U S PRECIOUS METALS INC - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - U S PRECIOUS METALS INC	Financial_Report.xls
EX-32.2 - EXHIBIT 32.2 - U S PRECIOUS METALS INC	ex32x2.htm
EX-31.2 - EXHIBIT 31.2 - U S PRECIOUS METALS INC	ex31x2.htm
EX-32.1 - EXHIBIT 32.1 - U S PRECIOUS METALS INC	ex32x1.htm
EX-31.1 - EXHIBIT 31.1 - U S PRECIOUS METALS INC	ex31x1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended: November 30, 2012

or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period:

	Commission File Number: 000-50703

	U.S. PRECIOUS METALS, INC.
	(Exact name of registrant as specified in its charter)

Delaware		14-1839426
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

176 Route 9 North, Suite 306 Marlboro, New Jersey		07728
(Address of principal executive offices)		(Zip Code)

732 - 851-7707
(Registrant’s telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)

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.

x Yes o No

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).

o Yes x No

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.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

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

o Yes x No

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: 107,355,529 shares of common stock issued and outstanding as of January 18, 2013.

U.S.PRECIOUS METALS, INC.

INDEX

PART 1: FINANCIAL INFORMATION		3

ITEM 1.UNAUDITED CONDENSED FINANCIAL STATEMENTS		3

CONSOLIDATED BALANCE SHEETS		3

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)		4

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)		5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		21

ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		27

ITEM 4. CONTROLS AND PROCEDURES.		27

PART 2: OTHER INFORMATION		27

ITEM 1. LEGAL PROCEEDINGS		27

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		28

ITEM 3. DEFAULT OF SENIOR SECURITIES		28

ITEM 4. MINING SAFETY DISCLOSURES		28

ITEM 5. OTHER INFORMATION		29

ITEM 6. EXHIBITS		29

SIGNATURES		30

PART 1: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

U.S. PRECIOUS METALS, INC.

(An Exploration Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS

	November 30, 2012			May 31, 2012
	(Unaudited)			(Audited)
ASSETS
Current Assets:
Cash	$	49,622		$	116,669
Prepaid and other current assets		15,773			14,117

Total current assets		65,395			130,786

Property and equipment, net		40,708			45,762

Other Assets
Investment in mining rights and other		157,330			159,754


Total Assets	$	263,433		$	336,302

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current Liabilities:
Accounts payable and accrued expenses	$	2,433,205		$	2,325,774
Accrued compensation		266,301			31,801
Convertible notes payable and realted accrued interest		907,887			838,923

Total current liabilities		3,607,393			3,196,498

Commitments and Contingencies (Note 7.)

Stockholders’ Deficit:
Preferred stock: authorized 10,000,000 shares of $0.00001 par value; no shares issued and outstanding		-			-
Common stock: authorized 150,000,000 shares of
$0.00001 par value; 109,695,172 and 103,307,633 shares, issued and outstanding respectively		1,097			1,033
Additional paid in capital		25,946,496			21,689,400
Deficit accumulated during exploration stage		(29,291,553	)		(24,550,629	)

Total stockholders’ deficit		(3,343,960	)		(2,860,196	)


Total Liabilities and Stockholders’ Deficit	$	263,433		$	336,302

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

U.S. PRECIOUS METALS, INC.

(An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended November 30,						Six Months Ended November 30,						January 21, 1998 (Date of Inception of Exploration Stage) November 30,
	2012			2011			2012			2011			2012

Revenues	$	-		$	-		$	-		$	-		$	-

Costs and Expenses
General and administrative		3,933,804			646,265			4,627,225			1,138,025			28,545,192
Debt reduction through legal settlement		-			-			-			-			(692,315	)

Operating Loss		(3,933,804	)		(646,265	)		(4,627,225	)		(1,138,025	)		(27,852,877	)

Other Income (Expense):
Interest expense (net)		(57,755	)		(150,450	)		(113,699	)		(310,225	)		(1,438,676	)

Loss before income taxes		(3,991,559	)		(796,715	)		(4,740,924	)		(1,448,250	)		(29,291,553	)

Provision for income taxes		-			-			-			-			-

Net loss	$	(3,991,559	)	$	(796,715	)	$	(4,740,924	)	$	(1,448,250	)	$	(29,291,553	)

Net loss per share
Basic and diluted	$	(0.04	)	$	(0.01	)	$	(0.04	)	$	(0.02	)

Weighted average number of shares outstanding
Basic and diluted		107,639,926			93,783,447			106,419,413			86,355,882

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

U.S. PRECIOUS METALS, INC.

(An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended November,						January 21, 1998 (Date of Inception Of Exploration Stage) To November 30,
	2012			2011			2012
Operating Activities:

Net loss		(4,740,924	)		(1,448,250	)		(29,291,553	)
Adjustments required to reconcile net loss to net
cash used in operating activities:
Charges and credits not requiring the use of cash:
Depreciation		5,054			6,516			93,684
Equity securities for services		3,969,035			676,500			17,472,865
Accretion of debt discount		-			135,727			358,400
Bad debt expense		-			-			109,259
Debt reduction through legal settlements		-			-			(692,315	)
Adjustment to notes convertible		22,329			-			22,329
Changes in operating assets and liabilities:
(Increase) decrease prepaid expenses and other assets		768			1,670			(99,707	)
Increase in interest accrued on convertible notes		44,866			150,747			906,976
Increase (decrease) in accounts payable,
accrued expenses and other current liabilities		343,701			66,648			3,554,817
Net Cash Used in Operating Activities		(355,171	)		(410,442	)		(7,565,245	)

Investing Activities:
Investment in mining rights		-			-			(201,588	)
Loan to affiliated company		-			-			(361,275	)
Repayment of loan by the affiliated company		-			-			253,000
Acquisition of equipment		-			-			(134,392	)
Net Cash Provided By (Used in) Investing Activities		-			-			(444,255	)

Financing Activities:
Proceeds from sales of common stock		284,500			165,000			4,889,740
Proceeds from exercises of warrants		3,624			88,750			409,872
Proceeds from convertible notes		-			-			2,757,500
Loan from affiliated company		-			-			70,000
Repayment of loan to the affiliated company		-			-			(68,000	)
Loans from officers		-			-			117,700
Repayment of loans from officers		-			-			(117,700	)
Net Cash Provided by Financing Activities		288,124			253,750			8,059,122

Net increase (decrease) in cash		(67,047	)		(159,692	)		49,622
Cash beginning of period		116,669			186,551			-
Cash end of period		49,622			29,859			49,622

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

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The unaudited interim financial statements of US Precious Metals, Inc. ("the Company") as of November 30, 2012 and for the three and six month periods ended November 30, 2012 and 2011 have been prepared in accordance with U.S. generally accepted accounting principles. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of such periods. The results of operations for the six months ended November 30, 2012 are not necessarily indicative of the results to be expected for the full fiscal year ending May 31, 2013.

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 Securities and Exchange Commission, 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 of the Company for the year ended May 31, 2012.

2.	NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

U.S. Precious Metals, Inc. was incorporated in the state of Delaware in 1998 as a mineral exploration company. U.S. Precious Metals, Inc. and its wholly owned Mexican subsidiary company, U.S. Precious Metals de Mexico, S.A. de C.V, (“U.S. Precious Metals Mexico”), (collectively “the Company”, “We” or “Us”) are engaged in the acquisition, exploration and development of mineral properties. We focus on gold and base minerals primarily located in the State of Michoacan, Mexico where we own exploration and exploitation concessions to approximately 37,000 contiguous acres of land (the “Solidaridad Property”).

Significant Accounting Policies

Basis of Presentation: Our accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the financial statements not misleading. Operating results for the three and six month periods ended November 30, 2012 are not necessarily indicative of the results that may be expected for the year ended May 31, 2013. For more complete financial information, these unaudited financial statements should be read in conjunction with the audited financial statements for the year ended May 30, 2012 included in our Form 10-K filed with the SEC.

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

2.	NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES CONT

Significant Accounting Policies Cont

Exploration Stage Company: We are considered an exploration stage company under the criteria set forth by the Securities and Exchange Commission (“SEC”) since we have not yet demonstrated the existence of proven or probable reserves, as defined by the SEC, at our Solidaridad Property. As a result, and in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for exploration stage companies, all expenditures for exploration and evaluation of our property are expensed as incurred and, unless mineralized material is classified as proven or probable reserves, substantially all expenditures for mine and mill construction have been and will continue to be expensed as incurred. Certain expenditures, such as for rolling stock or other general-purpose equipment, may be capitalized, subject to evaluation of the possible impairment of the asset. We will not exit the exploration stage unless and until we demonstrate the existence of proven or probable reserves that meet the SEC guidelines.

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; (b) grade and/or quality are computed from the results of detailed sampling; and (c) 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, 2012, none of our mineralized material met the definition of proven or probable reserves.

Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. Estimates that are critical to the accompanying unaudited consolidated financial statements include, but are not limited to, the identification and valuation of proven and probable reserves; estimates related to asset impairments of long lived assets and investments; classification of expenditures as either an asset or an expense; stock-based compensation expenses; valuation of deferred tax assets; and the likelihood of loss contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are revised periodically and the effects of revisions are reflected in the financial statements in the period it is determined to be necessary. Actual results could differ from these estimates.

Reclassifications: Certain amounts previously presented for prior periods have been reclassified. The reclassifications had no effect on net loss, total assets, or total shareholders’ deficit.

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

2.	NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES CONT

Significant Accounting Policies Cont

Foreign Currency Translation: The operations and assets of U.S. Precious Metals Mexico are in Mexico. U.S. Precious Metals Mexico depends on the ability of U.S. Precious Metals, Inc. to raise cash which is transferred to U.S. Precious Metals Mexico to meet its operating cash needs. Therefore, our management has determined that the functional currency of the U.S. Precious Metals Mexico is the US dollar. U.S. Precious Metals Mexico financial statements are denominated in Mexican Pesos. Since that is the case, we remeasure U.S. Precious Metals Mexico financial statements in US dollars. Any gains or losses arising on the remeasurement are reflected in the Statements of Operations.

The accounts of U.S. Precious Metals Mexico are remeasured in US dollars as follows:

(a)	Current assets, current liabilities, and long-term monetary assets and liabilities are translated based on the rates of exchange in effect at the balance sheet dates.

(b)	Non-monetary assets, liabilities, and equity accounts are translated at the exchange rates prevailing at the times of acquisition of assets, assumption of liabilities or equity investments.

(c)	Revenues and expenses are translated at the average exchange rates for each period, except for charges for amortization and depreciation of non-monetary assets which are translated at the rates associated with the assets.

Cash and cash equivalents -- Cash and cash equivalents consist of cash and highly liquid debt instruments with original maturities of less than three months.

Property and equipment: Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of their estimated useful lives or the related reasonably assured lease term. The estimated useful lives are as follows:

Vehicles	4 years
Machinery and equipment	3-10 years

We review our property and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.

Maintenance and repairs of property and equipment are charged to operations. Major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts and any gain or loss is included in operations.

Investments in Mining Rights: Mining rights held for development are recorded at the cost of the rights, plus related acquisition costs. These costs will be amortized when extraction begins.

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 we reach our operating stage, such costs will be capitalized and will be written off as depletion expense as the mineralized material is mined.

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

2.	NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES CONT

Significant Accounting Policies Cont

Deferred Costs and Other: Offering costs with respect to issue of common stock, warrants or options by us were initially deferred and ultimately offset against the proceeds from these equity transactions if successful or expensed if the proposed equity transaction is unsuccessful.

Impairment of Long-Lived and Intangible Assets: In the event that facts and circumstances indicated that the cost of long-lived and intangible assets may be impaired, an evaluation of recoverability was performed. If an evaluation was required, the estimated future undiscounted cash flows associated with the asset were compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow value was required. No impairment was recorded during the three and six month periods ended November 30, 2012 or 2011.

Financial Instruments: The estimated fair values for financial instruments were determined at discrete points in time based on relevant market information. These estimates involved uncertainties and could not be determined with precision. The carrying amounts of notes receivable, accounts receivable, accounts payable and accrued liabilities approximated fair value because of the short-term maturities of these instruments. The fair value of notes payable approximated to their carrying value as generally their interest rates reflected our effective annual borrowing rate.

Fair Value Measurements: ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.

Level 2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs.

Level 3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

2.	NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES CONT

Significant Accounting Policies Cont

Fair Value Measurements cont: Our financial instruments consist of cash and cash equivalents, short-term trade prepaid expenses, payables, accruals and convertible notes payable. The carrying values of cash and cash equivalents, short-term trade prepaid expenses, payables, accruals and convertible notes payable approximate their fair value due to their short maturities.

Income Taxes: We account for income taxes under the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Revenue Recognition Policy: Revenue will be recognized when persuasive evidence of an arrangement exists, such as when a purchase order or contract is received from a customer, the price is fixed, title to the goods has passed, and there is reasonable assurance of collection. We have not yet entered into any contractual arrangement to deliver product or services.

Advertising costs: Advertising costs are expensed as incurred. No advertising costs were incurred during the three and six month periods ended November 30, 2012.

Comprehensive Income (Loss): Comprehensive income is defined as all changes in stockholders' equity (deficit), exclusive of transactions with owners, such as capital investments. Comprehensive income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity such as translation adjustments on investments in foreign subsidiaries and unrealized gains (losses) on available-for-sale securities. From our Inception there have been no differences between our comprehensive loss and net loss.

Our comprehensive loss was identical to our net loss for the three and six month periods ended November 30, 2012 and 2011.

Net Income (Loss) Per Share: Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during each period. Diluted income per share reflects the potential dilution that could occur if potentially dilutive securities, as determined using the treasury stock method, are converted into common stock. Potentially dilutive securities, such as stock options and warrants, are excluded from the calculation when their inclusion would be anti-dilutive, such as periods when a net loss is reported or when the exercise price of the instrument exceeds the fair market value. During the three and six month periods ended November 30, 2012 and 2011, there were warrants and options outstanding to purchase our common stock, and conversion privileges attached to convertible notes. The common share equivalents of these securities have not been included in the calculations of loss per share because such inclusions would have anti-dilutive effects.

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

2.	NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES CONT

Significant Accounting Policies Cont

Stock-Based Compensation: We have adopted ASC Topic 718, “Accounting for Stock-Based Compensation”, which establishes a fair value method of accounting for stock-based compensation plans. In accordance with guidance now incorporated in ASC Topic 718, the cost of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield.

Business Segments: We believe that our activities during the three and six month periods ended November 30, 2012 and 2011 comprised a single segment.

Recently Issued Accounting Standards: We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial condition or the results of our operations.

3. GOING CONCERN AND LIQUIDITY

As shown in the accompanying financial statements, we have experienced continuing losses since Inception (January 21, 1998), and as at November 30, 2012, have a working capital deficit of $3,541,998, accumulated losses of $29,291,553 since Inception (January 21, 1998), recurring negative cash flows from operations and presently do not have sufficient resources to meet our outstanding liabilities or accomplish our objectives during the next twelve months.

As at November 30, 2012, we were in default:

i)	On repayment of convertible promissory notes with principal balances of $590,000 together with accrued interest of $317,887 totaling $907,887.

ii)

Under the terms of the amended Settlement Agreement and Payment Agreement with our former attorneys, we had agreed to make an initial payment of $403,554 on July 24, 2012. As a result of this default, the entire balance due to our former attorneys of $1,614,216, together with accrued interest of $22,113, became due and payable. However, on October 1, 2012, we entered into a second amendment to our Settlement Agreement and Payment Agreement with our former attorneys effective July 23, 2012. As a result of the second amendment, the date for the payment of the initial installment of $403,554 has been extended to December 1, 2012. We have failed to make this schedule payment on December 1, 2012. Thus, our former attorneys will be able to avail themselves of all rights and privileges under the existing agreements with us and under the laws of Mexico and the United States.

At the time of this report, we do not have the funding available to repay the convertible promissory notes or to make the payment required under the second amended agreement with our former attorneys.

These conditions raise substantial doubt about our ability 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.

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

3. GOING CONCERN AND LIQUIDITY CONT.

Our present plans to overcome these difficulties, the realization of which cannot be assured, include, but are not limited to, continuing efforts to raise new funding in the public and private markets, to sell some or all of our assets and to initiate a renegotiation of the terms of scheduled repayments to our creditors.

4. SUPPLEMENTAL CASH FLOW INFORMATION

	Six Months Ended November 30,
	2012		2011
Income taxes paid	$	-	$	-

Interest paid	$	-	$	-

Equity securities issued for services
1,750,000 shares of common stock issued to directors as compensation	$	315,000	$	175,000
1,350,000 shares of common stock issued to consultants		-		305,500
300,000 shares of common stock issued to consultants classified as prepaid expense at November 30, 2011		-		(54,000	)
1,000,000 shares as an investment banking fee		240,000		-
1,000,000 stock options issued as director’s compensation		114,682		-
500,000 stock options issued as director’s compensation		-		90,000
1,000,000 stock options issued to a consultant		-		160,000
Additional expense to vest previously issued options		71,256		-
14,105,485 warrants as an investment banking fee		3,228,097		-


Total shares, options and warrants issued for services	$	3,969,035	$	676,500

Liabilities settled for shares of common stock
convertible note payable	$	-	$	1,662,500
accrued interest	$	-	$	424,187
	$	-	$	2,086,687

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

5. PROPERTY AND EQUIPMENT

As at November 30, 2012 and May 31, 2012 property and equipment consisted of the following:

	November 30, 2012			May 31, 2012

Vehicles	$	41,877		$	41,877
Machinery and equipment		92,515			92,515

Total property and equipment		134,392			134,392

Less accumulated depreciation		(93,684	)		(88,630	)

Total property and equipment net	$	40,708		$	45,762

Depreciation expense for the three and six months ended November 30, 2012 was $2,527 (2011 - $3,460) and $5,054 (2011- $6,516), respectively.

6. CONVERTIBLE NOTES PAYABLE

	Principal Balance		Accrued Interest		Total
May 31, 2012	$	575,000	$	263,923	$	838,923
Issued in the period		-		-		-
Converted into shares of common stock		-		-		-
Adjustment		15,000		7,239		22,239
Interest accrued in the period		-		46,725		46,725
November 30, 2012	$	590,000	$	317,887	$	907,887

Effective November 30, 2012, we were in default on repayments of all the convertible notes payable outstanding totaling $590,000 together with accrued interest of $317,887.

The Notes bear simple interest at an annual rate of 16%. The Notes may be converted into the shares of our common stock at the option of the Note Holder or automatically, if we complete any financing that results in proceeds of at least $10 million to us, or upon the occurrence of a change in control of us.

7. COMMITMENTS AND CONTINGENCIES

Lease – Head Office

We rent office space in Marlboro New Jersey under a 12 month lease, with an option to extend the term of the lease for a further 12 months, at $1,300 per month and operating expenses. This lease is personally guaranteed by one of our officers and directors.

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

7. COMMITMENTS AND CONTINGENCIES CONT

Leases – Mexican Operation

We lease a warehouse (storage) facility in the city of Morelia, Michoacán, Mexico. This lease expires February 1, 2013. It is our current intention to relocate this facility to a location substantially closer to our Solidaridad Property when our current lease expires.

Mining rights

We are required to make payments to the Mexican government on a semi-annual basis to maintain its mining concessions. The next semi-annual payment of $51,466 is due on January 31, 2013.At the date of this report, we do not have the funds to make this payment and are seeking to raise the necessary funding to be able to make this payment on a timely basis.

Legal

Title Dispute

On April 3, 2012, our Mexican subsidiary company, US Precious Metals SA de CV, was served with a lawsuit under case number 293/2012 by Mr. Israel Tentory Garcia (“Plaintiff”) regarding one of our mining concessions. The case was filed in a local court in the Federal District of Mexico City.

By way of background, during 2003, we contracted with eight private individuals, including the Plaintiff, to acquire an exploration concession to 174.54 hectares (the Solidaridad I claim). Pursuant to this agreement, we paid the former holders 1.5 million shares of our common stock. The Agreement further provided for the payment of $1 million to the former holders upon the occurrence of certain conditions. In his lawsuit, the Plaintiff alleges that the payment was due and payable on or about 2009 and ownership of the mining concession should revert back to him.

We have retained counsel in Mexico to represent our subsidiary in this matter. We strongly dispute the allegations raised in the lawsuit and intend to vigorously defend our rights to the mining concession. We have filed an answer to the complaint pursuant to which we alleged numerous defects in both fact and law. Part of our answer includes the position that when we contracted with Plaintiff and the seven other parties in 2003, their rights to the Solidaridad I exploration concession had expired in 2001, and thus they had no ownership rights to convey to us in 2003. As a result, we have asserted that they are not entitled to receive any additional consideration from us, and, in addition, we have demanded a return of the 1.5 million shares previously issued to them. In addition, we have filed a proceeding in a separate court (Superior Court, Mexico City) under Mexican law seeking a dismissal of the case due to the lack of jurisdiction by the current court.

Investment Banking Agreement

On November 6, 2012, we entered into a letter of intent with private investment group (“PE Group”) regarding the funding of the Company. The PE Group has a pre-existing investment banking agreement with a FINRA regulated broker dealer (“Firm”) to raise $100 million for its projects. Pursuant to the letter of intent, the PE Group has agreed to assign and/or invest the proceeds under the pre-existing investment banking agreement with us. In exchange, the PE Group will receive:

(i)	Ten million shares of our common stock payable as follows; one million shares being issued upon the execution of an investment banking agreement with Firm, and nine million shares paid upon benchmark completion of the funding of the $100 million.
(ii)	A one time expense re-imbursement fee of $250,000 payable upon our receipt of the first deposit exceeding $20 million pursuant to the investment banking agreement with the Firm.

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

7. COMMITMENTS AND CONTINGENCIES CONT

Investment Banking Agreement cont.

The funding, if received, will be used by us to further develop our approximately 37,000 contiguous acres of mining concessions located in the State of Michoacán, Mexico (“Concessions”). In addition, in exchange for receipt of the $100 million the investor party will receive 49% of the Concessions.

8. STOCKHOLDERS’ DEFICIT

Preferred Stock

No shares of preferred stock were issued or outstanding during the three and six month periods ended November 30, 2012 and 2011.

Common Stock and Warrants

	Common Stock		Warrants

May 31, 2012		103,307,663		5,808,165
Issued for cash proceeds of $284,500		3,409,999		1,705,000
Issued to directors as compensation valued at $315,000		1,750,000		-
Issued as investment banking fee valued at $240,000		1,000,000		-
Issued on the cashless exercise of stock options		204,857		-
Issued as investment banking fee valued at $ 3,228,097		-		14,168,772
Warrants exercised for $3,624		22,653		(22,653	)
Warrants expired, unexercised		-		(3,075,000	)
November 30, 2012		109,695,172		18,584,284

During the six months ended November 30, 2012 we sold 3,409,999 shares of our common stock and 1,705,000 warrants for total cash proceeds of $284,500. The conversion price of the warrants was between $0.10 and $0.22 and the term of the warrants was either six or twelve months

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

8. STOCKHOLDERS’ DEFICIT CONT.

Common Stock and Warrants cont

During the six months ended November 30, 2012, we issued to our directors a total of 1,750,000 shares of common stock for each period, valued at $315,000.

(i)	Ten million shares of common stock payable as follows; one million shares being issued upon the execution of an investment banking agreement with Firm, and nine million shares paid upon benchmark completion of the funding of the $100 million.
(ii)	A one time expense re-imbursement fee of $250,000 payable upon our receipt of the first deposit exceeding $20 million pursuant to the investment banking agreement with the Firm.

Under the terms of this agreement, 1 million shares of our common stock, valued at $240,000, became issuable to PE Group as at November 29, 2012 when we signed and investment banking agreement with the Firm.

During the six months ended November 30, 2012 204,857 shares of our common stock were issued on the cashless exercise of 428,466 stock options with an exercise price of $0.065.

On November 29, 2012, we entered into an Exclusive Investment Banking Agreement (‘the Agreement”) with a prominent, New York investment banking firm (“Firm”). Under the agreement, the Firm will provide a range of investment advisory services to us, including the introduction to potential lenders, investors and acquiring entities. The agreement contemplates potential equity financings, business combinations and/or asset sales, and/or debt financings. Upon execution of the agreement, we agreed to pay a non-refundable retainer in the amount of $50,000 and issue the Firm an initial stock purchase warrant to purchase 9.99% of our fully diluted shares of common stock as of the date of the Agreement. The initial warrant has a term of five years with a per share exercise price of $0.40. The term of the agreement is one year with successive yearly renewals.

In addition, we have agreed to pay the Firm fees and expense allowances on any transaction entered into and completed pursuant to the agreement. Fees and expense allowances are transaction dependent ranging generally from 13% to 6% of the consideration received by us, coupled with stock purchase warrants equal to 10% of any equity, including derivatives, issued in the transaction. We also will be required to pay a break up fees in the event it elects to terminate a funding agreement.

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

8. STOCKHOLDERS’ DEFICIT CONT.

Common Stock and Warrants cont

The Firm is a FINRA/SEC registered broker/dealer. We cannot predict whether the Firm will be successful in raising funds or entering into any arrangement contemplated under the Agreement which may prove beneficial to us.

Under the terms of this agreement, 14,168,772 five year warrants with an exercise price of $0.40, valued at $3,228,097, became issuable to the Firm as at November 29, 2012 on the signature of the agreement.

During the six month ended November 30, 2012, 22,653 warrants with an exercise price of $0.16 were exercised for gross proceeds of $3,624.

During the six months ended November 30, 2012, 3,075,000 warrants expired with exercise prices of $0.15 and $0.25.

The following table summarizes information about warrants outstanding at November 30, 2012:

Exercise Price	Warrants Outstanding	Weighted Average Life of Outstanding Warrants In Months
$0.10	2,480,000	8.0
$0.15	225,000	8.3
$0.16	924,797	32.6
$0.25	785,715	1.4
$0.40	14,168,772	60.0
Total	18,584, 284	48.6

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

8. STOCKHOLDERS’ DEFICIT CONT.

Stock Options

In August 2008, our shareholders approved a Stock Option Plan (the “Plan”). Under the terms of the Plan, options to purchase up to 20,000,000 shares of Company common stock may be issued to officers, directors, key employees and consultants.

	Stock Options Outstanding and Exercisable	Weighted Average Exercise Price
May 31, 2012	14,938,466	$0.11
Granted	1,000,000	0.12
Exercised	(438,466)	(0.065)
Cancelled or forfeited	-	-
August 31, 2012	15,500,000	$0.11

All outstanding options were fully vested as at November 30, 2012

During the six months ended November 30, 2012, we issued an additional 1 million stock options with an exercise price of $0.12 to a newly appointed officer and during the same period, 438,466 stock options were exercised on a cashless basis.

The following table summarizes information about stock options outstanding and exercisable at November 30, 2012:

Exercise Price	Stock Options Outstanding And Exercisable		Intrinsic Value of Stock Options Outstanding And Exercisable		Weighted Average Life of Stock Options Outstanding and Exercisable in Months
$0.065		7,000,000	$	1,295,000		39.1
$0.07		1,000,000		180,000		34.0
$0.12		1,000,000		130,000		57.7
$0.16		3,500,000		315,000		53.4
$0.18		1,500,000		105,000		49.9
$0.185		1,000,000		65,000		46.4
$0.20		500,000		25,000		46.1
		15,500,000	$	2,115,000		44.9

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

8. STOCKHOLDERS’ DEFICIT CONT.

Stock Options cont.

The aggregate intrinsic value represents the difference between our closing stock price of $0.25 per share as of November 30, 2012 and the exercise price multiplied by the number of options outstanding and exercisable as of that date.

9. RELATED PARTY TRANSACTIONS

During the six month periods ended November 30, 2012 and 2011, we issued to our directors a total of 1,750,000 shares of common stock for each period, valued respectively at $315,000 and $175,000.

On September 21, 2012, we issued to a newly appointed officer 1 million stock options exercisable during a five year term at an exercise price of $0.12 which are valued at $114,682 (2011 - $0).

(i)	Ten million shares of common stock payable as follows; one million shares being issued upon the execution of an investment banking agreement with Firm, and nine million shares paid upon benchmark completion of the funding of the $100 million.
(ii)	A one time expense re-imbursement fee of $250,000 payable upon our receipt of the first deposit exceeding $20 million pursuant to the investment banking agreement with the Firm.

The funding, if received, will be used by us to further develop our approximately 37,000 contiguous acres of mining concessions located in the State of Michoacán, Mexico (“Concessions”). In addition, in exchange for receipt of the $100 million, the investor party will receive 49% of the Concessions.

One of our directors also serves as a director of the PE Group.

10. INCOME TAXES

We have had losses since our Inception, and therefore are not subject to federal or state income taxes.

11. SUBSEQUENT EVENTS

During December 2012, the Company retired to treasury 3 million shares of our common stock which had previously been issued to a consultant. The consultant returned the shares to the Company and the Company retired the shares to treasury.

On December 7, 2012, we issued 123,333 shares of our common stock and warrants with an exercise period of six months to purchase 61,667 shares of our common stock at $0.22 to an accredited investor for cash consideration of $18,500.

US PRECIOUS METALS, INC.

(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

(unaudited)

11. SUBSEQUENT EVENTS CONT.

On December 10, 2012, we issued 126,666 shares of our common stock and warrants with an exercise period of six months to purchase 63,333 shares of our common stock at $0.22 to certain accredited investors for cash consideration of $19,000.

On December 18, 2012, we issued 50,000 shares of our common stock and warrants with an exercise period of twelve months to purchase 25,000 shares of our common stock at $0.15 to an accredited investor for cash consideration of $6,000.

On December 24, 2012, we issued 106,667 shares of our common stock and warrants with an exercise period of twelve months to purchase 53,333 shares of our common stock at $0.15 to an accredited investor for cash consideration of $12,800.

In December 2012, we were served with a lawsuit by a former attorney for non-payment of legal fees approximating $90,000. As of the date of this filing, counsel to the Company has not reviewed the lawsuit.

On January 7, 2012, we issued 83,333 shares of our common stock and warrants with an exercise period of twelve months to purchase 41,667 shares of our common stock at $0.15 to an accredited investor for cash consideration of $10,000.

On January 11, 2012 , we issued 93,333 shares of our common stock and warrants with an exercise period of twelve months to purchase 61,667 shares of our common stock at $0.15 to an accredited investor for cash consideration of $11,200.

On January 15, 2011, we converted a promissory note with a principal balance of $15,000 and accrued interest of $8,107 into 77,204 shares of our common stock.

We have evaluated subsequent events through January 18, 2013. Other than those set out above, there have been no subsequent events after November 30, 2012 for which disclosure is required.

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

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.

Substantial risks exist with respect to an investment in us. These risks include but are not limited to, those factors discussed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2012, filed with the Securities and Exchange Commission (“ SEC ”) on September 13, 2012 (the “ Annual Report ”) including the section entitled “ Item 1A. Risk Factors.” More broadly, these factors include, but are not limited to:

●	Our current financial condition and immediate need for capital;
●	Potential dilution resulting from the issuance of new securities for any funding;
●	Unexpected changes in business and economic conditions;
●	Change in interest rates and currency exchange rates;
●	Timing and amount of production, if any;
●	Technological changes in the mining industry;
●	Changes in exploration and overhead costs;
●	Access to and availability of materials, equipment, supplies, labor and supervision, power and water;
●	Results of future feasibility studies, if any;
●	The level of demand for our products;
●	Changes in our business strategy;
●	Interpretation of drill hole results and the geology, grade and continuity of mineralization;
●	The uncertainty of mineralized material estimates and timing of development expenditures;
●	Commodity price fluctuations; and
●	Changes in exploration results.

We qualify all of our forward-looking statements by the cautionary statements listed above, as well as those factors described in our Annual Report including the referenced “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.

Overview

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 Michoacan, 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 2013, most of our investment in mining properties do not appear as an asset on our balance sheet.

During the six months ended November 30, 2012 we focused our efforts on seeking to raise funding to meet our existing liabilities and achieve our objective to develop our mining interests.

During the six months ended November 30, 2012:

-	we sold 3,409,999 shares of our common stock and 1,705,000 warrants with terms of 6 months or 12 months and exercise prices ranging between $0.10 and $0.22, for total cash proceeds of $284,500.

-	22,653 warrants were exercised at $0.16 per share for total cash proceeds of $3,624.

-	we issued 204,857 shares of our common stock on the cashless exercise of 428,466 share options.

On June 13, 2012, the Board of Directors appointed Mr. Gennaro (Jerry) Pane as our Chairman of our Board of Directors and Mr. Daniel Joon Sikk Moon as our President. Concurrent with the appointment of Messrs. Pane and Moon, Mr. John Gildea voluntarily resigned as our Chairman and Mr. David Burney voluntarily resigned our President. Messrs. Gildea and Burney remain as members of our Board of Directors. Mr. Pane remains as the Company’s Chief Executive Officer and a member of the Board of Directors, and Mr. Moon remains as a member of the Board of Directors.

In addition, on June 13, 2012, we also appointed Mr. Im Seong Dae to our Board of Directors. The new director was to receive a stock option grant under the Company’s 2007 Stock Option Plan. The grant enables the new director to acquire 1 million shares of common stock at $0.17 price per share. In addition, he was entitled to receive a stock grant of 250,000 shares of common stock, which each current director was to receive for 2012. Mr. Im Seong Dae subsequently decided not to accept this appointment as a director and consequently no stock options or shares of our common stock have been issued to him.

Effective June 13, 2012, our board of directors approved the issuance a total of 1,750,000 shares of our common stock, valued at $315,000, as compensation to our directors. Each of our seven directors received 250,000 shares of our common stock as compensation.

On July 1, 2012, we relocated our headquarters from Odessa, Missouri to Marlboro, New Jersey where we are now renting office space under a 12 month lease, with an option to extend the term of the lease for a further 12 months, at $1,300 per month and operating expenses. This lease is personally guaranteed by one of our directors.

On September 21, 2012, we appointed Mr. George Mesa Sr. as the Director of Security for our Mexican mining claims. As consideration for his appointment we granted Mr. Mesa 1 million stock options with a term of five years and an exercise price of $0.12 per share (closing price of our common stock on the date of grant) valued at $114,682.

On October 1, 2012, we completed an Amendment No. 2 to Settlement Agreement and Payment Agreement with Duane Morris, LLP and Keli Isaacson Whitlock. As result of the amendment, the payment of the initial installment of $403,554, has been extended to December 1, 2012. The parties had previously entered into the first amendment to Settlement Agreement and Payment Agreement on May 23, 2012 (See Form 8-K of the Company on such date). Except as stated above, all other terms and conditions of the referenced Settlement Agreement and Payment Agreement, as amended on May 23, 2012, remain unchanged, including the fact that commencing May 23, 2012, interest accrues on the amount due, which is $1,614,216, at the rate of 5% per annum. We have failed to make this schedule payment on December 1, 2012. Thus, our former a ttorneys will be able to avail themselves of all rights and privileges under the existing agreements with us and under the laws of Mexico and the United States.

(i)	Ten million shares of common stock payable as follows; one million shares being issued upon the execution of an investment banking agreement with Firm, and nine million shares paid upon benchmark completion of the funding of the $100 million.
(ii)	A one time expense re-imbursement fee of $250,000 payable upon our receipt of the first deposit exceeding $20 million pursuant to the investment banking agreement with the Firm.

One of our directors serves as a director of PE Group.

The Firm is a FINRA/SEC registered broker/dealer. We cannot predict whether it or the Firm will be successful in raising funds or entering into any arrangement contemplated under the Agreement which may prove beneficial to us.

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 at November 30, 2012, we were in default:

i)	On repayment of convertible promissory notes with principal balances of $590,000 together with accrued interest of $317,887 totaling $907,887.

ii)

Under the terms of the amended Settlement Agreement and Payment Agreement with our former attorneys, we had agreed to make an initial payment of $403,554 on July 24, 2012. As a result of this default, the entire balance due to our former attorneys of $1,614,216, together with accrued interest of $22,113, became due and payable. However, on October 1, 2012, we entered into a second amendment to our Settlement Agreement and Payment Agreement with our former attorneys effective July 23, 2012. As a result of the second amendment, the date for the payment of the initial installment of $403,554 has been extended to December 1, 2012. We failed to make this schedule payment on December 1, 2012. Thus, our former attorneys, will be able to avail themselves of all rights and privileges under the existing agreements with us and under the laws of Mexico and the United States.

These conditions raise substantial doubt about our ability to continue as a going concern.

In our audited financial statements for the fiscal years ended May 31, 2012 and 2011, contained in our Annual Report, the Report of the Independent Registered Public Accounting Firm includes an explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.

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 volatile financial markets that may make it difficult to satisfy our need for additional capital to finance our plan of operations for fiscal 2013 through either debt or equity. As a result, we continue to seek appropriate opportunities that are likely to provide us with adequate fiscal resources to execute our plan of operations in the current fiscal year and beyond.

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, we may attempt to sell all or part of our Solidaridad Property, or we may seek equity or debt financing (including borrowing from commercial lenders) or we may consider a sale of ourselves or our assets.

To date, we have raised capital through the sale of shares of our common stock and sales of convertible promissory notes. During the six months ended November 30, 2012, we sold 3,409,999 shares of our common stock and 1,705,000 warrants with terms of 6 months or 12 months and exercise prices ranging between $0.10 and $0.22, for total cash proceeds of $284,500.

As mentioned above, 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 us or at all. As an exploration stage company, we have 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.

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:

i.	Our ability to raise sufficient additional funding;

ii.	The results of our proposed exploration programs on the Solidaridad Property; and

iii.	Assuming significant mineral deposits, our ability to be successful in commercially producing mineral deposits, find joint venture partners for the development of our property interests or find a purchaser for the property interests.

RESULTS OF OPERATIONS

THREE MONTHS ENDED NOVEMBER 30, 2012 COMPARED TO THE THREE MONTHS ENDED NOVEMBER 30, 2011

Revenue

We earned no revenue in either the three months ended November 30, 2012 or 2011 and as an exploration stage company we do not anticipate earning revenue in the foreseeable future.

General and administrative expenses

During the three months ended November 30, 2012, we incurred general and administrative expenses of $3,933,804, compared to the $646,265 incurred in the three months ending November, 2011, an increase of $3,287,539. The increase relates primarily to the non cash expense of $3,228,097 incurred based on the agreement to issue 14,168,772 five year warrants with an exercise price of $0.40 as payment to an investment banking firm.

Interest expense (net)

During the three months ended November 30, 2012, we incurred interest expense (net) of $57,755 compared to $150,450 during the three months ended November 30, 2011, a decrease of $92,695, or 62%.

The decrease is due to reduction in the balances of convertible notes payable outstanding between the two periods. As at November 30, 2011, we had $1,055,000 convertible notes payable outstanding on which we were accruing interest of 16%. Following the conversion of the majority of these convertible notes payable into shares of our common stock, by November 30, 2012, we had just $590,000 convertible notes payable outstanding on which we were accruing interest of 16%

Net loss

The net loss for the three months ended November 30, 2012 was $3,991,559 compared to $796,715 during the three months ended November 30, 2012, an increase of $3,194,844 due to the factors discussed above.

SIX MONTHS ENDED NOVEMBER 30, 2012 COMPARED TO THE SIX MONTHS ENDED NOVEMBER 30, 2011

Revenue

We earned no revenue in either the six months ended November 30, 2012 or 2011 and as an exploration stage company we do not anticipate earning revenue in the foreseeable future.

General and administrative expenses

During the six months ended November 30, 2012, we incurred general and administrative expenses of $4,627,225, compared to the $1,138,025 incurred in the six months ending November 30, 2011, an increase of $3,489,200. relates primarily to the non cash expense of $3,228,097 incurred based on the agreement to issue 14,168,772 five year warrants with an exercise price of $0.40 as payment to an investment banking firm.

Interest expense (net)

During the six months ended November 30, 2012, we incurred interest expense (net) of $113,699 compared to $310,225 during the six months ended November 30, 2011, a decrease of $196,526, or 63%.

The decrease is due to reduction in the balances of convertible notes payable outstanding between the two periods. As at November 30, 2011 we had $1,055,000 convertible notes payable outstanding on which we were accruing interest of 16%. Following the conversion of the majority of these convertible notes payable into shares of our common stock, by November 30, 2012 we had just $590,000 convertible notes payable outstanding on which we were accruing interest of 16%

Net loss

The net loss for the six months ended November 30, 2012 was $4,740,924 compared to $1,448,250 during the six months ended November 30, 2012, an increase of $2,296,674 due to the factors discussed above.

CASH FLOW INFORMATION FOR THE SIX MONTHS ENDED NOVEMBER 30, 2012 COMPARED TO THE SIX MONTHS ENDED NOVEMBER 30, 2011

Net cash flow used in operations in the six months ended November 30, 2012 was $355,171 compared to $410,442 for the six months ended November 30, 2011, a decrease of $55,271, or 13%.

In the six months ended November 30, 2012, our net loss was $4,740,924 which was offset by $3,996,418 in non cash items and a positive movement in operating assets and liabilities of $389,335 to arrive at net cash used in operations of $355,171. By comparison, in the six months ended November 30, 2011, our net loss was $1,448,250 which was offset by $818,843 in noncash items and a positive movement in operating assets and liabilities of $219,065 to arrive at net cash used in operations of $410,442.

No cash flow was provided by, or used in, investing activities during the six months ended November 30, 2012 or 2011.

Net cash flow generated from financing activities was $284,500 in the six months ended November 30, 2012 compared to $253,750 for the six months ended November 30, 2011, an increase of $30,750 or 12%.

During the six months ended November 30, 2012 we received $284,500 from the sale of shares of our common stock and warrants and $3,624 from the exercise of warrants. This compares with $165,000 that we received from the sale of shares of our common stock and warrants and $88,750 from the exercise of warrants during the six months ended November 30, 2011.

ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

ITEM 4. 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, November 30, 2012.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 November 30, 2012.

Changes in Internal Control over Financial Reporting.

During the fiscal quarter ended November 30, 2012, 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 2: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

While we remain firm in our legal position, we have nonetheless conducted preliminary discussions with the Plaintiff in an effort to settle this matter. At the time of this filing, these discussions are ongoing. There can be no guarantee that we will be able to arrive at a settlement with the Plaintiff that is acceptable to us.

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

During the six months ended November 30, 2012, we received $284,500 from the sale of 3,409,999 units. Each unit consists of one share of our common stock, and one half of a warrant. The conversion price of the warrant was between $0.10 and $0.22 and the term of the warrant was either six or twelve months. The transaction was exempt under Section 4(2) and 3(b) of the Securities Act of 1933, as amended, and the rules and regulations promulgated there under, including Regulations D, due to the facts that the investor was an accredited investor, had acquired the shares for investment purposes and not with a view for re-distribution, had access to sufficient information concerning the Company, and the certificate(s) representing such shares will bear a restrictive legend.

ITEM 3. DEFAULT OF SENIOR SECURITIES.

As at November 30, 2012, we were in default on repayment of convertible promissory notes with principal balances of $590,000 together with accrued interest of $317,887 totaling $907,887.

As of the date of this report, we have not paid the holders of these notes as required under their terms.

ITEM 4. MINING SAFETY DISCLOSURES

Mining operations and properties in the United States are subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), issuers are required to disclose specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities.

During the six month periods ending November 30, 2012 and, 2011, we did not conduct mining operations nor maintain any mining properties in the US. Consequently we were not subject to any health or safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities during the six month periods ending November 30, 2012 and 2011.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

		Incorporation by Reference
Exhibit Number	Exhibit Description	Form	File Number	Exhibit	File Date	Filed herewith
31.1	Certification of Principal Executive Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended					X
31.2	Certification of Principal Financial Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended					X
32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)					X
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)					X
101.INS	XBRL Instance Document (1)					X
101.SCH	XBRL Taxonomy Extension Schema Document (1)					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (1)					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (1)					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (1)					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (1)					X

(1)

Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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.


	U.S. Precious Metals, Inc.

	By:	/s/ Gennaro Pane
		Name: Gennaro Pane
		Title: Chief Executive Officer
		Date: January 22, 2013


	U.S. Precious Metals, Inc.

	By:	/s/ David J Cutler
		Name: David J Cutler
		Title: Chief Financial Officer
		Date: January 22, 2013

U S PRECIOUS METALS INC - FORM 10-Q - January 22, 2013

Attached files

U S PRECIOUS METALS INC Reports