##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 Commission file number: 000-09459
 
 U.S. AEROSPACE, INC.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    0610345787
(I.R.S. Employer
Identification Number)
 10291 Trademark Street
Rancho Cucamonga, CA 91730
 (909) 477-6504
 þ o
 o þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



U.S. AEROSPACE, INC.
 INDEX
 Page No.Forward Looking Statements
    
    
    1PART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    F-1Condensed Consolidated Balance Sheets  September 30, 2010 (Unaudited) and December 31, 2009
    
    
    F-1Condensed Consolidated Statements of Operations (Unaudited)
    
    
    F-3Three and Nine Months Ended September 30, 2010 and 2009
    
    
    F-3Condensed Consolidated Statements of Cash Flows (Unaudited)
    
    
    F-5Nine Months Ended September 30, 2010 and 2009
    
    
    F-5Notes to Condensed Consolidated Financial Statements
    
    
    F-7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    2Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    5Item 4T. Controls and Procedures
    
    
    6PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    7Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    8Item 5. Other Information
    
    
    8Item 6. Exhibits
    
    
    8SIGNATURES
    
    
    8Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



Forward-Looking Statements
   1




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##### Table of Contents



Part I  Financial Information
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 U.S. AEROSPACE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30, 2010 and December 31, 2009
 Unaudited
 September 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent AssetsCash
    
    $
    76,012
    
    
    $
    57,422Accounts receivable, net of allowances of $30,000 and $30,000
    
    
    268,278
    
    
    
    63,120Prepaid expenses and other current assets
    
    
    11,991
    
    
    
    200Deferred financing costs, current portion, net
    
    
    4,888
    
    
    
    150,251Current assets of discontinued operations
    
    
    
    
    
    
    405,813Total current assets
    
    
    361,169
    
    
    
    676,806Property and equipment, net
    
    
    832,579
    
    
    
    605,943Goodwill
    
    
    2,401,342
    
    
    
    2,359,121Other intangible assets, net
    
    
    1,285,713
    
    
    
    1,446,429Deferred financing costs, long-term portion
    
    
    
    
    
    
    92,338Noncurrent assets of discontinued operations
    
    
    
    
    
    
    262,711Total Assets
    
    $
    4,880,803
    
    
    $
    5,443,348LIABILITIES AND STOCKHOLDERS DEFICITCurrent LiabilitiesAccounts payable and accrued liabilities
    
    
    2,072,501
    
    
    
    1,985,106Derivative liability
    
    
    
    
    
    
    48,378Dividends payable
    
    
    240,712
    
    
    
    204,600Capital lease obligations
    
    
    822,294
    
    
    
    743,381Loan payable and accrued interest, net of discount of $0 at September 30, 2010 and $10,003 at December 31, 2009
    
    
    
    
    
    
    145,563Notes payable and accrued interest
    
    
    605,684
    
    
    
    115,544Notes payable to related parties and accrued interest
    
    
    
    
    
    
    545,356Convertible notes payable and accrued interest , net of discounts of $0 at September 30, 2010 and $1,350,164 at December 31, 2009
    
    
    7,262,869
    
    
    
    4,341,613Current Liabilities of discontinued operations
    
    
    
    
    
    
    2,038,150Total Liabilities
    
    
    11,004,060
    
    
    
    10,167,691
  F-1




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009Commitments and ContingenciesStockholders DeficitCumulative, convertible, Series B preferred stock, $1 par value, 15,000,000 shares authorized, no shares issued and outstanding (liquidation preference of $25 per share)
    
    
    
    
    
    
    Cumulative, convertible, Series C preferred stock, $1 par value, 75,000 shares authorized, 26,880 shares issued and outstanding (liquidation preference of $672,000 at September 30, 2010 and December 31, 2009)
    
    
    26,880
    
    
    
    26,880Cumulative, convertible, Series D preferred stock, $25 par value, 75,000 shares authorized, 11,640 shares issued and outstanding (liquidation preference of $508,900 at September 30, 2010 and $495,600 at
December 31, 2009)
    
    
    291,000
    
    
    
    291,000Cumulative, convertible, Series E preferred stock, $1.00 par value, 5,000,000 shares authorized, 383,793 shares issued and outstanding (liquidation preference of $3,838 at September 30, 2010)
    
    
    383,793
    
    
    
    Common stock, $0.10 par value, 250,000,000 shares authorized; 35,887,625 shares issued and outstanding at September 30, 2010 and 22,430,211 at December 31, 2009
    
    
    3,588,764
    
    
    
    2,243,022Deferred equity compensation
    
    
    
    
    
    
    (29,169
    )Notes receivable from stockholders
    
    
    
    
    
    
    (584,691
    )Additional paid-in capital
    
    
    33,113,068
    
    
    
    20,167,283Accumulated deficit
    
    
    (43,526,762
    )
    
    
    (26,838,668
    )Total Stockholders Deficit
    
    
    (6,123,257
    )
    
    
    (4,724,343
    )Total Liabilities and Stockholders Deficit
    
    $
    4,880,803
    
    
    $
    5,443,348
   F-2




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U.S. AEROSPACE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three and Nine Months Ended September 30, 2010 and 2009
 Unaudited
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenues
    
    $
    660,144
    
    
    
    
    
    
    $
    1,434,344
    
    
    
    Cost of sales
    
    
    325,367
    
    
    
    
    
    
    
    869,522
    
    
    
    Gross profit (loss)
    
    
    334,777
    
    
    
    
    
    
    
    564,822
    
    
    
    Operating expenses:Consulting and other compensation
    
    
    348,124
    
    
    
    64,240
    
    
    
    2,333,860
    
    
    
    85,411Sale, general and administrative
    
    
    380,637
    
    
    
    1,926
    
    
    
    422,729
    
    
    
    23,114Salaries and related
    
    
    249,173
    
    
    
    
    
    
    
    529,740
    
    
    
    Impairment of an intangible asset
    
    
    11,513,790
    
    
    
    
    
    
    
    11,513,790
    
    
    
    Total operating expenses
    
    
    12,491,724
    
    
    
    66,166
    
    
    
    14,800,199
    
    
    
    108,525Operating loss from continuing operations
    
    
    (12,156,947
    )
    
    
    (66,166
    )
    
    
    (14,235,297
    )
    
    
    (108,525
    )Other income (expenses), net:Other income
    
    
    
    
    
    
    
    
    
    
    109,153
    
    
    
    Gain on write-off of accounts payable
    
    
    
    
    
    
    
    
    
    
    15,507
    
    
    
    5,680Gain on disposal of assets
    
    
    
    
    
    
    
    
    
    
    196,779
    
    
    
    Gain (loss) on valuation of derivative liabilities
    
    
    
    
    
    
    (19,649,947
    )
    
    
    (11,253
    )
    
    
    (21,225,850
    )Interest expense
    
    
    (503,050
    )
    
    
    (1,064,798
    )
    
    
    (2,994,094
    )
    
    
    (2,685,653
    )Total other expenses, net
    
    
    (503,050
    )
    
    
    (20,714,745
    )
    
    
    (2,683,908
    )
    
    
    (23,905,823
    )Loss from continuing operations
    
    $
    (12,659,997
    )
    
    
    (20,780,911
    )
    
    
    (16,919,205
    )
    
    
    (24,014,348
    )Discontinued operations:Loss from operations of discontinued operations
    
    
    
    
    
    
    (535,532
    )
    
    
    (905,569
    )
    
    
    (835,721
    )Gain on disposal of discontinued operations
    
    
    1,172,793
    
    
    
    
    
    
    
    1,172,793
    
    
    
    Net income (loss) from discontinued operations, net of tax
    
    
    1,172,793
    
    
    
    (535,532
    )
    
    
    267,224
    
    
    
    (835,721
    )
  F-3




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For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    
    (11,487,204
    )
    
    
    (21,316,443
    )
    
    
    (16,651,981
    )
    
    
    (24,850,069
    )Preferred Stock Dividends
    
    
    (22,812
    )
    
    
    
    
    
    
    (36,112
    )
    
    
    (41,275
    )Net income (loss) applicable to common stockholders
    
    
    (11,510,016
    )
    
    
    (21,316,443
    )
    
    
    (16,683,093
    )
    
    
    (24,891,344
    )Basic and diluted loss from continuing operations per common share
    
    
    (0.45
    )
    
    
    (1.35
    )
    
    
    (0.66
    )
    
    
    (1.57
    )Basic income (loss) from discontinued operations per common share
    
    
    0.04
    
    
    
    (0.04
    )
    
    
    0.01
    
    
    
    (0.05
    )Diluted income (loss) from discontinued operations per common share
    
    
    0.00
    
    
    
    (0.04
    )
    
    
    0.00
    
    
    
    (0.05
    )Basic and diluted net income (loss) available to common
shareholders per common share
    
    
    (0.41
    )
    
    
    (1.39
    )
    
    
    (0.65
    )
    
    
    (1.62
    )Basic weighted average common shares outstanding
    
    
    28,367,095
    
    
    
    15,358,665
    
    
    
    25,549,679
    
    
    
    15,358,665Diluted weighted average common shares outstanding
    
    
    367,181,783
    
    
    
    15,358,665
    
    
    
    364,364,367
    
    
    
    15,358,665
   F-4




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U.S. AEROSPACE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine Months Ended September 30, 2010 and 2009
 Unaudited
 For the Nine Months EndedSeptember 30,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    
    (16,651,981
    )
    
    
    (24,850,068
    )Adjustments to reconcile net loss to net cash used in operating activities:Results of discontinued operations
    
    
    905,569
    
    
    
    835,721Gain on disposal of assets of discontinued operations
    
    
    (1,172,793
    )
    
    
    Depreciation and amortization
    
    
    363,044
    
    
    
    62,032Impairment of Intangible asset
    
    
    11,513,790
    
    
    
    Gain on write-off of accounts payable
    
    
    (15,507
    )
    
    
    (5,680
    )Gain on disposal of assets
    
    
    (196,779
    )
    
    
    Loss on settlement of loan payable
    
    
    21,434
    
    
    
    Amortization of deferred financing costs
    
    
    237,701
    
    
    
    337,384Amortization of stock-based consulting fees
    
    
    338,649
    
    
    
    54,999Amortization of debt discount
    
    
    1,980,121
    
    
    
    1,901,039Estimated fair value of common stock issued in satisfaction of liability
    
    
    1,500,000
    
    
    
    Estimated fair value of common stock and options issued for services
    
    
    319,319
    
    
    
    365,520Warrants issued in connection with debt exchange
    
    
    
    
    
    
    80,000Loss on valuation of derivative liabilities
    
    
    11,253
    
    
    
    21,225,850Changes in operating assets and liabilities
    
    
    413,669
    
    
    
    980Net cash provided by (used in) operating activities of continuing operations
    
    
    (432,511
    )
    
    
    7,777Net cash used in operating activities of discontinued operations
    
    
    (196,202
    )
    
    
    (867,019
    )Net cash used in operating activities
    
    
    (628,713
    )
    
    
    (859,242
    )Cash flows from investing activities:Fixed assets
    
    
    
    
    
    
    (6,698
    )Contribution from partner
    
    
    50,000
    
    
    
    Net cash provided by (used in) investing activities:
    
    
    50,000
    
    
    
    (6,698
    )Cash flows from financing activities:Bank overdraft
    
    
    
    
    
    
    4,873Proceeds from issuance of convertible notes payable, net
    
    
    850,000
    
    
    
    853,000Principal payments on notes payable to related parties
    
    
    (2,600
    )
    
    
    Proceeds from issuance of notes payable to related parties
    
    
    44,138
    
    
    
    Principal payments on notes payable and capital leases
    
    
    (294,235
    )
    
    
    (20,668
    )Net cash provided by financing activities
    
    
    597,303
    
    
    
    837,205Net (decrease) increase in cash
    
    
    18,590
    
    
    
    (28,7359
    )Cash at beginning of period
    
    
    57,422
    
    
    
    31,889Cash at end of period
    
    $
    76,012
    
    
    $
    3,154
  F-5




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For the Nine Months EndedSeptember 30,2010
    
    
    2009Supplemental schedule of cash flow information:Interest paid
    
    $
    36,700
    
    
    $
    Supplemental disclosure of non-cash financing and investing activities:Debt discount recorded on convertible notes payable
    
    $
    625,000
    
    
    $
    588,695Conversion of convertible notes payable
    
    $
    25,600
    
    
    $
    Purchase of property and equipment through capital lease
    
    $
    479,488
    
    
    $
    Payment of accounts payable with proceeds from convertible notes payable
    
    $
    125,000
    
    
    $
    Repayment of loan payable with proceeds from convertible notes payable
    
    $
    150,000
    
    
    $
    Estimated fair value of warrants issued in connection with consulting service agreement
    
    $
    420,000
    
    
    $
    Reclassification of the estimated fair value of warrants from derivative liabilities to additional paid-in capital
    
    $
    59,631
    
    
    $
    Reclassification of the estimated fair value of non-employee options and warrants to derivative liability
    
    $
    
    
    
    $
    129,524Cumulative effect to retained earnings due to reclassification of non-employee options and warrants to derivative
liability
    
    $
    
    
    
    $
    707,474Addition to goodwill for adjustment in net liabilities assumed in acquisition
    
    $
    42,221
    
    
    $
    Accrued cumulative dividends on preferred stock
    
    $
    36,112
    
    
    $
    41,275Issuance of preferred stock for intangible asset
    
    $
    11,513,790
    
    
    $
    Cashless exercise of warrants
    
    $
    159,999
    
    
    $
    Cashless exercise of stock options
    
    $
    73,600
    
    
    $
    6,591
   F-6




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U.S. AEROSPACE, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization and Nature of Operations
    Principles of Consolidation
  Segments of an Enterprise and Related Information
  Basis of Presentation
   F-7




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
    
    Reorganized the Company under a new board of directors
comprised of experts in the field of government
contracting, financial, accounting, and legal
    
    Adopted improved corporate governance procedures to further
ensure timely and accurate disclosure to stockholders and
formed various committees such as, Nominating & Governance
Committee, Audit Committee, and Compensation Committee
    
    Adopted a Code of Ethics, applicable to all Company
officers, directors and employees, including senior
financial officers
    
    Restructured and renegotiated the Companys existing debts,
including a one-year extension of the senior secured debt
    
    Decreased cost of operations with the divesture
non-performing subsidiary NCR, and received full indemnity
on all liabilities and other issues (See Note 2)
    
    Retained the assistance of outside independent financial
advisors to identify and secure financial support for the
Companys business plan that focuses and defines what
directions of growth should be targeted within the
aerospace & defense industry, both domestically and
internationally
    
    Expanded the Companys international relationships with
established companies in China and Ukraine.
    
    Changed the name of the Company to U.S. Aerospace, Inc., to
reflect the new branding and business focus of the Company
  Reclassifications
  Revenue Recognition
   F-8




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Use of Estimates
  Concentration of Credit Risks
  Accounts Receivable
      Basic and Diluted Loss per Common Share
    F-9




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##### Table of Contents



Stock Based Compensation
        F-10




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WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateNumber
    
    
    Exercise
    
    
    Term in
    
    
    Intrinsicof Shares
    
    
    Price
    
    
    Years
    
    
    Value (1)Vested
    
    
    2,000,000
    
    
    $
    0.20
    
    
    
    1.37
    
    
    $
    
 (1)
    
    Represents the approximate difference between the
exercise price and the closing market price of the
Companys common stock at the end of the reporting
period (as of September 30, 2010 the market price of
the Companys common stock was $0.07).      Non-Plan Options
   Deferred Financing Costs
   F-11




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Fair Value Measurements
       Accounting for Derivative Instruments
        F-12




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##### Table of Contents



Derivative liability  December 31, 2009
    
    $
    48,378Derivative liability reduced for reclassification of warrants to equity
    
    
    (59,631
    )Change in fair value of derivative liability
    
    
    11,253Total derivative liability  September 30, 2010
    
    $
    0
 Accounting for Debt Issued with Detachable Stock Purchase Warrants and Beneficial Conversion
Features
   Significant Recent Accounting Pronouncements
   2. ANTONOV STRATEGIC COOPERATION AGREEMENT
    F-13




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##### Table of Contents



3. DISCONTINUED OPERATIONS AND SALE OF NCR
      NCR DispositionCash
    
    
    0Inventories
    
    
    262,462Other current assets
    
    
    49,041Total current assets
    
    
    311,503Property and equipment, net
    
    
    69,619Other non-current assets
    
    
    234,451Total Assets of NCR
    
    
    615,573Accounts payable and accrued expenses
    
    
    (2,373,060
    )Total liabilities of NCR
    
    
    (2,373,060
    )Shareholder Note Receivable
    
    
    584,691Net Gain from Disposition
    
    
    (1,172,796
    )
  F-14




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##### Table of Contents



4. ACQUISITION OF PRECISION AEROSTRUCTURES, INC.
      Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2009
    
    
    September 30, 2009Net revenues
    
    $
    898,283
    
    
    $
    3,751,581Net loss
    
    $
    (21,372,363
    )
    
    $
    (25,945,069
    )Weighted average common share outstanding:Basic and diluted
    
    
    20,344,654
    
    
    
    20,344,654Loss per share:Basic and diluted
    
    $
    (1.05
    )
    
    $
    (1.28
    )
  5. GOODWILL AND OTHER INTANGIBLE ASSETS
   F-15




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Balance, December 31, 2009
    
    $
    2,359,121Addition of goodwill for adjustment to net liabilities assumed in acquisition
    
    
    42,221Balance, September 30, 2010
    
    $
    2,401,342
    Estimated Useful
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingLife (Years)
    
    
    Amount
    
    
    Amortization
    
    
    AmountCustomer relationships
    
    Seven
    
    $
    1,500,000
    
    
    $
    (214,287
    )
    
    $
    1,285,713Strategic Cooperation Agreement
    
    One
    
    $
    11,513,790
    
    
    $
    (11,513,790
    )
    
    $
    
   Estimated Useful
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingLife (Years)
    
    
    Amount
    
    
    Amortization
    
    
    AmountCustomer relationships
    
    Seven
    
    $
    1,500,000
    
    
    $
    (53,571
    )
    
    $
    1,446,429
 Impairment of Intangible Assets
  6. NOTES PAYABLE
 CAMOFI AND CAMHZN 12% AND 15% Senior Secured Convertible Debt
   F-16




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2009
   2010
     F-17




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(Unaudited)September 30, 2010
    
    
    December 31, 2009CONV NOTES
    
    HUTTON
    
    
    CAMOFI
    
    
    CAMHZN
    
    
    CAMOFI
    
    
    CAMHZNPrincipal
    
    $
    250,000
    
    
    $
    4,713,401
    
    
    $
    1,218,280
    
    
    $
    4,033,881
    
    
    $
    1,048,400Discount  warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,814
    )
    
    
    (16,160
    )Discount  conversion options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,068,542
    )
    
    
    (204,850
    )Discount  stock issued with notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,798
    )
    
    
    Notes presented net of debt discounts
    
    $
    250,000
    
    
    $
    4,713,401
    
    
    $
    1,218,280
    
    
    $
    2,904,727
    
    
    $
    827,390
    Micro Pipe Note Payable
       F-18




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##### Table of Contents



7. EQUITY TRANSACTIONS
 Common Stock, Preferred Stock, Warrants and Options
 ISSUANCE OF COMMON STOCK
          F-19




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##### Table of Contents



ISSUANCE OF PREFERRED STOCK
  STOCK OPTIONS
    WARRANTS
    F-20




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##### Table of Contents



Outstanding WarrantsWeightedAverage
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    IntrinsicShares
    
    
    Price
    
    
    Value (1)Outstanding at January 1, 2010
    
    
    12,497,538
    
    
    $
    0.12
    
    
    $
    Grants (2)
    
    
    4,754,545
    
    
    $
    0.000001
    
    
    $
    Exercise
    
    
    (1,600,000
    )
    
    $
    
    
    
    $
    Cancelled
    
    
    (500,000
    )
    
    $
    0.20
    
    
    $
    Outstanding at September 30, 2010 (3)
    
    
    15,152,083
    
    
    $
    0.09
    
    
    $
    539,663Exercisable at September 30, 2010 (3)
    
    
    12,152,053
    
    
    $
    0.08
    
    
    $
    539,663
 (1)
    
    Represents the approximate added value as
difference between the exercise price and the closing
market price of the Companys common stock at the end
of the reporting period (as of September 30, 2010, the
market price of the Companys common stock was $0.07).(2)
    
    All of the warrants issued are exercisable at September 30, 2010.(3)
    
    The warrants outstanding and exercisable at
September 30, 2010 have a weighted-average contractual
remaining life of 4.14 years and 5.31 years,
respectively. The 3,000,000 warrants not exercisable
at September 30, 2010 were issued in connection with
the acquisition of PAI in 2009. See Note 3 for a
description of the vesting terms of the warrant. 8. RELATED PARTY TRANSACTIONS
   9. COMMITMENTS AND CONTINGENCIES
 Service Agreements
   F-21




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Capital Lease
  Legal
  Delinquent Income Taxes
  Delinquent Payroll Taxes
  Tax Lien
   Indemnities and Guarantees
   F-22




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Employment Agreements
  10. SEGMENT REPORTING
  11. SUBSEQUENT EVENTS
 Issuance of Common Stock
  KC-X Tanker Bid
   F-23




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  OVERVIEW
   2




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##### Table of Contents



HIGHLIGHTS
  
    
    Reorganized the Company under a new board of directors comprised of experts in
the field of government contracting, financial, accounting, and legal.
 
    
    Appointed Jim Worsham, an aerospace veteran, as the Companys Chief Executive
 
    
    Adopted improved corporate governance procedures to further ensure timely and
accurate disclosure to stockholders and formed various committees such as,
Nominating & Governance Committee, Audit Committee, and Compensation Committee
 
    
    The Board of Directors adopted a Code of Ethics, applicable to all Company
officers, directors and employees, including senior financial officers
 
    
    Decreased our cost of operations with the divesture our non-performing division
NCR, and received full indemnity on all liabilities and eliminating all other
outstanding NCR related issues
 
    
    Retained the assistance of outside independent financial advisors to identify
and secure financial support for our business plan that focuses and defines what
directions of growth should be targeted within the Aerospace & Defense industry,
both domestically and internationally.
 
    
    Modified our international relationships with established companies in China and
Ukraine.
 
    
    Labor cost has been reduced by 20%.
 
    
    Companys executives are on an aggressive marketing campaign with existing and
new component manufacturing clients to expand the core base of the Precision
Aerostructures division.
 
    
    Company has identified and is exploring potential acquisitions of other
component manufacturers in the aerospace industry who specialize in manufacturing
aerospace components with a different client base that will diversify and expand
the U.S. Aerospace customer base.
  3




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##### Table of Contents



RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TO SEPTEMBER
30, 2009.
 Net Revenues
 Gross (Loss) Profit.
 Operating Expenses.
  Operating Loss from Continuing Operations.
 Interest Expense and Debt Discount Amortization.
 Other Expense.
 Net Income (Loss) from Discontinued Operations
  4




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##### Table of Contents



FINANCIAL CONDITION, LIQUIDITY, CAPITAL RESOURCES
        INFLATION AND CHANGING PRICES
  CRITICAL ACCOUNTING POLICIES
   
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   5




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##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Corrections of Material Weaknesses
  
    
    We have established an independent Audit Committee responsible for the oversight of
the financial reporting process, and an Audit Committee Charter has been defined. We
previously did not have any independent members of the Board who could comprise this
committee.
 
    
    We have established a Whistle Blower program for the receipt, retention, and
treatment of complaints received by the issuer regarding accounting, internal accounting
controls, or auditing matters; and the confidential, anonymous submission by employees
of the issuer of concerns regarding questionable accounting or auditing matters to the
Audit Committee and Board of Directors.
 
    
    We have three individuals on our Board, who serve on the Audit Committee, who meet
the Financial Expert criteria.
 
    
    We maintain documentation evidencing quarterly and other meetings between the Board,
Audit Committee, senior financial managers and our outside general counsel. Such
meetings include reviewing and approving quarterly and annual filings with the
Securities and Exchange Commission and reviewing on-going activities to determine if
there are any potential audit related issues which may warrant involvement and follow-up
action by the Board or Audit Committee.
 
    
    We are establishing a formal fraud assessment process to identify and design adequate
internal controls to mitigate those risks not deemed to be acceptable.
 
    
    We are conducting performance reviews and evaluations of our management and staff
employees.
  
    
    The Controller is still the only individual with technical accounting experience in
our company and has limited in the exposure to SEC filings and disclosures, but now has
assistance from the Audit Committee members and outside counsel.
 
    
    We are consulting with other outside parties with accounting experience to assist us
in the SEC filings and disclosures, including Audit Committee members and outside
counsel. We were previously unable to do this and as a result, our independent
registered public accounting firm recorded numerous adjusting entries.
  6




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##### Table of Contents




    
    We have begun segregating the duties of different personnel within our accounting
group, which we were previously unable to do due to an insufficient complement of staff
and inadequate management oversight.
  
    
    The controls identified in the process documentation were previously not designed
effectively and had no evidence of operating effectiveness for testing purposes.
 
    
    The controls identified in the previous process documentation did not cover all the
risks for the specific process.
 
    
    The controls identified in the previous process documentation did not cover all
applicable assertions for the significant accounts.
  CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
  
 PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
 Fan v. New Century Remanufacturing, Inc., et al
 Item 1A.
    
    Risk Factors
 In addition to the risk factors set forth in our most recent annual report, recent developments
have resulted in further risks, including the risk factors listed below. Risks and uncertainties in
addition to those we describe below, that may not be presently known to us, or that we currently
believe are immaterial, may also harm our business and operations. If any of these risks occur, our
business, results of operations and financial condition could be harmed, the price of our common
stock could decline, and future events and circumstances could differ significantly from those
anticipated in the forward-looking statements contained in this report.
 We are dependent on AVIC and Antonov to supply aircraft and components, and information necessary
for our RFP responses.
   7




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##### Table of Contents



Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
 Exhibit 10.1
    
    Stock Purchase Agreement between U.S. Aerospace, Inc. and David Duquette and Josef
Czikmantori for purchase of New Century Remanufacturing, Inc.Exhibit 31.1
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(d) and under Section 302 of
the Sarbanes-Oxley act of 2002Exhibit 31.2
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(d) and under Section 302 of
the Sarbanes-Oxley act of 2002Exhibit 32.1
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(d) and under Section 906 of
the Sarbanes-Oxley act of 2002Exhibit 32.2
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(d) and under Section 906 of
the Sarbanes-Oxley act of 2002
 
 SIGNATURES
  U.S. Aerospace, Inc.December 15, 2010
    By:
    /s/ James WorshamName:
    James WorshamTitle:
    Chief Executive Officer
(Principal Executive Officer)By:
    /s/ Rosa RiosName:
    Rosa RiosController (Principal Financial
and Accounting Officer)  8