You did okay for 10 bucks. Looks like a good winter project. As others have said, can't really tell about the frame until you clean those areas very well. You will probably find some hidden rust in other places. If after cleaning the frame it is still strong, treat for future rust problems....then you come back and tell us your plans for it.

Look forward to the report! Those are good bikes. Too bad the frame did not come with a fork. Is there tube damage near the HT joining the top tube or down tube ?