UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

Amendment No. 1 to

FORM 10-K

          (Mark One)

X		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended: May 31, 2011
		or
[   ]		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.)
15122 Tealrise Way Lithia, Florida			33547
(Address of principal executive offices)			(Zip Code)
	(813) 260-1865
	(Registrant’s telephone number, including area code)
	(Former name, former address and former fiscal year, if changed since last report)
	Copies of Communications to:
	Jack Wagenti, Chairman of U.S. Precious Metals, Inc. 15122 Tealrise Way, Lithia, FL 33547 Telephone: 813-260-1865/Fax: 813-260-2866
Securities registered under Section 12(b) of the Exchange Act:				None
Securities registered under Section 12(g) of the Exchange Act:				Common Stock  $0.00001 par value
				(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [  ] Yes  [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. [  ] Yes   [X] No

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      [  ] 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). [  ] Yes [  ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      [   ]

 

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	[  ]		Accelerated filer	[  ]
Non-accelerated filer	[  ]		Smaller reporting  company	[X]

 

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

[   ] Yes [X] No

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s as of the last business day of the registrant’s most recently completed second fiscal quarter: $12,492,796 at November 30, 2010.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. The registrant had 82,717,482 shares of common stock issued and outstanding as of August 31, 2011.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933, as amended (the “ Securities Act ”): None

 

 

 

 

EXPLANATORY NOTE

 

The Company filed its Form 10-K for the annual period ended May 31, 2011 with the Securities and Exchange Commission on September 13, 2011 (“Original Form 10-K”). This Amendment No 1 to the Form 10-K amends and supersedes the Original Form 10-K in its entirety.

 

Except to the extent expressly set forth herein, this amended Form 10-K speaks as of the filing date of the original Form 10-K and has not been updated to reflect events occurring subsequent to the original filing date other than those required to reflect the effects of the comments received by the Staff. Accordingly, this amended Form 10-K should be read in conjunction with our filings made with the Securities and Exchange Commission.

U.S. PRECIOUS METALS, INC.
FORM 10-K
MAY 31, 2010

TABLE OF CONTENTS

U.S. PRECIOUS METALS, INC.
FORM 10-K
MAY 31, 2010

TABLE OF CONTENTS

 

PART	ITEM NO.		PAGE
I
	1	BUSINESS	4
	1A	RISK FACTORS	8
	2	PROPERTIES	21
	3	LEGAL PROCEEDINGS	23
	4	REMOVED AND RESERVED	19
II
	5	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	23
	6	SELECTED FINANCIAL DATA	23
	7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26
	7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
	8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	28
	9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	28
	9A	CONTROLS AND PROCEDURES	29
	9A (T)	CONTROLS AND PROCEDURES	30
	9B	OTHER INFORMATION	30
III
	10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	31
	11	EXECUTIVE COMPENSATION	34

 

 

		12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	37
		13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	39
		14	PRINCIPAL ACCOUNTANT FEES AND SERVICES	40
IV
		15	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	41
			SIGNATURES	69
			INDEX TO ATTACHED EXHIBITS	70
			ATTACHED EXHIBITS

NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. This annual report on Form 10-K (this “Annual Report”) contains certain forward-looking statements that are subject to risks and uncertainties. The statements contained in this Annual 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 Annual 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 Annual Report are based upon information available to our management on the date of this Annual 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 Annual Report.

Factors that could affect the accuracy of our forward-looking statements include, but are not limited to, those factors discussed under “Item 1A. Risk Factors .” More broadly, these factors include, but are not limited to:

	·	Our ability to raise capital;
	·	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;
	·	our costs;
	·	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 under “Item 1A. Risk Factors.” The list above, together with the factors described 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 Annual 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 Annual 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.

 

PART I

ITEM 1.

BUSINESS

Summary Of Business

U.S. Precious Metals, Inc. (OTC BB: USPR.OB) was incorporated in the State of Delaware on January 21, 1998. As used herein, “ we ,” “ us ,” “ our ,” the “ Company ” or “ USPR ” mean U.S. Precious Metals, Inc. and U.S. Precious Metals de Mexico, S.A. de C.V. (our “ Mexican Subsidiary ”) unless otherwise indicated. We are an exploration stage company engaged in the acquisition, exploration and development of mineral properties. We focus on gold, silver and copper 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 ”). Our mining concessions grant us the right to explore and exploit the minerals found in the ground pursuant to the regulations, rules and directives imposed by the Mexican government. See “Item 2. Properties” for more information about our mining concessions.

Geology and Mineralization

The Solidaridad Property is located within the geographic region of southern Michoacán referred to as Tierra Caliente and south of the Trans-Mexican Volcanic Belt. This geographic region is characterized by rugged volcanic mountain terrain.

Our drilling programs have identified a sedimentary sequence consisting of phyllites and schists on the surface. The sedimentary sequence is believed to be Cretaceous/Tertiary in age. Below the metasediments are black shales and mudstones with interbedded volcanic dikes and sills. The entire sequence is dipping approximately 50 degrees. The property is heavily faulted. Quartz sulfide veins also exist, frequently concordant with the sedimentary units and are enriched in sulfide mineralization consisting mainly of pyrite and chalcopyrite in varying proportions. Galena and sphalerite occur infrequently. Gold appears to be more closely associated with the pyrite while the silver is associated with the chalcopyrite. Gold, silver and copper have been identified in assays samples; however, no petrographic or mineralogic study of the ore has been completed to date.

Prior Exploration Activities

The property was discovered in 1995 by La Esperanza de Oro, SA de CV. (“La Esperanza”) after a favorable report by their geologist. Exploration on the property was conducted by La Esperanza in 1996 and M.I.M. Holdings (now Xstrata) (“M.I.M.”) in 1997 – 1998. Geochemical soil surveys by La Esperanza showed anomalous ore grade readings for gold, silver and copper. The anomalies extended out several thousand feet both north and south of the workings. M.I.M. also identified large coincident gold-in-soil and induced-polarization anomalies, which broadly define a mineralized area measuring 3 kilometers north-south by 500 meters east-west. M.I.M. identified several NE/SW trending mineralized structures within this area, and tested them with 21 reverse circulation (RC) drill holes.  Most of the drill holes reached depths of only 150 meters. The drilling identified an area known as the Main Zone and indicated gold-copper-silver mineralization. Based on M.I.M.’s drilling, which was limited to depths of 150 meters, the Main Zone suggests 3 million tons of mineralized material grading 3.0 g/t gold, 20 g/t silver, and 0.5% copper. Two other areas of mineralization identified by M.I.M. include the North Zone, which lies 300 meters north of the Main Zone, and Cuendeo, which lies 2 kilometers to the south. Little is known of the sampling methods made by La Esperanza or M.I.M. Holdings. We have not substantiated their findings and do not currently have the funding to do so.

Present Condition of Our Property

To date, we have invested approximately $2,091,000 in our preliminary determinations of mineralized material located on the Solidaridad Property, which includes two core drilling programs conducted in 2008 and 2010.

As part of our 2008 core drilling program, we completed fourteen drill holes within an area of approximately five acres. Ten of the drill holes demonstrated significant mineralized material, of which four holes twinned the M.I.M.

RC drill holes, and confirmed the prior M.I.M. results. The remaining six drill holes expanded the Main Zone, and provided information to assist in calculating a resource estimate. Additional drilling in this area will be necessary in order to provide an accepted resource estimate. Four of the drill holes did not demonstrate significant results however they did provide parameters of the mineralized zones. As a result of this drilling program, we determined that gold, silver and copper are present in the drilled portion of the Solidaridad Property. This five acre area drilled in 2008 represents approximately 0.00135% of the Solidaridad Property (the “Explored Area”), meaning approximately 99.965% of the Solidaridad Property remains unexplored (the “Unexplored Area”).

Based on the results of the 2008 drilling campaign, the Company’s Board of Directors decided that a second phase of drilling was appropriate to understand more about the mineral occurrence within the concessions. The second phase was initiated in April 2010 with plans to drill an additional 10,000 meters. We completed 11 additional drill holes or approximately 3000 meters in the 2010 drilling campaign. Our drilling program was reduced due to lack of funds at the time. Our drilling focused on defining the previously discovered mineralized zones from  2008 and expanding to new areas and targets that met specific guidelines. This approach has resulted in the discovery of additional zones of mineralized material.  Of the 11 drill holes, we believe that 2 important drill holes (intercepts) changed our drilling strategy for our next drilling campaign.   One drill hole located approximately 200 meters south of the Main Zone  and referred to as the “Southern Extension,”  intersected a 3 meter section of sulfide ore approximately 600 feet below the valley floor.  Previous drilling was not conducted at these depths.  A second core hole was drilled between the North Zone identified by M.I.M. and the Main Zone to investigate whether these two zones (approximately 1 kilometer apart) are connected at depth.  Mineralized material was intersected in the second holde but additional drilling is required to define the mineralized zone that possibly connects the North Zone and Main Zone. The results of the 2010 drilling campaign further indicate that gold, silver and copper are present on a portion of the Solidaridad Property, and that additional exploration on the property is warranted.

As mentioned, we have completed a total of twenty five drill holes. Of the total, five holes have not shown significant mineralization.  As part of our core drilling program approximately 7,300 meters of core samples were produced. The core samples are sent to our core laboratory in Morelia where the samples are logged in detail and mineralized intercepts are sawed and sampled. These processed samples are then shipped to ALS Chemex Laboratory in Guadalajara, Mexico, where the core is processed, prepared and shipped to their facility in Vancouver, Canada. The information from the core logs and assays are then plotted on cross sections and plan maps are generated by the geologic staff and the data is entered into a computer modeling program so that analyses can be made by our staff

During the later part of fiscal 2010 and through the current fiscal year, we were unable to raise sufficient funds to complete all of the proposed 2010 drill program. During the current fiscal year, we also experienced a substantial change in management. Our current management believes that our property is highly prospective and will continue to invest resources into the exploration of the Solidaridad Property. Subject to the availability of funds, we expect to further define through surface exploration and additional drilling the mineral potential of the Explored Area, as well as determine whether the Unexplored Area contains mineralized material.  Proposed future exploration would include mapping and sampling of the Unexplored Area designed to increase our understanding of any mineralized material present. To help us determine future drill locations, we would enter data about our current samples into a computer modeling program. We currently expect to focus our future exploration and drilling program on three areas which we refer to as the Main Zone, the North Zone and Cuendeo. We have identified these three areas based on a number of data points, including surface samples taken during 2008. However, we will need to conduct further exploration and field mapping before we finalize our decisions as to target locations.

Our proposed exploration and drilling strategy has two components: (i) definition drilling designed to increase our understanding of any mineralized material located on the Explored Area; and (ii) exploratory drilling on targets generated by field mapping, soil surveys and stream sediment surveys on the Unexplored Area.

We also may engage mining professionals as consultants and/or employees to survey the property, apply industry standard methodologies and to develop and implement a business plan appropriate for the size of the Solidaridad Property as well as any mineralized material identified during the exploration process.  We can not predict the likely results of our efforts.

We believe that an expanded exploration and drilling program is currently our best option for increasing the value of our Company. However, we have no revenues, our stock is thinly traded, and we believe our stock price does not reflect the true value of our Company. These factors limit our ability to obtain financing. Therefore, in an effort to generate revenue to continue our operations and to support our exploration and drilling program on the Solidaridad Property, we also may consider a small exploitation program on the Explored Area. In order to implement such exploitation program,  we will be required to raise sufficient funds. While we have not commenced an exploitation program at this time, we have the legal and functional capability to do so, including the required exploitation permit from the Mexican government. See “Government Regulations and Permits” below for a more detailed discussion of the regulations, rules and directives imposed by the Mexican government. We believe a more comprehensive understanding of the estimated mineralized material on the property and a Prefeasibility Study, followed by a Feasibility Study, would allow the Company more options as we look to monetize the value of the mineralized materials. The Prefeasibility Study is an industry standard report that would assess our estimates of mineralized material by evaluating and analyzing the core, assay results, maps, ore calculations, metallurgical testing and geologic data against accepted standards. This study will substantiate or question the validity of our exploration data. If our data is substantiated and we have sufficient funding, we currently plan to move toward producing a Feasibility Study. A Feasibility Study would analyze the potential economics of exploiting the mineralized material from the Solidaridad Property, the infrastructure necessary to mine and produce metals, the available markets for the metals, the taxation requirements and the environmental and socio-economic impact for the State of Michoacán, Mexico. We believe this study would provide sufficient information about the potential value and exploitability of the mineralized material to assist us in determining whether we could seek bank financing or additional debt or equity investment through the public markets and on what terms.

Our options for our mining property may include, but are not limited to, entering into a joint venture with an operating company, permitting an operating company to undertake exploration work at the Solidaridad Property, seeking equity or debt financing (including borrowing from commercial lenders) or a sale of the Company or its assets. Of course there can be no guarantee that we will be able to raise sufficient capital to execute our current business plan or remain in business, or that if we do obtain sufficient funding, that our estimates of mineralized material will increase or that circumstances or market conditions will be sufficient to allow us to benefit from any of these options.

We have determined there is sufficient access to and from the Solidaridad Property as well as between the Solidaridad Property and regional ports, although we will have to develop additional infrastructure in order to access the entire Solidaridad Property and to engage in meaningful exploration and drilling. There is currently limited or no infrastructure on the Solidaridad Property. Additional information on the necessary infrastructure for the Solidaridad Property will be determined through development of our mining activities. We believe that in Morelia, which is the city closest to the Solidaridad Property, we will have sufficient access to personnel and supplies to support our expanded exploration and drilling operations as well as our planned exploitation program. We have not yet drilled any wells in an attempt to locate water on the Solidaridad Property. However, water was located within three feet of the surface in drill hole number one of our 2008 campaign. The water level in drill hole number one fluctuates but generally remains close to the surface, which we believe indicates that water may lie close to the surface. The local climate is conducive to year-round operations and is not expected to pose any significant barriers to our exploration and drilling program or our planned exploitation program. During 2010, a heavy rainfall washed out access roads to the claim sites and created water drainage problems, therefore we made road improvements to allow access to the sites. We have made limited road improvements to address the water drainage problems included creating some concrete drainage ditches and water sumps. We still need to build more roads to access other areas targeted for exploration and drilling. We will need additional funding to complete roads and drill paths moving forward.

If we raise sufficient funds to complete an on-site metallurgical laboratory, we expect to transition our metallurgical testing of the ore from outside laboratories to an on-site laboratory. We have a limited laboratory in Morelia that includes two pilot plants. Additional laboratory equipment is necessary to complete the Lab.  

 

In June 2011, we completed a Technical Report on its mining property located in Michaocan, Mexico (“Technical Report”). The Technical Report is entitled PRECIOUS AND BASE METALS DEPOSIT AT LA SABILA RANCH IN SOUTHERN MICHOACAN, MEXICO. The Technical Report has been authored jointly as Qualified Persons by Michael Floersch of Applied Minerals, Inc., Thompson Falls, Montana and Betty Gibbs of Gibbs Associates, Boulder, Colorado. The Company believes that the Technical Report is compliant with National Instrument 43-101 – Standards of Disclosure for Mineral Projects  implemented by the Canadian Securities Administrators, however, the Company has not filed its report with any Canadian authority to determine compliance. Moreover, the Technical Report has not been reviewed and/or accepted by any Canadian or US regulatory authority. Please refer to the Company Form 8-K filed on June 9, 2011 or to the Company’s website for a complete copy of the Technical Report (usprgold.com).

Company Background

We were incorporated in the State of Delaware on January 21, 1998 as a wholly owned subsidiary of American International Ventures, Inc. (“American International”). On May 9, 2002, the board of directors of American International declared a dividend, in the form of our common stock to be issued to its shareholders of record on such date. On the record date of such dividend, American International had 274 shareholders of record. The ratio of common shares of the Company received by each American International shareholder was one share of Company common stock for each 10 shares of American International common stock held by such record owner. On or about June 10, 2004, a total of 1,961,184 shares of common stock were issued to the shareholders of American International on the record date. These shares represented all of the issued and outstanding capital stock of the Company on such date. American International did not retain any shares of our common stock.

In March 2002, we entered into an oral arrangement with the owners of a mining property located in Mexico known locally as the Solidaridad mining claims. At the time, little geological information was known about the property to American International other than information collected by local residents. Based upon available information, the board of directors of American International determined that they were more interested in identifying mineral properties in the United States that had proven or probable resources, and were not interested in properties outside the United States requiring significant exploration work. Consequently, the board of directors of American International determined to separate the two companies by declaring the stock dividend discussed above so that each company could focus exclusively on it respective business.

On March 5, 2003, we formed our Mexican Subsidiary. Virtually all of our activities take place in Mexico through our Mexican Subsidiary.

Employees

We currently have two executive officers, our Chairman and president who devote sufficient time and attention to the business and affairs of the Company. In addition to our executive officers, we currently employ nine Mexican nationals, three of whom are permanent full time employees of the Mexican Subsidiary and three of whom are employed “at-will” through a Mexican based employment agency.

Competitive Business Conditions

The exploration for, and the acquisition of gold, silver and copper properties, are subject to intense competition. Due to our limited capital and personnel, we are at a competitive disadvantage compared to other companies with regard to exploration and, if warranted, development of the Solidaridad Property. Our present limited funding means that we are currently unable to compete for additional properties to be explored and developed. We believe the competition in our sector will continue to be intense in the future, including the competition for funding.

The availability of funds for exploration is sometimes limited, and we may find it difficult to compete with larger and well established companies for capital. Our inability to develop the Solidaridad Property due to a lack of funding, even if such development is warranted, would have a material adverse effect on our operations and financial position.

Governmental Regulations and Permits

In connection with our mining and business activities in Mexico, we must comply with all regulations, rules and directives imposed by the Mexican government. We are subject to extensive Mexican federal, state and local laws and regulations governing the protection of the environment, including laws and regulations relating to protection of air and water quality, hazardous waste management and mine reclamation as well as protection of endangered or threatened species. The department responsible for environmental protection in Mexico is SEMARNAT, which is similar to the United States Environmental Protection Agency. SEMARNAT has broad authority to shut down and/or levy fines against facilities that do not comply with its environmental regulations or standards. Potential areas of environmental consideration for mining companies, including ours if we are successful in commencing mining operations, include, but are not limited to, acid rock drainage, cyanide containment and handling, contamination of water courses, dust and noise.

Prior to the commencement of any exploitation program, we will secure various regulatory permits from federal, state and local agencies. These government and regulatory permits generally govern the processes being used to operate, the stipulations concerning air quality and water issues, and the plans and obligations for reclamation of the properties at the conclusion of operations. Regulations require that an environmental impact statement, known in Mexico as a Manifiestacion de Impacto Ambiental (“MIA”), be prepared by a third-party contractor for submission to SEMARNAT. We have submitted our MIA to SEMARNAT for their review and it has been approved. Studies required to support the MIA include a detailed analysis of the following areas, among others: soil, water, vegetation, wildlife, cultural resources and socio-economic impacts. The MIA has only been submitted and approved with respect to a small portion of the Solidaridad Property. We plan to submit a MIA for other portions of the Solidaridad Property depending upon obtaining sufficient funding.

We have obtained, and will obtain at the appropriate time, environmental permits, licenses or approvals required for operations. We are not aware of any material violation of environmental permits, licenses or approvals issued with respect to our operations.

Likewise, we must comply with all mining regulations imposed by the Mexican government, including the periodic filing of mining work reports and the payment of surface taxes with respect to our mining concessions. The department responsible for all mining activities is the Ministry of Economy through its General Mining Bureau Dirección General de Minas . The General Mining Bureau issues all mining permits, licenses and approvals required with respect to mining concessions. All mining companies, agreements, resolutions and other rights and obligations related to mining concessions have to be recorded before the Public Registry of Mining Registro Publico de Mineria. We are not aware of any material violation of mining regulations, permits, licenses or approvals issued with respect to our mining concessions.

In connection with our business activities in Mexico, under Mexican law, all Mexican corporations in which foreign investors participate as shareholders, regardless of the amount of the investment, must be registered before the National Registry of Foreign Investment Registro Nacional de Inversiones Extranjeras (“NRFI”) and shall comply with the periodical obligations and filings provided by the Foreign Investment Law Ley de Inversión Extranjera (“FIL”). We have registered our Mexican Subsidiary before the NRFI and complied with all obligations under the FIL. In addition, Mexican law imposes certain corporate obligations to all Mexican companies under the General Law of Commercial Companies Ley General de Sociedades Mercantiles and our Mexican Subsidiary is in compliance of all its corporate obligations imposed by such law.

Because we have employees in Mexico we are also subject to regulations affecting employee pay, benefits and the like. These laws are different in Mexico than they are in the U.S. and can be more costly to the Company.

ITEM 1A.	RISK FACTORS

RISKS RELATING TO OUR COMPANY

Our business, exploration results and financial condition are subject to various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause a material reduction in the value of our Company or our ability to raise capital or cause our ability to operate in accordance with our current business plan to vary materially and adversely from recent results or from our anticipated future results. An investment in our securities is highly speculative and involves an extremely high degree of risk. Therefore, you should thoroughly consider the risk factors discussed below and elsewhere in this Annual Report before purchasing our securities. You should understand that you may lose all or part of your investment. No person should consider investing who cannot afford to lose their entire investment or who is in any significant way dependent upon the funds that they are investing. The risk factors contained herein are not meant to be exhaustive.

 

WE ARE AN EXPLORATION STAGE COMPANY WITH LIMITED OPERATING HISTORY

 

We are an exploration stage company with limited operating history. These two factors make it impossible to reliably predict future growth and operating results. Accordingly, we are subject to all the risks and uncertainties which are characteristic of a relatively new business enterprise, including the substantial problems, expenses and other difficulties typically encountered in the course of its business, in addition to normal business risks.  We face a high risk of business failure because we have commenced extremely limited business operations and have no revenues. We were organized in 1998, have not earned any revenues as of the date of this Annual Report and have had only losses since our inception. We expect to continue to incur losses well into the future. Our activities to date have been limited to organizational efforts, including fundraising, acquiring the Solidaridad Concessions (as defined below), and conducting limited exploration on a small portion of the Solidaridad Property. There is no history upon which to base any assumption as to the likelihood that our business will be successful, and there can be no assurance that we will be able to raise sufficient capital to begin operations, that we will generate significant operating revenues in the future or that we will ever be able to achieve profitable operations in the future. We face all of the risks commonly encountered by other businesses that lack an established operating history, including, but not limited to, the need for additional capital and personnel, and intense competition.

 

OUR COMPANY HAS LIMITED OPERATING HISTORY MAKING AN EVALUATION OF THE COMPANY DIFFICULT.

 

The Company has only had limited operations to date and requires additional financing for working capital, exploration and mining initiatives, including its proposed exploration program on the Solidaridad Property.  While the results of an initial geological study conducted by two independent geologists on the property appear to be promising, if the results from the contemplated exploration program prove unsuccessful or not prospective, it may be difficult for the Company to attract funding necessary to conduct additional exploration activities on the property.  The Company cannot predict whether its exploration program will be successful.  Moreover, no assurances can be given that, even with a capital infusion, the Company will be able to successfully and profitably develop the Solidaridad Property.

 

OUR AUDITORS HAVE EXPRESSED A GOING CONCERN OPINION

 

We have no established source of revenues, a working capital deficit of $5,195,463 accumulated losses of $21,664,050 since inception. Accordingly, the opinion of our auditors for the years ended May 31, 2011 and May 31, 2010 is qualified subject to uncertainty as to whether we will be able to continue as a going concern.  This may negatively impact our ability to obtain additional funding that we may require or to do so on terms attractive to us and may negatively impact the market price of our stock.

 

CURRENT FINANCIAL CONDITION AND SHORTFALL OF FUNDING

 

Our independent registered public accounting firm’s report to our audited financial statements for the fiscal year ended May 31, 2011, indicates there are a number of factors that raise substantial doubt about our ability to continue as a going concern, including the amount of our past due, convertible note obligations, which collectively total $3,213,214. If we are unable to pay our outstanding debt and continue our exploration and drilling program, it is likely that we will go out of business and our investors will lose all of their investments. We currently have minimal operations and are not generating any revenues.

 

Pursuit of the Company’s business plan is dependent upon obtaining sufficient funding to support such plan. If we do not obtain sufficient funding, our business will fail. Our current operating funds are insufficient to pay down our debt, complete our planned exploration of the Solidaridad Property or begin a limited exploitation program. Therefore, we will need to obtain additional funding in order to implement our business plan. There is no guarantee that such funding will be available on terms acceptable to us or at all. Additionally, even if we are able to obtain sufficient funding, there can be no assurance that we will be able to successfully implement our plan or that unanticipated expenses, problems or difficulties will not occur which would result in material delays in its implementation.

 

Our current business plan contemplates that we will incur significant expenses in connection with the exploration and, if warranted, exploitation of the Solidaridad Property. We do not currently have sufficient funds to continue our exploration and drilling program or to commence a small scale exploitation program on the Solidaridad Property. We will require additional funding even to continue our limited mining activities. We will also require additional funding if the costs of our exploration or exploitation, if any, on the Solidaridad Property are greater than anticipated.

 

We will require additional funding to sustain our business operations. We do not currently have any arrangements for funding and we can provide no assurance to investors that we will be able to find such funding on terms acceptable to us or at all. Obtaining additional funding would be subject to a number of factors, including, without limitation, the market prices for copper, silver and gold, investor acceptance of our business plan, the credibility of our exploration results, investor confidence and interest in our sector generally and our Company in particular and general market conditions. These factors may make the timing, amount, terms or conditions of additional funding unavailable to us.

 

SIGNIFICANT DEBT OBLIGATIONS

 

As of May 31, 2011, we have significant current debt obligations.  The amount includes $3,213,214 in obligations resulting from the issuance of convertible debt instruments during 2008 and 2010, of which approximately $1,500,000, inclusive of accrued interest,  is past due. In addition, during May 24, 2011, we settled an outstanding debt and resulting litigation with our former attorneys. This settlement requires us to pay, absent certain funding accelerations, a total of $1,614,216.00 in four equal incremental payments, beginning in May 2012 followed by subsequent payment every 90 days. During January 2011, we entered into a Pledge and Payment Agreements with our former attorneys to secure amounts due them. As a result of these agreements, our former attorneys maintain a pledge on our Solidaridad Property and have imposed certain other conditions and restrictions on our company and our operations.

 

If we are unable to pay our debtholders and/or our former attorneys, we may be required to file for bankruptcy protection and may lose our rights to the Solidaridad Property.

 

DILUTION RESULTING FROM OUR FUND RAISING EFFORTS

 

Since May 31, 2011, new management was successful in raising sufficient funds to enable it to continue meet its minimal operating needs. However, we have incurred significant dilution as a result of these fund raising efforts.   In the future, we will be required to raise significant additional funding to meet our existing debt obligations and to continue with our proposed operations. As a result, we expect to incur significant dilution to our existing shareholders in the future.  

 

WE DO NOT EXPECT TO GENERATE REVENUES

 

We are an exploration stage company; therefore, we anticipate that we will continue to incur increased operating expenses into the foreseeable future without realizing any revenues. Consequently, we expect to incur significant losses into the foreseeable future. If we are unable to raise additional funding, we will not be able to continue our operations.

 

THE EXPLORATION INDUSTRY IS CAPITAL INTENSIVE AND HIGH RISK

 

The industry within which the Company expects to engage in is historically capital intensive and of high risk.  The Company’s ability to achieve profitable operations will be dependent upon many factors, including its ability to raise sufficient capital to explore the Solidaridad Property and ability to discover viable and economic mineralized material.  The ability to discover such mineralized materials are subject to numerous factors, most of which are beyond the Company’s control and are not predictable.  Exploration for gold is speculative in nature, involves many risks and is frequently unsuccessful.  Any exploration program entails risks relating to:

 

· The ability to discover economic ore deposits;

· The subsurface location of economic ore deposits;

· The development of appropriate metallurgical processes;

· The receipt of necessary governmental approval; and

· The construction of mining and processing facilities at any site chosen for mining.

 

In addition, the commercial viability of a mineral deposit is dependent on a number of factors including:

 

· The price;

· Exchange rates; and

· The particular attributes of the deposit, such as its size, grade and proximity to infrastructure, financing costs, taxation, royalties, land tenure, land use, water use, power use, importing and exporting, and environmental protection.

 

The effect of these factors cannot be accurately predicted, and the occurrence of any one or more factors could have a material adverse impact on the Company and its proposed operations.

 

LIMITED GEOLOGICAL WORK HAS BEEN CONDUCTED ON EXISTING MINING CLAIMS THEREFORE THE COMPANY DOES NOT HAVE EVIDENCE THAT ECONOMIC RESOURCES EXIST ON THE PROPERTY

 

The Company has conducted limited geological work on the Solidaridad Property.  The work consisted of preliminary geological sampling and surveys performed by two independent mining geologists.  In June 2011, we completed a Technical Report on its mining property located in Michaocan, Mexico (“Technical Report”). The Technical Report discloses certain technical information about the Company’s mineral project. Additional exploration work will be required by the Company to determine, whether economic resources exist on the claims,

and if such resources do indeed exist, whether they are economically recoverable.  The amount and cost of such exploration work cannot be determined at this time.  No assurances can be given that additional mapping, surveying, and drilling will be sufficient to conclude that economic mineral deposits exist on such claims, and whether such mineral deposits, if any, are recoverable.  Therefore, the Company may be required to conduct additional

exploration activities in addition to those proposed herein, the results of which likewise cannot be predicted.  No assurances can be given that the Company will be able to raise additional capital to conduct the additional exploration activities, or that such additional activities will prove successful.

 

THE SPECULATIVE PRICES OF GOLD, SILVER, AND COPPER MAY ADVERSELY IMPACT COMMERCIALIZATION EFFORTS

 

As stated above, exploration and production is highly speculative and involves numerous natural risks that may not be overcome by knowledge and experience.  In particular, even if the Company is successful in identifying gold, silver, or copper deposits, for which no assurances can be given, the commercialization will be dependent upon the existing market price for gold, silver, or copper, among other factors.  The market price of gold, silver, and copper has historically been unpredictable, and subject to wide fluctuations.  The decline in the price of gold, silver, or copper could render a discovered property uneconomic for unpredictable periods of time.

 

THE MINERAL EXPLORATION INDUSTRY IS SUBJECT TO NUMEROUS REGULATIONS WHICH MAY ADVERSELY IMPACT OUR MINING EFFORTS

 

The mineral exploration and mining industry is subject to numerous statutory and regulatory requirements and controls at various governmental levels.  Regulations can impact the manner and methodology of mining activities undertaken by the Company.  The impact of such regulations cannot be predicted, and may cause unexpected delays, and/or become cost prohibitive, thereby rendering any prospect uneconomic.

 

The legal and regulatory environment that pertains to the mining industry is uncertain and may change. Uncertainty and new regulations could increase our operating costs and prevent us from exploring and drilling for mineralized material and developing the Solidaridad Property, even if we determine such development is warranted. In addition to new laws and regulations being adopted, existing laws may be applied to mining operations that have not yet been so applied. Any such new laws may increase our operating costs which could have a material adverse effect on our results of operations and financial condition. Changes in regulatory policy could also have a material adverse effect on our exploration and future production activities. Any changes in government policy may result in changes to laws affecting, without limitation:

 

· ownership of our concessions;

 

· land tenure;

 

· development of infrastructure;

 

· mining policies;

 

· monetary policies;

 

· taxation;

 

· rates of exchange;

 

· environmental regulations; and/or labor relations.

 

Any such changes may affect our ability to continue our exploration and drilling program, to undertake mining operations with respect to the Solidiaridad Property in the manner currently contemplated, or our ability to explore or develop future properties. We must take into account the possibility, particularly in Mexico, that future governments may adopt substantially different policies, which might extend to expropriation of assets.

 

ENVIRONMENTAL AND OTHER RISKS COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS

 

Mining activities pose certain environmental risks, as well as personal injury risks.  While the Company will attempt to manage its risks, one or more incidents of environmental damage or personal injury resulting from its mining activities could have a material adverse impact on the business of the Company. Our mining operations are subject to environmental regulation by the SEMARNAT, the environmental protection agency of Mexico. If we become subject to onerous government regulations or other legal uncertainties, our business would likely be negatively affected. The government regulates the environmental impacts of mining operations and requires, under certain circumstances, certain environmental permits, work permits, posting of bonds, and the performance of remediation work for any physical or other disturbance to the land or the environment. We may incur significant costs and expenses in connection to comply with such governmental regulations.

 

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 to undertake exploration work on the Solidaridad Property. We may also consider seeking equity or debt financing (including borrowing from commercial lenders) or a sale of the Company or its assets.

 

WE ARE AN EXPLORATION STAGE COMPANY

 

We are an exploration stage company and face a high risk of business failure because of the unique difficulties and uncertainties inherent in mineral exploration ventures. Potential investors should be aware of the difficulties normally encountered by mineral exploration companies and the high rate of failure of such companies. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays that could be encountered in connection with our planned exploration and drilling of the Solidaridad Property. These potential problems include, but are not limited to, unanticipated problems relating to exploration and additional costs and expenses that may exceed current estimates. Additional expenditures related to exploration of the Solidaridad Property may not result in the discovery of additional mineralized material. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. If the results of our exploration do not reveal viable commercial mineralized material, we may decide to abandon the Solidaridad Concessions and acquire new concessions for new exploration or terminate our activities all together. The acquisition of additional concessions will be dependent upon us possessing capital resources at that time in order to purchase and/or maintain such concessions. If no funding is available, we may be forced to cease our operations.

 

WE HAVE NO PROVEN OR PROBABLE RESERVES

 

We have not established the presence of any proven or probable reserves, as those terms are defined by the U.S. Securities and Exchange Commission (the “SEC”), on the Solidaridad Property. If the Solidaridad Property does not contain mineralized material that we can extract at a profit, any funds spent by us on exploration or development of the Solidaridad Property could be lost. The SEC defines a “reserve” as “that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.” Any mineralized material discovered by us should not be considered proven or probable reserves.

 

In order to demonstrate the existence of proven or probable reserves under SEC Guidelines, it would be necessary for us to continue exploration to demonstrate the existence of sufficient mineralized material with satisfactory continuity and then obtain a positive feasibility study that demonstrates with reasonable certainty that the mineralized material can be economically extracted and produced. We have not completed a feasibility study with regard to the Solidaridad Property, nor do we intend to perform such feasibility study until such time as we obtain sufficient funding and it is advisable under our then current business plan. Exploration is inherently risky, the probability of any individual property having reserves is extremely remote and few properties ultimately prove economically successful.

 

ESTIMATES OF MINERALIZED MATERIAL ARE BASED ON INTERPRETATION AND ASSUMPTIONS WHICH MAY BE UNRELIABLE

 

Estimates of our mineralized material located on the Solidaridad Property are based on interpretation and assumptions and may yield less under actual conditions than current estimates. Unless otherwise indicated, the mineralized material presented in our filings with the SEC and in press releases and other public statements are based upon estimates made by our consultants. When making determinations about whether to advance any of our projects to production, we must rely upon such estimated calculations as to the mineralized material on the Solidaridad Property. Until the mineralized material is actually mined and processed, any amounts and values can only be considered estimates.

 

These estimates are imprecise and depend on geological interpretation and statistical inferences drawn from drilling and assay sampling analysis, which may prove to be unreliable. We cannot assure you that the estimates of our mineralized material will be accurate or that we can mine or process this mineralized material profitably.

 

Any material changes in estimates of our mineralized material could affect the economic viability of the Solidaridad Property and could have a material adverse effect on our operations and financial position. There can be no assurance that minerals recovered in small scale will be recovered at production scale.

 

OUR OPERATIONS ARE SUBJECT TO PERMITTING REQUIREMENTS

 

Our operations are subject to permitting requirements which could require us to delay, suspend or terminate our operations. Our operations, including, but not limited to, any exploitation program, require permits from the Mexican government. We may be unable to obtain these permits in a timely manner, on reasonable terms, or at all. If we cannot obtain or maintain the necessary permits, or if there is a delay in receiving these permits, our timetable and business plan for exploration and/or exploitation, if any, of the Solidaridad Property may be materially and adversely affected.

 

COMPETITION IN THE MINING INDUSTRY IS INTENSE AND WE HAVE LIMITED FINANCIAL AND PERSONNEL RESOURCES WITH WHICH TO COMPETE

 

Competition in the mining industry is extremely intense in all aspects, including, but not limited to, raising investment capital for exploration and obtaining qualified managerial and technical employees. We are an insignificant participant in the mining industry due to our limited financial and personnel resources. Our competition includes large established mining companies, with substantial capabilities and with greater financial and technical resources than we have, as well as the myriad of other exploration stage companies. As a result of this competition, we may be unable to attract the necessary funding or qualified personnel. If we are unable to successfully compete for funding or for qualified personnel, our mining activities may be slowed, suspended or terminated, any of which would have a material adverse effect on our ability to continue operations.

 

WE MAY EXPERIENCE SUPPLY AND EQUIPMENT SHORTAGES

 

We may not be able to purchase all of the supplies and materials we need to continue our mining activities due to shortage of funds, lack of availability or other reasons. This could cause us to delay or suspend operations. Competition and unforeseen limited sources of supplies in the industry could result in occasional spot shortages of supplies, such as explosives, and certain equipment, such as bulldozers, drilling equipment and excavators, that we might need to conduct our mining activities. If we cannot find the supplies and equipment we need, we may have to suspend our operations until we do find the supplies and equipment we need. If we are unable to find the supplies in Mexico but can find them in another location, the cost will increase significantly, as will the time to deliver.

 

THERE ARE RISKS INHERENT IN DOING BUSINESS IN MEXICO

 

The Solidaridad Property is located in the State of Michoacán, Mexico. Risks of doing business in a foreign country could materially and adversely affect our results of operations and financial condition. We face risks normally associated with doing business in a foreign country. These risks include, but are not limited to:

 

	·	labor disputes;
	·	invalidity of governmental orders;
	·	uncertain or unpredictable political, legal and economic environments;
	·	war;
	·	civil and political unrest;
	·	crime and security issues including but not limited to drug cartel activity;
	·	property disputes;
	·	changes to existing laws or policies relating to the mining industry that increase our costs;
	·	unpredictable changes in or application of taxation regulations;
	·	delays in obtaining or the inability to obtain necessary governmental permits;
	·	governmental seizure of land or mining concessions;
	·	limitations on ownership;
	·	limitations on the repatriation of earnings;
	·	increased financial costs;
	·	import and export regulations, including restrictions on the export of gold, silver and copper; and/or
	·	foreign exchange controls.

 

The occurrence of one or more of these events or a change in existing policy could have a material adverse effect on our cash flows, earnings, results of operations, and financial condition. These risks may limit or disrupt our operations, restrict the movement of funds, impair contract rights, or result in the taking of property by nationalization or expropriation without fair compensation. Finally, Mexico’s status as a developing country may make it more difficult for us to obtain required funding.

WE ARE REQUIRED TO MAKE PAYMENTS TO RETAIN THE SOLIDARIDAD CONCESSIONS

 

Our ability to retain good title to the Solidaridad Concessions and continue our exploration and drilling program is subject to payment of surface taxes imposed by the Mexican government. The amount of surface taxes is set by regulation and may increase over the life of the concession and include periodic adjustments for inflation. Our failure or inability to pay the surface taxes to the Mexican government may cause us to lose our interest in one or more of our concessions.

 

OUR CONCESSIONS ARE LOCATED IN A REMOTE AREA

 

There is extremely limited infrastructure on the Solidaridad Property, which may impair our access to the property. Inclement weather and/or natural disasters may affect the roads surrounding the Solidaridad Property, which may delay or prevent us from conducting our proposed business operations or cause significant damage to costly infrastructure, for which we may or may not be insured. While we plan to conduct our exploration and drilling year round, it is possible that inclement weather and/or natural disasters could delay our mining activities, which could have a material adverse effect on our business, results of operations and financial condition.

 

DEFECTIVE TITLE TO THE SOLIDARIDAD CONCESSIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR EXPLORATION AND EXPLOITATION ACTIVITIES

 

There are uncertainties as to title matters in the mining industry. We believe we have good title to the Solidaridad Concessions; however, any defects in such titles that cause us to lose our rights in these mineral properties would seriously jeopardize our planned business operations. We have investigated our rights to explore, exploit and develop the Solidaridad Property in manners consistent with industry practice and, to the best of our knowledge, those rights are in good standing. However, we cannot guarantee that the title to or our rights to explore, exploit and develop the Solidaridad Property will not be challenged by third parties or governmental agencies. In addition, there can be no assurance that the Solidaridad Concessions and the Solidaridad Property to which the concessions relate, are not subject to prior unregistered agreements, transfers or claims. Our title may be affected by undetected defects. Any such defects could have a material adverse effect on us.

 

In the event of a dispute regarding title to the Solidaridad Concessions or any facet of our operations, it will likely be necessary for us to resolve the dispute in Mexico, where we would be faced with unfamiliar laws and procedures. The resolution of disputes in foreign countries can be costly and time consuming, similar to the situation in the United States. However, in a foreign country, we face the additional burden of understanding unfamiliar laws and procedures. We may not be entitled to a jury trial, as we might be in the United States. Further, to litigate in a foreign country, we would be faced with the necessity of hiring lawyers and other professionals who are familiar with the foreign laws. For these reasons, we may incur unforeseen losses if we are forced to resolve a dispute in Mexico or any other foreign country.

 

RESTRICTED ACCESS TO THE SOLIDARIDAD CONCESSIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR EXPLORATION AND FUTURE PRODUCTION ACTIVITIES

 

There are uncertainties as to our ability to gain access rights to the Solidaridad Property where the Solidaridad Concessions are located. We currently have secured access rights to the portion of the Solidaridad Property where our concessions Solidaridad I, Solidaridad III, and Solidaridad V are located by way of a written agreement entered into by and between our Mexican Subsidiary and the owners of the portion of the Solidaridad Property where these concessions are located. We are in the process of securing, but have not yet secured, access rights to other portions of the Soldiaridad Property, which we plan to do in the future in connection with any decision to begin exploration and/or exploitation of those areas. If we are ultimately unable to receive access, or unable to receive access at a reasonable price, it may affect our ability to explore for, or exploit, mineralized material from those areas and could have a material adverse effect on us.

 

OUR PRIMARY TARGETS FOR EXPLORATION AND EXPLOITATION ARE SUBJECT TO A TEMPORARY OCCUPANCY AGREEMENT IN FAVOR OF A THIRD PARTY WHICH REQUIRES US TO PAY ANNUAL RENT

 

 

Our current primary targets for exploration and exploitation are located on the portion of the Solidaridad Property where our concessions Solidaridad I, Solidaridad III, and Solidaridad V are located. We have secured access rights to the portion of the Solidaridad Property where these concessions are located by way of a Temporary Occupancy Agreement with a third party. This agreement requires us to pay annual rent to the owners of the portion of the Solidaridad Property where these concessions are located. Our failure or inability to pay the annual rent may cause us to lose our right to access the portion of the Solidaridad Property where these concessions are located and could have a material adverse effect on our business operations. Any breach of the agreement by the property owner could also cause costly litigation.

 

OUR ABILITY TO DEVELOP THE SOLIDARIDAD CONCESSIONS ARE SUBJECT TO THE RIGHTS OF THE EJIDO (LOCAL INHABITANTS)

 

Our ability to develop the portion of the Solidaridad Property where concessions Solidaridad II, Solidaridad III, Solidaridad IV, Solidaridad V, and La Sabila are located are subject to the rights of the Ejido. Ejidos are groups of local inhabitants who are granted rights by the Mexican government to conduct agricultural activities on the surface of the property. Our ability to exploit the mineralized material from the portion of the Solidaridad Property where these concessions are located is subject to making satisfactory arrangements with the Ejido for access and surface disturbances. We must negotiate and maintain a satisfactory arrangement with these inhabitants in order to disturb or discontinue their rights to conduct such agricultural activities. We plan to negotiate such arrangements at such time as we make a decision to begin exploitation of those areas. If we are ultimately unable to successfully negotiate such an arrangement or, if we are successful in negotiating such an arrangement but are ultimately unable to maintain such arrangement, it could impair or impede our ability to successfully exploit the minerals from the portion of the Solidaridad Property where these concessions are located.

 

MATERIAL LOSSES IN EXCESS OF INSURANCE COVERAGE COULD ADVERSELY AFFECT OUR EXPLORATION AND FUTURE PRODUCTION ACTIVITIES

 

We have limited insurance against losses or liabilities that could arise from our operations. If we incur material losses or liabilities in excess of our insurance coverage, our financial position could be materially and adversely affected. Mining operations involve a number of risks and hazards, including, without limitation:

 

	·	environmental hazards;
	·	industrial accidents;
	·	metallurgical and other processing problems;
	·	failure of pit walls or dams;
	·	acts of God; and/or
	·	equipment and facility performance problems.

 

 

Such risks could have various negative consequences, including, without limitation:

 

	·	damage to, or destruction of, mineral properties or production facilities;
	·	personal injury or death;
	·	environmental damage;
	·	delays in exploration; and/or
	·	monetary losses.

 

Industrial accidents could have a material adverse effect on our future business and operations. We currently maintain general liability insurance and automobile insurance coverage. We cannot be certain the insurance we have in place will cover all of the risks associated with our mining activities or that we will be able to maintain insurance to cover these risks at economically feasible premiums. We also might become subject to liability for pollution or other hazards which we cannot insure against or which we may elect not to insure against because of premium costs or other reasons. Losses from such events may have a material adverse effect on our ability to continue operations.

 

WE ARE DEPENDENT UPON OUR OFFICERS

 

The Company is dependent on its current officers, directors, and consultants to effectuate many of the Company’s services and plans for the implementation of the Company’s proposed activities and business.  The Company’s President has significant experience in the area of exploring for and/or mining precious metals.  None of our officers or board members has made any long term commitment to the Company.  If one or more of these individuals were to resign, there is no guarantee that we could replace them with qualified individuals in a timely or economic manner or if at all.  Investors must be willing to entrust all of the affairs of the Company to current management.

 

AT THE PRESENT TIME WE ARE UNABLE TO PAY ANY DIVIDENDS

 

The Company has not paid any cash dividends and does not anticipate paying any cash dividends on its Common Stock in the foreseeable future.  It is anticipated that earnings, if any, which may be generated from operations will be used to finance the continued operations of the Company.  Investors who anticipate the immediate need of cash dividends from their investment should refrain from purchasing any of the securities offered hereby.

 

FUTURE ISSUANCE OF SECURITIES COULD CAUSE DILUTION TO EXISTING SHAREHOLDERS

 

The Company has the authority to issue up to 150,000,000 shares of common stock, 10,000,000 shares of preferred stock and to issue options and warrants to purchase shares of our common stock without stockholder approval.  Future issuances of common and preferred stock will dilute the holdings of our existing stockholders and may reduce the market price of our common stock.  Holders of our common stock are not entitled to preemptive.

 

CERTAIN OF OUR OFFICERS MAY HAVE CONFLICTS OF INTEREST

 

Certain conflicts of interest exist with respect to management and the operations of the Company.  Although management has committed to devote sufficient time and attention to the affairs of the business, management is not subject to any written agreement regarding such matters.  Consequently, other business interests may arise which could compromise the time and attention devoted by management to the affairs of the Company.

 

AN ADVERSE EVALUATION OF OUR INTERNAL CONTROLS COULD RESULT IN LOSS OF INVESTOR CONFIDENCE

 

While we presently believe that we have adequate internal controls over financial reporting, we will be required to evaluate our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 annually and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have a material adverse effect on the price of our common stock. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we have furnished a report by our management on internal controls for the fiscal year ended May 31, 2010. Such a report contains, among other matters, our assessment of the effectiveness of our internal controls over financial reporting, including a statement as to whether or not our internal controls are effective. This assessment must include disclosure of any material weakness in our internal controls over financial reporting identified by our management. While we believe our internal controls over financial reporting are effective as of the date of this Annual Report, there is no assurance that we can retain that control in the future as our business expands. If we are unable to maintain the effectiveness of our controls, investors could lose confidence in our financial reports and our stock price may decline.

 

 

WE INDEMNIFY OUR OFFICERS AND DIRECTORS TO THE FULLEST EXTENT PROVIDED BY LAW

 

The laws of the State of Delaware permit us to indemnify our directors and officers who were or are parties, or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that the person is or was a director or officer of the Company. Our Amended and Restated Bylaws permit us to indemnify our officers and directors against all damages incurred in connection with our business to the fullest extent provided or allowed by law. These indemnification provisions may require us to use our limited assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment or other circumstances.

 

WE ARE SUBJECT TO ADVERSE CHANGES IN CURRENCY VALUES

 

Since most of our expenses are paid in Mexican pesos, and our investment capital is in United States dollars, we are subject to adverse changes in currency values which will be difficult to prevent or predict. Our operations in the future could be affected by changes in the value of the Mexican peso against the United States dollar. At the present time, since we have no production and limited investment, we have no plans or policies to utilize forward sales contracts or currency options to minimize this exposure. If and when these measures are implemented, there is no assurance they will be cost effective or be able to fully offset the effect of any currency fluctuations.

 

STOCK PRICE VOLATILITY

 

Our stock price may be volatile and as a result investors could lose all or part of their investment. In addition to volatility associated with over-the-counter securities in general, the value of any investment could decline due to the impact of any of the following factors upon the market price of our common stock:

 

	·	changes in the worldwide price for gold, silver and copper;
	·	disappointing results from our exploration and drilling efforts;
	·	fluctuation in production costs that make mining uneconomical;
	·	unanticipated variations in grade and other geological problems;

 

	·	unusual or unexpected rock formations;
	·	failure to reach commercial production or producing at rates lower than those targeted;
	·	decline in demand for our common stock;
	·	downward revisions in securities analysts’ estimates or changes in general market conditions;
	·	investor perception of our industry, our Company or the Solidaridad Concessions; and/or
	·	general economic trends.

 

In addition, stock markets have experienced extreme price and volume fluctuations and the market price of securities has been highly volatile. These fluctuations are often unrelated to asset value and may have a material adverse effect on the market price of our common stock. As a result, investors may be unable to resell their shares at a fair price.

 

THERE IS CURRENTLY A LIMITED TRADING MARKET FOR OUR COMMON STOCK AND OUR STOCK EXPERIENCES PRICE FLUCTUATIONS

 

There is currently a limited market for our common stock and we can provide no assurance to investors that a more robust market will develop. If a market for our common stock does not develop, our shareholders may not be able to resell the shares of our common stock they have purchased and they may lose all of their investment. Our stock is thinly traded and is therefore subject to significant fluctuations if the amount of trading increases significantly for a short period of time. Even one large trade could materially affect the price of the stock even though the status of the Company remains unchanged.

 

The trading price of our common stock may be subject to wide fluctuations. Trading prices of our common stock may fluctuate in response to a number of factors, many of which will be beyond our control, including, without limitation, public announcements regarding our Company, purchases or sales by existing stockholders, changes in government regulations, conditions in our market segment or changes in earnings estimates by analysts. These fluctuations may have a material adverse effect on the trading price of our common stock.

 

In addition, the stock market in general, and the market for mining companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. Market and industry factors may adversely affect the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources. In addition, we may not have complied in the past with federal and/or state securities laws and regulations, which could potentially result in litigation, penalties and/or fines, other substantial costs and expenses and a substantial diversion of management’s attention and resources.

 

THE VALUE OF OUR COMMON STOCK IS PARTIALLY RELATED TO THE VALUE OF OUR MINERALIZED MATERIAL

 

The value of our common stock may relate directly and/or indirectly to the value of the mineralized material contained in the Solidaridad Property and fluctuations in the price of any such mineralized material could have a material adverse effect on the value of any investment in our common stock.

 

Several factors may affect the prices for mineralized material, including, without limitation:

 

	·	global supply and demand;
	·	global or regional political, economic or financial events and situations;
	·	investors’ expectations with respect to the rate of inflation;
	·	currency exchange rates;
	·	interest rates; and/or
	·	investment and trading activities of hedge funds and commodity funds.

 

In addition, investors should be aware that there is no assurance that our mineralized material will maintain a constant price or have long term value. In the event the price of our mineralized material declines, the value of an investment in our common stock may also decline.

 

REPORTING OUR INVESTMENTS IN MINERAL PROPERTIES AS AN EXPENSE MAY HAVE A NEGATIVE IMPACT ON OUR STOCK PRICE

 

Since we have no proven or probable reserves, our investment in the Solidaridad Property is not reported as an asset in our financial statements which may have a negative impact on the price of our stock. We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America and intend to report substantially all exploration and drilling expenditures as expenses until we are able to establish proven or probable reserves. If we are able to establish proven or probable reserves, we would report development expenditures as an asset subject to future amortization using the units-of-production method. Since it is uncertain when, if ever, we will establish proven or probable reserves, it is uncertain whether we will ever report these expenditures as an asset. Accordingly, our financial statements report fewer assets and greater expenses than would be the case if we had proven or probable reserves, which could have a negative impact on our stock price.

 

ITEM 2.

PROPERTIES

Description of Our Concessions

Mineral rights in Mexico belong to the Mexican government and are administered pursuant to Article 27 of the Mexican Constitution. Mining concessions may be granted to Mexican citizens or companies incorporated under Mexican law and grant the holder the right to explore and exploit all minerals found in the ground. The table below reflects certain information about the mining concessions we currently hold through our Mexican Subsidiary. These concessions are registered with the Public Registry of Mining in Mexico City. The Solidaridad Property to which the following concessions relate is in the exploration stage and has no proven or probable reserves.

 

Name of Concession		Title Number			Hectares			Date Acquired		Expiration Date
Solidaridad I		220315			174.5408			July 11, 2003		July 10, 2053
Solidaridad II		220503			2162.2311			August 14, 2003		August 13, 2053
Solidaridad II, Fraction A		220504			1.4544			August 14, 2003		August 13, 2053
Solidaridad II, Fraction B		220505			.0072			August 14, 2003		August 13, 2053
Solidaridad III		223444			294.0620			December 14, 2004		December 13, 2054
Solidaridad IV		220612			149.4244			September 4, 2003		September 3, 2053
Solidaridad V (also known as Le Ceiba)		223119			921.3201			October 19, 2004		October 18, 2054
La Sabila		227272			11,405.0000			June 2, 2006		June 1, 2056

The above group of concessions are collectively referred to as the “ Solidaridad Concessions .” Our concessions have a term of fifty years from the date first acquired and can be renewed for another fifty years. In order to maintain the concessions, the Company must pay surface taxes semi-annually in January and July and perform a minimum amount of assessment work on a calendar year basis. Assessment work reports are required to be filed annually in May for the preceding calendar year. The amount of surface taxes and annual assessments are set by regulation and may increase over the life of the concession and include periodic adjustments for inflation. The Company has confirmed the Solidaridad Concessions are in full force and effect as of the date of this Annual Report.

 

Location and Access

The Company’s mining concessions, or mineral rights related to specific parcels of property, are located in southern Michoacán, which is in the southeastern portion of Mexico. Local and regional geologic evidence strongly suggests the possibility that the concessions owned by the Company are located within a mineral rich area of the state. Approximately 30 miles to the southwest of the Solidaridad Property is a mine from which copper has been produced for over 100 years. The owners of that mine have continued exploration, which resulted in the discovery of another mineral deposit separate from the 100 year old working mine. According to information we have obtained, the ore produced at that mine has similar characteristics to the mineralized material we have found from the exploration we have conducted to date on the Solidaridad Property. In the northern part of the Solidaridad Property are two abandoned mines and a few small hand worked mines. To the south of and within the Solidaridad Property exist two additional abandoned mines, all of which will require routine but formal investigation.

The Solidaridad Property is accessible by a paved road from the city of Morelia, the capital of Michoacán, and the claim sites are accessible by a gravel road from the village of Paso de Nunez. The Solidaridad Property lies within the Tierra Caliente basin of southeastern Michoacan, and rests in an area of valleys and peaks ranging from 610 to 1,100 meters in elevation. The surrounding area is predominantly agrarian. Villages immediately near the claim sites offer little or no amenities; however, there are some hardware, cement, and other suppliers in relatively close proximity. There is no heavy industry in the region. Electricity is currently being provided to us by our contractors through generators.

Mining concessions do not automatically grant the holder the right to enter or use the surface land of the property where such mining concessions are located. In order to access the surface land, the holder must obtain permission from the surface owner. We currently have secured access rights to the portion of the Solidaridad Property where our concessions Solidaridad I, Solidaridad III, and Solidaridad V are located by way of a written agreement entered into by and between our Mexican Subsidiary and the owners of the portion of the Solidaridad Property where these concessions are located. This agreement requires us to pay an annual rent to the landowner. We are in the process of securing, but have not yet secured, access rights to other portions of the Solidaridad Property, which we plan to do in the future in connection with any decision to begin exploration and/or exploitation of those areas. If we are ultimately unable to receive access, or unable to receive access at a reasonable price, it may affect our ability to explore for, or exploit, mineralized material from those areas.

All or portion of the Solidaridad Property where concessions Solidaridad II, Solidaridad III, Solidaridad IV, Solidaridad V and La Sabila are located are Ejido lands. Ejidos are groups of local inhabitants who are granted rights by the Mexican government to conduct agricultural activities on the surface of the property. Our ability to exploit the mineralized material from the portion of the Solidaridad Property where these concessions are located is subject to making satisfactory arrangements with the Ejido for access and surface disturbances. We must negotiate and maintain a satisfactory arrangement with these inhabitants in order to disturb or discontinue their rights to conduct such agricultural activities. Amendments to Article 27 of the Mexican Constitution in 1994 allow the Ejido to enter into commercial ventures with individuals or entities. However, we currently do not have an agreement with the local Ejidos allowing us to explore for, or exploit, the mineralized material in the property where these concessions are located. We plan to negotiate such arrangements at such time as we make a decision to begin exploitation of those areas.

Mexican law recognizes mining as a land use generally superior to agricultural. However, the law also recognizes the rights of the Ejido to compensation in the event mining activities interrupt or discontinues their use of the agricultural lands. Compensation is typically made in the form of a cash payment to the holder of the agricultural rights. The amount of such compensation is generally related to the perceived value of the agricultural rights as would be negotiated between the Ejidos and the Company. If the parties are unable to reach agreement on the amount of the compensation, the decision will be referred to the Mexican government. If we are ultimately unable to successfully negotiate such an arrangement or, if we are successful in negotiating such an arrangement but are

ultimately unable to maintain such agreement, it may impair or impede our ability to successfully exploit the mineralized material from the portion of the Solidaridad Property where these concessions are located.

Office Facilities

In August 2011, in connection with our change of management, we relocated our headquarters from Lake Mary, Florida to Lithia, Florida to the premises of our Chairman. The space is rent free based on an oral arrangement between the parties.

The Company leases a warehouse (storage) facility in the city of Morelia, Michoacán, Mexico. This lease expires February 1, 2012 and calls for monthly rent of 26,500 Mexican Pesos (approximately US $2,000). The Company may decide prior to the termination of this contract whether it wishes to renew. The landlord is not obligated to renew the lease. The Company also had a lease for a house in Michoacán, Mexico which was terminated in September 2010 with a monthly rent of 10,000 Mexican pesos (approximately US $800).

The warehouse in Morelia houses the core laboratory, provides a core sample storage area and temporary offices. We have not completed the metallurgical and chemistry laboratory due to lack of funds. The Company has suspended any construction efforts until such time as it receives sufficient funding to move forward. If the Company can raise sufficient funds, of which there can be no assurance, we expect that this laboratory could be functional by the first quarter of 2012. If and when the laboratory becomes functional, we currently plan to use it to assist the technical staff in all necessary real time testing and evaluations of mineralization during the exploration and drilling stages as well as in developing the Feasibility A and B reports at the end of the two year exploration and drilling program discussed above. Otherwise, we will continue to have the metallurgical testing conducted by outside laboratories.

Glossary

Core Samples	Cylindrical pieces of subsurface material removed by a drill and brought to the surface for examination.
Development	The process following exploration, whereby a mineral deposit is further evaluated and prepared for production. This generally involves significant drilling and may include underground work.
Dike	A vertical or near vertical tabular body of igneous rock that cross cuts across the existing country rock. Dikes form when magma rises into an existing fracture, or creates a new crack by forcing its way through existing rock, and then solidifies.
Drilling	The process of boring a hole in the rock to obtain a sample for determination of metal content. “Reverse Circulation Drilling” involves chips of rock being forced back through the center of the drill pipe using air or water.
Ejido	Are agrarian cooperative lands granted by the Mexican federal government to local inhabitants to conduct agricultural activities on the property pursuant to Article 27 of the Mexican Constitution.
Exploration	The search for mineral deposits using prospecting, geological mapping, geochemical and geophysical surveys, drilling, sampling and other means used to detect and perform initial evaluations of mineral deposits.
Hectare	A metric unit of measurement for surface area. One hectare equals 1/200 th of a square kilometer, 10,000 square meters or 2.47 acres.
Igneous	A type of rock which has been formed by the consolidation of magma, a molten substance from the earth’s core.
Metallurgy Testing	The testing of metals and their physical and chemical properties in bulk.
Mineralized Material	Minerals or any mass of host rock in which minerals of potential commercial value occur.
Mudstone	Fine grained sedimentary rock whose original constituents were clays or muds.
Ore	A natural mineral compound of elements of which one at least is a metal (e.g. copper, lead, molybdenum, zinc, gold). The term is applied more loosely to all metalliferous rock and occasionally to compounds of nonmetallic substances and industrial minerals such as sulphur ore. In economic terms, an ore is a mineral of sufficient value as to quality and quantity that it may be mined at a profit.
Phyllite	A type of foliated metamorphic rock primarily composed of quartz, sericite mica, and chlorite. The rock represents a gradation in the degree of metamorphism between slate and mica schist. Minute crystals of graphite, sericite, or chlorite impart a silky, sometimes golden sheen to the surfaces of cleavage (or schistosity). Phylite is formed from the continued metamorphism of slate.
Production	The process following development whereby mineral deposits are exploited from the ground, and as required, the subsequent processing into products.
Reserves	That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.
	(1) Proven (Measured) Reserves: 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 or reserves are well-established.
	(2) Probable (Indicated) Reserves: Reserves for which quantity and grade and/or quality are computed from information similar to that used from proven (measured) 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 (measured) reserves, is high enough to assume continuity between points of observation.
Schists	A group of medium-grade metamorphic rocks, chiefly notable for the predominance of lamellar minerals such as micas, chlorite, talc, hornblende, graphite, and others. Quartz often occurs in drawn-out grains to such an extent that a particular form called quartz schist is produced. By definition, schist contains more than 50% platy and elongated minerals, often finely interleaved with quartz and feldspar. Schist is often garnetiferous.
Shale	Fine grained sedimentary rock whose original constituents were clay minerals or muds. Black Shales are dark, as a result of being especially rich in unoxidized carbon.
Sills	A tabular body of intrusive igneous rock, parallel to the layering of the rocks into which it intrudes.
Tierra Caliente	Used in Latin America to refer to those places within that realm which have a distinctly tropical climate. The Tierra Caliente forms at Sea Level to about 2,500 ft.

 

ITEM 3.

LEGAL PROCEEDINGS

 

On May 24, 2011, as reported by the Company in its Form 8-K filed on May 27, 2011, the Company settled its pending litigation against Duane Morris, LLP  and Keli Isaacson Whitlock pursuant to a settlement agreement and an amendment to the Payment Agreement previously executed by the parties.  The Company has withdrawn its claim against Duane Morris LLP and Keli Isaacson Whitlock.  Duane Morris LLP has agreed to withdraw its claims against USPR on USPR’s agreement to pay legal fees in the amount of $1,614,216.00 according to a payment schedule agreed to by the parties. The payment schedule provides for the following payments:

 

1. Except as provided in paragraphs 2 and 3 below, four equal installments, with the first installment payment made no later than one year from May 24, 2011 and the remaining installment payments made every 90 days after payment of the previous installment payment, and

2. In the event the Company receives debt or equity investments of at least $5 million but less than $10 million in the aggregate in any three-month period, the next installment payment shall become due and payable on the last day of the calendar quarter in which that aggregate investment is received.  Any remaining balance of the amount then due will be paid in six equal installments made every 90 days thereafter.

3. In the event the Company receives debt or equity investments of $10 million or greater in the aggregate in any three-month period, any remaining balance of the amount then due shall be due and payable in full on the last day of the calendar quarter in which that aggregate investment was received.

 

In addition, certain other events of default will trigger an accelerated payment.  Except as generally  stated herein, all other terms and conditions of the pre-existing agreements between the parties remain in place. These agreements consist of the Pledge Agreement and Payment Agreement.

 

Separately, on that same date, the Company and Jack Kugler settled its claims with each other wherein each party dismissed its claims against the other.

 

 

PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock currently trades on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “USPR”. Prior to January 14, 2006, our common stock was not publicly traded. The table below sets forth, for the fiscal quarters indicated, the high and low bid prices per share of our common stock as reflected on the OTCBB. The quotations represent inter-dealer prices without adjustment for retail markups, markdowns or commissions, and may not necessarily represent actual transactions.

 

Quarterly Period		High			Low
Fiscal year ended May 31, 2010:
First Quarter		$	0.35		$	0.12
Second Quarter		$	0.40		$	0.16
Third Quarter		$	0.30		$	0.14
Fourth Quarter		$	0.28		$	0.13
Fiscal year ended May 31, 2011:
First Quarter		$	0.10		$	0.09
Second Quarter		$	0.07		$	0.051
Third Quarter		$	0.055		$	0.053
Fourth Quarter		$	0.08		$	0.07

During the quarter ended August 31, 2011, the high and low sales price of our common stock on the OTCBB were $0.355 and $0.32 per share, respectively.

Penny Stock Rules

Due to the price of our common stock, as well as the fact that we are not listed on NASDAQ or a national securities exchange, our stock is characterized as a  “penny stock” under applicable securities regulations. Our stock will therefore be subject to rules adopted by the SEC regulating broker-dealer practices in connection with transactions in penny stocks. The broker or dealer proposing to effect a transaction in a penny stock must furnish the customer a document containing information prescribed by the SEC and obtain from the customer an executed acknowledgement of receipt of that document. The broker or dealer must also provide the customer with pricing information regarding the security prior to the transaction and with the written confirmation of the transaction. The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with such transaction prior to consummating the transaction and with the written confirmation of the trade. The broker or dealer must also send an account statement to each customer for which he has executed a transaction in a penny stock each month in which such security is held for the customer’s account. The existence of these rules may have an effect on the price of our stock, and the willingness of certain brokers to effect transactions in our stock.

 

Transfer Agent

We have appointed Interwest Transfer Company, Inc. (“Interwest”) as the transfer agent for our common stock. The principal office of Interwest is located at 1981 Murray Holladay Road, Suite 100, Salt Lake City, UT  84117 and its telephone number is (801) 272-9294.

Holders

As of August 31, 2011, there were approximately 356 holders of record of our common stock. This does not reflect persons or entities that hold their stock in nominee or “street name.”

Warrants Outstanding

As of May 31, 2011, there were warrants to purchase 5,746,549 shares of common stock outstanding.

Dividends

There are no restrictions in our Amended and Restated Certificate of Incorporation or our Amended and Restated Bylaws that restrict us from declaring dividends except for restrictions imposed by law. The General Corporation Law of the State of Delaware, however, does prohibit us from declaring dividends where, after giving effect to the distribution of the dividend, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

We have never declared or paid cash dividends on our common stock and do not currently intend to declare a cash dividend on our common stock in the foreseeable future. The declaration and payment of dividends is subject to the discretion of our Board of Directors and to the above mentioned limitations imposed under the General Corporation Law of the State of Delaware. The timing, amount and form of dividends, if any, will depend on, among other

things, our results of operation, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table shows information with respect to each equity compensation plan under which the Company’s common stock is authorized for issuance as of the fiscal year ended May 31, 2011.

Equity Compensation Plan Information
Plan Category		Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights			Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights			Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by security holders (1)		11,000,000(1)(2)			$	0.065		9,000,000 (3)
Equity compensation plans not approved by security holders		11,000,000(1)(2)				—		9,000,000(3)

 

(1). In August 2010, the Company granted to (i) its new Chairman stock option to acquire 1,000,000 shares of common stock at a $0.11 per share exercise price, and (ii) two existing officers and directors each a stock option to acquire 1,000,000 shares of common stock. In addition, during  the year ended May 31, 2011, the Company appointed three new directors to its Board of Directors, and awarded each director with a stock option to acquire 1,000,000 shares of common stock. The per share exercise price for each director set of options was $0.065, $0.69, and $0.105. In March 2011, the Company and each of the eight directors agreed to cancel 8,000,000 in existing options and the Company granted new options to each of the existing directors. The new options have an exercise price of $0.065 per share.   All options granted during the fiscal year ended May 31, 2011 to existing and new directors were priced at a penny per share above the closing price of our common stock on the date of grant (which in the case of a new director, is the date of the appointment).  One officer and director resigned in April 2011, and his option for 1,000,000 shares expired 90 days thereafter.

(2). The amount includes stock options granted to three consultants for 1,000,000  each at an exercise price of $0.065.

(3). Represents the number of stock options and warrants remaining in the 2007 Stock Option Plan.

 

Recent Sales of Unregistered Equity Securities

 

During fiscal year ended May 31, 2001, the Company;

(a).  raised a total of $497,750 through an equity private placement to 16 accredited investors, including our largest shareholder.  In exchange, the Company issued a total of 14,000,000 shares of common stock and stock warrants to acquire 6,962,500 shares of common stock. The exercise price of the warrants vary at $0.05, $0.15 and $0.25 per share, and expiration dates vary at 6, 12 and 18 months from issuance,  

(b). issued $395,000 in Convertible Promissory Notes (the terms of which are described below),

(c). issued 1,975,000 shares of common stock to a broker dealer in connection with the sale of the Convertible Promissory Notes.

(d). issued 9,670,000 shares of common stock for services, valued at $1,248,275, and  

 

(e). issued 1,000,000 shares of its common stock as compensation to four of its directors for the 2010 calendar period.

The terms of the $395,000 in Convertible Promissory Notes are: at the option of the holder, the Notes may be converted, at any time after September 1, 2010 and on or before the maturity date, into shares of Common Stock at the conversion price of $0.16 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. The Notes bear simple, annual interest at 16%. The maturity date of the Notes is the earlier of (A) 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 (a “Qualified Financing”), (B) a change of control of the Company, or (C) May 17, 2012. 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 a conversion price of $0.16 per share.

From March 2010 until May 31, 2010, the Company sold $1,152,500 in Convertible Promissory Notes. The terms of the Notes were the same as the terms of the Notes issued in June 2010.

In January 2010, the Company sold $50,000 in Convertible Promissory Notes. The terms of the Notes are: at the option of the holder, the Notes may be converted, at any time after March 31, 2010 and on or before the maturity date, into shares of Common Stock at the conversion price of $0.20 per share 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. The Notes bear simple, annual interest at 16%. The maturity date of the Notes is the earlier of (A) 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 (a “Qualified Financing”), (B) a change of control of the Company, or (C) December 31, 2011. 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 a conversion price of $0.20 per share.

In October 2009 the Company sold $100,000 in Convertible Promissory Notes. The terms of the Notes are: at the option of the holder, the Notes may be converted, at any time after March 31, 2010 and on or before the maturity date, into shares of Common Stock at the conversion price of $0.25 per share 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. The Notes bear simple, annual interest at 16%. The maturity date of the Notes is the earlier of (A) 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 (a “Qualified Financing”), (B) a change of control of the Company, or (C) December 31, 2010. 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 a conversion price of $0.25 per share.

In June through August 2009 the Company sold $280,000 in Convertible Promissory Notes. The terms of the Notes are: at the option of the holder, the Notes may be converted, at any time after August 31, 2009 and on or before the maturity date, into shares of Common Stock at the conversion price of $0.30 per share 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. The Notes bear simple, annual interest at 16%. The maturity date of the Notes is the earlier of (A) 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 (a “Qualified Financing”), (B) a change of control of the Company, or (C) December 31, 2010. 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 a conversion price of $0.30 per share. During this same period, the Company sold $50,000 in convertible Promissory Notes with a conversion price of $0.21 per share with same terms as stated in this Note.

During the fiscal year ended May 31, 2009, the Company received $185,000 from the exercise of warrants to purchase 740,000 shares of common stock.

During the fiscal year ended May 31, 2009, the Company sold 800,000 units to accredited investors in private sales for gross proceeds of $400,000. Each unit consists of one share of common stock and one half of a warrant (or an aggregate of 800,000 shares of common stock and warrants to purchase 400,000 shares of common stock). Each whole warrant entitles the holder to purchase one share of common stock at an exercise price of $1.00 per share.

We also issued 1,800,000 shares of common stock for no cash consideration to directors and employees of the Company as compensation for services during the fiscal year ended May 31, 2009. We recorded an expense of $996,150 for these services.

During the fiscal year ended May 31, 2009, the Company sold $730,000 in Convertible Promissory Notes (the “ Notes ”) to various accredited investors pursuant to a private offering The terms of the Notes are: at the option of the holder, the Notes may be converted, at any time after June 30, 2009 and on or before the maturity date, into shares of Common Stock at a conversion price of $0.30 per share; 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. The Note bears simple, annual interest at 16%. The maturity date of the Note is the earlier of (A) 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 (a “Qualified Financing”), (B) a change of control of the Company, or (C) December 31, 2010. 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 a conversion price of $0.30 per share.

All of the securities issuances referred to above were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Act”).

Issuer Repurchases of Equity Securities

None.

ITEM 7.	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

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 acres of land (the “Solidaridad Property”). See “Item 2. Properties” for more information about our mining concessions. 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 2012, 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. Our management estimates that approximately $605,000 will be required over the next 12 months to maintain our current status. This amount does not include any exploitation or any additional exploration. We estimate these expenses to include approximately $250,000 for salaries, outsourced labor and consulting services, $80,000 for professional services, including work undertaken by the independent accountant and legal fees, $100,000 for rent, maintenance, office expenses and utilities, $100,000 for permits and expenses required to maintain our mining rights, $50,000 for taxes and insurance, and $25,000 for other miscellaneous expenses, including travel expenses.

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 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. 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 common stock, convertible promissory notes and short term loans. For the fiscal year ended May 31, 2011, we raised $497,750 from the sale of our common stock and warrants and a total of $395,000 in convertible promissory notes 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 in Note 3 to the Consolidated Financial Statements contained elsewhere in this Annual Report. 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.

We must obtain additional financing 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.

As of the fiscal year ended May 31, 2011, we had total assets of $441,185 consisting of cash in the amount of $186,551 and prepaid and other  assets totaling $245,817, and total current liabilities of $5,409,525.

 

As of the fiscal year ended May 31, 2010, we had total assets of $759,128 consisting of cash in the amount of $393,322 and other various assets totaling $365,806, and total current liabilities of $4,058,117.

Results of Operations – Year Ended May 31, 2011 Compared to Year Ended May 31, 2010.

Financial Information from Comparative Years

We did not earn any revenues and have had only losses since our inception, including during the years ending May 31, 2011 and 2010. We do not anticipate earning revenues until such time, if any, that we are able to begin exploitation of mineralized material from the land related to our mining rights. Although our exploration drilling program has produced limited results which we believe to positive, we can provide no assurance that we will discover mineralized material in sufficient quantities and of sufficient quality that we can obtain funding to monetize the mineralized material through additional funding for exploitation, joint venture, sale or otherwise.

We incurred operating expenses in the amount of $3,102,873 and $4,451,586 during the year ended May 31, 2011, and 2010, respectively. The decrease in expenses of $1,348,713 reflects reduced professional fees of $1,128,775, reduced salaries of $517,983 and reduced stock-based compensation of $147,494, offset by increased drilling expense of $166,300 and other net increases of $279,249. As of May 31, 2011, the Company had convertible notes outstanding including accrued and unpaid interest of $3,213,214. Of the total amount, $1,120,000 in principal was due December 31, 2010, $50,000 is due on December 31, 2011 and $1,547,500 is due on May 17, 2012. As of May 31, 2011, there was $662,071 in accrued interest, of which $377,493 is attributable to the past due notes. As of May 31, 2011, we also had $2,196,311 in current liabilities exclusive of convertible notes, including $1,614,216 due to our former attorneys per our settlement with them.

Interest expense for the year ended May 31, 2011 and 2010 was $672,515 and $202,126 respectively. Interest expense relates primarily to our convertible notes payable as described in Note 3 to the Consolidated Financial Statements contained elsewhere in this Annual Report.  The increase in interest expense for the current annual period compared with the prior annual period is the direct result of the increase in principal amount of notes outstanding which occurred during the current year end period.

We have not achieved profitability and since our business plan does not include activities that will produce revenues until we obtain sufficient funding to commence its proposed exploitation program, we do not anticipate achieving profitability in the foreseeable future. This means we are completely dependent upon obtaining additional financing to pursue our exploration activities.

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 and Estimates

The Company has determined from the significant accounting policies disclosed in Note 2 of the Company’s financial statements, that the following disclosures are 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 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.

Income Taxes

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is expected to be realized.  At May 31, 2010 and 2009, based upon its evaluation, the Company had a full valuation allowance against its deferred tax assets.

 

Share Based Compensation

 

The cost of equity instruments issued to non-employees in return for goods and services is measured at the fair value of the equity issued and expensed over the related service period. The cost of employee services received in exchange for equity instruments is based on the grant date fair value of the equity instruments issued.

 

 

ITEM 8.	FINANCIAL STATEMENTS

 

The financial  statements  required by this Item are set forth immediately following Item 14 of Part III.

 

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

 

ITEM 9A(T).	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

The Company maintains disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures are designed to ensure that information required to be disclosed in an issuer’s reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Exchange Act.

Based on such evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures are effective.

Management’s Annual Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Securities Exchange Act of 1934 defines internal control over financial reporting in Rules 13a-15(f) and 15d-15(f) as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

	·	Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and any disposition of our assets;
	·	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
	·	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of the end of fiscal year May 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Our management has concluded that as of May 31, 2011, our internal control over financial reporting was effective based on these criteria.

However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and may not be detected.

 

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to “Dodd-Frank Wall Street Reform and Consumer Protection Act” (Wall Street Reform Act) recently approved which permanently exempts small public companies with less than $75 million in market capitalization (non-accelerated filers) from the requirement to obtain an external audit on the effectiveness of internal financial reporting controls provided in Section 404(b) of the Sarbanes-Oxley Act of 2002 (SOX). Section 404(b) requires a registrant to provide an attestation report on management’s assessment of internal controls over financial reporting by the registrant’s external auditor. Disclosure of management attestations on internal control over financial reporting under existing Section 404(a) is included as required in this report

Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

ITEM 9B. OTHER INFORMATION

None

 

PART III

 

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Identification of Directors and Executive Officers

 

MANAGEMENT

The directors and executive officers of the Company, their ages, and the positions they hold are set forth below.  The directors of the Company hold office until the next annual meeting of stockholders of the Company and until their successors in office are elected and qualified.  All officers serve at the discretion of the Board of Directors.

Name	Age	Title
Jack Wagenti	74	Chairman and Chief Financial Officer
David W. Burney	59	President and Director
Sheldon Baer	71	Chief Operating Officer and Director
Gennaro (Jerry) Pane	48	Director
John Gildea	39	Director
Daniel H. Luciano	59	Director

Jack Wagenti, Mr. Wagenti was elected to Board on August 9, 2010 and appointed as its Chairman on August 13, 2010.  Mr. Wagenti was previously elected Chairman of the Board and Chief Executive Officer in December 2007 and subsequently resigned in October 2008. Mr. Wagenti had been Chief Financial Officer/Secretary/Treasurer from May of 2002 until  the December 2007 appointment.  Mr. Wagenti has been Director of International Power Group,

Inc. since October of 2004 and resigned September 2008. From 1996 to the present, Mr. Wagenti has served in varying capacities of American International Ventures, Inc., a company trading on the Over the Counter Bulletin Board and Pink Sheet market. Mr. Wagenti resigned as a Director in May of 2009 as a Director of American International Ventures, Inc.

 

David W. Burney. Mr. Burney was appointed President of the Company in December 2007 and Director of the Company on October 1, 2009.  Mr. Burney was an underground mine geologist for Amax Lead Company of Missouri, Buick Mine, and was later assigned to the mine’s exploration group.  During the 1990’s, as adjunct faculty with Cochise College, Sierra Vista, AZ, Mr. Burney taught several geology courses while continuing his quest for mineral resources. Additionally,  Mr. Burney has explored for copper resources in the Southwest United States.  Mr. Burney holds a Master’s Degree in Geology, Ore Deposits Exploration from the New Mexico Institute of Mining and Technology.  In addition, he is a “Qualified Person” in Geology as determined by  Mining and Metallurgical Society of America.

 

Sheldon Baer.  Mr. Baer has been a director since December 6, 2007 and was appointed as the Acting Chief Executive Officer of the Company on July 30, 2010 until August 9, 2010 when he was appointed our Chief Operating Officer.  He is also currently the President of Golden Hands Construction Inc., a company which he personally founded in 1977.  Golden Hands specializes in construction of medical, commercial and industrial facilities, including mining facilities.  It has been featured in prestigious publications such as the Physician Magazine of the Los Angeles Medical Association and Contract Magazine. Mr. Baer also is a director of International Power Group, Inc., a reporting company under the federal securities laws.

 

Gennaro (Jerry) Pane.  Mr. Pane has been a Director of the Company since his appointment in 2007.  Since 2002 he has been a partner in Madison Trading, LLC, and since 2006 a partner in LeTigre Clothing line.  In addition, he has been an owner of several small businesses in the hospitality industry.

 

John Gildea., Mr. Gildea was appointed to the Company’s Board of Directors on January 6, 2011. From 1998 to 2007, Mr. Gildea worked in various capacities with Allied Irish Bank plc. In 2007, Mr. Gildea is the founder and Director of SGG Enterprises, Dublin, Ireland, which provides venture capital and management restructuring services ,to public and private companies. Mr. Gildea also is a director of International Power Group, Inc., a reporting company under the federal securities laws.

 

Daniel H. Luciano. Mr. Luciano was appointed to the Company’s Board of Directors on September 21, 2010.  Mr. Luciano has been an attorney since 1977 and is a member of the New Jersey Bar and Texas Bar. Mr. Luciano specializes in corporate and securities law providing services to small and mid-sized public and private companies.  Mr. Luciano also is a director of American International Ventures, Inc. , a reporting company under federal securities laws.  

 

Conflicts of Interest; Lack of Employment Contracts

All of the Company’s officers are not full time employees and are involved in other outside business activities, including, at least one other publicly held company. Presently, the Company does not have a formal conflicts of interest policy governing its officers and directors. In addition, the Company does not have written employment agreements with any of its officers. Its officers intend to devote sufficient business time and attention to the affairs of the Company to develop the Company’s business in a prudent and business-like manner. However, the officers may engage in other businesses related and unrelated to the business of the Company. As a result, the officers of the Company may have a conflict of interest in allocating their respective time, services, and future resources, and in exercising independent business judgment with respect to their other businesses and that of the Company.

None of our employees have employment contracts. Accordingly, they can terminate their employment at anytime. If any or all of our officers were terminated, their employment replacements may be difficult to find, and it could have a material adverse effect on our business plans.

 

Involvement in Certain Legal Proceedings

To the knowledge of the Company, none of its executive officers or directors has been personally involved in any bankruptcy or insolvency proceedings within the last five years. Similarly, to the knowledge of the Company, none of the directors or officers, within the last five years, have been convicted in any criminal proceedings or are the subject of any criminal proceeding which is presently pending (excluding traffic violations and other minor offenses), nor have such persons been the subject of any order, judgment, or decree of any court of competent jurisdiction, permanently or temporarily enjoining them from acting as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or from engaging in or continuing in any conduct or practice in connection with any such activity or in connection with the purchase or sale of any security, nor were any of such persons the subject of a federal or state authority barring or suspending, for more than 60 days, the right of such person to be engaged in any such activity, which order has not been reversed or suspended.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our directors, officers, and every person who is directly or indirectly the beneficial owner of more than 10 percent of any class of the Company’s equity securities (the “Beneficial Owners”) to file with the Securities and Exchange Commission (the “SEC”) initial statements of beneficial ownership on Form 3, statements of changes in beneficial ownership on Form 4, and/or annual statements of changes in beneficial ownership on Form 5. Our directors, officers and Beneficial Owners are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

Based solely on the Company’s review of such Section 16(a) forms received by it, the Company believes that, with respect to the fiscal year ended May 31, 2011, all Section 16(a) filing requirements applicable to directors, officers and Beneficial Owners were complied except as follows:

Name		Officer, Director of Beneficial Owner		Number of Late Reports		Number of Transactions that were not reported on a timely basis		Any Known Failure to File a Required Form
Jack Wagenti		Officer/Director		0		None		No
Gennaro Pane		Director		1 - Form 4		One		No
Sheldon Baer		Director		1 Form 4		One		No
David Burney		Officer/Director		1 Form 4		One		No
John Gildea		Director		1 Form 3		Two		Yes
				1 Form 4
Daniel H. Luciano		Director		1-Form 3		Two		No
				1 Form 4		Three		No
Jesus Oliveras		Former Officer and Director		1 Form 4		None		Yes
								1 Form 4

The above current officers and directors have indicated that they intend to file timely in the future.

 

Code of Ethics

The Company has adopted a Code of Ethics which is filed as an exhibit to its Form 10-K for the Annual Period ended May 31, 2010. The Code of Ethics is  designed to deter wrong-doing and promote honest and ethical conduct, full, fair, accurate, timely, and understandable disclosure, and compliance with applicable laws.

Audit Committee and Financial Expert

 

Our Board of Directors currently serves as our audit committee.  Our board members are not “independent” in accordance with rule 4200(a)(14) of the Nasdaq Marketplace Rules. Our board of directors does not have an “audit committee financial expert,” within the meaning of that phrase under applicable regulations of the Securities and Exchange Commission because it has no audit committee and is not required to have an audit committee because its securities are not listed on any exchange. The board of directors believes that each member is financially literate and experienced in business matters and is capable of (1) understanding generally accepted accounting principles (“GAAP”) and financial statements, (2) assessing the general application of GAAP principles in connection with our accounting for estimates, accruals and reserves, (3) analyzing and evaluating our financial statements, (4) understanding our internal controls and procedures for financial reporting, and (5) understanding audit committee functions, all of which are attributes of an audit committee financial expert. However, the board of directors believes that no audit committee member has obtained these attributes through the experience specified in the SEC's definition of “audit committee financial expert.” Further, as is the case with many small companies, it would be difficult for us to attract and retain board members who qualify as “audit committee financial experts,” and competition for such individuals is significant. The board of directors believes that its current members are able to fulfill its role under SEC regulations despite not having a designated “audit committee financial expert.”

 

ITEM 11.	EXECUTIVE COMPENSATION

Summary Compensation

Set forth below in the Summary Compensation Table are the particulars of compensation paid to the following persons:

 

	·	our principal executive officer;
	·   ·	our principal financial officer   our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers at the end of the fiscal year ended May 31, 2010; and

who we will collectively refer to as the “Named Executive Officers” for the fiscal year ended May 31, 2011.

The following Summary Compensation Table summarizes the total compensation awarded to, earned by, or paid to our Named Executive Officers for all services rendered in all capacities to us for during the fiscal years ended May 31, 2010 and 2009:

SUMMARY COMPENSATION TABLE

						Non-Equity
						Incentive	Non-Qualified
Name and						Plan		Deferred	All Other
principal	Fiscal					Compensation	Compensation		Compensation
position	Year Ended	Salary ($)	Bonus ($)	(1) Stock Awards ($)	Option Awards ($)	($)          -	Earnings ($)		( $)	Total ($)
Michael
Jack
Kugler,
Former CEO (2)	2011	101,600	0	0	0	0	0		0	101,600
	2010	10,400	0	0	600,000	0	0		0	610,400
Jack
Wagenti
Chairman and CFO	2011	0	0			0	0			0
	2010	0	0			0				0
Dave
Burney,
President      (3)	2011	37,769	0	0	0	0	0		0	37,769
	2010	125,000	0	38,812	0	0	0		0	163,812
Jesus
Oliveras,
Former CFO	2011	33,846	0	0	0	0	0		0	33,846
	2010	110,000	0	59,645	0	0	0		0	169,645

 

(1) Includes the following:

 

A portion of the 1,500,000 shares that were awarded in fiscal year 2010 for services to be rendered in calendar 2010 (the “2010 Shares”) and issued in July 2010 for Mr. Oliveras which are being expensed throughout the calendar year.  This represents the portion that has been accrued as of May 31, 2010. The 2010 Shares are subject to a restriction agreement requiring the shares to vest as of December 31, 2010. Although the shares have been issued, they are subject to forfeiture if the grantee resigns or is removed from his position prior to the December 31, 2010 and may not be disposed of or transferred until such date. The 2010 Shares issued to Mr. Burney were for his services as a Director.  The portion of the 2010 Shares not accrued as of May 31, 2010 are included in the Outstanding Equity Awards at Fiscal Year End table below.  The 2010 Shares issued to Mr. Kugler were subsequently forfeited  upon his resignation in August 2010 and are therefore not included in either table.

 

(2) Mr. Kugler was replaced as our Chief Executive Officer on July 30, 2010 and also resigned as Chairman of the Board of the Company on  August 2, 2010.

(3) Mr. Burney was appointed President of the Company in December 2007 and a director in October 1, 2009.

 

As of the date of this Report, the Company has no written or oral agreements with any of its officers regarding compensation or any other form of remuneration, and has no compensation or remuneration of any kind due or accrued and unpaid to any officer. Any compensation paid to an officer is a result of an agreement between the parties.

Director Compensation

Directors receive no monetary compensation for their work for the Company during the year ended May 31, 2011. The following Director Compensation Table lists all compensation (cash, equity or other) received by each person in their respective capacity as a director during the fiscal year ended May 31, 2011:

 

		Fees										Non-Equity
		Earned										Incentive		Non-Qualified
		or Paid				Stock						Plan		Deferred
		in Cash				Awards				Option		Compensation		Compensation		All Other
Name		$        -				($)(3)				Awards ($)(4)		$                     -		Earnings ($)		Compensation ($)		Total ($)
Jack Wagenti		-				-				$72,500		-		-		-		$72,500
Dave Burney		-				$29,167				$72,500		-		-		-		$101,667
Gennaro Pane		-				$29,167				$72,500		-		-		-
Sheldon Baer		-				$29,167				$72,500		-		-		-		$101,667
Daniel H. Luciano		-				-				$72,500		-		-		-		$72,500
John Gildea		-				-				$72,500		-		-		-		$72,500
Peter Christos(1)		-				-				$72,500		-		-		-		$72,500
Jesus Oliveras(2)		-				$29,167				$72,500		-		-		-		$101,667

(1). Mr. Christos resigned as a director on June 28, 2011 and his options expire 90 days thereafter.

(2). Mr. Oliveras resigned as a director on April 29, 2011 and his options expired unexercised.

(3). During the 2011 fiscal year period, four directors received a stock award of 250,000 shares of common stock for the 2010 calendar period. The total value of the stock awards was $200,000.  That value was spread over the period of service.  Thus, $83,333 was charged to the fiscal 2010 year end and $116,666 was charged to the 2011 fiscal year end.

(4). In August 2010, the Company granted to (i) its new Chairman stock option to acquire 1,000,000 shares of common stock at a $0.11 per share exercise price, and (ii) two existing officers and directors each a stock option to acquire 1,000,000 shares of common stock. In addition, during  the year ended May 31, 2011, the Company appointed three new directors to its Board of Directors, and awarded each director with a stock option to acquire 1,000,000 shares of common stock. The per share exercise price for each director set of options was $0.065, $0.69, and $0.105. In March 2011, the Company and each director agreed to cancel 8,000,000 in existing options and the Company granted new options to each of the existing directors. The new options have an exercise price of $0.065 per share.   All options granted during the fiscal year ended May 31, 2011 to existing and new directors were priced at a penny per share above the closing price of our common stock on the date of grant (which in the case of a new

director, is the date of the appointment).  One officer and director resigned in April 2011, and his option for 1,000,000 shares of common stock expired 90 days thereafter. In sum, as of May 31, 2011, a total of 8,000,000 in director options were outstanding, the value of which is $580,000.

 

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners and Management. As of August 31, 2011, there were a total of 82,717,482 shares of our common stock, our only class of voting securities currently outstanding. The following table describes the beneficial ownership of our voting securities by: (i) each of our officers and directors; (ii) all of our officers and directors as a group; and (iii) each shareholder known to us to own beneficially more than 5% of our common stock. Unless otherwise stated, the address of each individual is our address, 15122 Tealrise Highway, Lithis, FL, 33547. All ownership is direct, unless otherwise stated.

In calculating the percentage ownership for each shareholder we assumed the exercise and conversion of all outstanding options and convertible promissory notes owned by such shareholders.

 

Name and Address of Beneficial Owner	Title of Class	Amount and Nature of Beneficial Ownership		Percent of Class
5% shareholders
Dianne Spano(2)	Common	10,649,119		12.42
196 Betsy Ross Drive Freehold, New Jersey
Officer and Directors
Jack Wagenti (3)	Common	5,928,777		7.08
Dave Burney (4)	Common	1,950,000		2.33
Gennaro Pane (5)	Common	2,450,000		2.93
Sheldon Baer (6)	Common	2,550,000		2.50
Daniel H. Luciano (7)	Common	1,344,000		1.61
John Gildea (8)	Common	1,250,000		1.49
All officers and directors (6 persons)		14,844,172		16.71

 

(1)  “Beneficial ownership" means having or sharing, directly or indirectly (i) voting power, which includes the power to vote or to direct the voting, or (ii) investment power, which includes the power to dispose or to direct the disposition, of shares of the common stock of an issuer. The definition of beneficial ownership includes shares underlying options or warrants to purchase common stock, or other securities convertible into common stock, that currently are exercisable or convertible or that will become exercisable or convertible within 60 days. Unless otherwise indicated, the beneficial owner has sole voting and investment power.

 

(2) Represents stock warrants to acquire 3,000,000 shares of common stock, of which 2,500,000 are exercisable at $0.15 and 500,000 are exercisable at $0.25 per share, 7,649,119 shares of common stock held by the reporting person, and 215,050 held indirectly by her son.

(3) Represents stock options to acquire 1,000,000 shares held by the reporting person, 2,733,389 shares held by the reporting person, and 2,195,388 shares owned indirectly by his wife.

(4) Represents stock options to acquire 1,000,000 shares held by the reporting person and 950,000 shares held by the reporting person.

(5) Represents stock options to acquire 1,000,000 shares held by the reporting person and 1,450,000 shares held by the reporting person.

(6) Represents stock options to acquire 1,000,000 shares held by the reporting person, 1,050,000 shares of common stock owned by the reporting person, and 500,000 shares owned jointly with his spouse.

(7) Represents stock options to acquire 1,000,000 shares held by the reporting person and 344,000 shares of common stock owned by the reporting person.

(8) Represents stock options to acquire 1,000,000 shares held by the reporting person and 250,000 shares of common stock owned by the reporting person.

 

Securities Authorized for Issuance Under Equity Compensation Plans

2007 Stock Option Plan

During fiscal year ended May 31, 2008, our Board of Directors adopted a modification to the 2007 Option Plan, conditionally granting options to purchase a total of 9,000,000 shares of our common stock pursuant to the Company’s 2007 Stock Option Plan, including options granted to certain board members. However, the grants and the plan itself were conditioned upon stockholder approval by December 31, 2008. Shareholder approval for this option plan and thus the grants was obtained in August 2008. As of May 31, 2010, grants of 3,000,000 options were terminated under the terms of the Plan. In August 2009, the Board of Directors approved a grant for 3,000,000 options to purchase shares of our common stock pursuant to the Company’s 2007 Stock Option Plan. During the year ended May 31, 2011, the Company appointed three new directors to its Board of Directors, and awarded each director with a stock option to acquire 1,000,000 shares of common stock. The per share exercise price for each three director set of options was $0.065, $0.069, and $0.105. In addition, in August 2010, the Company granted to (i) its new Chairman stock option to acquire 1,000,000 shares of common stock at a $0.11 per share exercise price, and (ii) two existing officers and directors each a stock option to acquire 1,000,000 shares of common stock. In March 2011, the Company and each director agreed to cancel 8,000,000 in existing options and issue new options to each of the existing directors. The new options have an exercise price of $0.065 per share. All options granted during the fiscal year ended May 31, 2011 to existing and new directors were priced at a penny per share above the closing price of our common stock on the date of grant (which in the case of a new director, is the date of the appointment).  

As of May 31, 2011, 11,000,000 options remain outstanding, of which 8,000,000 are held by former and existing directors and 3,000,000 held by consultants to the Company. One officer and director resigned in April 2011, and his option for 1,000,000 shares expired 90 days thereafter.

For information related to all equity compensation plans approved and not approved by shareholders, see “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer of Purchases of Equity Securities.”

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   UPDATE

Certain Relationships and Related Transactions

In April 2001, we completed a private placement transaction with our largest shareholder pursuant to which we received $200,000 and issued 5,000,000 shares of commons tock and 2,500,000 stock purchase warrants. The warrants are exercisable at $0.15 per share and expire 18 months from issuance.

In August 2010, the Company granted to (i) its new Chairman stock option to acquire 1,000,000 shares of common stock at a $0.11 per share exercise price, and (ii) two existing officers and directors each a stock option to acquire 1,000,000 shares of common stock. In addition, during  the year ended May 31, 2011, the Company appointed three new directors to its Board of Directors, and awarded each director with a stock option to acquire 1,000,000 shares of common stock. The per share exercise price for each director set of options was $0.065, $0.69, and $0.105. In March 2011, the Company and each director agreed to cancel 8,000,000 in existing options and the Company granted new options to each of the existing directors. The new options have an exercise price of $0.065 per share.   All options granted during the fiscal year ended May 31, 2011 to existing and new directors were priced at a penny per share above the closing price of our common stock on the date of grant (which in the case of a new director, is the date of the appointment).  One officer and director resigned in April 2011, and his option for 1,000,000 shares expired 90 days thereafter.

During the year ended May 31, 2010, the Company granted the following shares to officers and directors for services performed which were issued in July 2010.

 

Name		Title / Position		Number of Shares Issued			Value of Stock at Measurement Date
Baer, Sheldon		Director			250,000		$				50,000
Burney, David		President/Director			250,000		$				50,000
Kugler, Michael Jack(1)		CEO/Chairman of Board			250,000		$				50,000
Oliveras, Jesus		CFO			250,000		$				50,000
Pane, Gennaro		Director			250,000		$				50,000
Russell, Brian(1)		Director			250,000		$				50,000
					1,500,000		$				300,000

(1)

Mr. Kugler and Mr. Russell resigned as directors on August 2, 2010 and therefore forfeited their rights to these shares.

(2)

The portion of the compensation earned by Mr. Burney and Mr. Oliveras during the five month period from January to May 2010 was earned in their capacity as officers of the Company and has been included in the disclosure of Executive compensation for the end of the fiscal year 2010 set forth in the Summary Compensation Table above.  The portion of the compensation earned by Mr. Pane and Mr. Baer during the five month period from January to May 2010 has been included in the disclosure of the Directors compensation for the end of the fiscal year 2010 set forth in the Director Compensation Table above.   Since the 250,000 shares to be issued to each of Mr. Kugler and Mr. Russell were forfeited, the disclosure in the Directors Compensation Table above does not include such shares.

 

Director independence

Our common stock is quoted on the OTC BB interdealer quotation system, which does not have director independence requirements. Under NASDAQ rule 4200(a)(15), a director is not considered to be independent if he or she is also an executive officer or employee of the corporation. We have two directors (Gennaro Pane and John Gildea) who may be considered “independent” under that definition.

Employment Contracts and Termination of Employment and Change in Control Arrangements

We have not entered into an employment agreement or consulting agreement with our board of directors and executive officers.

Pension, Retirement or Similar Benefit Plans

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof under the Company’s 2007 Stock Option Plan.

We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000 per executive officer.

 

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth fees billed to us by the principal accountants to the Company for professional services rendered for the fiscal years ended May 31, 2011 and 2010:

 

	Fee Category	Fiscal Year 2011 Fees						Fiscal Year 2010 Fees
	A Audit Fees	$	(estimated) 35,000					$	107,500
	A Audit Related Fees		0						0
	T Tax Fees		0						375
	A All Other Fees		0						0
	T Total Fees	$	(estimated) 35,000					$	107,875

Audit Fees

Consists of fees billed for professional services rendered for the audit of our financial statements and review of interim consolidated financial statements included in quarterly reports and services that are normally provided by the principal accountants in connection with statutory and regulatory filings or engagements.

Audit Related Fees

Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.”

 

Tax Fees

Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include preparation of federal and state income tax returns.

All Other Fees

Consists of fees for product and services other than the services reported above.

Pre-Approval Policies and Procedures

Prior to engaging its accountants to perform a particular service, the Company’s Board of Directors obtains an estimate for the service to be performed. All of the services described above were approved by the Board of Directors in accordance with its procedures.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2011

 

 

ITEM 8.            FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of
U.S. Precious Metals, Inc.

We have audited the accompanying consolidated balance sheet of U. S. Precious Metals, Inc. and subsidiary (an exploration stage company) as of May 31, 2011 and the related consolidated statements of operations, changes in stockholders’ equity (deficiency) and cash flows for the year then ended and for the period from January 21, 1998 (date of inception of exploration stage) to May 31, 2011. These financial statements are the responsibility of the Company management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U.S. Precious Metals, Inc. and subsidiary at May 31, 2011, and the results of their operations and their cash flows for the year then ended, and for the period from January 21, 1998 (date of inception of exploration stage) to May 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that U.S. Precious Metals, Inc. and subsidiary will continue as a going concern. As more fully described in Note 1, at May 31, 2010 the Company had no established source of revenues, a working capital deficit of $5,195,463 and had accumulated losses of since inception. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

/s/	Jeffrey & Company, Certified Public Accountants

Wane, New Jersey
September 16, 2011

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of
U.S. Precious Metals, Inc.

We have audited the accompanying consolidated balance sheet of U. S. Precious Metals, Inc. and subsidiary (an exploration stage company) as of May 31, 2010 and the related consolidated statements of operations, changes in stockholders’ equity (deficiency) and cash flows for the year then ended and for the period from January 21, 1998 (date of inception of exploration stage) to May 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U.S. Precious Metals, Inc. and subsidiary at May 31, 2010, and the results of their operations and their cash flows for the year then ended, and for the period from January 21, 1998 (date of inception of exploration stage) to May 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that U.S. Precious Metals, Inc. and subsidiary will continue as a going concern. As more fully described in Note 1, at May 31, 2010, the Company had no established source of revenues, a working capital deficit of $3,600,452 and had accumulated losses of $18,580,973 since inception. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

/s/	Mayer Hoffman McCann CPAs
	(The New York Practice of Mayer Hoffman McCann P.C.)

New York, New York
September 13, 2010

 

 

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

 

				May 31, 2011			May 31, 2010
ASSETS
Current Assets:
Cash			$    186,551			$    393,322
Prepaid and other current assets			27,511			64,343
Total current assets			214,062			457,665
Fixed Assets:
Vehicles			41,877			41,877
Machinery and equipment			92,515			92,515
Total fixed assets			134,392			134,392
Less: accumulated depreciation			67,928			(54,891)
Net fixed assets			66,464			79,501
Other Assets:
Investment in mining rights			155,331			216,588
Deposits			5,328			5,374
Total other assets			160,659			221,962
Total Assets			$    441,185			$    759,128
LIABILITES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses			$  2,188,085			$  2,282,014
Accrued compensation			8,226			426,914
Convertible notes payable			3,213,214			1,349,189
Total current liabilities			5,409,525			4,058,117
Long Term Liabilities:
Convertible notes payable			-			914,780
Stockholders' Deficiency:
Preferred stock: authorized 10,000,000 shares of  $.00001
par value; no shares issued and outstanding			-			-
Common stock: authorized 150,000,000 shares of
$.00001 par value; issued and outstanding, 78,100,646
and 53,319,696 shares, respectively			781			533
Additional paid in capital			16,694,927			14,366,671
Deficit accumulated during exploration stage			(21,664,050)			(18,580,973)
Total stockholders' deficiency			(4,968,342)			(4,213,769)
Total Liabilities and Stockholders' Deficiency			$     441,185			$     759,128
	The accompanying notes are an integral part of these financial statements.

 

 

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

 

 

								January 21, 1998
								(Date of Inception
		For the Years Ended May 31,						of Exploration Stage)
		2011			2010			to May 31, 2011
Revenues			$                        -			$                    -			$                         -
Expenses			3,102,873			4,451,586			21,464,103
Debt reduction through legal settlements			(692,315)			-			(692,315)
Operating Loss			(2,410,562)			(4,451,586)			(20,771,788)
Other Income (Expense):      Interest Income      Interest Expense			- (672,515)			- (202,126)			17,960 (910,222)
Net other expense			(672,515)			(202,126)			(892,262)
Loss accumulated during the exploration
stage			$       (3,083,077)			$     (4,653,712)			$           (21,664,050)
Net Loss per Share - Basic and Diluted			$                (0.05)			$        (0.09)
Weighted Average Number      of Shares Outstanding			64,827,824			51,832,637

 

 

 

 

 

 

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

 

 

 

 

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

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)

For the Period from Inception to May 31, 2011

 

															Deficit
												Additional			Accumulated
						Common Stock						Paid in			During
						Shares			Amount			Capital			Exploration Stage			Total
Balance, May 31, 2001						$	—		$	—		$	—		$	—		$	—
Shares issued to incorporator							1,961,184			19			(19)			—			—
Balance, May 31, 2002							1,961,184			19			(19)			—			—
Sales of common stock							5,000,000			50			124,950						125,000
Shares issued for services							13,100,000			131			133,869						134,000
Shares issued in exchange for
mining rights							1,500,000			15			14,985						15,000
Net loss for the period																(215,924	)		(215,924	)
Balance, May 31, 2003							21,561,184			215			273,785			(215,924	)		58,076
Sales of common stock							1,880,000			19			229,981						230,000
Shares issued for services							2,910,000			29			88,721						88,750
prior year for which no
consideration was received							(400,000	)		(4	)		4
Net loss for the period																(313,127	)		(313,127	)
Balance, May 31, 2004							25,951,184			259			592,491			(529,051	)		63,699

 

												Deficit
									Additional			Accumulated
			Common Stock						Paid in			During
			Shares			Amount			Capital			Exploration Stage			Total
Balance, May 31, 2004
(  (carried forward)			25,951,184		$	259		$	592,491	$	$	(529,051	)	$	63,699
Sales of common stock			860,000			9			177,491						177,500
Shares issued for services			100,000			1			24,999						25,000
Issuance of stock paid in
prior year			80,000			1			19,999						20,000
Retirement of stock due to															—
settlement agreement			(175,166	)		(2	)		2
Net loss for the period												(226,093	)		(226,093	)
Balance, May 31, 2005			26,816,018			268			814,982			(755,144	)	$	60,106
Sales of common stock			4,332,500			43			1,122,457						1,122,500
Shares issued for services			233,961			3			96,252						96,255
Exercise of warrants			10,000						2,500						2,500
Net loss for the period												(280,014	)		(280,014	)
Balance, May 31, 2006			31,392,479			314			2,036,191			(1,035,158	)		1,001,347

 

 

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

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
(Continued)

 

											Deficit
								Additional			Accumulated
		Common Stock						Paid in			During
		Shares			Amount			Capital			Exploration Stage			Total
Balance, May 31, 2006
(  (carried forward)			31,392,479		$	314		$	2,036,191		$	(1,035,158	)	$	1,001,347
Shares issued for services			905,355			9			232,618						232,627
Retirement shares issued in															—
prior year for which no
consideration was
received			(452,835	)		(5	)		5
Issuance of stock paid in															—
prior year			267,500			3			(3	)
Net loss for the period												(898,843	)		(898,843	)
Balance, May 31, 2007			32,112,499			321			2,268,811			(1,934,001	)		335,131
Sales of common stock			10,175,000			102			1,417,398						1,417,500
Shares issued for services			4,808,000			48			4,009,152						4,009,200
Exercise of warrants			320,000			3			79,997						80,000
Options granted
Net loss for the period												(5,028,449	)		(5,028,449	)
Balance, May 31, 2008			47,415,499			474			7,775,358			(6,962,450	)		813,382

 

 

 

 

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

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
(Continued)

 

 

 

							Deficit
				Additional			Accumulated
	Common Stock			Paid in			During
	Shares	Amount		Capital			Exploration Stage			Total
Balance, May 31, 2008	47,415,499	$	474	$	7,775,358		$		(6,962,450)	$	813,382
(carried forward)
Sales of common stock	800,000	8		399,992						400,000
Shares issued for services	1,838,000	19		1,014,281						1,014,300
Exercise of warrants	740,000	7		184,991						184,998
Share based compensation				2,770,000						2,770,000
Net loss for the period							(6,964,811)			(6,964,811)
Balance, May 31, 2009	50,793,499		508		12,144,622				(13,927,261)	$	(1,782,131)
Shares and warrants issued
for services	2,473,063	24		1,251,954						1,251,978
Notes converted into shares
of common stock	53,134	1		15,939						15,940
Share based compensation				636,656						636,656
Discount on convertible
notes payable				317,500						317,500
Net loss for the year							(4,653,712)			(4,653,712)
Balance, May 31, 2010	53,319,696		533			14,366,671		(18,580,973)				(4,213,769)

 

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

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
(Concluded)

 

 

 

							Deficit
				Additional			Accumulated
	Common Stock			Paid in			During
	Shares	Amount		Capital			Exploration Stage			Total
Balance, May 31, 2010	53,319,696	$	533	$		14,366,671	$		(18,580,973)	$		4,213,769
(carried forward)
Shares issued for services	9,670,000	97		725,679						725,776
Shares issued for cash	14,000,000	140		497,610						497,750
Notes converted into shares
of common stock	110,950	1		33,379						33,380
Partial cost of issuance of
convertible notes				81,598						81,598
Shares issued for
compensation	1,000,000	10		199,990						200,000
Options granted during the										580,000
year				580,000
Modification of director
options				210,000						210,000
Net loss for the year								(3,083,077)			(3,083,077)
Balance, May 31, 2011	78,100,646	$	781	$	16,694,927		$	(21,664,050)		$	(4,968,342)

 

 

 

U.S. PRECIOUS, INC.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

					January 21, 1998
					(Date of Inception
	For the Years Ended May 31,				of Exploration Stage)
	2011		2010		to May 31, 2011)
Operating Activities:
Net Loss	($3,083,077)		($4,653,712)		($21,664,050)
Adjustments required to reconcile net
loss to net cash consumed by
operating activities:
Charges not requiring the use of cash:
Depreciation	13,037		17,107		67,928
Shares and warrants issued for services	883,111		1,183,499		7,797,555
Share based compensation	790,000		636,656		4,196,656
Amortization of debt discount	192,670		7,734		200,404
Debt reductions through legal
settlements	(692,315)		-		(692,315)
Bad debt expense	-		-		109,259
Accrued interest on convertible notes	435,836		192,858		663,011
Changes in operating assets and
liabilities
Prepaid expenses and other current
assets	(63,072)		(19,297)		(109,400)
Deposits	-		540		(5,374)
Accounts payable and accrued
expenses	380,278		1,073,606		2,662,292
Accrued compensation	44,011		333,407		387,592
Net Cash Used in Operating
Activities	(1,099,521)		(1,227,602)		(6,386,442)
Investing Activities:
Investment in mining rights	-		(32,269)		(201,588)
Loan to affiliated company	-		-		(361,275)
Repayment of loan by the affiliated
company	-		-		253,000
Acquisition of equipment	-		(388)		(134,392)
Net Cash Used in Investing
Activities	-		(32,657)		(444,255)
Financing Activities:
Proceeds from sales of common stock	497,750		-		3,990,250
Proceeds from exercises of warrants	-		-		267,498
Proceeds from convertible notes	395,000		1,632,500		2,757,500
Loan from affiliated company	-		-		70,000
Repayment of loan from affiliated
company	-		-		(68,000)
Loans from officers	-		117,700		117,700
Repayment of loans from officers	-		(117,700)		(117,700)
Net Cash Provided by Financing
Activities	892,750		1,632,500		7,017,248
Net increase (decrease) in cash balance	(206,771)		372,241		186,551
Cash balance, beginning of period	393,322		21,081		-
Cash balance, end of period	$186,551		$393,322		$186,551

 

The accompanying notes are an integral part of these financial statements

 

 

 

 

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

1.	ORGANIZATION AND BUSINESS

Organization of Company

U.S. Precious Metals, Inc. (the “Company”) was incorporated in the State of Delaware on January 21, 1998 as a wholly owned subsidiary of American International Ventures, Inc. (“American International”). On May 9, 2002, the board of directors of American International declared a dividend, in the form of our common stock to be issued to its shareholders of record on that date. On the record date of such dividend, American International had 274 shareholders of record. The ratio of common stock of the Company received by each American International shareholder was one share of Company common stock for each 10 shares of American International common stock held. A total of 1,961,184 shares of common stock were issued to shareholders of American International on the record date. These shares represented all of the issued and outstanding capital stock of the Company on that date. American International did not retain any shares of our common stock.

In March 2002, the Company entered into an oral arrangement with the owners of a mining property located in Mexico known as the Solidaridad mining claims. At the time, little geological information was known to American International about the property other than information collected by local residents. Based upon available information, the board of directors of American International determined that they were more interested in identifying mineral properties in the United States that had proven or probable resources, and were not interested in properties outside the United State requiring significant exploration work. Consequently, the board of directors of American International determined to separate the two companies by declaring the stock dividend discussed above so that each company could focus exclusively on its respective business.

On March 5, 2003, the Company formed a subsidiary, U.S. Precious Metals de Mexico, S.A. de C.V., a Mexican corporation (the “Mexican Sub”).  Since the formation of the Mexican Sub, the Company has acquired the mineral rights to approximately 37,000 acres of property.  Virtually all of our activities take place in Mexico through the Mexican Sub.

The Company’s common stock began trading on the OTC Bulletin Board under the symbol “USPR” on January 15, 2006.

Business

The Company has acquired exploration or exploitation concessions to approximately 37,000 acres of land in Michoacán, Mexico. Below is a list of the concessions which the Company has acquired:

 

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

Name of Concession		Title Number			Hectares*			Date Acquired		Expiration Date
Solidaridad I		220315			174.5408			July 11, 2003		July 10, 2053
Solidaridad II		220503			2162.2311			August 14, 2003		August 13, 2053
Solidaridad II, Fraction A		220504			1.4544			August 14, 2003		August 13, 2053
Solidaridad II, Fraction B		220505			.0072			August 14, 2003		August 13, 2053
Solidaridad III		223444			294.0620			December 14, 2004		December 13, 2054
Solidaridad IV		220612			149.4244			September 4, 2003		September 3, 2053
Solidaridad V (also known as Le Ceiba)		223119			921.3201			October 19, 2004		October 18, 2054
La Sabila		227272			11,405.0000			June 2, 2006		June 1, 2056

 

*A Hectare is equivalent to 2.47 acres.

The above group of concessions are collectively referred to as the “Solidaridad Concessions” The Company’s concessions have a term of fifty years from the date first acquired and can be renewed for another fifty years. Concessions grant the holder the right to explore and exploit all minerals found in the ground. In order to maintain the concessions, the Company must pay surface taxes semi-annually in January and July and perform a minimum amounts of assessment work, on a calendar year basis. Assessment work reports are required to be filed annually in May for the preceding calendar year. The amount of surface taxes and annual assessments are set by regulation and may increase over the life of the concession and include periodic adjustments for inflation.

Mining concessions do not automatically grant the holder the right to enter or use the surface land of the property where such mining concessions are located. In order to access the surface land, the holder must obtain permission from the surface owner. The Company currently has secured access rights to the portions of the Solidaridad Property where its concessions Solidaridad I, Solidaridad III, and Solidaridad V are located by way of a written agreement entered into by and between its Mexican Subsidiary and the owners of the portions of the Solidaridad Property where these concessions are located. This agreement requires the Company to pay an annual rent to the landowner. The Company is in the process of securing, but has not yet secured, access rights to the other portions of the Solidaridad Property, which it plans to do in the future in connection with any decision to begin exploration and/or exploitation of those areas. If the Company is ultimately unable to receive access, or unable to receive access at a reasonable price, it may affect the ability of the Company to explore for, or exploit, mineralized material from those areas.

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

1.

ORGANIZATION AND BUSINESS (CONTINUED)

 

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 $5,195,463, losses accumulated since inception of $21,664,050, 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Exploration Stage Accounting

The Company is an exploration stage company, as defined in pronouncements of the Financial Accounting Standards Board (FASB) and Industry Guide #7 of the Securities and Exchange Commission.  Generally accepted accounting principles govern the recognition of revenue by an exploration stage enterprise and the accounting for costs and expenses.  From inception to May 31, 2011, the Company has been in the exploration stage and all its efforts have been devoted to acquiring mining rights, drilling, mapping, and assaying.  No revenue had been realized through May 31, 2011.  The Company has incurred cash and non-cash losses to May 31, 2011 of $21,664,050.

b.  Consolidated Statements

The consolidated financial statements include the accounts of the Company and the Mexican Sub.  All significant intercompany balances and transactions have been eliminated in consolidation.

c. Cash Equivalents

The Company considers all short term investments purchased with an original maturity of three months or less to be cash equivalents.

d. Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash, a small portion of which is located in Mexico.

e. Recognition of Revenue

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.  The Company has not yet entered into any contractual arrangement to deliver product or services.

f. Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash, accounts payable, and convertible notes payable, approximate their fair values at May 31, 2011. The carrying amount of convertible notes payable approximates their fair value due to their short term maturities.

g. Fixed Assets

Fixed assets are recorded at cost.  Depreciation is calculated on the straight line basis, based on the useful or productive lives of assets, ranging from three years for computer equipment to seven years for machinery and equipment.

h. 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.

i. 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 at a mine site before proven reserves have been established are expensed as mine development costs.  At the point

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

i.    Mine Development Costs (continued)

proven reserves have been established at a mine site, such costs will be capitalized and will be written off as depletion expense as the minerals are extracted.

As of May 31, 2011, none of the mine concessions met the requirements for qualification as having proven reserves.

j.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is expected to be realized. At May 31, 2011 and 2010, based upon its evaluation, the Company had a full valuation allowance against its deferred tax assets.

The Company files an income tax return in the U.S. federal jurisdiction and Florida. Tax returns since fiscal 2007 remain open for examination. The Company accounts for uncertainty in income taxes in accordance with ASC Topic 740, “Income Taxes”. The Company’s estimate of the potential outcome of any uncertain tax issues is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. The Company uses a more likely than not threshold for financial statement recognition and measurement of tax position taken or expected to be taken in a tax return. To the extent that our assessment of such tax position changes, the change in estimate is recorded in the period in which the determination is made. At May 31, 2011 and 2010, there were no unrecognized tax benefits. Interest and penalties related to uncertain tax positions will be recognized in income tax expense. As of May 31, 2011 and 2010, no interest and penalties related to uncertain tax positions had been accrued.

k.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimated.

l. Advertising Costs

The Company will expense advertising costs when advertisements occur.  There has been no spending thus far on advertising.

m. Net Income (Loss) Per Share

The Company computes net income (loss) per common share in accordance with pronouncements of the FASB and SEC Staff Accounting Bulletin No. 98 (“SAB98”).  Under these provisions, basic and diluted net income (loss) per common share are computed by dividing the net income (loss) available to common shareholders for each period by the weighted average number of shares of common stock outstanding during the period.  At May 31, 2011 and 2010 there were warrants and options outstanding to purchase Company common stock  The common share equivalents of these have not been included in the calculations of loss per share because such inclusions would have anti-dilutive effects as the Company incurred a loss from operations. At May 31, 2011 and 2010, they were 16,746,549 and 9,705,612 options and warrants to purchase common stock.

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

n. Segment Reporting

Management treats the operation of the Company as one segment.

o. Other Comprehensive Income (Loss)

The Company reports as other comprehensive income (loss) those revenues, gains and losses not included in the determination of net income.  During the years ended May 31, 2011 and 2010, the Company did not have any gains and losses resulting from activities or transactions that resulted in comprehensive income or loss.

p. Foreign Currency Translation

The assets of the Mexican Sub are in Mexico.  The Mexican Sub depends on the ability of the parent company to raise cash which is transferred to the subsidiary to meet its operating cash needs.  Therefore, the Company’s management has determined that the functional currency of the Mexican Sub is the US dollar.  Since that is the case, the Company remeasures its subsidiary financial statements in US dollars.  Any gains or losses are reflected on the Statements of Operations.

The accounts of the Mexican Sub 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.

r. Impairment

The Company performs a review for potential impairment of long-lived assets whenever an event or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

s.

Stock Based Compensation

The cost of equity instruments issued to non-employees in return for goods and services is measured by the fair value of the goods or services received or the measurement date fair value of the equity instruments issued, whichever is the more readily determinable.  The cost of employee services received in exchange for equity instruments is based on the grant date fair value of the equity instruments issued.

t.

New Accounting Pronouncements

In January 2010, FASB issued ASU 2010-06, “Improving Disclosures about Fair Measurements”, which provides amendments to subtopic 820-10 that require separate disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements and the presentation of separate information regarding purchases, sales, issuances and settlements for Level 3 fair value measurements.  Additionally, ASU 2010-06 provides amendments to subtopic 820-10 that clarify existing disclosures about the level of disaggregation and inputs and valuation techniques.  ASU 2010-06 is effective for financial statements issued for interim and annual periods ending after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for interim and annual periods ending after December 15, 2010.  The

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Company is currently evaluating the impact of the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  The Company adopted provisions of ASU 2009-06 that were affective after December 15, 2009 and the application of those provisions had no impact on the Company’s consolidated financial statements.

The Company does not believe the adoption of other recently issued pronouncements will have a significant effect on Company results of operations, financial position, or cash flows.

 

3.

CONVERTIBLE NOTES PAYABLE

  

 

During fiscal years 2009, 2010 and 2011, the Company issued convertible notes totaling $2,742,500.  These notes bear interest at 16%.  These notes are identified as “2009 Notes” and “2010 Notes”.  The details of these notes are described below.

 

2009 Notes:
Issued in year ended 5/31/09	$   730,000
Issued in year ended 5/31/10	480,000
2010 Notes:
Issued in year ended 5/31/10	1,152,500
Issued in year ended 5/31/11	395,000
Total issuances	2,757,500
Less, note converted during 2010 year	15,000
Less converted during 2011 year	25,000
Notes outstanding, 5/31/11	$2,717,500

 

2009 Notes

 

Each holder of the 2009 Notes has the Notes outstanding 5/31/11 option to convert the principal and outstanding interest into shares of the Company’s common stock at an applicable conversion price (ranging from $0.20 to $0.30 per share), subject to certain restrictions if the holder has been advised that (a) the Company is actively negotiating its next financing or (b) the Company has entered into a definitive agreement providing for a change of control.  The 2009 Notes will automatically convert into shares of the Company’s common stock at the applicable conversion price, if the Company completes any financing that generates proceeds of at least $10,000,000 to the Company, or upon the occurrence of a change in control of the Company.  The 2009 Notes mature on the earliest of (a) the date of an automatic conversion or (b) December 31, 2010, except for $50,000 of the notes for which this date is December 31, 2011. 

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

3. CONVERTIBLE NOTES PAYABLE (CONTINUED)

2010 Notes

The maturity date of the 2010 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.

 

The 2010 Notes bear simple interest at an annual rate of 16% and may be converted into shares of the Company’s common stock at the option of the holder or automatically, each under certain circumstances as described below:

 

Each holder of the 2010 Notes has the option to convert the principal and outstanding interest into shares of the Company’s common stock on or before the maturity date, at a conversion price of $0.16, as calculated under the terms of 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 stated conversion price.

 

The Company has calculated a beneficial conversion feature of the 2010 Notes as of the commitment date of each note equal to the difference between the conversion price and the fair value of the common stock on that date.  The portion of the proceeds allocated to the beneficial conversion feature of $358,380 has been discounted and recorded to additional paid-in-capital.  The Company is amortizing the discount using the effective interest rate method over the terms of the promissory notes.  The amortization of the discount was $7,734 in the 2010 year and $192,670 in the 2011 year.

 

Notes totaling $1,120,000 matured December 31, 2010 and were not paid at maturity. Interest was also due on the maturity of 2009 notes, $377,493 of interest is in default.

 

Interest totaling $662,071 has been accrued on the 2009 Notes and 2010 Notes.  Of that total, $226,235 was charged to expense during the 2010 year, and $435,836 was charged to expense during the 2011 year.  The unpaid balance at May 31, 2011, $653,710, is due at maturity of the notes and has been combined with the principal of the notes on the balance sheets. Of that total, $276,217 is due at the maturity of the 2010 notes and, as noted above, the balance is in default.

 

The Company has signed agreements, including two consulting service agreements, with HFP Capital Markets LLC (“HFP”) to sell up to $2,000,000 of these convertible notes whereby HFP earns commissions equal to ten percent (10%) of the gross proceeds of the notes and warrants equal to ten percent (10%) of the common stock underlying the principal amount of the notes issued.  During the year ended May 31, 2010, the Company recorded commission expense paid to HFP of approximately $115,000 and an expense of approximately $135,000 for the issuance of 705,612 warrants.  The warrants have an exercise price of $0.16 and are exercisable at anytime through May 17, 2015.  The Company calculated the fair value of the warrants issued using a Black-Scholes valuation model with the following assumptions:  risk-free interest rate of 2.02%-2.44%, expected life of the warrants of 5 years, expected volatility of 166%-169%, and expected dividend yield of 0%.

 

For the consulting service agreements discussed above, the Company granted 2,000,000 fully vested shares of common stock to HFP for the first $1,000,000 raised through convertible notes.  In addition, HFP will earn up to 5,000,000 shares of the common stock upon the second $1,000,000 raised, which is earned on a pro-rata basis for each dollar raised.  During the year ended May 31, 2010, the Company raised $152,500 of the second $1,000,000 through convertible notes and HFP received the right to 762,500 shares of the common stock, which shares were

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

3. CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

issued during the 2011 year.  During the year ended May 31, 2011, the Company recorded compensation expense of approximately $525,000 related to the above grants.

 

During the year ended May 31, 2011, the Company issued through HFP, an additional $395,000 in convertible notes.  As a result, HFP earned an additional 1,975,000 shares valued at $375,000, which was charged to expense.   

 

4.	PREFERRED AND COMMON STOCK

The Company is authorized to issue preferred and common stock. The Company has not assigned any specific rights to the preferred stock, nor has any preferred stock been issued. As of May 31, 2011, only common stock had been issued.

In March 2009, the Company’s Board of Directors adopted a stockholder rights plan (the “Rights Plan”) and declared a dividend distribution of one right (a “Right”) for each share of the Company’s common stock, par value $0.00001 per share to stockholders of record as of April 10, 2009.  Each Right, when exercisable, would entitle the registered holder to purchase from the Company one one-thousandth of a share of a newly designated Series A Preferred Stock at a purchase price of $10.00, subject to adjustment.  The Rights Plan expired on March 17, 2010 with none of the rights redeemed.

 

During the year ended May 31, 2011, the Company issued 9,670,000 shares of common stock for services, valued at $1,248,275.  This value included $525,000 which was recorded in the previous year.  In addition, the Company issued 1,000,000 shares of its common stock as compensation to four of its directors.  These shares were valued at $200,000.

 

During the year ended May 31, 2010, the Company issued 473,063 shares of common stock to consultants as compensation for services, valued at approximately $132,000.  In addition, the Company issued 2,000,000 shares of its common stock to officers and directors as compensation for their services for the calendar year 2009.  These shares were valued at a total of $460,000 of which $329,000 and $131,000 were recorded as an expense during the years ended May 31, 2010 and 2009, respectively.  During the year ended May 31, 2010, the Company also granted 2,762,500 shares of its common stock to a consultant in connection with the issuance of convertible notes.  These shares were valued at approximately $525,000 and were recorded as an expense during the fiscal year ended May 31, 2010; however, the shares were not issued until July 2010.

 

During the year ended May 31, 2011, the Company sold 14,000,000 units of its equity securities for gross proceeds of $497,750. Each unit consists of one share of common stock and one half of a warrant.  Each whole warrant entitles the holder to purchase one share of common stock at a specified exercise price.   An additional 228,437 warrants were issued as compensation in connection with the sale of convertible notes.  These warrants were valued at $40,718.  Warrants issued in the year ended May 31, 2011 have a variety of terms as detailed below.

 

 

 

 

 

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

4.	PREFERRED AND COMMON STOCK (CONTINUED)
			Number of Warrants	Exercise Price	Term
			687,500*	$.05	Six month
			1,150,000	.05	One year
			1,500,000*	.25	Six months
			1,037,500	.25	Six months
			2,625,000	.25	Six months
		Total warrants issued as part of stock units	7,000,000
		Warrants issued to broker	228,437	.16	Five years

*These warrants expired during the year ended May 31, 2011.

 

Changes in the outstanding warrants during the years ended May 31, 2011 and 2010 are detailed in the following schedule.

 

Balance, May 31, 2009		400,000
Warrants expired during the year		(400,000)
Warrants issued during the year		705,612
Balance,  May 31, 2010		705,612
Warrants issued as part of stock units		7,000,000
Warrants expired		(2,187,500)
Warrants issued to broker		228,437
Balance,  May 31, 2011		5,746,549

 

 

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

5.	STOCK OPTION PLAN

In August 2008, the shareholders of the Company 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.  During the year ended May 31, 2009, grants totaling 9,000,000 options were issued.    The value of these option grants, $2,770,000, was charged to expense during August 2008.

The following schedule presents the activity of Company options during the years ended May 31, 2011 and 2010:

 

			Weighted-Average			Weighted-Average
	# of Options			Exercise Price			Remaining Contractual Term
Options outstanding ,  June 1, 2009	6,000,000			$0.44			-
Options granted during the year	4,000,000			$0.32
Options cancelled	(1,000,000)			$0.90
Options outstanding,  May 31, 2010	9,000,000			$0.30			3.24
Options granted during the 2011 year	8,000,000			$0.09
Options cancelled	(6,000,000)			$0.32
Options cancelled and replaced	(10,000,000)			$0.13
Replacement options	10,000,000			$0.06
Options outstanding, May 31, 2011	11,000,000			$0.06			4.75

 

As of May 31, 2011, all outstanding options are exercisable and fully vested.

There were no options exercised during the years ended May 31, 2011 and 2010. The total fair value of options vested during the years ended May 31, 2011 and 2010 were $580,000 and $800,000, respectively. In addition, during the year ended May 31, 2010, the Company modified the exercise price of outstanding options to purchase 1,000,000 shares of common stock with all other terms remaining the same, and recorded additional compensation costs of $36,700, which represented the excess of the fair value of the modified options over the original value of the options exchanged. The Company also modified the exercise price of 10,000,000 options during the 2011 year and recorded additional cost of $210,000.  At May 31, 2011, there was no aggregate intrinsic value of options outstanding and currently exercisable and there is no unrecognized compensation cost related to these options. The Company expects to issue shares upon exercise of these options from its authorized shares of common stock.

The Company calculated the fair value of the options issued during the years ended May 31, 2011 and 2010 using a Black-Scholes valuation model with the following assumptions:  risk-free interest rate of 1.41%, expected life of the options of 5 years, expected volatility of 134%-162%, and expected dividend yield of 0%.

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2010

 

6.	RELATED PARTY TRANSACTIONS

During the year ended May 31, 2010, Michael Jack Kugler, the Company’s Chief Executive Officer and Chairman of the Board at that time, made several loans to the Company totaling $117,700 which bore simple interest of 6% annually. As of May 31, 2010, the Company has repaid all of the loans including interest.

 

During the 2011 year, nine directors were each awarded 1 million options to purchase Company common stock; one of these awards was subsequently cancelled.  These options were valued at $580,000.

 

During the 2010 year, the former chief executive officer was awarded 3 million options to purchase Company common stock, which were valued at $450,000.  The former chief executive officer and five Company directors were each awarded 250,000 shares of Company common stock.  The value of these awards was $50,000, each.

 

During the 2010 year, the former chief executive officer and five Company directors were each awarded 250,000 shares of Company common stock. The value of these awards was $50,000, each; 41% of this value was expensed in the 2010 year and 59% was expensed in the 2011 year. During the 2011 year the former chief executive officer and one director failed to meet the requirements for vesting and their shares were forfeited..

 

In October 2009, an additional grant of 250,000 shares of Company common stock was made to one director in lieu of cash compensation for services rendered to the Company during calendar year 2009.  The value of these shares, $57,500, was charged to expense during the year ended May 31, 2010.  The shares were issued in January 2010.

 

 

 

 

 

 

 

 

 

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

7.	INCOME TAXES

The Company has experienced losses since inception.  As of May 31, 2011, the Company has a federal net operating loss (NOL) of approximately $13,039,000, which will expire between fiscal 2023 and 2031.  In addition, the Mexican Sub has an NOL of approximately $1,687,000 which will expire between 2018 and 2021.

 

The Company’s deferred tax assets are as follow:

 

	May 31, 2011	May 31, 2010
NOL carry forwards	$4,919,303	$   4,570,586
Share based compensation	2,044,283	1,560,653
Interest expense and other	384,674	170,982
Total	7,348,260	6,302,221
Valuation allowance	(7,348,260)	(6,302,221)
	_________	_________
Net deferred tax asset	$                 -	$                 -

 

At May 31, 2011 and 2010, the Company has established a full valuation allowance for the deferred tax assets that are not more likely than not to be realized.  During fiscal 2011, the valuation allowance increased by approximately $1,046,000.

 

The Company’s reconciliation of the provision for income taxes from the statutory rate to the effective rate for the years ended May 31, 2011 and 2010 is as follows:

 

	2011	2010
Statutory U.S. federal tax rate	34.0%	34.0%
Mexican rate differential	(1.2)	(0.5)
Change in valuation allowance	(32.8)	(33.5)
Effective tax rate	0.0%	0.0%

 

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

8.	RENTALS UNDER OPERATING LEASES

 

The Company conducts its operations in Lithis, Florida, from an office in the home of one of its officers.  The office is occupied at no charge to the Company.  There is no rental agreement for the use of this office.  If rent were charged for this space, the amount would not be material.

The Company leases a warehouse (storage) facility in the city of Morelia, Michoacán, Mexico. This lease expires February 1, 2012.  The Company may decide prior to the termination of this contract whether it wishes to renew.  The landlord is not obligated to renew the lease.

 

9. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION

 

There was no cash paid for income taxes during either of the periods presented.  There was, also, no cash paid for interest during the year ended May 31, 2011; there was $1,534 paid for interest during the year ended May 31, 2010.

 

The following non-cash investing and financing activity occurred during the year ended May 31, 2011:

 

-  A $200,000 liability to directors was satisfied by the issuance of 1,000,000 shares of common stock.

-  A $25,000 convertible note, along with related accrued interest was converted into 110,950 common shares.

-  There was beneficial conversion of $40,880 on an issuance of the convertible notes.  It was recorded as a discount on the notes.  That discount will be amortized over the lives of the notes.

-  A $3,562 portion of the warrants issue as part of the stock units sold during the current year expired.

-  A total of 6,000,000 options, valued at $1,638,333, were cancelled during the year.

-  A total of 10,000,000 options were cancelled and replaced during the year.  The original value of the cancelled options was $1,137,416; the value of the replacement options was $500,000.    

 

During the year ended May 31, 2010, one convertible note holder exercised his option to convert his note plus accrued interest totaling approximately $15,900 into 53,134 shares of common stock.

 

 

 

 

 

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

9. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION (CONTINUED)

 

 

During the year ended May 31, 2010, the Company issued 73,063 shares of common stock for legal services valued at $14,850, and 400,000 shares of common stock to consultants as compensation for services, valued at $117,000.  Of the total, at May 31, 2010, $21,000 was recorded as a prepaid expense and $42,000 is being expensed over the life of the consulting contract.  In addition, the Company’s Board of Directors approved the issuance during the 2010 year of 2,000,000 shares of its common stock to officers and directors as compensation for services; these shares were valued at $460,000.  Of that total, approximately $329,000 was recorded as an expense during the year ended May 31, 2010.  In March 2010, the Company’s Board of Directors approved the issuance of 1,500,000 shares of its common stock to officers and directors as compensation for services rendered to the Company during the calendar year 2010.  These shares were issued in July 2010 and the Company recorded an expense for these shares of approximately $83,000 during the year ended May 31, 2010, which was included in accrued compensation at May 31, 2010.

 

During the Year ended May 31, 2010, options to purchase 3,000,000 shares of common stock were issued for services valued at $600,000.  In addition, the Company modified outstanding options to purchase 1,000,000 shares of common stock and recorded additional compensation costs of approximately $36,700.

 

During the year ended May 31, 2010, the Company recorded a discount on convertible notes of $317,500 and expense for amortization of discount of $7,734 (see Note 3).

 

During the year ended May 31, 2010, the Company granted 2,762,500 shares of the common stock to a consultant in connection with the issuance of convertible notes.  These shares were valued at approximately $525,000 and were recorded as an expense during the fiscal year ended May 31, 2010.  In addition, the Company issued 705,612 warrants to purchase shares of the Company’s common stock to the same consultant valued at approximately $135,000 which were recorded as an expense during the fiscal year ended May 31, 2010.

 

10. LAWSUIT SETTLEMENTS

 

On May 24, 2011, the Company settled a lawsuit it had brought against its former attorneys, alleging improper fee billing.  Under the terms of the settlement, the outstanding balance due to the attorneys was reduced by $412,949 and the Company agreed to pay the remaining balance of $1,614,216 in four equal installments commencing May 24, 2012.

 

On May 24, 2011, the Company also settled a lawsuit it had brought against its former chief executive officer, alleging improper self dealing.  Under the terms of the settlement, each party dismissing claims against the other.  The Company realized a benefit from the settlement through a liability reduction of $279,366.

 

The combined amount of these lawsuit settlements, $692,315, is included on the statement of operations.

 

 

 

 

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

 

11. EXPENSES

 

Included in expenses are the following:

 

	Year Ended May 31, 2011	Year Ended May 31, 2010 (unaudited)
Director fees	$922,567	$1,049,178
Geology fees	26,459	-
Professional fees	169,231	1,298,016
Salaries	252,312	770,295
Consulting fees	916,795	903,543
Drilling and excavation cost	313,146	146,846
Travel and entertainment	41,057	43,998
Office expense	13,206	43,583
Depreciation expense	13,037	17,107
Insurance expense	32,018	32,712
Other expenses	83,415	145,412
Taxes	50,452	-
Rent	46,067	60,361
Results of remeasurement	223,111	(59,465)
Total expenses	$3,102,873	$4,451,586

 

12. CONTINGENCIES

Employment Agreement

In May 2009, the Board of Director’s approved an annual base salary for the Company’s Chief Executive Officer and Chairman of the Board, of $250,000.  This salary was to accrue until it become payable.  It would be payable only if, when and to the extent the Company retained a minimum balance in its operating account of at least $1,000,000.  This employment agreement and the related liability were terminated as a result of a lawsuit settlement (see Note 10).

 

 

 

U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2011

 

 

12. CONTINGENCIES (CONTINUED)

Pledge Agreement

On or about November 2009, the Company purportedly entered into agreements with Duane Morris LLP whereby the Mexican Sub 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 brought suit to contest the validity of the agreements and the lien.  Under the terms of an agreement by which the lawsuit was settled (see Note 10) the terms of the original pledge agreement dealing with a security interest and lien remain in place.  This obligation was terminated as a result of a law suit (see Note 10).

Other Contingencies

The Company is involved in legal proceedings from time to time arising out of the ordinary conduct of its business.  The Company believes that the outcome of these proceedings will not have a material adverse effect on the Company’s financial condition, results of operation or cash flows.

During the fiscal year 2010, an action was commenced against the Company by an ex employee and director in Mexico, before the Mexican Labor and Arbitration Council.  The former employee claimed that he had a contract with our Mexican entity and worked for more than five years without compensation.  The Company, based on this advice of its Mexican legal counsel, believes the lawsuit is frivolous and without merit.

 

PART IV

 

ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

								Incorporation by Reference
Exhibit Number			Exhibit Description					Form			File Number				Exhibit				File Date			Filed herewith
3.1			Certificate of Incorporation for the Company					10-SB			04751284				3 (i)(a)				04/23/2004
3.2			Amended and Restated Certificate of Incorporation for the Company					10-SB			04751284				3(i)(b)				04/23/2004
3.3			Articles of U.S. Precious Metals de Mexico, S.A. de C.V.					10-SB			04751284				3(i)(c)				04/23/2004
3.4			Bylaws of the Company					10-SB			04751284				3(ii)(a)				04/23/2004
3.5			Amended and Restated Bylaws of the Company					8-K			081227543				3.1				12/03/2008
3.6			Certificate of Designations of Series A Preferred Stock					8-A			09692602				3.1				03/19/2009
4.2			Rights Agreement dated March 17, 2009, by and between the Company and Interwest Transfer Company, Inc., as rights agent					8-A			09692602				4.1				03/19/2009
10.1			2007 Stock Option Plan					PRE 14A			08848696				App. A				05/20/2008
10.2			Temporary Occupation and Right of Way Agreement by and between Victorio Gutierrez Cardenas, Irma Banuelos Serrato and the Mexican Subsidiary dated August 20, 2007					10-K			00050703				10.2				09/16/2009
10.3			Temporary Occupation and Right of Way Agreement by and between Victorio Gutierrez Cardenas, Irma Banuelos Serrato and the Mexican Subsidiary dated August 20, 2007 (English Translation)					10-K			00050703				10.3				09/16/2009
10.4			Amendment to the Temporary Occupation by and between Victorio Gutierrez Cardenas, Irma Banuelos Serrato and the Mexican Subsidiary dated June 23, 2009					10-K			00050703				10.4				09/16/2009
10.5			Amendment to the Temporary Occupation by and between Victorio Gutierrez Cardenas, Irma Banuelos Serrato and the Mexican Subsidiary dated June 23, 2009 (English Translation)					10-K			00050703				10.5				09/16/2009
10.6			Lease Agreement by and between Salomon Rosales Lira and the Mexican Subsidiary dated February 1, 2009 for the warehouse facility located in Morelia, Michoacán, Mexico					10-K			00050703				10.6				09/16/2009
10.7				Lease Agreement by and between Salomon Rosales Lira and the Mexican Subsidiary dated February 1, 2009 for the warehouse facility located in Morelia, Michoacán, Mexico (English Translation)			10-K					00050703				10.7				09/16/2009
10.8				Payment Agreement and General Release			10-Q					00050703				10.1				01/19/2010
10.9				Pledge Agreement			10-Q					00050703				10.2				01/19/2010
10.10				Pledge Agreement (English Translation)			10-Q					00050703				10.3				01/19/2010
14.				Code of Ethics
16.1				Letter dated March 9, 2009 from Robert Jeffrey, to the Securities Exchange Commission			8-K					09669183				16.1				03/10/2009
21.1				List of Subsidiaries of the Company																				X
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

 

 

 

 

 

 

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/ David W. Burney
			Name: David W. Burney
			Title: President
			Date: September 16, 2011
		By:		/s/ Jack Wagenti
				Name: Jack Wagenti
				Title: Chief Financial Officer
				Date: September 16, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature		Title		Date
/s/ David W. Burney  David W. Burney		President and Director (Principal Executive Officer)		September 16,  2011
/s/ Jack Wagenti Jack Wagenti		Chairman, Chief Financial Officer, Secretary, Treasurer and Director (Principal Financial Officer)		September 16, 2011
/s/ Sheldon Baer Sheldon Baer		Director		September 16, 2011
/s/ Gennaro Pane Gennaro Pane		Director		September 16, 2011
/s/ Daniel H. Luciano Daniel H. Luciano		Director		September 16, 2011
/s/ John Gildea John Gildea		Director		September 16, 2011

INDEX TO ATTACHED EXHIBITS

 

EXHIBIT
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.
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.
32		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).