On April 26, 2010 New Century Companies, Inc. and, a Delaware corporation (“New Century”), changed its name to U.S. Aerospace, Inc. (“U.S. Aerospace” or the “Company”). The Company was incorporated in Delaware on August 1, 1980. Its wholly owned subsidiary, New Century Remanufacturing Inc., (collectively, the "Company"), a California corporation, was incorporated in March 1996 and is located in Southern California. On October 9, 2009, New Century entered into a share exchange agreement with Precision Aerostructures, Inc. (“PAI”) pursuant to which the sole shareholder of PAI agreed to transfer all capital stock of PAI to New Century (see Note 3).  Collectively, U. S. Aerospace and its wholly owned subsidiaries are referred to as the “Company”. The Company is engaged in the production of aircraft assemblies, structural components, and highly engineered, precision machined details for the United States Department of Defense, United States Air Force, Lockheed Martin Corporation, The Boeing Company, L-3 Communications Holdings, Inc., the Middle River Aircraft Systems subsidiary of General Electric Company, and other aircraft manufacturers, aerospace companies, and defense contractors. The Company also provides after-market services, including rebuilding, retrofitting and remanufacturing of metal cutting machinery.  Once completed, a remanufactured machine is "like new"“like new” with state-of-the-art computers and the cost to the Company's customersCompany’s customer is substantially less than the price of a new machine.

The Company trades on the OTC Bulletin Board under the symbol "NCNC.""USAE.OB".

The condensed consolidated financial statements include the accounts of New Century Companies, Inc.U.S. Aerospace and its wholly owned subsidiary,subsidiaries, New Century Remanufacturing, Inc. and PAI.  All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements and the notes hereto should be read in conjunction with the financial statements, accounting policies and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008,2009, filed with the SEC. In the opinion of management, all adjustments necessary to present fairly, in accordance with GAAP, the Company's consolidated financial position as of March 31, 2009,2010, and the consolidated results of operations and cash flows for the interim periods presented, have been made.  Such adjustments consist only of normal recurring adjustments.  The results of operations for the three months ended March 31, 20092010 are not necessarily indicative of the results for the full year ending December 31, 2009.2010. Amounts related to disclosure of December 31, 20082009 balances within these interim condensed consolidated financial statements were derived from the audited 20082009 consolidated financial statements and notes thereto.

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. As of and the for the three months ended March 31, 2009,2010, the Company has a net loss of approximately $1,794,000, an accumulated deficit of approximately $15,556,000, had recurring losses, a$28,633,000, working capital deficit of approximately $7,339,000,$10,582,000 and was also in default on twoseveral notes payable (see Note 6) and had events of default on its convertible notes.CAMOFI and CAMHZN debt (see Note 5).   These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company intends to fund operations through anticipated increased sales along with renegotiated or new debt and equity financing arrangements which management believes may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year ending December 31, 2009.2010. Therefore, the Company will be required to seek additional funds to finance its long-term operations.operations in the form of debt and equity financing which the Company believes is available to it.  The successful outcome of future activities cannot be determined at this time and there is no assurance that if achieved, the Company will have sufficient funds to execute its intended business plan or generate positive operating results.

In response to these problems, management has taken the following actions:

The condensed consolidated financial statements do not include any adjustments to the carrying amounts related to recoverability and classification of asset carrying amountsassets or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Inventories are stated at the lower of cost or net realizable value. Cost is determined under the first-in, first-out method. Inventories represent cost of work in process on units not yet under contract. Cost includes all direct material and labor, machinery, subcontractors and allocations of indirect overhead. At each balance sheet date, the Company evaluates its ending inventories for excess quantities and obsolescence. Among other factors, the Company considers historical demand and forecasted demand in relation to the inventory on hand and market conditions when determining obsolescence and net realizable value. Provisions are made to reduce excess or obsolete inventories to their estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis of the excess or obsolete inventories. As of March 31, 2010, inventories consist of $167,206 of work-in-process and $133,860 of finished goods. 

The Company's revenues consist primarily of contracts with customers. The Company uses the percentage-of-completion method of accounting to account for long-term contracts pursuant to Statements of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts,”U.S. accounting standards, and, therefore, takes into account the cost, estimated earnings and revenue to date on fixed-fee contracts not yet completed. The percentage-of-completion method is used because management considers total cost to be the best available measure of progress on the contracts. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term.

Because contracts may extend over a period of time, changes in job performance, changes in job conditions and revisions of estimates of cost and earnings during the course of the work are reflected in the accounting period in which the facts that require the revision become known. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is recognized in the consolidated financial statements.

Contracts that are substantially complete are considered closed for financial statement purposes. Costs incurred and revenue earned on contracts in progress in excess of billings (under billings) are classified as a current asset. Amounts billed in excess of costs and revenue earned (over billings) are classified as a current liability.

For revenues from stock inventory, the Company follows Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition,"U.S accounting standards, which outlinesoutline the basic criteria that must be met to recognize revenue other than revenue on contacts,contracts, and provides guidance for presentation of this revenue and for disclosure related to these revenue recognition policies in financial statements filed with the SEC. The Company recognizes revenue from stock inventory when persuasive evidence of an arrangement exists, title transfer has occurred, or services have been performed, the price is fixed or readily determinable and collectibility is probable.

The Company accounts for shipping and handling fees and costs in accordance with EITF Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs."U.S. accounting standards. Shipping and handling fees and costs incurred by the Company are immaterial to the operations of the Company and are included in cost of sales.

Cash is maintained at various financial institutions. The Federal Deposit Insurance Corporation (“FDIC”) insures accounts at each financial institution for up to $250,000 for March 31, 2009 and December 31, 2008.$250,000. At times, cash may be in excess of the FDIC insured limit of $250,000.limit. The Company did not have any significant uninsured bank balances at March 31, 20092010 and December 31, 2008.2009. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risks on cash.

During the periodthree months ended March 31, 2010, sales to one customer approximated 55% of net revenues. Further, there was one customer that accounted for approximately 80% of accounts receivable at March 31, 2010.

Basic net earnings (loss)loss per share is computed by dividing net income (loss)loss by the weighted average number of common shares outstanding for the period. Diluted net income (loss)loss per share is computed by dividing net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding for each respective period.year.

Common stock equivalents, representing convertible Preferred Stock, convertible debt, options and warrants totaling approximately 150,968,000 and 61,821,000 shares atfor March 31, 2010 and 2009, (restated)respectively, are not included in the computation of diluted loss per share as they would be anti-dilutive. Common stock equivalents, representing convertible Preferred Stock, convertible debt, options and warrants totaling approximately 27,949,000 shares are included in the diluted loss per share at March 31, 2008.

Effective January 1, 2006, we adoptedThe Company uses the fair value method of accounting for employee stock compensation cost pursuant to SFAS No. 123(R), “Share-Based Payment.” Under the fair value recognition provisions of SFAS 123(R), share-basedcost. Share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.  For the three months ended March 31, 2010 and 2009, and 2008, no employee share-based compensation expense was recognized in the accompanying condensed consolidated statements of operations.

From time to time, the Company's Board of Directors grants common share purchase options or warrants to selected directors, officers, employees, consultants and advisors in payment of goods or services provided by such persons on a stand-alone basis outside of any of the Company's formal stock plans. The terms of these grants are individually negotiated and generally expire within five years from the grant date.

Under the terms of the Company's 2000 Stock Option Plan, options to purchase an aggregate of 5,000,000 shares of common stock may be issued to officers, key employees and consultants of the Company. The exercise price of any option generally may not be less than the fair market value of the shares on the date of grant. The term of each option generally may not be more than five years.

The fair value of stock-based awards to employees and directors is calculated using the Black-Scholes option pricing model, even though the model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restriction, which differ significantly from the Company's stock options. The Black-Scholes model also requires subjective assumptions regarding future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the pricing term of the grant effective as of the date of the grant. The expected volatility is based on the historical volatility of ourthe Company’s common stock. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods.

There were no options granted, exercised or cancelled during the periodthree months ended March 31, 2009.2010.   There were 1,700,000 shares available for grant at March 31, 2010. 

OptionsAll options outstanding that have vested and are expected to vest as of March 31, 20092010 and are as follows:

a) For transactions where goods have already been delivered or services rendered, the equity instruments are issued on or about the date the performance is complete (and valued on the date of issuance).

b) For transactions where the instruments are issued on a fully vested, non-forfeitable basis, the equity instruments are valued on or about the date of the contract.

c) For any transactions not meeting the criteria in (a) or (b) above, the Company re-measures the consideration at each reporting date based on its then current stock value.

From time to time, the Company issues warrants to employees and to third parties pursuant to various agreements, which are not approved by the shareholders.

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly. For the Company, Level 2 inputs include assumptions such as estimated life, risk free rate and volatility estimates used in determining the fair values of the Company’s option and warrant securities issued.

Level 3: Unobservable inputs for the asset or liability. Beginning January 1, 2009, Level 3 inputs may be required for the determination of fair value associated with certain nonrecurring measurements of nonfinancial assets and liabilities. The Company does not currently present any nonfinancial assets or liabilities at fair value.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.  Liabilities measured at fair value on a recurring basis are summarized as follows (unaudited) (restated):

The Company has no assets or liabilities that are measured at fair value on a recurring basis.basis as of March 31, 2010. There were no assets or liabilities measured at fair value on a non-recurring basis during the three monthsperiod ended March 31, 2009.2010.

In connection with the issuance of certain convertible notes payable (see Note 3)5), the notes provided forhad conversion features that the Company determined were embedded derivative instruments. The Company issued warrants in connection with a conversion into shares ofloan payable (see Note 6) that had an anti-dilution provision which caused the Company's common stock at a rate which was determinedwarrants to be variable. The Company determined that the variable conversion feature was an embeddeda derivative instrument pursuant to SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended.instrument.  The accounting treatment of derivative financial instruments requires that the Company record the derivatives and related warrants at their fair values as of the inception date of the note and warrant agreements and at fair value as of each subsequent balance sheet date. In addition, under

For all of the provisions of Emerging Issues Task Force ("EITF") Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock," as a result of entering into the debenture agreements, the Company was required to classify all other non-employee options and warrants as derivative liabilities and record them at their fair values at each balance sheet date. Anyinstruments, any change in fair value wasis recorded as non-operating, non-cash income or expense at each balance sheet date. If the fair value of the derivatives was higher at the subsequent balance sheet date, the Company recorded a non-operating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company recorded non-operating, non-cash income.

During the three monthsperiods ended March 31, 20092010 and 2008,2009, the Company recognized other expense of $1,800,978 (restated)$11,253 and other income of $1,300,762 (restated),$1,800,978, respectively, related to recording the derivative liabilityliabilities at fair value.  At March 31, 20092010 and December 31, 2008,2009, the derivative liability balance was $4,306,028 (restated)$0 and $2,025,298,$48,378, respectively.

Warrant-related and conversion-related derivatives were valued using the Black-Scholes Option Pricing Model with the following assumptions during the three monthsperiod ended March 31, 2009 and 2008:2010: dividend yield of 0%; volatility ranging from 178% to 670%(2009)of 204% and 160% to 187% (2008), respectively; anda risk free interest rates ranging from 0.19% to 2.54% (2009) and 0.10% to 2.21% (2008)rate of 2.34%.

The following table summarizes the activity related to the derivative liability during the three monthsperiod ended March 31, 2009:2010:

The Company’sCompany entered into various convertible debt financing,financings with CAMOFI Master LDC (“CAMOFI”) and CAMHZN Master LDC (“CAMZHN”) prior to January 1, 2009 under the Amended 12% CAMOFI Convertible Note (“Amended 12% CAMOFI Note”)Note) and 15% CAMHZN Convertible Note (“15% CAMHZN Note”) (together,(collectively, the “Convertible Notes”“Notes”),.  As of December 31, 2008, the amounts due under the Notes to CAMOFI and CAMHZN were $2,834,281 and $750,000, respectively.  In connection with the Notes, the Company issued warrants and stock to CAMOFI and warrants to CAMHZN.  The debt discounts as of December 31, 2008 related to the Notes, which includes amounts for the conversion options, warrants and stock, to CAMOFI and CAMHZN were $2,089,443 and $350,090, respectively.  The debt discounts as of December 31, 2009 related to the amounts borrowed prior to 2009 from CAMOFI and CAMHZN were $753,619 and $127,128, respectively.  The debt discounts as of March 31, 2010 related to the amounts borrowed prior to 2009 from CAMOFI and CAMHZN were $416,390 and $71,202, respectively.

During 2010, the Company borrowed $324,000 from CAMOFI and $81,000 from CAMHZN under the Notes and recorded debt discounts related to the conversion options and warrants issued for the same amounts as borrowed.  The Company received proceeds of $350,000, net of amounts paid directly to a vendor by the note holder.   The Notes are in default.due on August 1, 2010 and bear interest at 15% per annum.  The debt discounts as of March 31, 2010 related to the 2010 borrowings from CAMOFI and CAMHZN were $249,333 and $62,333, respectively.

The Company has incurred events of default on the Notes.  The last monthly contractual payment on the CAMOFI note was made in October 2008 and no payments have made on the CAMHZN Note which were scheduled to begin on September 1, 2008.  As a result, these are events of default under the terms of the agreement. Under the terms of the agreement, if any event of default occurs, the full principal amount of the note, together with interest and other amounts owing in respect thereof, to the date of acceleration shall become, at the note holder’s election, immediately due and payable in cash. The Convertible Notes aggregatenote holders have yet to $3,784,271 principal and interest.elect to exercise the default provisions. As of March 31, 20092010 and December 31, 2008,2009, the principal balances accrued interest and the debt discounts are presented in the tableConvertible Notes Table, below.

During the three months ended March 31, 20092010 and 2008,2009, the Company amortized debt discounts of approximately $388,000 (restated)$698,000 and $252,000,$508,000, respectively, to interest expense related to the Convertible Notes.

On February 18,November 12, 2009, the Company entered into an agreement with CAMOFI Master LDCMicro Pipe Fund I, LLC for the issuancereceipt of a Senior Secured Convertible Note for $701,200,Loan of $150,000 (the “Micro Pipe Loan”).  The loan accrued interest at a rate of 2% per month and matured on August 18, 2009 at 83.42857% of face amount. The Note can be converted at $0.07 per share at any time duringJanuary 5, 2010.  On the termmaturity date, all principal and interest was due in addition to a payment equal to 10% of the convertible note, subject to certain anti-dilution adjustments.principal balance.  The noteloan was not repaid at maturity, is currently in default and is now due on demand.  The loan is secured by a secondary interest in all of the assets of the Company.

On February 18, 2009,In connection with the Micro Pipe Loan, the Company entered into an agreementgranted 500,000 immediately vested five year warrants with CAMHZN Master LDC for the issuance of a Senior Secured Convertible Note for $173,800 matured on August 18, 2009 at 83.42857% of face amount. The Note can be converted at $0.07 per share at any time during the term of the convertible note, subject to certain anti-dilution adjustments.five years and an exercise price of $0.20 (“Micro Pipe Warrants”).

The Notes are convertible into shares of common stock with a conversion price of $0.07, subject to certainMicro Pipe Warrants had an exercise feature that was the same as the anti-dilution adjustments. Per FAS 133 “Accounting for Derivative Instruments and Hedging Activities”,provision in the conversion option isCAMOFI Warrants (See Note 5). Consequently, the warrants were also treated as a derivative liability.

The initial Micro Pipe Warrants derivative liability of $108,101 represented a discount from the face amount of the note payable. Such discount was amortized to interest expense over the lifeterm of the notes.note. During the three months ended March 31, 2010, the Company amortized the balance of $10,003 to interest expense in the accompanying condensed consolidated statements of operations.

As of March 31, 2010 and December 31, 2009, the Company had recorded approximately $7,500 to$14,566 and $5,566, respectively, in accrued interest expense.on the Micro Pipe Loan.

In February 2008, the Company entered into a one year contract with a third party for public relationscorporate consulting and marketing services valued at $30,000. The fee was paid in the form of 150,000 shares of the Company’s common stock and valued based on the stock market price of the shares at the contract date. The value of the common stock on the date of the transaction was recorded as a deferred charge and iswas amortized to operating expense over the life of the agreement. Consulting fees under this contract of approximately $2,000 and $5,000 were amortized to expense duringDuring the three months ended March 31, 2010 and 2009, and March 31, 2008, respectively. As of March 31, 2009 the balance of deferred consulting fees was fully amortized.

In June 2007, the Company entered into a three year contract with a third party for internetInternet public investor relations services valued at $210,000. The fee was paid in the form of 300,000 shares of the Company’s common stock and valued based on the stock market price of the shares at the contract date. The value of the common stock on the date of the transaction was recorded as a deferred charge.  $18,000 was amortized to operating expensecharge and during the three months ended March 31, 2010 and 2009, $17,500 and 2008.$18,000, respectively, was amortized to consulting and other compensation in the accompanying condensed consolidated statements of operations.  At March 31, 20092010 and December 31, 2008,2009, the remaining deferred consulting fees approximated $84,000totaled $11,669 and $102,000,$29,169, respectively.

Under the terms of the Company's Incentive Stock Option Plan ("ISOP"), options to purchase an aggregate of 5,000,000 shares of common stock may be issued to key employees, as defined. The preferredexercise price of any option may not be less than the fair market value of the shares Series C and preferred shares Series D shares have a mandatory cumulative dividendon the date of $1.25 per share, which is payable on a semi-annual basis in September and December each year to holdersgrant. No options granted may be exercisable more than 10 years after the date of record on November 30 and May 31. The preferred shareholders have certain liquidation preferences and do not have voting rights.grant.

At March 31, 20092010 and December 31, 2008,2009, the Company had 1,700,000 options available for future issuance under their ISOP equity compensation plan.

Under the terms of the Company's non-statutory stock option plan ("NSSO"), options to purchase an aggregate of 1,350,000 shares of common stock may be issued to non-employees for services rendered. These options are non-assignable and non-transferable, are exercisable over a totalfive-year period from the date of 26,680 preferred shares Series Cgrant, and 11,640 preferred shares Series D issued and outstanding. vest on the date of grant.

As of March 31, 20092010 and December 31, 2008,2009, the Company’s accumulated dividends payable is $459,275.