FORM 10-Q

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-K (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o    No x

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APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  68,393,146
shares of common stock issued and outstanding as of January 14, 2011 .

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. This quarterly report on Form 10-Q (this “ Quarterly Report ”) contains certain forward-looking statements that are subject to risks and uncertainties. The statements contained in this Quarterly Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this Quarterly Report, the words “anticipate,” “believe,” “plan,” “target,” “estimate,” “intend,” “expect” and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, but are not limited to, statements regarding our strategy, future plans for exploration and production, future expenses and costs, future liquidity and capital resources, and estimates of mineralized material. All forward-looking statements in this Quarterly Report are based upon information available to our management on the date of this Quarterly Report.

Forward-looking statements are subject to a number of risks and uncertainties and there can be no assurance that such statements will be accurate. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially and adversely from those described herein as anticipated, believed, planned, targeted, estimated, intended or expected. Although we believe the assumptions underlying and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or achievements. Actual results could differ materially and adversely from those discussed in this Quarterly Report.

Factors that could affect the accuracy of our forward-looking statements include, but are not limited to, those factors discussed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2010, filed with the Securities and Exchange Commission (“ SEC ”) on September 14, 2010 (the “ Annual Report ”) under “ Item 1A. Risk Factors.” More broadly, these factors include, but are not limited to:

We qualify all of our forward-looking statements by the cautionary statements listed above, as well as those factors described in our Annual Report under “Item 1A. Risk Factors.” The list above, together with the factors described in our Annual Report under “Item 1A. Risk Factors,” is not exhaustive of the factors that may affect the accuracy of our forward-looking statements. You should read this Quarterly Report completely and with the understanding that our actual future results may be materially and adversely different from what we expect. These forward-looking statements represent our beliefs, expectations and opinions only as of the date of this Quarterly Report. Except as required by applicable law, including the securities laws of the United States, we assume no obligation to update any such forward-looking statements.

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U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
Form 10-Q

Table of Contents

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U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS

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

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U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

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

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U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

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

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

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

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U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November  30,2010
(Unaudited)

The unaudited interim consolidated financial statements of U.S. Precious Metals, Inc. and its subsidiary, U.S. Precious Metals de Mexico, S.A. de C.V. (collectively, the “ Company ”) as of November  30,  2010 and for the three and six month periods ended November 30, 2010 and November 30, 2009, have been prepared in accordance with United States generally accepted accounting principles (“ GAAP ”). In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such comparable periods. The results of operations for the six month periods ended November 30, 2010 are not necessarily indicative of the results to be expected for the full fiscal year ending May 31, 2011.

Certain information and disclosures normally included in the notes to financial statements have been condensed or omitted as permitted by the rules and regulations of the SEC, although the Company believes the disclosure is adequate to make the information presented not misleading. The accompanying unaudited financial statements should be read in conjunction with the financial statements contained in the Company’s Annual Report on Form 10-K as filed with the SEC on September 14, 2010.

2.

MINE DEVELOPMENT COSTS

Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, the removal of overburden to initially expose an ore body at open pit surface mines and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure at underground mines. Costs incurred before mineralized material is classified as proven and probable reserves are expensed as mine development costs. At the point the Company reaches its operating stage, such costs will be capitalized and will be written off as depletion expense as the mineralized material is mined.

3.

PROVEN AND PROBABLE RESERVES

The definition of proven and probable reserves is set forth in SEC Industry Guide 7. Proven reserves are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. Probable reserves are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. In addition, reserves cannot be considered proven and probable until they are supported by a feasibility study, indicating that the reserves have had the requisite geologic, technical and economic work performed and are economically and legally extractable at the time of the reserve determination.

As of November 30, 2010, none of the Company’s mineralized material met the definition of proven or probable reserves.

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2010
(Unaudited)

4.

SUPPLEMENTAL CASH FLOW INFORMATION

There was no cash paid for income taxes during the three month periods ended November 30, 2010 and November 30, 2009. During the six month periods ended November 30, 2010 and November 30, 2009, the Company paid $709 and $ 278 for interest, respectively.

During the 2010 period, the Company issued 800,000 shares for services, valued at $108,000. The Company also issued 4,737,500 shares for services, valued at $ 990,125. Of this amount, the Company had already recognized $ 612,500 as of May 31,2010 for stock earned as of the end of that fiscal year.

During the 2009 period, the Company issued 250,000 shares of common stock for services valued at $75,000.

During the 2010 period, the Company recorded an additional expense of $40,718 on warrants issued to purchase 226,994 shares of common stock. The warrants were issued in August 2010. No warrants were issued for services during same period in 2009.

During the 2010 period the Company issued an additional 6,000,000 options to purchase common stock.  The options were valued at $470,000.  During the 2009 period, options to purchase 6,000.000 shares of common stock were issued for services valued at $600,000.

The company also recorded $100,000 for amortization expense on stock issued for compensation to Directors and Officers for the calendar year 2010. The company had recorded $83,333 as of May 31, 2010.

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2010

(Unaudited)

6.          COMMON STOCK AND WARRANTS

During the 2010 period, the Company issued 6,675,000 stock units for cash proceeds of $204,750. A unit is comprised of one share of stock and one-half warrant to purchase an additional share of stock. There was no stock sold for cash during the 2009 period.

During the 2010 period, the Company issued 800,000 shares for services, valued at $ 108,000. The Company also issued 4,737,500 shares for services, valued at $ 990,125. Of this amount, the Company had already recognized $ 612,500 as of May 31, 2010 for stock earned as of the end of that fiscal year.

During the 2010 period, the Company recorded an additional expense of $40,718 on warrants issued to purchase 226,994 shares of common stock. The warrants were issued in August 2010. No warrants were issued for services during same period in 2009.

During the 2009 period, the Company issued 250,000 shares of common stock for services valued at $75,000.

The following table summarizes warrant activity during the six month ended November 30, 2010.

The warrants issued for services were issued in August 2010 and are exercisable at $0.16 cents for a period of five years and were valued at $40,718. The warrants issued with the units described above are exercisable for periods of either six months or twelve months, and exercisable at prices of either $0.05 or $.25 cents,  and were valued at $14,352.

7.          GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has experienced continuing losses, has a working capital deficit of $4,230,522, accumulated losses of $21,022,603 since inception, recurring negative cash flows from operations and does not presently have sufficient resources to accomplish its objectives during the next twelve months. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation. The Company’s present plans, the realization of which cannot be assured, to overcome these difficulties include, but are not limited to, the continuing effort to raise capital in the public and private markets and a search for a joint venture partner.

8.          LEGAL PROCEEDINGS

As initially reported on the Company’s Form 8-K filed on September 20, 2010, the Company filed an original complaint in the Supreme Court of the State of New York, County of New York, Case Number 651504/2010 on September 15, 2010 against Duane Morris LLP, Keli Isaacson Whitlock, and Michael “Jack” Kugler.  As further reported on the Company’s amended Form 8-K filed on September 30, 2010, the Company filed an Amended Complaint against the defendants on September 29, 2010 with respect to this matter. As of the date of this filing, all of the defendants have been served by the Company, and the defendants have filed their respective answers or other pleadings with respect to this action.  Discovery has been commenced by the parties.

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U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2010

(Unaudited)

9.          EXPENSES:

The following is the details of expenses for six month periods ended November 30, 2010 and November 30, 2009:

                                2010

                    2009

10.     CONTINGENCY

On January 7, 2010, the Company purportedly entered into agreements with Duane Morris LLP, the Company’s former  law firm, whereby the Mexican subsidiary agreed to grant and pledge, as security for the payment of a purported debt, a security interest in and a lien on all of its rights to the Company’s mining concessions. The Company is contesting the validity of the agreements and the lien.  

11.      SUBSEQUENT  EVENTS

The Company currently has not paid amounts due under the terms of the 2009 convertible notes ($1,145,000) that were originally due on December 31, 2010.

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

Management’s discussion and analysis of financial condition, changes in financial condition and results of operations is provided as a supplement to the accompanying consolidated financial statements and notes to help provide an understanding of the Company’s financial condition and results of operations.

Overview

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We were formed as a mineral exploration company on January 21, 1998. We are engaged in the acquisition, exploration and development of mineral properties. We focus on gold and base minerals primarily located in the State of Michoacán, Mexico where we own exploration and exploitation concessions to approximately 37,000 contiguous acres of land (the “Solidaridad Property”). Mineral exploration requires significant capital and our assets and resources are limited. We have never earned revenue from our operations and have relied on equity and debt financing to fund our operations to date.

We are considered an exploration stage company for accounting purposes because we have not demonstrated the existence of proven or probable reserves. In accordance with accounting principles generally accepted in the United States of America, all expenditures for exploration and evaluation of our properties have been expensed as incurred. Furthermore, unless our mineralized material is classified as proven or probable reserves, substantially all expenditures have been or will be expensed as incurred. Since substantially all of our expenditures to date have been expensed and we expect to expense significant expenditures during the fiscal year 2011, most of our investment in mining properties do not appear as an asset on our balance sheet.

Liquidity and Capital Resources

There is no assurance that commercially viable mineral deposits exist in sufficient amounts in our areas of exploration to justify exploitation. Further exploration will be required before a final evaluation as to the economic and legal feasibility of the mining rights we own can occur. Because we are still in our exploration stage, we have no revenues and have had only losses since our inception. Our plan of operations for the next 12 months is to continue the drilling program and begin a small exploitation program, provided that we receive sufficient funding to do so. However, we have made no commitments for capital expenditures over the next 12 months. As of November 30, 2010, our management estimates that approximately $1,000,000 will be required over the next 12 months to maintain our current status. This amount does not include any exploitation or any additional exploration on our properties. We estimate these expenses to include approximately $600,000 for salaries, outsourced labor and consulting services, $80,000 for professional services, including work undertaken by the independent accountant and legal fees, $120,000 for rent, maintenance, office expenses and utilities, $114,000 for permits and expenses required to maintain our mining rights, $43,000 for taxes and insurance, and $43,000 for other miscellaneous expenses, including travel expenses.  The estimated amounts also exclude amounts due under its convertibles notes.  

Depending on market conditions and the options available to us, we may attempt to enter into a joint venture with an operating company or permit an operating company or third party to undertake exploration work on the Solidaridad Property, or we may seek equity or debt financing (including borrowing from commercial lenders) or we may consider a sale of the Company or its assets.

We do not intend to hire any additional employees at this time. All of the work related to our business will be conducted by our current employees and independent contractors. To the extent we receive funding, this is likely to change.

All of the Company’s plans are predicated on the Company’s ability to raise sufficient capital to implement and complete such plan, which we cannot assure you will occur in a timely manner, on terms acceptable to the Company, or at all. If we are not able to obtain additional funding, we will not be able to continue our drilling program or execute a small exploitation program.

Because the exploration phase of our business plan is essentially a research and development activity, the results of our exploration activities will have a significant effect on our future business model. This model can change substantially based upon our exploration activities, liquidity position or other factors. Accordingly, estimating expenditures is an imprecise process, made even more so by the unpredictable nature of our business plan. We believe it would, therefore, not be helpful to estimate beyond the next 12 months. Even these estimates are subject to change depending on our ability to raise additional capital and execute our business plan in accordance with our estimates.

To date, we have raised capital through the sale of shares of our common stock and sales of convertible promissory notes. For the six months ended November 30, 2010, we raised an additional $204,750  and issued 6,675,000 shares of common stock and 3,337,500 common stock purchase warrants. The warrants are exercisable at either $0.05 or $0.25 per share during a term of either six months or one year. We have $2,742,500  of   convertible promissory notes outstanding which can be converted into shares of common stock of the Company at the option of the holder or automatically under certain circumstances as described above in Note 3 to the Consolidated Financial Statements. Of the total amount of convertible notes outstanding, $1,142,500 were due and payable on December 31, 2010. At this time, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock or through sales of additional convertible promissory notes or otherwise to meet our obligations over the next 12 months, including the payment of convertible notes currently due and due in the future.

We must obtain additional funding to continue our operations. There can be no guarantee that we will be able to obtain additional funding on terms that are favorable to the Company or at all. As an exploration stage company, the Company has no current ability to generate revenue and no plans to do so in the foreseeable future. Our assets consist of cash, prepaid expenses, nominal equipment and certain mineral property interests. There can be no assurance that we will obtain sufficient funding to continue operations, or if, we do receive funding, to generate revenues in the future or to operate profitably in the future. We have incurred net losses in each fiscal year since inception of our operations. These conditions raise substantial doubt about our ability to continue as a going concern.

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As of the fiscal quarter ended November 30, 2010, we had total assets of $570,308 consisting of cash in the amount of $93,927  and various other assets of $ 476,381. In addition, we have liabilities of $5,983,733 which includes a payable of $2,027,165 due Duane Morris LLP, our former attorneys. On January 7, 2010, the Company’s Mexican subsidiary purported to grant and pledge to Duane Morris, as security for the payment of outstanding legal bills, a security interest in and a lien on all of its rights to the Company’s mining concessions in Mexico.  In addition, a Payment Agreement and General Release was signed by the Mexican subsidiary which purported to impose restrictions on the Company’s ability to conduct its business without the prior written consent of Duane Morris.  It also purported to release Duane Morris and, inter alia, its partners, from any and all liabilities or claims the Company may have had in connection with the provision of legal services rendered by Duane Morris. As previously disclosed by the Company, we have commenced litigation against Duane Morris and Jack Kugler, our former chairman (See our Form 8-K/A filed on September 30, 2010 for a more detailed description of such litigation).

As mentioned above, we had $1,145,000 and $302,768 in principal and accrued interest, respectively, under convertible notes due and payable on December 31, 2010. As of the date of this report, we have not paid the holders of these notes as required under their terms. If we are unable to pay these notes in the immediate future, or unable to renegotiate the terms of these notes, we may be required to seek protection under the US bankruptcy laws. Since we do not anticipate generating any revenue for the foreseeable future, we will have to continue to seek additional funding from outside sources. However, we are facing declining and volatile financial markets that may make it difficult to satisfy our need for additional capital to finance our plan of operations for fiscal 2011 through either debt or equity. As a result, we continue to seek appropriate opportunities that are likely to provide the Company with adequate fiscal resources to execute its plan of operations in the current fiscal year and beyond.

Because of the exploratory nature of our current business plan, we anticipate incurring operating losses for the foreseeable future. Our future financial results also are uncertain due to a number of factors, some of which are outside our control. These factors include, but are not limited to:

Financial Information for Comparative Six Month Periods Ending November 30, 2010 and 2009.

We did not earn any revenues and have had only losses since our inception, including during the six month periods ending in November 30, 2010 and 2009.

We incurred operating expenses in the amount of $2,116,255 and $2,135,327 during the six month period ended November 30, 2010 and 2009, respectively.

The $19,072 decrease in operating expenses for the comparative periods, is reflective of the following:

 A net increase in stock-based compensation, reflecting $ 377,655 paid to broker for the 2010 convertible notes offset by lower stock options expense.

An increase in drilling and excavation expense of $ 203,962, as there was no activity in the prior year.

A reduction in professional fees of $ 388,597, primarily reflecting the reduced legal bills due to the dismissal of prior legal firm, which the Company is suing.

The company booked non cash expenses of $1,426,612  during the six month period ended November 30, 2010 and $ 799,938 during same period in 2009. These expenses consist of depreciation, share based compensation, accrued interest on convertible notes, discount on convertibles notes with beneficial conversion and changes in current assets and liabilities.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies

Proven and Probable Reserves

The definition of proven and probable reserves is set forth in SEC Industry Guide 7. Proven reserves are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. Probable reserves are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. In addition, reserves cannot be considered proven and probable until they are supported by

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a feasibility study, indicating that the reserves have had the requisite geologic, technical and economic work performed and are economically and legally extractable at the time of the reserve determination.

Mine Development Costs

Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, the removal of overburden to initially expose an ore body at open pit surface mines and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure at underground mines. Costs incurred before the mineralized material is classified as proven and probable reserves are expensed and classified as mine development costs.

Revenue Recognition Policy

Revenue will be recognized when the price is determinable, upon delivery and transfer of title to the customer and when there is a reasonable assurance of collection of the sales proceeds. The Company has not yet entered into any contractual obligation to deliver ore product or finished metals.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) and are not required to provide the information required under this Item 3.

ITEM 4. CONTROLS AND PROCEDURES.

Not Applicable.

ITEM 4T. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.

Our management team, under the supervision and with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), as of the last day of the fiscal period covered by this report, August 31, 2010. The term disclosure controls and procedures means our controls and other procedures that are designed 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 the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of August 31, 2010.

Changes in Internal Control over Financial Reporting.

During the fiscal quarter ended November 30, 2010 there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

As initially reported on the Company’s Form 8-K filed on September 20, 2010, the Company filed an original complaint in the Supreme Court of the State of New York, County of New York, Case Number 651504/2010 on September 15, 2010 against Duane Morris LLP, Keli Isaacson Whitlock, and Michael “Jack” Kugler.  As further reported on the Company’s amended Form 8-K filed on September 30, 2010, the Company filed an Amended Complaint against the defendants on September 29, 2010 with respect to this matter. As of the date of this filing, all of the defendants have been served by the Company, and the defendants have filed their respective answers or other pleadings with respect to this action. Discovery has been commenced by the parties.

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ITEM 1A. RISK FACTORS.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this Item 1A.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. [update]

We recorded the following unregistered sales or issuances of equity securities during the six month period ended November 30, 2010:

A. We issued $ 395,000 of “2010” convertible notes to seven individuals. The Notes bear simple interest at an annual rate of 16%. Each holder of the 2010 Outstanding Notes has the option to convert the principal and outstanding interest under such holder’s 2010 Outstanding Notes into shares of the Company’s common stock at any time after September 1, 2010 and on or before the maturity date, at the conversion price of $0.16 as calculated per the convertible promissory note agreements, provided, however, that if the Company is actively negotiating its next financing or if the Company has entered into a definitive agreement providing for a change of control, optional conversion features will not be applicable.  If, prior to any optional conversion, the Company completes a Qualified Financing or experiences a change of control, the principal and outstanding interest will automatically convert into shares of the Company’s common stock at the conversion price. The maturity date of the 2010 Outstanding Notes is the earliest to occur of: (i) an offering of securities by the Company in a transaction or series of related transactions in which at least $10,000,000 in gross proceeds is received by the Company, (ii) a change of control; or (iii) May 17, 2012.  

B. During the 2010 period, the Company issued 6,675,000 stock units for cash proceeds of $204,750 to certain qualified purchasers. A unit is comprised of one share of stock and one-half warrant to purchase an additional share of stock. There was no stock sold for cash during the 2009 period.

C. During the 2010 period, the Company issued 800,000 shares for services, valued at $108,000. The Company also issued 4,737,500 shares for services, valued at $990,125. Of this amount, the Company had already recognized $ 612,500 as of May 31, 2010 for stock earned as of the end of that fiscal year.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. REMOVED.

ITEM 5. OTHER INFORMATION.

As of December 31, 2010, the Company had $1,145,000 in face amount of convertible notes, and $302,768 in accrued interest thereon, due and payable.  As of the date of this filing, the Company has not paid the holders of these notes as required under their terms.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

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