 31, 2004            3

         Statements of Operations - Three and Nine Months Ended
                  December 31, 2003 and 2004 and since inception (March 20, 2002)         4
                  through December 31, 2004 (unaudited)

         Statement of Stockholders' Deficit - Nine Months Ended December 31, 2004         5
                  (unaudited)

         Statements of Cash Flows - Nine Months Ended
                  December 31, 2003 and 2004 and since inception (March 20, 2002)         6
                  through December 31, 2004 (unaudited)

         Notes to the Financial Statements                                                7-10

Item 2 - Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                                            10-18

Item 3 - Controls and Procedures                                                          18

PART II

Item 1 - Legal Proceedings                                                                18

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds                      18

Item 3 - Defaults Upon Senior Securities                                                  18

Item 4 - Submission of Matters to a Vote of Security Holders                              19

Item 5 - Other Information                                                                19

Item 6 - Exhibits                                                                         19

Signature Page
</TABLE>


                                       2
<PAGE>

PART I - ITEM 1  FINANCIAL STATEMENTS

                            US Global Nanospace, Inc.
                          (A development stage company)
                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                         December 31,     March 31,
                                                                            2004            2004
                                                                         (Unaudited)
                                                                        ------------    ------------
<S>                                                                     <C>             <C>
ASSETS

CURRENT ASSETS
    Cash                                                                $      4,678    $     18,437
    Accounts receivable                                                       36,300          11,405
    Other receivables                                                         49,887          71,278
    Inventory                                                                 91,198           4,695
                                                                        ------------    ------------

       Total current assets                                                  182,063         105,815

NONCURRENT ASSETS
    Deposits                                                                  11,000          13,485
                                                                        ------------    ------------

       Total assets                                                     $    193,063    $    119,300
                                                                        ============    ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
    Current maturities of bank note payable                             $    230,384    $  1,225,000
    Accounts payable                                                         669,330         258,673
    Loans payable                                                            308,229       1,201,526
    Related party payable                                                    304,317         307,114
    Accrued salaries and expense                                             579,666         125,158
    Accrued interest                                                          25,546          63,439

       Total current liabilities                                           2,117,472       3,180,910
                                                                        ------------    ------------

BANK NOTE PAYABLE, less current portion                                      647,717              --
                                                                        ------------    ------------

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,
      97,908,260 and 87,429,116 issued and outstanding, respectively          97,907          87,428
    Additional paid-in capital                                            14,338,448      11,590,401
    Deferred compensation and services                                       (10,658)       (399,743)
    Deficit accumulated during the development stage                     (16,997,823)    (14,339,696)
                                                                        ------------    ------------

       Total stockholders' deficit                                        (2,572,126)     (3,061,610)
                                                                        ------------    ------------

       Total liabilities and stockholders' deficit                      $    193,063    $    119,300
                                                                        ============    ============
</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    Nine Months     Nine Months   (date of inception)
                                         Ended          Ended           Ended           Ended          Through
                                      December 31,   December 31,    December 31,    December 31,    December 31,
                                         2004            2003            2004            2003             2004
                                     ------------    ------------    ------------    ------------    ------------
<S>                                  <C>             <C>             <C>             <C>             <C>
REVENUES                             $     40,908    $      2,152    $    440,718    $    127,831    $    581,066
COST OF REVENUES                           14,105             241         119,763          28,002         146,491
                                     ------------    ------------    ------------    ------------    ------------

     Gross Profit                          26,803           1,911         320,955          99,829         434,575
                                     ------------    ------------    ------------    ------------    ------------

OPERATING EXPENSES
   Research and development
     Non-cash compensation
       and services                         9,504              --           9,504              --           9,504
     Other research and
       development                        109,837         622,102         360,942       1,121,898       3,253,471
   General and administrative
     Non-cash compensation
       and services                       198,176       1,082,180         743,195       2,854,053       7,526,786
     Other general and
       administrative                     628,206       1,020,447       1,744,206       1,782,828       6,771,094
                                     ------------    ------------    ------------    ------------    ------------

       Total operating expenses           945,723       2,714,729       2,857,847       5,758,779      17,560,855
                                     ------------    ------------    ------------    ------------    ------------

       Operating loss                    (918,920)     (2,712,818)     (2,536,892)     (5,658,950)    (17,126,280)
                                     ------------    ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSE)
   Debt restructure                            --         239,185              --         239,185         918,573
   Other income                                --              --              --              --          10,045
   Interest expense                       (30,590)       (228,694)       (121,235)       (408,643)       (800,161)
                                     ------------    ------------    ------------    ------------    ------------

       Total other income
         (expense)                        (30,590)         10,491        (121,235)       (169,458)        128,457
                                     ------------    ------------    ------------    ------------    ------------

       NET LOSS                      $   (949,510)   $ (2,702,327)   $ (2,658,127)   $ (5,828,408)   $(16,997,823)
                                     ============    ============    ============    ============    ============

Net loss per share, basic
  and diluted                        $      (0.03)   $      (0.03)   $      (0.03)   $      (0.07)   $      (0.03)
                                     ============    ============    ============    ============    ============

Basic and diluted weighted average
  number of common shares              97,241,603      85,626,441      92,635,253      81,894,646      95,223,402
</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
                       Nine Months Ended December 31, 2004
                                   (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>
Balance at April 1, 2004                      87,429,116  $87,428  $11,590,401   $(399,743)     $(14,339,696)     $   (3,061,610)

Issuance of common stock on April 7, 2004 in
consideration for wages at $0.70 per share        35,392       35       24,739                                            24,774

Issuance of common stock on April 15, 2004 in
consideration for services at $0.67 per share     90,000       90       60,210                                            60,300

Issuance of common stock on April 23, 2004 in
consideration for notes payable at $0.33 per
share                                          1,147,950    1,148      377,675                                           378,823

Issuance of common stock on May 5, 2004 in
consideration for wages at $0.38 per share       485,761      486      184,103                                           184,589

Issuance of common stock on July 27, 2004 in
consideration for accounts payable at $0.28
per share                                         71,430       71       19,929                                            20,000

Issuance of common stock on August 3,
2004 in consideration for notes payable at
$0.29 per share                                3,471,094    3,471    1,003,146                                         1,006,617

Issuance of common stock on August 3,
2004 in consideration for accounts
payable at $0.29 per share                       174,745      175       50,501                                            50,676

Issuance of common stock on August 16,
2004 in consideration for accounts
payable at $0.24 per share                       395,834      396       94,604                                            95,000

Issuance of common stock on September 17,
2004 in consideration for wages at $0.20
per share                                      1,169,199    1,169      232,671                                           233,840

Issuance of common stock on September 17,
2004 in consideration for services at $0.20
per share                                        109,472      109       21,785                                            21,894

Issuance of common stock on September 28,
2004 in consideration for accounts
payable at $0.17 per share                       444,216      445       75,072                                            75,517

Issuance of common stock on October 6,
2004 in consideration for accounts
payable at $0.18 per share                       250,000      250       44,750                                            45,000

Issuance of common stock on October 18,
2004 in consideration for accounts
payable at $0.14 per share                       939,535      940      130,595                                           131,535

Issuance of common stock on October 19,
2004 in consideration for wages at $0.24
per share                                         44,380       44       10,607                                            10,651

Issuance of common stock on October 21,
2004 in consideration for services at $0.28
per share                                        267,858      268       74,732                                            75,000

Issuance of common stock on October 22,
2004 in consideration for wages at $0.25
per share                                        933,156      933      232,356                                           233,289

Issuance of common stock on October 28,
2004 in consideration for services at $0.23
per share                                         64,855       65       14,856                                            14,921

Issuance of common stock on November 1,
2004 in consideration for services at $0.23
per share                                        250,000      250       57,250                                            57,500

Issuance of common stock on November 23,
2004 in consideration for services at $0.20
per share                                         63,950       64       12,726     (10,658)                                2,132

Issuance of common stock on December 1,
2004 in consideration for accounts
payable at $0.20 per share                        11,050       11        2,199                                             2,210

Issuance of common stock on December 1,
2004 in consideration for services at $0.191
per share                                         39,267       39        7,461                                             7,500

Issuance of common stock on December 31,
2004 in consideration for services at $0.805
per share                                         20,000       20       16,080                                            16,100

Amortization of deferred compensation and
services                                                                           399,743                               399,743

Net loss for the period                                                                             (2,658,127)       (2,658,127)
                                              ----------  -------  -----------   ---------      --------------    --------------

Balance at December 31, 2004                  97,908,260  $97,907  $14,338,448   $ (10,658)     $  (16,997,823)   $   (2,572,126)
                                              ==========  =======  ===========   =========      ==============    ==============
</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
                                                                      Nine Months       Nine Months    (date of inception)
                                                                         Ended             Ended            Through
                                                                      December 31,      December 31,      December 31,
                                                                          2004              2003              2004
                                                                     --------------    --------------    --------------
<S>                                                                  <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES

      Net loss                                                       $   (2,658,127)   $   (5,828,408)   $  (16,997,823)
      Adjustments to reconcile net loss to net
        cash used in operating activities
              Common stock issued for services                              752,699         2,854,053         7,536,290
              Forgiveness of loans and accounts payable                          --          (239,185)         (918,573)
      Changes in operating assets and liabilities:
                  Accounts receivable                                       (24,895)               --           (36,300)
                  Inventory                                                 (86,503)               --           (91,198)
                  Accounts payable                                          830,595           274,660         2,090,826
                  Accrued salaries and expense                            1,044,042         2,593,915         3,954,255
                  Accrued interest                                           19,590           217,440           421,538

                          Net cash used in operating activities            (122,599)         (127,525)       (4,040,985)
                                                                     --------------    --------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES

         Decrease (increase) in other receivables                            21,391          (122,125)          (49,887)
         Decrease (increase) in deposits                                      2,485           (13,485)          (11,000)
         Cash acquired in conjunction with share
           exchange agreement                                                    --                --             2,946
                                                                     --------------    --------------    --------------

                          Net cash provided by (used in) investing
                            activities                                       23,876          (135,610)          (57,941)
                                                                     --------------    --------------    --------------

CASH FLOWS FROM FINANCING ACTIVITIES
         Proceeds from bank note payable                                         --                --         1,650,000
         Payments on bank note payable                                     (346,899)         (125,000)         (771,899)
         Proceeds from loans payable                                        434,660           395,425         2,929,105
         Payments on loans payable                                               --            (7,700)          (12,919)
         Increase (decrease) in related party payable                        (2,797)              176           304,317
         Proceeds from issuance of common stock                                  --                --             5,000
                                                                     --------------    --------------    --------------

                          Net cash provided by financing activities          84,964           262,901         4,103,604
                                                                     --------------    --------------    --------------

Net increase (decrease) in cash                                             (13,759)             (234)            4,678

Cash at beginning of period                                                  18,437             3,239                --
                                                                     --------------    --------------    --------------

Cash at end of period                                                $        4,678    $        3,005    $        4,678
                                                                     ==============    ==============    ==============

SUPPLEMENTAL CASH FLOW INFORMATION AND
  NON-CASH INVESTING AND FINANCING ACTIVITIES
         Cash paid for:
                    Interest                                         $       81,136    $      234,119    $      360,282
                                                                     ==============    ==============    ==============
                    Income Taxes                                     $           --    $           --    $           --
                                                                     ==============    ==============    ==============

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

         Common stock issued in exchange for accounts payable        $      419,938    $      376,851    $    1,423,116
                                                                     ==============    ==============    ==============

         Common stock issued in exchange for loans payable
           and accrued interest                                      $    1,385,440    $           --    $    2,086,257
                                                                     ==============    ==============    ==============

         Common stock issued in exchange for wages                   $      589,534    $    2,502,743    $    3,374,589
                                                                     ==============    ==============    ==============
</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, 2005. 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, 2004.

NOTE 2.  RESEARCH AND DEVELOPMENT

Research and development costs are charged to expense as incurred.

NOTE 3. NET LOSS PER SHARE

Basic loss per share is computed by dividing net income or loss by the weighted
average number of shares outstanding during each period. Loss per share assuming
dilution is based on the assumption that outstanding stock options and warrants
were exercised. At December 31, 2004, all options and warrants have expired and
there were no shares of potentially issuable common stock. Because of the net
loss for the three and nine months ended December 31, 2004 and 2003, and from
inception (March 20, 2002) through December 31, 2004, potentially issuable
common stock was not included in the calculation of diluted loss per share as
their inclusion would be anti-dilutive.

NOTE 4. MANAGEMENT PLANS

The Company is considered a development stage enterprise as defined under
Statement of Financial Accounting Standards ("SFAS") No. 7, "Accounting and
Reporting by Development Stage Enterprises." The Company is a nanotechnology
company that specializes in identifying, developing, and commercializing
advanced products, the core technologies of which are primarily nanoscience
derived. These products include complex polymer materials, polymer nanofiber
materials, nanofiber filter materials, biological and chemical decontaminants,
and blast mitigation materials. 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 $440,718 for the nine months ended
December 31, 2004.

During the year ended March 31, 2003, the Company obtained loans from a bank for
amounts up to $1,650,000. In addition, the Company has received $2,929,105 in
loans since inception from third parties, existing shareholders and directors.

In order to conserve the Company's cash, the officers and employees of the
Company have been deferring their salaries and accepting shares of the Company's
common stock in lieu of cash.

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(TM) 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. During the next 12 months, if the Company cannot
generate sufficient funds to operate its business from sales or licenses of its


                                       7
<PAGE>

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 5.  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.

NOTE 6.  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. At the nine months
ended December 31, 2004, the Company has incurred a total of $20,335 in
royalties associated with this agreement.

NOTE 7.  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 owes
Aerospace $110,028, including accrued interest, as of December 31, 2004 under
this loan agreement.

The Chairman and CEO of the Company has continued to provide cash to support the
Company's operations. The Chairman and CEO of the Company also controls
USDR(NV), Inc. ("USDR"). On June 6, 2003, the Company entered into a loan
agreement with USDR for amounts up to $125,000. 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 owes USDR
$193,682, including accrued interest, as of December 31, 2004 under this loan
agreement.

On April 11, 2003 and April 18, 2003, the Company entered into two loans
totaling $16,000 from an existing shareholder. The loans bear interest at 10%
per annum and matured on April 30, 2004. The Company owes the shareholder
$18,754, including accrued interest, as of December 31, 2004. The shareholder
has agreed to extend the loans, date to be determined.

NOTE 8.  RELATED PARTY PAYABLE

The Chairman and CEO of the Company controls Aerospace, which has licensed the
intellectual property to the Company as described in Note 6, under which we owe
Aerospace $20,335 in royalties as of December 31, 2004. Aerospace has provided
employees and product development services to the Company. Since inception
(March 20, 2002), Aerospace has provided such services totaling approximately
$2.9 million for which the Company currently owes Aerospace $283,982 as of
December 31, 2004. As of January 1, 2003, Aerospace substantially discontinued
all of its operations and the Company hired certain individuals previously
employed by Aerospace.

NOTE 9.  BANK NOTES PAYABLE

The Company previously had lines of credit with a bank for amounts up to
$1,650,000. The lines of credit have been consolidated into one loan 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 and CEO. As of December 31, 2004, the Company had an
outstanding principal balance of $878,101 and accrued interest totaled $11,311.


                                       8
<PAGE>

NOTE 10.  STOCK-BASED COMPENSATION

The Company has a stock-based compensation plan that is accounted for under APB
Opinion 25, "Accounting for Stock Issued to Employees", and related
Interpretations. No options were granted under the plan for the periods ended
December 31, 2004 and 2003, and 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 123, "Accounting for Stock-Based Compensation", during the
periods ended December 31, 2004 and 2003, and since inception (March 20, 2002).
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 is currently assessing the effect of SFAS No. 123(R) 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 October 19, 2004, the Company granted 44,380 shares of common stock under the
2002 Stock Plan to a previous employee in lieu of compensation with an award
valuation of $10,651, equaling 100% of the fair market value per share on the
date of grant of the award.

On October 22, 2004, the Company granted 933,156 shares of common stock under
the 2002 Stock Plan to employees in lieu of salaries with an award valuation of
$198,762, equaling 85% of the fair market value per share on the date of grant
of the award. The Company recognized $34,527 as additional non-cash expense for
the difference between the fair value of the stock and the salaries due.

The Company has accrued payroll taxes relating to the issuance of common stock
in lieu of wages in accrued salaries and expense during the nine months ended
December 31, 2004, and the Company recorded $46,387 in other receivables for the
employee's portion of the taxes due to the Company.

NOTE 11.  RECENTLY ISSUED ACCOUNTING STANDARDS

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

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


                                       9
<PAGE>

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

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 is currently assessing the effect of SFAS No. 123(R) on the Company's
financial statement.

NOTE 12.  SUBSEQUENT EVENT

In connection with the SEC matter described in Part II, Item 1, the Company is
in settlement discussions with the staff of the SEC. However, no settlement has
yet been mutually accepted by the parties involved. Due to the uncertainties
inherent in the negotiations, 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.

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;


                                       10
<PAGE>

      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. We specialize in identifying, developing, and commercializing
advanced products, the core technologies of which are primarily nanoscience
derived. These products include complex polymer materials, polymer nanofiber
materials, nanofiber filter materials, biological and chemical decontaminants,
and blast mitigation materials. 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 $16,997,823 since inception through December 31, 2004. 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

      Revenue Recognition. We recognize revenues in accordance with SEC Staff
Accounting Bulletin No. 104, or 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.

      The Chairman and Chief Executive Officer of the Company controls USDR
Aerospace, Ltd. ("Aerospace"), a related party, which has licensed its
intellectual property to the Company. During the period from May 17, 2002
through May 1, 2003 management was required to estimate the value of the
property and services (including product development services) provided to us by


                                       11
<PAGE>

Aerospace. Since inception (March 20, 2002), management estimated that Aerospace
provided property and services to us totaling approximately $2.9 million for
which, as of December 31, 2004, we owed Aerospace $283,982.

RESULTS OF OPERATIONS

QUARTER ENDED DECEMBER 31, 2004 AS COMPARED TO THE QUARTER ENDED DECEMBER 31,
2003

      Our revenues from operations for the quarter ended December 31, 2004 were
$40,908 as compared to revenues of $2,152 for the quarter ended December 31,
2003. Our cost of revenues from operations for the quarter ended December 31,
2004 was $14,105 as compared to cost of revenues of $241 from the quarter ended
December 31, 2003. This increase in revenues and cost was due to the increase in
sales of our products. We anticipate our revenues and cost of revenues to
increase over the following period.

      During the quarter ended December 31, 2004, we spent $119,341 on research
and development as compared to $622,102 for research and development during the
quarter ended December 31, 2003. Of this amount from the quarter ended December
31, 2004, $9,504 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 declined because we focused on
marketing, selling and licensing our existing products during this period.

      During the quarter ended December 31, 2004, we incurred $198,176 in
expenses related to general and administrative non-cash compensation as compared
to $1,082,180 related to general and administrative non-cash compensation during
the quarter ended December 31, 2003. Of this amount from the quarter ended
December 31, 2003, $738,435 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 December 31, 2004, we paid
our consultants and employees with our common stock in order to conserve cash.

      During the quarter ended December 31, 2004, other general and
administrative expenses totaled $628,206 as compared to other general and
administrative expenses of $1,020,447 for the quarter ended December 31, 2003.
This decline 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 $918,920 for the quarter ended December 31,
2004, as opposed to an operating loss of $2,712,818 for the quarter ended
December 31, 2003. We had a net loss of $949,510 for the quarter ended December
31, 2004, as compared to a net loss of $2,702,327 for the quarter ended December
31, 2003. The decrease in the operating loss and net loss is primarily
attributable to 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.

      Interest expense for the quarter ended December 31, 2004 totaled $30,590
as compared to interest expense totaling $228,694 for the quarter ended December
31, 2003. Interest expense decreased because we reduced the principal on our
bank note by $771,899, and the interest rate on this note was lowered. Interest
expense also decreased because during the quarter ended December 31, 2003, bank
fees totaling $239,185 were forgiven and included in debt restructure.

      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 December 31, 2004, our research and development expenses
totaled $119,341. We anticipate that our research and development expenses will
be significant as we upgrade and develop our products. We also anticipate that
our marketing expenses will be significant as we continue our licensing and
marketing efforts.


                                       12
<PAGE>

NINE MONTHS ENDED DECEMBER 31, 2004 AS COMPARED TO NINE MONTHS ENDED DECEMBER
31, 2003

      Our revenues from operations for the nine months ended December 31, 2004
were $440,718 as compared to revenues of $127,831 for the nine months ended
December 31, 2003. This significant increase in revenues is attributable to
revenues generated under the Kidde Agreement with respect to our All-Clear(TM)
product, and an increase in sales of our other products that include our S.A.G.
(TM) turrets, GARDS panels, blast mitigation materials and radomes . Our cost of
revenues from operations for the nine months ended December 31, 2004 was
$119,763 as compared to cost of revenues of $28,002 for the nine months ended
December 31, 2003. The cost of revenues increased because our sales increased
and consist primarily of materials and labor. At this stage, we are a
development stage research and development company and our past revenues have
been minimal. Therefore, we do not have any reliable indicators of future
performance and cannot predict whether our revenues will increase or decrease in
the future. If and when Kidde achieves sales of our All-Clear product, Kidde
will owe us royalties under the Kidde agreement and if and when these royalties
are paid as agreed, our revenues should increase accordingly.

      During the nine months ended December 31, 2004, we spent $370,446 on
research and development as compared to $1,121,898 for research and development
during the nine months ended December 31, 2003. Of this amount from the nine
months ended December 31,2004, $9,504 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 declined
because we focused on marketing, selling and licensing our existing products
during this period.

      During the nine months ended December 31, 2004, we incurred $743,195 in
expenses related to general and administrative non-cash compensation as compared
to $2,854,053 related to general and administrative non-cash compensation during
the nine months ended December 31, 2003. Of this amount from the nine months
ended December 31, 2003, $2,413,587 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 nine months ended December 31,
2004, we paid our consultants and employees with our common stock in order to
conserve cash.

      During the nine months ended December 31, 2004, other general and
administrative expenses totaled $1,744,206 as compared to other general and
administrative expenses of $1,782,828 for the nine months ended December 31,
2003. We expect 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 $2,536,892 for the nine months ended December
31, 2004, as opposed to an operating loss of $5,658,950 for the nine months
ended December 31, 2003. We had a net loss of $2,658,127 for the nine months
ended December 31, 2004, as compared to a net loss of $5,828,408 for the nine
months ended December 31, 2003. The decrease in the operating loss and net loss
is attributable to the reduction in research and development costs, and also 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 nine months ended December 31, 2004 totaled
$121,235 as compared to $169,458 for the nine months ended December 31, 2003.
Interest expense decreased because we have reduced the principal on our bank
note by $771,899, and the interest rate on this note was lowered. Interest
expense also decreased because during the nine months ended December 31, 2003,
bank fees totaling $239,185 were forgiven and included in debt restructure.

      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 nine months ended December 31, 2004, our research and development
expenses totaled $370,446. We anticipate that our research and development
expenses will be significant as we upgrade and develop our products. We also
anticipate that our marketing expenses will continue to be significant as we
continue our licensing and marketing efforts.

LIQUIDITY AND CAPITAL RESOURCES

      At December 31, 2004, we had cash on hand of $4,678. Since our inception,
we have incurred significant losses, and as of December 31, 2004 we had an
accumulated deficit of $16,997,823. We have not achieved profitability and


                                       13
<PAGE>

anticipate that we will continue to incur net losses through the end of our
fiscal year ending March 31, 2005. 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 December 31, 2004, we have financed our
operations in the amount of $1,650,000 from a bank, loans in an amount of
$2,929,105 from third parties, existing shareholders and directors and $581,066
of revenues. Our primary source of cash during the nine months ended December
31, 2004 was loans totaling $434,660 and revenues totaling $440,718. As of
December 31, 2004, we had outstanding balances under loan agreements of
$1,211,876, consisting of $110,028 under a loan agreement with USDR Aerospace,
Ltd., $193,682 under a loan agreement with USDR(NV), Inc., $18,754 under a loan
agreement with an existing shareholder, and $878,101 principal balance and
accrued interest of $11,311 under a loan agreement with a bank. The bank loan is
secured by our assets and guaranteed by our Chairman and Chief Executive
Officer, and matures in May 2008. We have no borrowing capacity under this bank
loan.

      Net cash used in operating activities in the nine months ended December
31, 2004 was $122,599 as compared to $127,525 in the nine months ended December
31, 2003. The primary uses of cash for the nine months ended December 31, 2004
consisted of general operating costs and reducing our bank note payable.

      In order to conserve our cash, the officers and employees of the Company
have been deferring their salaries and accepting 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(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. 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 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.

      During the nine months ended December 31, 2004, in order to conserve cash,
we issued our common stock to satisfy notes payable totaling $1,385,440,
accounts payable totaling $419,938, and wages totaling $589,534.

      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.

RECENTLY ISSUED ACCOUNTING STANDARDS

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


                                       14
<PAGE>

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

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

      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 is currently assessing the effect of SFAS No. 123(R) on the Company's
financial statement.

OFF-BALANCE SHEET ARRANGEMENTS

      We do not have any off-balance sheet transactions.

Risks Associated With Our Business

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

      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 year ended March 31, 2004 we had a net loss of $7,285,341. Our
accumulated deficit since inception through December 31, 2004 was $16,997,823.

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

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

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

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

WE HAVE RECEIVED A WELLS NOTICE 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.


                                       15
<PAGE>

      On January 3, 2005, we received a "Wells Notice" from the staff of the
U.S. Securities and Exchange Commission (the "SEC") in connection with the
previously announced SEC informal inquiry regarding certain prior public
statements made by us. The "Wells Notice" notified us that the SEC staff intends
to recommend that the SEC bring a civil action against us and our officers and
directors for alleged violations of U.S. securities laws.

      We are cooperating with the SEC in this matter, and are in settlement
discussions with the staff of the SEC. 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 AND YOU MAY LOSE YOUR ENTIRE INVESTMENT.

      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
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, WHICH MAY CAUSE THE VALUE OF YOUR SECURITIES TO DECLINE
SUBSTANTIALLY OR BECOME WORTHLESS.

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

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

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

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

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

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

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


                                       16
<PAGE>

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

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

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

      o     initiate, develop and sustain corporate and government
            relationships;

      o     attract, integrate and retain qualified marketing and sales
            representatives; and

      o     accurately assess the demands of the market.

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

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

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

RISKS ASSOCIATED WITH OWNERSHIP OF OUR SECURITIES

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

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

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

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

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


                                       17
<PAGE>

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

THERE IS A LIMITED ACTIVE PUBLIC MARKET FOR OUR SECURITIES, SO YOU MAY NOT BE
ABLE TO LIQUIDATE YOUR SECURITIES IF YOU NEED MONEY.

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

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

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

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 the nine months ended December 31, 2004 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 third quarter ended December 31,
2004 that have materially affected or are reasonably likely to materially affect
our internal controls over financial reporting subsequent to the date of their
evaluation.

PART II

      ITEM 1. LEGAL PROCEEDINGS

      On January 3, 2005, we received a "Wells Notice" from the staff of the
U.S. Securities and Exchange Commission (the "SEC") in connection with the
previously announced SEC informal inquiry regarding certain prior public
statements made by us. The "Wells Notice" notified us that the SEC staff intends
to recommend that the SEC bring a civil action against us and our officers and
directors for alleged violations of U.S. securities laws. Under the SEC's
procedures, we and our officers and directors availed ourselves of the
opportunity to make a "Wells Submission" and responded to the SEC staff. We and
our officers and directors continue to cooperate with the SEC toward resolving
this matter, and we are in settlement discussions with the staff of the SEC.
However, no settlement has yet been mutually accepted by the parties involved.

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

      Not applicable.

      ITEM 3. DEFAULTS UPON SENIOR SECURITIES


                                       18
<PAGE>

      Not applicable.

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

      Not applicable.

      ITEM 5. OTHER INFORMATION

      On December 30, 2004, we entered into an agreement with USDR(NV), Inc. to
extend the maturity date of an existing loan for amounts up to $500,000, from
December 31, 2004 to February 28, 2005. Our Chairman and C.E.O. controls
USDR(NV), Inc. The loan bears interest at 10% per annum. We owe USDR (NV), Inc.
$193,682, including interest, as of December 31, 2004 under this loan agreement.

      On December 30, 2004, we entered into an agreement with USDR Aerospace,
Ltd., a related party, to extend the maturity date of an existing loan for
amounts up to $100,000, from December 31, 2004 to February 28, 2005. Our
Chairman and C.E.O. controls USDR Aerospace, Ltd. The loan bears interest at 10%
per annum. We owe USDR Aerospace, Ltd. $110,028, including accrued interest, as
of December 31, 2004 under this loan agreement.

      ITEM 6. EXHIBITS

(a)   Exhibits

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

3.1.1 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)


                                       19
<PAGE>

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)

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)


                                       20
<PAGE>

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).

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..

14    Code of Ethics (7)

31.1  Certification by Chief Executive Officer

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.
<PAGE>

(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 filed with the Securities and
      Exchange Commission on August 17, 2004.

(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.
<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/ John Robinson
                                  ----------------------------------------
Date: February 25, 2005           John Robinson, Chief Executive Officer


                              By: /s/ Julie Seaman
                                  ----------------------------------------
Date: February 25, 2005           Julie Seaman, Chief Financial Officer