---

|                                   
|-----------------------------------
|UNITED
 STATES                     
|SECURITIES
 AND EXCHANGE COMMISSION
|Washington,
 D.C. 20549            

FORM 10-Q

(Mark One)

|                                                                                           
|-------------------------------------------------------------------------------------------
|x QUARTERLY REPORT PURSUANT TO SECTION 13 OR
 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For
 the quarterly period ended November 30,
 2008                                         
|                                                                                           
|or                                                                                         
|                                                                                           
|o TRANSITION REPORT PURSUANT TO SECTION 13 OR
 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For
 the transition period from _________ to _________                                     

Commission File Number: 000-50703

|                                                       
|-------------------------------------------------------
|U.S.
 PRECIOUS METALS, INC.                            
|                                                       
|(Exact
 Name of Registrant as Specified in its Charter)

|                                          |  |                                   
|----------------------------------------- |  | ----------------------------------
|Delaware                                  |  | 14-1839426                        
|                                          |  |                                   
|(State
 or jurisdiction of incorporation) |  | (IRS
 Employer Identification No.)
|                                          |  |                                   
|171 Walnut
 Crest Run, Sanford, FL        |  | 32771                             
|                                          |  |                                   
|(Address
 of principal executive offices) |  | (Zip
 Code)                       

|                                                                                   
|-----------------------------------------------------------------------------------
|(407) 566-9310                                                                     
|                                                                                   
|(Registrants
 telephone number, including area code)                              
|                                                                                   
|N/A                                                                                
|                                                                                   
|(Former
 name, former address and former fiscal year, if changed since last report)

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past ninety days.

Yes x No o

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

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

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark where
the registrant has filed all documents and reports required to be filed by
Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date:

48,893,499 shares of common stock issued and outstanding as of February
5, 2009

---



NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report
contains certain forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. When used in this document,
the words anticipate, believe, estimate, intend, and expect and
similar expressions, are intended to identify forward-looking statements. Such
statements relate to future events or our future financial performance that are
based on the beliefs and assumptions made by the Companys management as well
as information currently available to management and are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, intended or expected. In addition to the other information
set forth in this report, certain of these risks and uncertainties are
discussed in the Companys earlier filings with the U.S. Securities and
Exchange Commission, including its Annual Report on Form 10-KSB for the year
ended May 31, 2005 and its Form SB-2 Registration Statement, as amended, filed
on September 6, 2005 and August 26, 2005, respectively, under the caption Risk Factors and should be carefully
considered as these risk factors could
materially affect our business, financial condition or future results. The
risks described in these earlier filings are not the only risks facing us.
Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial may also adversely affect our business,
financial condition and/or operating results. In general you should be aware
that certain risks exist with respect to the Company and its business, which
risks include: its limited assets, lack of revenues and only losses since
inception, industry risks, limited geological work conducted on existing
concessions, the need for additional capital; environmental risks; risks
inherent in having its operations outside the United States such as political
and economic unrest and instability, currency fluctuations, the threat of
military actions and criminal or terrorist activities; among other factors.

Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity or
achievements. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual results.

The
accompanying unaudited interim consolidated financial statements as of November
30, 2008, and for the three and six month periods ended November 30, 2008 and
November 30, 2007, include the accounts of the Company and its subsidiary and
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. These unaudited
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in our
amended Form 10-K/A for the fiscal year ended May 31, 2008 to be filed with the
Securities and Exchange Commission (the SEC) (the Amended Form 10-K/A).

Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although we
believe that the disclosures are adequate to make the information presented not
misleading. In our opinion, all adjustments (consisting solely of normal
recurring adjustments) necessary to present fairly the information in the
following unaudited consolidated financial statements of the Company have been
included. The results of operations for interim periods are not necessarily
indicative of the results for the full year.

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

2

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U.S. Precious Metals, Inc.
Form 10-Q

Table of Contents

|                                                                                                                                                                                                                                   |  |     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Part I  Financial Information                                                                                                                                                                                                     |  |     
|                                                                                                                                                                                                                                   |  |     
|Item 1. Consolidated Financial
 Statements                                                                                                                                                                                         |  |     
|                                                                                                                                                                                                                                   |  |     
|Consolidated Balance Sheets at November 30, 2008
 (unaudited) and at May 31, 2008 (audited).                                                                                                                                       |  | 4   
|                                                                                                                                                                                                                                   |  |     
|Consolidated Statements of Operations (unaudited) for
 the three month periods ended November 30, 2008 and November 30, 2007, and
 for the period January 21, 1998 (date of inception of exploration stage) to
 November 30, 2008. |  | 5   
|Consolidated Statements of Operations (unaudited) for
 the six month periods ended November 30, 2008 and November 30, 2007, and for
 the period January 21, 1998 (date of inception of exploration stage) to
 November 30, 2008.   |  | 6   
|Consolidated Statements of Cash Flows (unaudited) for
 the six month periods ended November 30, 2008 and November 30, 2007 and for
 the period January 21, 1998 (date of inception of exploration stage) to
 November 30, 2008.    |  | 7   
|Notes to Financial Statements
(unaudited).                                                                                                                                                                                         |  | 8-12
|                                                                                                                                                                                                                                   |  |     
|Item 2. Managements Discussion and
 Analysis of Financial Condition and Results of Operations                                                                                                                                     |  | 13  
|                                                                                                                                                                                                                                   |  |     
|Item 3. Quantitative and Qualitative
 Disclosures About Market Risk                                                                                                                                                                |  | 15  
|                                                                                                                                                                                                                                   |  |     
|Item 4. Controls and Procedures                                                                                                                                                                                                    |  | 15  
|                                                                                                                                                                                                                                   |  |     
|Part II  Other
Information                                                                                                                                                                                                        |  |     
|                                                                                                                                                                                                                                   |  |     
|Item 1. Legal Proceedings                                                                                                                                                                                                          |  | 17  
|                                                                                                                                                                                                                                   |  |     
|Item 1A. Risk Factors                                                                                                                                                                                                              |  | 17  
|                                                                                                                                                                                                                                   |  |     
|Item 2. Unregistered Sales of Equity
 Securities and use of Proceeds                                                                                                                                                               |  | 17  
|                                                                                                                                                                                                                                   |  |     
|Item 3. Defaults Upon Senior
 Securities                                                                                                                                                                                           |  | 17  
|                                                                                                                                                                                                                                   |  |     
|Item 4. Submission of Matters to a
 Vote of Security Holders                                                                                                                                                                       |  | 17  
|                                                                                                                                                                                                                                   |  |     
|Item 5. Other Information                                                                                                                                                                                                          |  | 17  
|                                                                                                                                                                                                                                   |  |     
|Item 6. Exhibits                                                                                                                                                                                                                   |  | 18  
|                                                                                                                                                                                                                                   |  |     
|Signature Page                                                                                                                                                                                                                     |  | 19  

3

---



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

|                                                                                                                                          |  |                              |             |                       |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ----------- | --------------------- | - | ---------- | -
|                                                                                                                                          |  | November 30, 2008(Unaudited) |             | May 31, 2008(Audited) |  
|                                                                                                                                          |  |                              |             |                       |  
|ASSETS                                                                                                                                    |  |                              |             |                       |   |            |  
|Current Assets:                                                                                                                           |  |                              |             |                       |   |            |  
|Cash                                                                                                                                      |  | $                            | 52,093      |                       | $ | 623,017    |  
|Miscellaneous receivables                                                                                                                 |  |                              | 12,423      |                       |   | 8,353      |  
|Prepaid expenses                                                                                                                          |  |                              | 6,124       |                       |   | 22,153     |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|Total current assets                                                                                                                      |  |                              | 70,640      |                       |   | 653,523    |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|Fixed Assets:                                                                                                                             |  |                              |             |                       |   |            |  
|Vehicles                                                                                                                                  |  |                              | 39,429      |                       |   | 39,429     |  
|Property, plant and equipment                                                                                                             |  |                              | 92,075      |                       |   | 84,199     |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|Total fixed assets                                                                                                                        |  |                              | 131,504     |                       |   | 123,628    |  
|Less: accumulated depreciation                                                                                                            |  |                              | (29,422     | )                     |   | (19,380    | )
|                                                                                                                                          |  |                              |             |                       |   |            |  
|Net fixed assets                                                                                                                          |  |                              | 102,082     |                       |   | 104,248    |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|Other Assets:                                                                                                                             |  |                              |             |                       |   |            |  
|Investment in mining rights                                                                                                               |  |                              | 204,532     |                       |   | 82,730     |  
|Deposits                                                                                                                                  |  |                              | 5,892       |                       |   | 57,180     |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|Total other assets                                                                                                                        |  |                              | 210,424     |                       |   | 139,910    |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|Total Assets                                                                                                                              |  | $                            | 383,146     |                       | $ | 897,681    |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|LIABILITIES AND
 STOCKHOLDERS DEFICIT                                                                                                    |  |                              |             |                       |   |            |  
|Current Liabilities:                                                                                                                      |  |                              |             |                       |   |            |  
|Accounts payable                                                                                                                          |  | $                            | 272,511     |                       | $ | 13,490     |  
|Accrued expenses                                                                                                                          |  |                              | 256,609     |                       |   | 57,282     |  
|Accrued salaries                                                                                                                          |  |                              | 15,795      |                       |   | 13,527     |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|Total current liabilities                                                                                                                 |  |                              | 544,915     |                       |   | 84,299     |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|Stockholders Deficit                                                                                                                     |  |                              |             |                       |   |            |  
|Preferred stock: authorized 10,000,000
 shares of $.00001 par value;No shares issued and outstanding                                      |  |                              |            |                       |   |           |  
|Common stock: authorized 100,000,000 shares
 of $.00001 par value;issued and outstanding, 51,005,979 and 47,227,979
 shares, respectively |  |                              | 510         |                       |   | 472        |  
|Capital in excess of par value                                                                                                            |  |                              | 8,407,770   |                       |   | 6,757,710  |  
|Paid in capital  warrants                                                                                                                |  |                              | 1,216,850   |                       |   | 1,017,650  |  
|Paid in capital  options                                                                                                                 |  |                              | 770,000     |                       |   |           |  
|Deficit accumulated during exploration
 stage                                                                                             |  |                              | (10,556,899 | )                     |   | (6,962,450 | )
|                                                                                                                                          |  |                              |             |                       |   |            |  
|Total stockholders deficit                                                                                                               |  |                              | (161,769    | )                     |   | 813,382    |  
|                                                                                                                                          |  |                              |             |                       |   |            |  
|Total Liabilities and Stockholders
Deficit                                                                                               |  | $                            | 383,146     |                       | $ | 897,681    |  
|                                                                                                                                          |  |                              |             |                       |   |            |  

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

4

---



U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
ACCUMULATED DURING EXPLORATION STAGE
(Unaudited)

|                                                                    |  |                                         |            |      |   |                                                                                   |   |   |             |  
|------------------------------------------------------------------- |  | --------------------------------------- | ---------- | ---- | - | --------------------------------------------------------------------------------- | - | - | ----------- | -
|                                                                    |  |                                         |            |      |   | January 21, 1998
 (Date of Inception
 of Exploration Stage
 To November 30, 2008) |  
|                                                                    |  |                                         |            |     
|                                                                    |  | Three Month Periods Ended
 November 30, |            |     
|                                                                    |  | 2008                                    |            | 2007 |   |                                                                                  
|                                                                    |  |                                         |            |      |   |                                                                                   |  
|                                                                    |  |                                         |            |      |   |                                                                                   |  
|Revenues                                                            |  | $                                       |           |      | $ |                                                                                  |   | $ |            |  
|                                                                    |  |                                         |            |      |   |                                                                                   |   |   |             |  
|Expenses                                                            |  |                                         | 2,220,391  |      |   | 42,295                                                                            |   |   | 10,518,030  |  
|                                                                    |  |                                         |            |      |   |                                                                                   |   |   |             |  
|                                                                    |  |                                         |            |      |   |                                                                                   |   |   |             |  
|Operating Loss                                                      |  |                                         | (2,220,391 | )    |   | (42,295                                                                           | ) |   | (10,518,030 | )
|                                                                    |  |                                         |            |      |   |                                                                                   |   |   |             |  
|Other Income (Expense):                                             |  |                                         |            |      |   |                                                                                   |   |   |             |  
|Interest income                                                     |  |                                         | 1,439      |      |   | 600                                                                               |   |   | 17,706      |  
|Interest expense                                                    |  |                                         |           |      |   |                                                                                  |   |   | (986        | )
|Remeasurement (loss) gain                                           |  |                                         | (69,591    | )    |   | (906                                                                              | ) |   | (55,589     | )
|                                                                    |  |                                         |            |      |   |                                                                                   |   |   |             |  
|                                                                    |  |                                         |            |      |   |                                                                                   |   |   |             |  
|Loss accumulated duringexploration stage                            |  | $                                       | (2,288,543 | )    | $ | (42,601                                                                           | ) | $ | (10,556,899 | )
|                                                                    |  |                                         |            |      |   |                                                                                   |   |   |             |  
|                                                                    |  |                                         |            |      |   |                                                                                   |   |   |             |  
|Net Loss per Share 
 Basic and Diluted                              |  | $                                       | (0.05      | )    | $ | (0.00                                                                             | ) |   |             |  
|                                                                    |  |                                         |            |      |   |                                                                                   |   |   |             |  
|Weighted Average Number
 of Shares Outstanding -
 Basic and Diluted |  |                                         | 48,660,056 |      |   | 32,274,979                                                                        |   |   |             |  
|                                                                    |  |                                         |            |      |   |                                                                                   |   |   |             |  

The accompanying notes are an integral part of these financial
statements

5

---



U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATION AND DEFICIT
ACCUMULATED DURING EXPLORATION STAGE
(Unaudited)

|                                                                    |  |                                       |            |      |   |                                                                                   |   |   |             |  
|------------------------------------------------------------------- |  | ------------------------------------- | ---------- | ---- | - | --------------------------------------------------------------------------------- | - | - | ----------- | -
|                                                                    |  |                                       |            |      |   | January 21, 1998
 (Date of Inception
 of Exploration Stage)
 To November 30, 2008 |  
|                                                                    |  |                                       |            |      |   |                                                                                  
|                                                                    |  | Six Month Periods Ended November
 30, |            |     
|                                                                    |  | 2008                                  |            | 2007 |   |                                                                                  
|                                                                    |  |                                       |            |      |   |                                                                                   |  
|                                                                    |  |                                       |            |      |   |                                                                                   |  
|Revenues                                                            |  | $                                     |           |      | $ |                                                                                  |   | $ |            |  
|                                                                    |  |                                       |            |      |   |                                                                                   |   |   |             |  
|Expenses                                                            |  |                                       | 3,530,799  |      |   | 296,339                                                                           |   |   | 10,518,030  |  
|                                                                    |  |                                       |            |      |   |                                                                                   |   |   |             |  
|                                                                    |  |                                       |            |      |   |                                                                                   |   |   |             |  
|Operating Loss                                                      |  |                                       | (3,530,799 | )    |   | (296,339                                                                          | ) |   | (10,518,030 | )
|                                                                    |  |                                       |            |      |   |                                                                                   |   |   |             |  
|Other Income (Expense):                                             |  |                                       |            |      |   |                                                                                   |   |   |             |  
|Interest income                                                     |  |                                       | 5,354      |      |   | 760                                                                               |   |   | 17,706      |  
|Interest expense                                                    |  |                                       |           |      |   |                                                                                  |   |   | (986        | )
|Remeasurement loss                                                  |  |                                       | (69,004    | )    |   | (906                                                                              | ) |   | (55,589     | )
|                                                                    |  |                                       |            |      |   |                                                                                   |   |   |             |  
|                                                                    |  |                                       |            |      |   |                                                                                   |   |   |             |  
|Loss accumulated duringexploration stage                            |  | $                                     | (3,594,449 | )    | $ | (296,485                                                                          | ) | $ | (10,556,899 | )
|                                                                    |  |                                       |            |      |   |                                                                                   |   |   |             |  
|                                                                    |  |                                       |            |      |   |                                                                                   |   |   |             |  
|Net Loss per Share
 Basic and Diluted                               |  | $                                     | (0.07      | )    | $ | (0.01                                                                             | ) |   |             |  
|                                                                    |  |                                       |            |      |   |                                                                                   |   |   |             |  
|Weighted Average Number
 of Shares Outstanding -
 Basic and Diluted |  |                                       | 48,316,006 |      |   | 32,247,979                                                                        |   |   |             |  
|                                                                    |  |                                       |            |      |   |                                                                                   |   |   |             |  

The accompanying notes are an integral part of these financial
statements

6

---



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

|                                                                                |  |                                       |            |      |    |                                                                                   |   |    |            |  
|------------------------------------------------------------------------------- |  | ------------------------------------- | ---------- | ---- | -- | --------------------------------------------------------------------------------- | - | -- | ---------- | -
|                                                                                |  |                                       |            |      |    | January 21, 1998
 (Date of Inception of
 Exploration Stage)
 To November 30, 2008 |  
|                                                                                |  |                                       |            |      |    |                                                                                  
|                                                                                |  | Six Month Periods Ended November
 30, |            |     
|                                                                                |  | 2008                                  |            | 2007 |    |                                                                                  
|                                                                                |  |                                       |            |      |    |                                                                                   |  
|Cash Flows From Operations                                                      |  |                                       |            |      |    |                                                                                   |   |    |            |  
|Net Loss                                                                        |  | ($                                    | 3,594,449  | )    | ($ | 296,485                                                                           | ) | ($ | 10,556,899 | )
|Adjustments required to reconcile net loss
 to net cash consumed by operations: |  |                                       |            |      |    |                                                                                   |   |    |            |  
|Charges not requiring outlay of cash:                                           |  |                                       |            |      |    |                                                                                   |   |    |            |  
|Depreciation                                                                    |  |                                       | 10,041     |      |    | 2,940                                                                             |   |    | 29,419     |  
|Bad debt write off                                                              |  |                                       |           |      |    |                                                                                  |   |    | 109,259    |  
|Common stock issued for services                                                |  |                                       | 1,289,300  |      |    | 48,000                                                                            |   |    | 5,875,132  |  
|Stock options issued for services                                               |  |                                       | 770,000    |      |    |                                                                                  |   |    | 770,000    |  
|Changes in assets and liabilities:                                              |  |                                       |            |      |    |                                                                                   |   |    | 0          |  
|Increase in accounts payable                                                    |  |                                       | 259,020    |      |    | 405                                                                               |   |    | 272,510    |  
|Increase in accrued expenses                                                    |  |                                       | 201,594    |      |    | 19,021                                                                            |   |    | 272,404    |  
|(Increase) decrease in miscellaneous
 receivables                               |  |                                       | (4,070     | )    |    | (3,552                                                                            | ) |    | (15,408    | )
|Decrease (increase) in prepaid expenses                                         |  |                                       | 16,029     |      |    |                                                                                  |   |    | (6,124     | )
|Decrease (increase) in deposits                                                 |  |                                       | 51,289     |      |    | (12,843                                                                           | ) |    | (5,892     | )
|                                                                                |  |                                       |            |      |    |                                                                                   |   |    |            |  
|Net Cash Consumed by Operating Activities                                       |  |                                       | (1,001,246 | )    |    | (242,514                                                                          | ) |    | (3,255,599 | )
|                                                                                |  |                                       |            |      |    |                                                                                   |   |    |            |  
|                                                                                |  |                                       |            |      |    |                                                                                   |   |    |            |  
|Cash Flows from Investing Activities:                                           |  |                                       |            |      |    |                                                                                   |   |    |            |  
|Investment in mining rights                                                     |  |                                       | (121,802   | )    |    | (13,859                                                                           | ) |    | (189,531   | )
|Loans to affiliated company                                                     |  |                                       |           |      |    | (40,000                                                                           | ) |    | (431,275   | )
|Repayment of loans by the affiliated
 company                                   |  |                                       |           |      |    |                                                                                  |   |    | 325,000    |  
|Acquisitions of equipment                                                       |  |                                       | (7,876     | )    |    |                                                                                  |   |    | (131,502   | )
|                                                                                |  |                                       |            |      |    |                                                                                   |   |    |            |  
|Net cash Consumed by Investing Activities                                       |  |                                       | (129,678   | )    |    | (53,859                                                                           | ) |    | (427,308   | )
|                                                                                |  |                                       |            |      |    |                                                                                   |   |    |            |  
|                                                                                |  |                                       |            |      |    |                                                                                   |   |    |            |  
|Cash Flows From Financing Activities:                                           |  |                                       |            |      |    |                                                                                   |   |    |            |  
|Proceeds from sales of common stock                                             |  |                                       | 400,000    |      |    | 20,000                                                                            |   |    | 3,492,500  |  
|Proceeds from exercises of warrants                                             |  |                                       | 160,000    |      |    |                                                                                  |   |    | 242,500    |  
|                                                                                |  |                                       |            |      |    |                                                                                   |   |    |            |  
|Net Cash Provided by Financing Activities                                       |  |                                       | 560,000    |      |    | 20,000                                                                            |   |    | 3,735,000  |  
|                                                                                |  |                                       |            |      |    |                                                                                   |   |    |            |  
|                                                                                |  |                                       |            |      |    |                                                                                   |   |    |            |  
|Net increase (decrease) in cash balance                                         |  |                                       | (570,924   | )    |    | (276,373                                                                          | ) |    | 52,093     |  
|Cash balance, beginning of period                                               |  |                                       | 623,017    |      |    | 277,917                                                                           |   |    |           |  
|                                                                                |  |                                       |            |      |    |                                                                                   |   |    |            |  
|Cash balance, end of Period                                                     |  | $                                     | 52,093     |      | $  | 1,544                                                                             |   | $  | 52,093     |  
|                                                                                |  |                                       |            |      |    |                                                                                   |   |    |            |  

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

7

---



U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2008
(Unaudited)

|   |                      
|-- | ---------------------
|1. | BASIS OF PRESENTATION

The unaudited
interim consolidated financial statements of U.S. Precious Metals, Inc. and its
subsidiary (the Company) as of November 30, 2008 and May 31, 2008, and for
the three and six month periods ended November 30, 2008 and November 30, 2007,
have been prepared in accordance with U.S. generally accepted accounting
principles. In the opinion of management, such information contains all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for such comparable periods. The results of
operations for the six month period ended November 30, 2008 are not necessarily
indicative of the results to be expected for the full fiscal year ending May
31, 2009.

Certain
information and disclosures normally included in the notes to financial
statements have been condensed or omitted as permitted by the rules and
regulations of the Securities and Exchange Commission, although the Company
believes the disclosure is adequate to make the information presented not
misleading. The accompanying unaudited financial statements should be read in
conjunction with the financial statements contained in the Companys Amended
Form 10-K/A.

8

---



|   |         
|-- | --------
|2. | EXPENSES

The following
are expenses listed by major categories:

|                            |  |                                       |           |                                                                                   |   |         |  |   |            | 
|--------------------------- |  | ------------------------------------- | --------- | --------------------------------------------------------------------------------- | - | ------- |  | - | ---------- | 
|                            |  |                                       |           | January 21, 1998
 (Date of Inception
 of Exploration Stage
 to November 30, 2008) |  
|                            |  |                                       |           |                                                                                  
|                            |  | Six Month Periods Ended November
 30, |           |                                                                                  
|                            |  | 2008                                  |           | 2007                                                                              |   |        
|                            |  |                                       |           |                                                                                   |   |         | 
|                           
|Geology fees                |  | $                                     | 16,928    |                                                                                   | $ | 7,500   |  | $ | 159,023    | 
|Professional fees           |  |                                       | 293,757   |                                                                                   |   | 31,398  |  |   | 994,359    | 
|Salaries                    |  |                                       | 226,829   |                                                                                   |   | 108,785 |  |   | 751,845    | 
|Payroll taxes               |  |                                       | 63,430    |                                                                                   |   | 7,350   |  |   | 103,809    | 
|Consulting fees             |  |                                       | 109,944   |                                                                                   |   | 58,837  |  |   | 1,818,538  | 
|Employee awards             |  |                                       |          |                                                                                   |   |        |  |   | 1,652,000  | 
|Directors awards           |  |                                       | 2,035,000 |                                                                                   |   |        |  |   | 2,935,500  | 
|Drilling and excavation     |  |                                       | 459,850   |                                                                                   |   |        |  |   | 641,521    | 
|Assay expense               |  |                                       | 16,191    |                                                                                   |   |        |  |   | 30,542     | 
|Bad debt expense            |  |                                       |          |                                                                                   |   |        |  |   | 109,259    | 
|Licenses and permits        |  |                                       | 220       |                                                                                   |   | 9,637   |  |   | 45,950     | 
|Travel and entertainment    |  |                                       | 73,243    |                                                                                   |   | 13,927  |  |   | 238,112    | 
|Office expense              |  |                                       | 25,529    |                                                                                   |   | 6,189   |  |   | 68,890     | 
|Auto rental                 |  |                                       | 7,754     |                                                                                   |   | 8,384   |  |   | 127,042    | 
|Office and warehouse rental |  |                                       | 54,611    |                                                                                   |   |        |  |   | 114,332    | 
|Depreciation expense        |  |                                       | 10,041    |                                                                                   |   | 2,940   |  |   | 29,419     | 
|Insurance expense           |  |                                       | 16,284    |                                                                                   |   | 6,194   |  |   | 43,602     | 
|Other expenses              |  |                                       | 121,188   |                                                                                   |   | 35,198  |  |   | 654,287    | 
|                            |  |                                       |           |                                                                                   |   |         |  |   |            | 
|                            |  | $                                     | 3,530,799 |                                                                                   | $ | 296,339 |  | $ | 10,518,030 | 
|                            |  |                                       |           |                                                                                   |   |         |  |   |            | 

9

---



U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2008
(Unaudited)

|   |                                     
|-- | ------------------------------------
|3. | SUPPLEMENTARY CASH FLOWS INFORMATION

There was no
cash paid for income taxes during either of the periods presented. Similarly
there were no payments for interest during either of the periods presented.

During the
three month period ended November 30, 2008, the Companys Board of Directors
issued 33,000 shares of common stock to consultants as compensation for
services; these shares were valued at $18,150. During the same three month
period, the Companys Board of Directors approved the issuance in the first
calendar quarter of 2009 of 2,300,000 shares of its common stock to officers,
directors, and former directors as compensation for services; these shares were
valued at $1,265,000. Although the shares have not been issued, they have been
included as part of stockholders deficit because all of the action required
for their issuance had been taken prior to November 30, 2008 and the
compensated services had been performed prior to that date. Additionally, there
were another 5,000 shares issued to consultants for services in the first
quarter ended August 31, 2008 valued at $6,150.

There were
150,000 shares of common stock issued for services in the six month period
ended November 30, 2008 valued at $48,000.

|   |             
|-- | ------------
|4. | COMMON STOCK

During the
quarter ended November 30, 2007, the Company issued 200,000 shares of common
stock for $20,000. In connection with the sale of the shares of common stock,
the Company issued warrants to purchase 100,000 shares of common stock at an
exercise price of $0.25 per share. The warrants by their terms expire one year
from the date of issuance.

|   |         
|-- | --------
|5. | WARRANTS

The following
table summarizes warrant activity during the six month period ended November
30, 2008.

|                                                                        |  |  |           |  
|----------------------------------------------------------------------- |  |  | --------- | -
|Warrants outstanding as of May 31, 2008                                 |  |  | 4,767,500 |  
|                                                                        |  |  |           |  
|Warrants Issued during the six month period ended November 30,
2008     |  |  | 400,000   |  
|Warrants exercised during the six month period ended November 30,
 2008 |  |  | (640,000  | )
|Warrants expired during the six month period ended November 30,
2008    |  |  |          |  
|                                                                        |  |  |           |  
|                                                                        |  |  |           |  
|Warrants outstanding as of November 30, 2008                            |  |  | 4,527,500 |  
|                                                                        |  |  |           |  

As of November
30, 2008, there were warrants to purchase 4,527,500 shares of common stock
outstanding. These warrants are exercisable in the aggregate for 3,627,500
shares of common stock at $0.25 per share and 900,000 shares of common stock at
$1.00 per share. All warrants expire by their terms one year from the date of
issuance.

|   |              
|-- | -------------
|6. | STOCK OPTIONS

During
December 2007, the Companys Board of Directors re-approved the 2007 Stock
Option Plan (the Plan) conditioned upon the approval by the
shareholders by December 31, 2008. Under this re-approved Plan, options to
purchase up to 20,000,000 shares of Company common stock may be issued to
officers, directors, key employees and consultants. The Plan was approved by
the shareholders in August 2008. As of May 31, 2008, the Company had approved
the grant of 9,000,000 options, subject to and pending shareholder approval of
the Plan. These 9,000,000 options were issued after fiscal year ended May 31,
2008 because shareholder approval occurred after that date. The value of the
option grants of $770,000 was charged to expense during August 2008.

10

---



The following
shows the activity of Company options during the six month period ended
November 30, 2008:

|                                                                       |  |              |           |       |   |      | 
|---------------------------------------------------------------------- |  | ------------ | --------- | ----- | - | ---- | 
|                                                                       |  | # of Options |           | Price |  
|                                                                       |  |              |           |       |  
|                                                                       |  |              |           |       |   |      | 
|Options outstanding May 31, 2008                                       |  |              |          |       |   |     | 
|                                                                       |  |              |           |       |   |      | 
|Options granted during the six month period
 ended November 30, 2008   |  |              | 9,000,000 |       | $ | 0.36 | 
|Options cancelled during the six month
 period ended November 30, 2008 |  |              |          |       |   |     | 
|Options exercised during the six month
 period ended November 30, 2008 |  |              |          |       |   |     | 
|                                                                       |  |              |           |       |   |      | 
|                                                                       |  |              |           |       |   |      | 
|Options outstanding as of November 30, 2008                            |  |              | 9,000,000 |       | $ | 0.36 | 
|                                                                       |  |              |           |       |   |      | 

|   |                           
|-- | --------------------------
|7. | RELATED PARTY TRANSACTIONS

During the
quarter ended November 30, 2008, the board of directors approved the issuance
in the first calendar quarter of 2009 of shares of common stock in lieu of cash
compensation to directors and officers for services previously performed. These
shares have not yet been issued. The following schedule shows the detail.

|                       |  |                     |  |  |              |  |  |           | 
|---------------------- |  | ------------------- |  |  | ------------ |  |  | --------- | 
|Last Name,
 First Name |  | Title               |  |  | Date Granted |  |  | Shares    | 
|                       |  |                     |  |  |              |  |  |           | 
|                       |  |                     |  |  |              |  |  |           | 
|Astore, Robert         |  | Former Board Member |  |  | 10/31/2008   |  |  | 250,000   | 
|Baer, Sheldon          |  | Board Member        |  |  | 10/31/2008   |  |  | 250,000   | 
|Burney, David          |  | President & Officer |  |  | 10/31/2008   |  |  | 200,000   | 
|Garcia, Jose           |  | Board Member        |  |  | 10/31/2008   |  |  | 250,000   | 
|Kugler, Michael Jack   |  | Board Member        |  |  | 10/31/2008   |  |  | 250,000   | 
|Oliveras, Jesus        |  | CFO & Officer       |  |  | 10/31/2008   |  |  | 100,000   | 
|Pane, Jerry            |  | Board Member        |  |  | 10/31/2008   |  |  | 250,000   | 
|Russell, Brian         |  | Board Member        |  |  | 10/31/2008   |  |  | 250,000   | 
|Toscano, Peter         |  | Board Member        |  |  | 10/31/2008   |  |  | 250,000   | 
|Wagenti, Jack          |  | Former Board Member |  |  | 10/31/2008   |  |  | 250,000   | 
|                       |  |                     |  |  |              |  |  |           | 
|                       |  |                     |  |  |              |  |  | 2,300,000 | 
|                       |  |                     |  |  |              |  |  |           | 

No related
party transactions occurred in the comparable period of 2007.

11

---



U.S. PRECIOUS METALS, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2008
(Unaudited)

|   |                  
|-- | -----------------
|8. | SUBSEQUENT EVENTS

In December
2008, the Companys Board of Directors approved the issuance of up to $500,000
in convertible notes bearing simple interest at an annual rate of 16%. The
notes may be converted into the common stock of the Company at the option of
the holder or automatically, each under certain circumstances as described
below:

Any holder of
the notes has the option to convert the principal and outstanding interest
under such holders notes into shares of the Companys common stock at an
exercise price of $0.30 per share at any time after June 30, 2009, 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 notes
would automatically convert into shares of the Companys common stock at a
conversion price of $0.30 per share if the Company completes any financing that
results in proceeds of at least $10,000,000 to the Company, or upon the
occurrence of a change in control of the Company.

The notes
mature on the earliest of (a) the date of an automatic conversion or (b)
December 31, 2010.

The Notes have
not been (and will not be) registered under the Securities Act of 1933 and may
not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements.

As of February
2009, the Company had issued convertible notes with an aggregate principal
amount of $345,000 to three individuals. Michael J. Kugler, Chairman of the
Board and Chief Executive Officer of the Company, purchased notes with an
aggregate principal amount of $25,000 and two other accredited investors
purchased notes with an aggregate principal amount of $320,000.

It came to the
attention of certain officers of the Company that there may have been some
accounting or cash management improprieties related to operations of the
Companys Mexican subsidiary. After a review of the facts and some
investigation into the matter, the Company determined that approximately
$7,800.00 in cash had been improperly diverted from the Companys bank
accounts. The Company made adjustments to correct this error as of November 30,
2008. The Company is continuing its review of the internal controls of the
Mexican subsidiary. Consequently, the Company may determine that additional
amounts may require one or more adjustments to the loss or gain of the Company.
These amounts, to the extent they exist, have not yet been determined and may
or may not be material. Refer to Part II, item 3, Significant Events, for more
details.

12

---



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

Liquidity and Capital Resources

We were formed
as a mineral exploration company on January 21, 1998. We are an
exploration stage company. 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 concessions can
occur. Because we are still in our exploration stage, we have no
revenues and have had only losses since our inception. Accordingly, a
comparison of our financial information for accounting periods would likely not
be meaningful or helpful in making an investment decision regarding our
Company. Our plan of operations for the next twelve months is to continue the
drilling campaign as more fully described in the Companys Current Report on
Form 8-K filed on January 23, 2009, 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 $1,335,000 will
be required over the next 12 months to maintain our current status. This amount
does not include any additional exploration. We estimate these expenses to
include approximately $350,000 for salaries, outsourced labor and consulting
services, $600,000 for professional services, including work undertaken by the
independent accountant and legal fees, $50,000 for rent, maintenance, and
utilities, $130,000 for permits and expenses required to maintain the
concessions, $105,000 for taxes and insurance, $80,000 for office expenses, and
$20,000 for other miscellaneous expenses, including marketing and investor
relations expenses.

We may attempt
to interest an operating company to enter into a joint venture to
undertake exploration work on the concessions owned by us, or we may attempt to
access the public or private debt or equity markets to move toward the
production phase, or even consider an outright sale.

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 complete them which we can not assure you will occur in a timely
manner, on terms acceptable to the Company, or at all. If we are unable to
obtain additional funding, we will not be able to continue our drilling
campaign or execute our current plan of operation.

During the six
month period ending November 30, 2008, we invested approximately $1,208,000 in
our exploration drilling campaign and the development of our Mexican operations.
The Company commissioned and received an NI 43-101 Compliant Ore Reserve Report
(the 43-101
Report) from Applied Minerals, Inc. Michael Floersch, the CEO of
Applied Minerals, Inc., was engaged in February 2008 by the Company to advise
us regarding our drilling program, initiate and maintain the chain of custody
procedure for the core samples from the drill site to the assayer in Kellogg,
Idaho and assume responsibility for quality control in the drilling campaign.
The proven and probable reserves reflected in the 43-101 Report relate to and
have been developed from core samples retrieved from ten holes located on less
a five acre area of the 37,000 acre concessions, leaving 99.9% of the holdings
unexplored. If we are able to raise sufficient financing to do so, the company
expects to continue to explore and develop the property over the next 12 months
to determine the proven and probable reserves on a more significant portion of
the property.

13

---



Data available
to the Company from the 43-101 Report dated as of October 30, 2008 shows the
following estimated reserves and related values using market pricing on January
28, 2009:

Proven Reserves: 311,343

|                            |  |                        |           |              |               |                          |                 |   |             | 
|--------------------------- |  | ---------------------- | --------- | ------------ | ------------- | ------------------------ | --------------- | - | ----------- | 
|                            |  | As of January 28, 2009 |          
|                            |  |                        |          
|                            |  | Amount                 |           | Market Price |               | Total Value of
 Reserves |                
|                            |  |                        |           |              |               |                          |                
|Gold (Au) (oz.)             |  |                        | 57,432    |              | $             | 886.60                   |                 | $ | 50,919,211  | 
|Silver (Ag) (oz.)           |  |                        | 403,532   |              | $             | 11.97                    |                 | $ | 4,830,278   | 
|Copper (Cu) (tons)          |  |                        | 3,057     |              | $             | 2,940.00                 |                 | $ | 8,987,580   | 
|                            |  |                        |           |              |               |                          |                 |   |             | 
|Total                       |  |                        |           |              |               |                          |                 | $ | 64,737,069  | 
|                            |  |                        |           |              |               |                          |                 |   |             | 
|                            |  |                        |           |              |               |                          |                 |   |             | 
|Probable
 Reserves: 942,559 |  |                        |           |              |               |                          |                 |   |             | 
|                            |  |                        |           |              |               |                          |                 |   |             | 
|                            |  |                        |           |              |               |                          |                 |  
|                            |  |                        |           |              | Market
 Price |                          | Total
 Reserves |  
|                            |  |                        |           |              |               |                          |                 |  
|Gold (Au) (oz.)             |  |                        | 156,288   |              | $             | 886.60                   |                 | $ | 138,564,941 | 
|Silver (Ag) (oz.)           |  |                        | 1,295,857 |              | $             | 11.97                    |                 | $ | 15,511,408  | 
|Copper (Cu) (tons)          |  |                        | 8,922     |              | $             | 2,940.00                 |                 | $ | 26,230,680  | 
|                            |  |                        |           |              |               |                          |                 |   |             | 
|Total                       |  |                        |           |              |               |                          |                 | $ | 180,307,029 | 
|                            |  |                        |           |              |               |                          |                 |   |             | 

The value of
the reserves is subject to price fluctuations in the commodities market. A low
demand for copper due to the current global economic crisis has pushed the
value of this metal down in previous months, while the recessionary trends have
pushed the value of gold and silver slightly higher. As more exploratory
drilling is completed, we expect the amount of proven and probable reserves to
fluctuate.

We previously
reported that we anticipated completion of an on-site metallurgical and
chemistry laboratory with operations to begin in 2009. General construction of
the lab has been completed; however the lab is not yet functional. The Company
has suspended additional improvements until such time as it receives sufficient
funding to move forward. Additionally, the lab is currently expected to
function as a support facility rather than a main processing facility under our
current business plan.

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 expectations that we will do so in the
foreseeable future. Our assets consist of cash and cash equivalents, 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.

The Company
had total assets in the amount of $383,148 with a cash balance of $52,093 as of
November 30, 2008, as compared to $897,681 in total assets and a cash balance
of $623,017 as of May 31, 2008. This was mainly due to increases geological and
personnel expenses.

Since we do
not anticipate generating any revenue for the foreseeable future, we will have
to continue to seek additional funding from outside sources. However, we are
facing declining and volatile financial markets that may make it difficult to
satisfy our need for additional capital to finance our plan of operations for fiscal
2009 through either debt or equity. As a result, we continue to seek
appropriate opportunities that are likely to provide the Company with adequate
fiscal resources to execute its plan of operations in the current fiscal year
and beyond.

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

|     |                                                                                 
|---- | --------------------------------------------------------------------------------
|(i)  | our ability
 to raise sufficient additional funding;                            
|     |                                                                                 
|(ii) | the results
 of our proposed exploration programs on the mineral properties; and

14

---



|      |                                                                                                                                                                                                                                                                                                
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(iii) | assuming
 significant mineral deposits, our ability to be successful in commercially
 producing mineral deposits, find joint venture partners for the development
 of our property interests or find a purchaser for the property interests or
 finding a purchaser for the property interests.

Results of Operations for the Three and Six
Month Periods Ending November 30, 2008 and 2007.

We did not
earn any revenues and have had only losses since our inception, including
during the six month periods ended on November 30, 2008 and 2007.

We incurred
operating expenses in the amount of $2,329,650 during the three month period
ended November 30, 2008, $1,265,000 of which was a non-cash expense related to
stock grants to company officers and $4,635 of which was a non-cash expense
related to depreciation. We incurred cash operating expenses in the amount of
$42,295 during the three month period ended November 30, 2007.

We incurred
operating expenses in the amount of $3,530,799 and $296,339 for the six month
period ended November 30, 2008 and 2007 respectively.

We granted
options and shares in lieu of compensation valued at $2,035,000 during the six
month period ended November 30, 2008 compared to no grants in the comparable
period for 2007. We also paid $492,969 in geological expenses, up from $7,500
in the comparable six month period. We hired additional staff at the corporate
office and staff and consultants in connection with the subsidiarys
operations. These actions resulted in an increase in payroll and consulting
expenses of $225,231 over the comparable six month period. Additional office
expenses, depreciation, insurance, and other related expenses in Mexico caused
an increase of $226,401 over the expenses for the period ended November 30,
2007.

The company
also took a charge to expense for the recharacterization of a $106,275 loan
balance as bad debt which was previously carried as an asset. We currently plan
to continue to attempt to collect this debt.

Off Balance Sheet Arrangements

We do not have
any off balance sheet arrangements that are reasonably likely to have a current
or future effect on our financial condition, revenues, and results of
operations, liquidity or capital expenditures.

ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this item.

ITEM 4. CONTROLS AND
PROCEDURES

Disclosure Controls

We carried out
an evaluation required by Rule 13a-15 of the Securities Exchange Act of 1934
(the Exchange
Act) under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures over financial
reporting.

Disclosure
controls and procedures are designed with the objective of ensuring that (i)
information required to be disclosed in an issuers reports filed under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms and (ii) information is
accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosures.

The evaluation
of our disclosure controls and procedures included a review of our objectives
and processes and effect on the information generated for use in this Report.
This type of evaluation is done quarterly so that the conclusions concerning
the effectiveness of these controls can be reported in our periodic reports
filed with the SEC.

15

---



Based on their
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that as of the end of the period covered by this quarterly report on
Form 10-Q, our disclosure controls and procedures were not sufficiently
effective in timely alerting them to material information which is required to
be included in our periodic reports filed with the SEC. This deficiency arose
from changes at the subsidiary level and from a lack of previous disclosure controls
and procedures that resulted into certain errors and transactions not being
detected during the preparation of the fiscal year end financial statements and
the review process.

Managements Report on Internal Control Over
Financial Reporting

Our management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in the Exchange Act Rule 13a-15.
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 the design and operation of the Companys
internal control over financial reporting pursuant to the Exchange Act Rule
13a15 and based on the criteria set forth in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the criteria set forth in Internal
Control  Integrated Framework, our Chief Executive Officer and Chief Financial
Officer concluded that our internal controls and procedures over financial
reporting were not effective as of November 30, 2008 due to a lack of reporting
system from the subsidiary to the parent company and further weakness in the
parents internal control structure. The certifying officers have taken note of
the reasons for the deficiency and have taken additional measures to improve
the financial reporting of the subsidiary and the quarterly and year end review
process to minimize the potential of further misstatements or errors that may
render the financial information misleading or mistaken.

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. Management necessarily applied its judgment in assessing the benefits
of controls relative to their costs. 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.

Changes in Internal Control over Financial
Reporting

There were no
changes in our internal control over financial reporting during the second
quarter of fiscal year 2009 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

16

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PART II - OTHER
INFORMATION

ITEM 1. LEGAL
PROCEEDINGS

None

ITEM 1A. RISK FACTORS

We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this item.

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

We recorded
the following unregistered sales or issuances of equity securities during the
quarter ended November 30, 2008:

We issued
200,000 shares of common stock for cash to one accredited investor for $20,000
in cash. In connection with the sale of these shares, we also issued to the
investor warrants to purchase 100,000 shares of common stock at an exercise
price of $0.25 per share. These warrants expire one year from the date of
issuance.

These shares
were issued in reliance upon exemptions from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended.

ITEM 3. SIGNIFICANT EVENTS

It came to the attention of
certain officers of the Company that there may have been some accounting or
cash management improprieties related to operations of the Companys Mexican
subsidiary. After a review of the facts and some investigation into the matter,
we determined that approximately $7,800 in cash had been improperly diverted
from the Companys bank accounts. We made adjustments to correct these errors
as of November 30, 2008, causing an expense charge to the subsidiary of
approximately $7,800.

Our review of the processes
at the subsidiary also uncovered certain deficiencies in internal controls at
the subsidiary level, including lack of written contracts, failure to use a bid
process, and lack of financial information for the subsidiary operations. The
Companys management team believes it has now established the necessary
controls and procedures designed to obtain, maintain and appropriately deliver
financial information on behalf of and to the Company on a regular and timely
basis. We have also instituted procedures such as requiring that signers,
issuers and reconciling persons be separate and engaging in a review and
approval process for all transactions, including reconciliation of bank
balances, issuances of checks and wire transfer requests.

ITEM 3. DEFAULT UPON
SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER
INFORMATION

None

17

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ITEM 6. EXHIBITS.

|             |   |                                                                                                                                                  
|------------ | - | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 31.1 | - | Certification
 Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a), Kugler*                                                     
|             |   |                                                                                                                                                  
|Exhibit 31.2 | - | Certification
 Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a),
 Oliveras*                                              
|             |   |                                                                                                                                                  
|Exhibit 32.1 | - | Certification
 Required by Rule 13a-14(b) or Rule 15d-14(b) and section 906 of the
 Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, Kugler*  
|             |   |                                                                                                                                                  
|Exhibit 32.2 | - | Certification
 Required by Rule 13a-14(b) or Rule 15d-14(b) and section 906 of the
 Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, Oliveras*

*Filed
herewith.

18

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SIGNATURES

In accordance
with Section 13 or 15(d) of the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

U.S. Precious Metals,
Inc.
(Registrant)

|                                                                                   | 
|---------------------------------------------------------------------------------- | 
|/s/ M. Jack
 Kugler                                                                | 
|                                                                                   | 
|M. Jack
 Kugler                                                                    | 
|Chief
 Executive Officer and Chairman of the Board of Directors
 February 17, 2009 | 
|                                                                                   | 
|/s/ Jesus Oliveras                                                                 | 
|                                                                                   | 
|Jesus Oliveras                                                                     | 
|Chief Financial Officer                                                            | 
|February 17, 2009                                                                  | 

19

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INDEX TO ATTACHED EXHIBITS

|             |   |                                                                                                                                                 
|------------ | - | ------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 31.1 | - | Certification
 Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a),
 Kugler                                                
|             |   |                                                                                                                                                 
|Exhibit 31.2 | - | Certification
 Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a),
 Oliveras                                              
|             |   |                                                                                                                                                 
|Exhibit 32.1 | - | Certification
 Required by Rule 13a-14(b) or Rule 15d-14(b) and section 906 of the
 Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, Kugler  
|             |   |                                                                                                                                                 
|Exhibit 32.2 | - | Certification
 Required by Rule 13a-14(b) or Rule 15d-14(b) and section 906 of the
 Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, Oliveras

20

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