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EX-32.2 - EL CAPITAN PRECIOUS METALS INCv174034_ex32-2.htm
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EX-32.1 - EL CAPITAN PRECIOUS METALS INCv174034_ex32-1.htm
EX-31.2 - EL CAPITAN PRECIOUS METALS INCv174034_ex31-2.htm
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended December 31, 2009

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________.

EL CAPITAN PRECIOUS METALS, INC.
(Exact name of small business issuer as specified in its charter)

NEVADA
88-0482413
(State of other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification Number)

15225 North 49th Street
Scottsdale, AZ 85254
(Address of Principal Executive Offices)

(303) 472-3298
(Issuer’s Telephone Number)

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      YES  x      NO  o

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

Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer  ¨  (Do not check if a smaller reporting company)
Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as referred in Rule 12b-2 of the Exchange Act). YES   o      NO x
 
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 88,754,036 shares of common stock, par value $0.001, issued and outstanding as of February 10, 2010.
 
 
 

 

EL CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY
(An Exploration Stage Company)

Form 10-Q for the Quarter Ended December 31, 2009

Table of Contents
 
     
Page
PART I
Financial Information
   
       
Item 1.
Financial Statements
   
       
 
Consolidated Balance Sheets – December 31, 2009 and September 30, 2009 (Unaudited)
 
F-1
       
 
Consolidated Statements of Expenses – Three months ended December 31, 2009 and 2008 and for the period from July 26, 2002 (inception) through December 31, 2009 (Unaudited)
 
F-2
       
 
Consolidated Statements of Stockholders’ Equity (Deficit) - period from July 26, 2002, (inception) through December 31, 2009 (Unaudited)
 
F-3
       
 
Consolidated Statements of Cash Flows – Three months ended December 31, 2009 and 2008 and for the period from July 26, 2002 (inception) through December 31, 2009 (Unaudited)
 
F-6
       
 
Notes to the Consolidated Financial Statements (Unaudited)
 
F-7
       
Management’s Discussion and Analysis or Plan of Operations
 
1
       
Controls and Procedures
 
3
       
Other Information
 
3
       
Unregistered Sales of Equity Securities and Use of Proceeds
 
3
       
Item 5.
Other Information
 
3
       
Exhibits
 
4
       
SIGNATURES
   
4
       
 
5

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This form 10-q may contain certain “forward-looking” statements as such term is defined by the securities and exchange commission in its rules, regulations and releases, which represent the registrant’s expectations or beliefs, including but not limited to, statements concerning the registrant’s operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the registrant’s control, and actual results may differ materially depending on a variety of important factors, including uncertainty related to acquisitions, governmental regulation, managing and maintaining growth, the operations of the company and its subsidiaries, volatility of stock price, commercial viability of any mineral deposits and any other factors discussed in this and other registrant filings with the securities and exchange commission.  The company does not intend or undertake to update the information in this form 10-q if any forward-looking statement later turns out to be inaccurate. The following should be read in conjunction with the information presented in the company’s annual report on form 10-K for the year ended September 30, 2009.

 
 

 

PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements

EL CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY
  (An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
   
December 31, 
2009
     
September 30, 
2009
 
             
ASSETS
           
CURRENT ASSETS :
           
Cash
 
$
736
   
$
2,348
 
Prepaid expenses and other current assets
   
16,521
     
26,189
 
Total Current Assets
   
17,257
     
28,537
 
                 
Furniture and equipment net of accumulated depreciation of $24,927 and $23,495, respectively
   
7,245
     
8,677
 
                 
               
Investment in El Capitan, Ltd.
   
788,808
     
788,808
 
Deposits
   
22,440
     
22,440
 
Total Assets
 
$
835,750
   
$
848,462
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable
 
$
160,983
   
$
144,494
 
Accrued liabilities
   
362,544
     
357,711
 
Interest payable
   
48,111
     
48,111
 
Due affiliated company
   
104,165
     
47,061
 
Short term debt
   
4,522
     
7,913
 
Total Current Liabilities
   
680,325
     
605,290
 
                 
STOCKHOLDERS’ EQUITY :
               
                 
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued and outstanding
   
     
 
                 
Common stock, $0.001 par value; 300,000,000 shares authorized; 88,654,036 and 88,587,369  issued and outstanding, respectively
   
88,654
     
88,587
 
Additional paid-in capital
   
18,123,486
     
18,117,553
 
Deficit accumulated during the exploration stage
   
(18,056,715
)
   
(17,962,968
)
Total Stockholders’ Equity
   
155,425
     
243,172
 
Total Liabilities And Stockholders’ Equity
 
$
835,750
   
$
848,462
 

The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-1

 

EL CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY
(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF EXPENSES
(Unaudited)

   
Three Months Ended 
December 31,
     
July 26, 2002
(Inception)
Through
December 31,
  
     
2009
   
2008
   
2009
 
OPERATING EXPENSES:
                 
Professional fees
 
$
1,005
   
$
24,127
   
$
3,251,750
 
Officer compensation expense
   
     
135,000
     
2,863,833
 
Administrative consulting fees
   
34,581
     
     
1,164,091
 
Management fees, related parties
   
     
     
320,500
 
Legal and accounting fees
   
17,586
     
41,967
     
1,267,641
 
Exploration expenses
   
10,890
     
33,019
     
2,305,477
 
Warrant and option expenses
   
     
139,456
     
4,076,578
 
Other general and administrative
   
29,456
     
31,345
     
1,188,960
 
(Gain) loss on asset dispositions
   
     
     
34,733
 
Total Operating Expenses
   
93,518
     
404,914
     
16,473,563
 
                         
LOSS FROM OPERATIONS
   
(93,518
)
   
(404,914
)
   
(16,473,563
)
                         
OTHER INCOME (EXPENSE):
                       
Interest income
   
     
5
     
36,250
 
Forgiveness of debt
   
     
     
115,214
 
Interest expense:
                       
Related parties
   
     
     
(68,806
)
Other
   
(229
   
(585
)
   
(308,515
)
Expenses associated with debt issuance and conversion
   
     
     
(225,207
)
Accretion of notes payable discounts
   
     
     
(1,132,088
)
Total Other Income (Expense)
   
(229
   
(580
)
   
(1,583,152
)
                         
NET LOSS
 
$
(93,747
)
 
$
(405,494
)
 
$
(18,056,715
)
                         
Basic and diluted net loss per common share
 
$
(0.00
)
 
$
(0.00
)
       
                         
Weighted average number of common shares outstanding
   
88,650,413
     
86,865,526
         

The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-2

 

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) to December 31, 2009
(Unaudited)
 
   
Common 
Stock Shares
     
Common
Stock
Amount
     
Stock
Subscriptions
     
Additional 
Paid
in Capital
     
Deficit
Accumulated
During The
Exploration Stage
     
Total
  
Initial Issuance of Common Stock
   
3,315,000
   
$
3,315
     
   
$
(3,306
)
 
$
   
$
9
 
Net loss
   
     
     
     
-
     
(21,577
)
   
(21,577
)
     
3,315,000
   
$
3,315
   
$
   
$
(3,306
)
 
$
(21,577
)
 
$
(21,568
)
                                                 
Issuance of common stock to Gold and Minerals Company, Inc. in connection with purchase of interests in assets of El Capitan, Ltd. In November 2002
   
35,685,000
     
35,685
     
     
(35,663
)
   
     
22
 
Acquisition of DML Services on March 17, 2003
   
6,720,000
     
6,720
     
     
(56,720
)
 
     
(50,000
)
Common stock issued for interest expense related to a note payable
   
525,000
     
525
     
     
16,975
     
     
17,500
 
Common stock and warrants issued for services
   
150,000
     
150
     
     
188,850
     
     
189,000
 
Common stock issued for compensation
   
2,114,280
     
2,115
     
     
847,885
     
     
850,000
 
Issuance of common stock to Gold and Minerals Company, Inc. in connection with purchase of COD property in August 2003, $0.00 per share
   
3,600,000
     
3,600
     
     
(3,600
)
   
     
-
 
Net loss
   
     
     
     
-
     
(1,561,669
)
   
(1,561,669
)
Balances at September 30, 2003 (Unaudited)
   
52,109,280
   
$
52,110
   
$
   
$
954,421
   
$
(1,583,246
)
 
$
(576,715
)
                                                 
Cost associated with warrants and options issued
   
     
     
     
108,000
     
     
108,000
 
Common stock issued for compensation
   
3,650,164
     
3,650
     
     
516,350
     
     
520,000
 
Common stock issued for services and expenses
   
2,082,234
     
2,083
     
     
393,682
     
     
395,765
 
Common stock issue for notes payable
   
1,827,938
     
1,827
     
     
381,173
     
     
383,000
 
Beneficial conversion of notes payable
   
     
     
     
75,000
     
     
75,000
 
Common stock issued for acquisition of Weaver property interest in July 2004
   
3,000,000
     
3,000
     
     
(3,000
)
   
     
-
 
Stock subscriptions
   
     
     
50,000
     
-
     
     
50,000
 
Net loss
   
     
     
     
-
     
(1,314,320
)
   
(1,314,320
)
Balances at September 30, 2004 (Unaudited)
   
62,669,616
   
$
62,670
   
$
50,000
   
$
2,425,626
   
$
(2,897,566
)
 
$
(359,270
)
                                                 
Subscribed stock issued
   
200,000
     
200
     
(50,000
)
   
49,800
     
     
-
 
Common stock issued for services
   
2,290,557
     
2,290
     
     
1,254,245
     
     
1,256,535
 
Common stock sold in private placement
   
3,865,000
     
3,865
     
     
1,785,272
     
     
1,789,137
 
Common stock issued for notes payable
   
383,576
     
384
     
     
153,042
     
     
153,426
 
Beneficial conversion of notes payable
   
     
     
     
21,635
     
     
21,635
 
Cost associated with warrants and options issued
   
     
     
     
149,004
     
     
149,004
 
Discounts on notes payable
   
     
     
     
113,448
     
     
113,448
 
Net loss
   
     
     
     
-
     
(3,244,841
)
   
(3,244,841
)
Balances at September 30, 2005 (Unaudited)
   
69,408,749
   
$
69,409
   
$
   
$
5,952,072
   
$
(6,142,407
)
 
$
(120,926
)
 
 
F-3

 

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) to December 31, 2009
 
   
Common 
Stock Shares
     
Common
Stock
Amount
     
Stock
Subscriptions
     
Additional 
Paid in
 Capital
     
Deficit
Accumulated
During The
Exploration Stage
     
Total
  
Common stock issued for services
    
310,000
     
310
     
     
274,690
     
     
275,000
 
Common stock sold in private placement
   
2,189,697
     
2,190
     
     
1,158,775
     
     
1,160,965
 
Common stock issued for notes payable
   
2,124,726
     
2,125
     
     
1,147,875
     
     
1,150,000
 
Beneficial conversion of note payable
   
     
     
     
128,572
     
     
128,572
 
Discounts on issuance of convertible notes payable
   
     
     
     
1,018,640
     
     
1,018,640
 
Costs associated with warrants and options issued
   
     
     
     
163,750
     
     
163,750
 
Common stock issued for exercise of options and warrants
   
498,825
     
499
     
     
256,251
     
     
256,750
 
Common stock issued for compensation
   
364,912
     
364
     
     
286,772
     
     
287,136
 
Provision for deferred income tax  related to
   
     
     
     
(80,322
)
   
-
     
(80,322
)
Net loss
   
     
     
     
     
(4,041,802
)
   
(4,041,802
)
Balances at September 30, 2006 (Unaudited)
   
74,896,909
   
$
74,897
   
$
   
$
10,307,075
   
$
(10,184,209
)
 
$
197,763
 
                                                 
Stock issued for conversion of notes payable
   
1,500,000
     
1,500
     
     
748,500
     
     
750,000
 
Common stock sold in private placement
   
50,000
     
50
     
     
24,950
     
     
25,000
 
Common stock sold by the exercise of warrants and options
   
2,258,000
     
2,258
     
     
1,121,742
     
     
1,124,000
 
Common stock issued for compensation
   
966,994
     
968
     
     
604,583
     
     
605,551
 
Reverse provision for deferred income tax related to timing difference on debt discount
   
     
     
     
80,322
     
     
80,322
 
Common stock issued for services
   
80,216
     
81
     
     
52,325
     
     
52,406
 
Cost associated with issuance of warrants and options
   
     
     
     
2,249,475
     
     
2,249,475
 
Net loss
   
     
     
     
     
(4,437,775
)
   
(4,437,775
)
Balances at September 30, 2007
   
79,752,119
   
$
79,754
   
$
   
$
15,188,972
   
$
(14,621,984
)
 
$
646,742
 
                                                 
Common stock sold in private placement
   
300,000
     
300
     
     
149,700
     
     
150,000
 
Common stock issued for exercise of cashless warrants
   
12,000
     
12
     
     
(12
)
   
     
 
Common stock sold by the exercise of warrants and options
   
1,257,500
     
1,257
     
     
176,568
     
     
177,825
 
Common stock issued for compensation
   
1,637,356
     
1,637
     
     
358,774
     
     
360,411
 
Common stock issued for services
   
3,213,150
     
3,212
     
     
662,035
     
     
665,247
 
Warrant and option expense
   
     
     
     
1,156,590
     
     
1,156,590
 
Net loss
   
     
     
     
     
(2,387,483
)
   
(2,387,483
)
Balances at September 30, 2008
   
86,172,125
   
$
86,172
   
$
   
$
17,692,627
   
$
(17,009,467
)
 
$
769,332
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-4

 

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) to December 31, 2009

 
Common
Stock Shares
     
Common
Stock
Amount
     
Stock
Subscriptions
     
Additional 
Paid in
 Capital
     
Deficit
Accumulated
During The
Exploration Stage
     
Total
  
Common stock issued for services
 
1,127,744
     
1,127
     
     
95,205
     
     
96,332
 
Common stock sold by the exercise of warrants & options
 
725,000
     
725
     
     
35,525
     
     
36,250
 
Common stock issued for compensation
 
562,500
     
563
     
     
44,437
     
     
45,000
 
Warrant and option  expense
 
     
     
     
249,759
     
     
249,759
 
Net loss
 
     
     
     
-
     
(953,501
)
   
(953,501
)
Balances at September 30, 2009
 
88,587,369
   
$
88,587
   
$
   
$
18,117,553
   
$
(17,962,968
)
 
$
243,172
 
                                               
Common stock issued for services
 
66,667 
     
67 
     
     
5,933
     
     
6,000 
 
Net loss
 
     
     
     
     
(93,747
)
   
(93,747
)
Balances at December 31, 2009
 
88,654,036
   
$
88,654
   
$
   
$
18,123,486
   
$
(18,056,715
)
 
$
155,425
 

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

 
F-5

 

 (An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)   
 
         
July 27, 2002
  
             
(Inception)
  
     
Three Months Ended
December 31,
     
Through
December 31,
  
     
2009
     
2008
     
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
Net loss
 
$
(93,747
)
 
$
(405,494
)
 
$
(18,056,715
)
                         
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                       
Warrant and option expense
   
     
139,456
     
4,076,578
 
Beneficial conversion of notes payable
   
     
     
225,207
 
Non-cash expense with affiliate
   
     
     
7,801
 
Share-based compensation
   
     
129,332
     
5,598,383
 
Accretion of discount on notes payable
   
-
     
     
1,132,088
 
(Gain) loss on disposition of fixed assets
   
     
     
34,733
 
Forgiveness of debt
   
     
     
(115,214
)
Provision for uncollectible note receivable
   
     
     
62,500
 
Depreciation
   
1,432
     
2,200
     
70,326
 
Changes in operating assets and liabilities:
                       
Miscellaneous receivable
   
     
(9,860
)
   
4,863
 
Interest Receivable
   
     
     
(13,611
)
Prepaid expenses and other assets
   
9,668
     
17,286
     
(18,994
)
Expense advances (to) from on behalf of affiliated company
   
57,104
     
1,807
     
(458,825
)
Accounts payable
   
22,489
     
27,142
     
161,253
 
Accounts payable - related party
   
     
(159
)
   
364
 
Accrued liabilities
   
4,833
     
91,166
     
495,062
 
Interest payable, other
   
     
     
49,750
 
Net Cash Provided by (Used in) Operating Activities
   
1,779
     
(7,124
)
   
(6,744,451
)
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Purchase of property interest
   
     
     
(100,000
)
Purchase of furniture and equipment
   
     
     
(148,140
)
Proceeds from asset dispositions
   
     
     
32,001
 
Deposits
   
     
3,845
     
(22,440
)
Issuance of notes receivable
   
     
     
(249,430
)
Payments received on notes receivable
   
     
     
66,930
 
Cash paid in connection with acquisition of DML Services, Inc.
   
     
     
(50,000
)
Net Cash Provided by (Used in) Investing Activities
   
     
3,845
     
(471,079
)
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Proceeds from the sale of common stock
   
     
     
3,456,606
 
Costs associated with the sale of stock
   
     
     
(19,363
)
Proceeds from notes payable, related parties
   
     
     
219,900
 
Proceeds from warrant exercise
   
     
27,000
     
1,338,075
 
Proceeds from notes payable, other
   
     
     
2,322,300
 
Increase in finance contracts
   
     
     
117,479
 
Repayment of notes payable, related parties
   
     
     
(61,900
)
Payments on finance contracts
   
(3,391
)
   
(14,895
)
   
(112,957
)
Repayment of notes payable, other
   
     
     
(43,874
)
Net Cash (Used in) Provided by Financing Activities
   
(3,391
)
   
12,105
     
7,216,266
 
 
 
F-6

 
               
July 27, 2002
  
                     
(Inception)
  
     
Three Months Ended
December 31,
     
Through
December 31,
  
     
2009
     
2008
    
2009
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
(1,612
   
8,826
     
736
 
                         
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
2,348
     
32,456
     
 
                         
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
736
   
$
41,282
   
 $
736
 
                         
SUPPLEMENTAL CASH FLOW INFORMATION:
                       
Cash paid for interest
 
$
1,307
   
$
585
   
$
173,770
 
Cash paid for income taxes
 
$
   
$
   
 $
 
                         
NON-CASH INVESTING AND FINANCING ACTIVITIES :
                       
Accounts payable converted to equity
 
$
6,000
   
$
   
$
 

The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-7

 

EL CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of El Capitan Precious Metals, Inc. (“El Capitan or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, the financial statements do not include all information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed interim financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the year ending September 30, 2010, or for any subsequent period. These interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended September 30, 2009, included in the Company’s Annual Report on Form 10-K, filed December 30, 2009. The consolidated balance sheet at September 30, 2009, has been derived from the audited financial statements included in the 2009 Annual Report.
 
Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2009 as reported in the Form 10−K have been omitted.

Certain prior year amounts have been reclassified to conform to the current year presentation.
 
NOTE 2 - GOING CONCERN
 
The accompanying financial statements have been prepared assuming El Capitan will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. El Capitan is an exploration stage company and since its inception has had no revenues and through December 31, 2009, has incurred recurring losses aggregating $18,056,715 during the exploration stage. In addition, the Company does not have a revolving credit facility with any financial institution. These factors raise substantial doubt about El Capitan’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on raising additional capital, negotiating adequate financing arrangements and on achieving sufficiently profitable operations. The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 3 - DUE FROM AFFILIATES

During the period October 2004 through December 2009, El Capitan made net payments on behalf of Minerals aggregating to $2,480,702 relating to costs incurred on behalf of El Capitan, Limited (“ECL”) on the El Capitan property site. Pursuant to an agreement with Minerals effective October 1, 2004, costs incurred by ECL at the El Capitan site are to be split between the companies in accordance with their percentage ownership interest. El Capitan holds a 40% equity interest in ECL, and Minerals holds the remaining 60% equity interest. Through December 31, 2009, Minerals has reimbursed or advanced El Capitan $2,584,867 of the incurred site costs.  
 
At December 31, 2009, El Capitan owed Minerals $104,165. 

NOTE 4 - STOCKHOLDERS’ EQUITY

Issuances of Common Stock, Warrants and Options

Common Stock

During the quarter ended December 31, 2009, El Capitan issued 66,667 shares of the Company’s common stock in payment of consulting services valued at $6,000.

Warrants    

During the three months ended December 31, 2009, 300,000 warrants at an exercise price of $0.60 expired.

 
F-8

 

During the three months ended December 31, 2009, the Company did not issue any warrants.  The following table sets forth certain terms of the Company’s outstanding warrants and exercisable warrants as of December 31, 2009.

   
Warrants Outstanding
     
Warrants Exercisable
  
     
Number of 
Shares
     
Weighted
Average Exercise
Price
     
Number of 
Shares
     
Weighted
Average Exercise
Price
  
Balance, September 30, 2009
    
1,235,031
    $
0.59
     
1,235,031
    $
0.59
 
Granted
   
     
     
     
 
Expired/Cancelled
   
(300,000
)
  $
(0.60
   
(300,000
)
  $
(0.60
Exercised
   
     
     
     
 
Balance, December 31, 2009
   
 935,031
    $
0.59
     
935,031
    $
0.59
 
                                 
Weighted average contractual life in years
   
.88
             
.88
         
Aggregate intrinsic value
  $
            $
         

At December 31, 2009, the Company had no outstanding warrants which had a right to call feature.

  Options

During the three months ended December 31, 2009, the Company did not grant any options.

The following table sets forth certain terms of the Company’s outstanding options and exercisable options as of December 31, 2009:

   
Options Outstanding
     
Options Exercisable
  
     
Number of 
Shares
     
Weighted Average 
Exercise Price
     
Number of 
Shares
     
Weighted Average 
Exercise Price
  
Balance, September 30, 2009
   
3,250,000
    $
0.35
     
3,250,000
    $
0.35
 
Granted
   
     
     
     
 
Exercised
   
     
     
     
 
Expired/Cancelled
   
     
     
     
 
Balance, December 31, 2009
   
3,250,000
    $
0.35
     
3,250,000
    $
0.35
 
                                 
Weighted average contractual life in years
   
2.55
             
2.55
         
                                 
Aggregate intrinsic value
  $
            $
         

The aggregate intrinsic value in the warrant and option tables above represents total pretax intrinsic value (the difference between El Capitan’s closing stock price on December 31, 2009, and the exercise price, multiplied by the number of in-the-money warrants or options) that would have been received by the warrant or option holders had all warrant or option holders exercised their warrants or options on December 31, 2009. These amounts change based on the fair market value of El Capitan’s stock.

El Capitan has a Stock Incentive Plan under which 16,000,000 shares are reserved and registered for stock and option grants. There were 4,285,413 shares available for grant under the Plan at December 31, 2009, excluding the 3,250,000 options outstanding.

NOTE 5 – SUBSEQUENT EVENTS

The Company has evaluated events and transactions that occurred between December 31, 2009 and February 12, 2010, which is the date the consolidated financial statements were available for issue, for possible disclosure or recognition in the consolidated financial statements. The Company has determined that there were no such events or transactions that warrant disclosure or recognition in the consolidated financial statements except as noted below.
 

 
F-9

 

In January 2010, El Capitan issued 100,000 shares of the Company’s common stock in payment of consulting services valued at $17,000.

In January 2010 El Capitan received advances from its affiliated company aggregating $20,000 for working capital purposes.
 
 
F-10

 

Item 2 - Management’s Discussion and Analysis and Plan of Operation
 
RESULTS OF OPERATIONS

Three Months Ended December 31, 2009 Compared to Three Months Ended December 31, 2008

Revenues    

We have not yet realized any revenue from operations, nor do we expect to realize potential revenues until one of our properties is sold. There is no guaranty that we will achieve proven viable precious metals at any of our property site locations.
 
Expenses and Net Loss
 
Our operating expenses decreased $311,396 from $404,914 for the three months ended December 31, 2008 to $93,518 for the three months ended December 31, 2009. The decrease is mainly attributable to decreases in professional fees of $23,122; exploration expenses of $22,129; officer compensation of $135,000; legal and accounting of $24,381; and warrant and option expense of $139,456. These decreases were offset by an increase of $34,581 for administrative consulting fees.
 
Our net loss for the three months ended December 31, 2009 decreased to $93,747 from a net loss of $405,494 incurred for the comparable three month period ended December 31, 2008. The decrease in net loss of $311,747 for the current period is attributable to the aforementioned decreases in operating expenses.
 
PLAN OF OPERATION
 
To address the going concern problem addressed in our financial statements, we will require raising additional working capital. We will also require additional working capital funds for continuing payments for the continued implementation of our business strategies, necessary corporate personnel, and related general and administrative expenses.
 
We have not generated any revenue from the production of gold or other metals since our inception, and historically have relied on equity and debt financings to finance our ongoing operations. We generated a net loss of $93,747 for the three months ended December 31, 2009. We have a total accumulated deficit of $18,056,715 at December 31, 2009. To continue as a going concern, we are dependent on continued fund raising. However, we have no commitment from any party to provide additional capital and there is no assurance that such funding will be available when needed, or if available, that its terms will be favorable or acceptable to us.
 
We are dependent on obtaining additional financing or equity placements to continue our exploration, metallurgical and recovery program efforts on the Capitan project. We have no current plans or arrangements for these additional capital requirements, and we anticipate that we will seek the additional financing scenarios during the first calendar quarter of 2010.
 
The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Our inability to access various capital markets or acceptable financing could have a material effect on our results of operations, deployment of our business strategies and severely threaten our ability to operate as a going concern. Should we be unable to continue as a going concern, we may be unable to realize the carrying value of our assets and to meet our obligations as they become due.
 
During the remainder of our current fiscal year, we will continue to concentrate on raising the necessary working capital through equity financing and an acceptable debt facility to ensure our ability to implement our business strategies. To the extent that additional capital is raised through the sale of equity or equity related securities, the issuance of such securities may result in dilution of our current stockholders.
 
Our objective is to continue the evaluation of geologic and metallurgical opportunities presented by the El Capitan deposit with the intent to carry on the implementation of the previously announced strategic plan for the development or sale of this asset. Over the past several years there has been a significant effort to develop an understanding of the metallurgical properties of this deposit. We have learned that the complex poly-metallic nature of the rock prevents analysis by standard fire assay techniques typically applied to gold/silver deposits. Further, the oxide nature of the material does not appear to respond well to nickel-sulfide analytical techniques typically used for sulfide platinum group metal (“PGM”) deposits. These factors have resulted in a reduction in the level of activity directed towards force-fitting the El Capitan gold, silver, and PGM deposit into the traditional analytical framework of a gold & silver or sulfide PGM deposit. We do not have “reserves” as defined by Industry Guide 7 of the SEC, and it is possible it may never have reserves. Previous exploration efforts have focused on private, patented land and nearby federal claims.

 
1

 

In order to ensure continued timely and appropriate permitting, we hired an experienced New Mexico headquartered environmental services firm to manage this effort. When the permit is granted, it will provide the opportunity for a professional and methodical investigation into the additional geologic potential of this portion of our holdings without requiring further time-consuming permitting efforts. The area being permitted will allow access to a number of high-potential targets identified through previous surface sampling and remote sensing efforts, as well as to the prospective area to the west of the existing deposit, which remains open to geologic resource extension. This United States Forest Service (“USFS”) permitting effort, governed by the National Environmental Policy Act (NEPA) of 1972, is a robust process that can take a significant amount of time to complete. The typical process generally takes longer than the prescribed regulatory time frame, and is dependent upon a number of factors outside of our control, including, without limitation, governmental approvals, licensing and permitting, as well as potential opposition by third parties. Concurrently, GL Environmental has submitted a permit application with the New Mexico Mining & Minerals Division. Both permits must be approved prior to the commencement of drilling activity.
 
On July 14, 2008, we announced that we had entered into a Memorandum of Understanding with the USFS related to the permitting of 112 exploration drill holes planned on 2,000 acres of the El Capitan claims in Lincoln County, New Mexico. The action signals the initiation of the Federal Environmental Assessment (“EA”) permitting process. Based upon recent USFS EA completion timelines, we anticipate receipt of permits in the first calendar quarter of 2010, at which time exploration activity could resume.
 
On July 23, 2008 we announced that the proposed merger with Gold and Minerals reached the stage at which we were ready to file a Form S-4 registration statement with the Securities and Exchange Commission. Due to the time consuming nature of the preparation of a Form S-4 and the uncertainty of the timing of the SEC review process, the companies had worked with counsel to examine alternative structures for the transaction. While alternatives were identified, none held significant promise to be less time consuming or more cost effective for stockholders. Both companies have concluded that the Form S-4 registration process will be the optimal path forward, and have decided to continue to pursue the original merger structure.
 
After numerous delays in the merger process, on September 18, 2009, Gold and Minerals gave a Notice of Termination to the Company referencing the Agreement and Plan of Merger, dated February 12, 2008, between the companies. The election to terminate was made pursuant to subparagraph (d) of Paragraph 10.1 of Article X of the Agreement. The main basis for the election to terminate was that the circumstances surrounding the Plan of Merger had changed since the execution of the Agreement. Upon completion of the metallurgical work, permitting and extraction process, and other current projects Gold and Minerals is currently working on, it is the intent of Gold and Minerals to re-enter into a new Agreement and Plan of Merger based on the circumstances at the time of implementation of the Agreement.
 
The Company and its affiliated company are currently working on new fire assay techniques for the Capitan ore. Upon perfecting this process we will have the process observed on multiple samples and have the process fully documented by a PhD chemist. Upon completion of this process, the chemist will then take the same samples to a second commercial lab to have the results verified by having them rerun the samples utilizing our procedure under his observation.
 
Liquidity
 
As of December 31, 2009, we had $736 of cash on hand. We will be required to raise additional working capital in equity or financing transactions in order to satisfy our expected cash expenditures. In the event that we are unable to obtain additional working capital, we may be forced to reduce our operating expenditures or to cease development and operations altogether. Currently we are dependent on our affiliated company for working capital funds.
 
Additionally, we continually evaluate business opportunities such as joint venture processing agreements with the objective of creating cash flow to sustain the Company and provide a source of funds for growth and continued exploration of the El Capitan deposit. There are no assurances of success in our ability to obtain continued financing through capital markets, joint ventures, or other acceptable arrangements. If management’s plans are not successful, operations and liquidity may be adversely impacted. In the event that we are unable to obtain additional working capital, we may be forced to reduce our operating expenditures or to cease development and operations altogether.
 
Factors Affecting Future Operating Results
 
We have generated no revenues, other than interest income, since inception. As a result, we have only a limited operating history upon which to evaluate our future potential performance. Our potential must be considered by evaluation of all risks and difficulties encountered by new companies which have not yet established business operations.
 
The price of gold has experienced an increase in value over the past three years. Any significant drop in the price of gold, other precious metals or iron ore prices may have a materially adverse affect on the future results of the our operations unless we are able to offset such a price drop by substantially increased production.
 
 
 
2

 

Off-Balance Sheet Arrangements
 
During the quarter ended December 31, 2009, we did not engage in any off balance sheet arrangements as defined in item 303(c) of the SEC’s Regulation S-B.
 
Critical Accounting Policies
 
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and judgments that significantly affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Note 1, “Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in our Form 10-K for the year ended September 30, 2009, describe our significant accounting policies which are reviewed by management on a regular basis.
 
New Accounting Pronouncements
 
We do not expect the adoption of any recently issued accounting pronouncements to have a significant impact on our financial position, results of operations or cash flows.
 
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
 
Not applicable.
 
Item 4T - Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance the objectives of the control system are met.
 
As of December 31, 2009, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2009.
 
Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act, during the quarter ended December 31, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended December 31, 2009, El Capitan issued 66,667 shares of the Company’s common stock in payment of consulting services valued at $6,000.

Item 5 – Other Information

None

 
3

 

Item 6 - Exhibits

(a)   Exhibits

2.1
Agreement and Plan of Merger by and among Gold and Minerals, Inc., Larry Lozensky, the Company and El Capital Acquisition Company, dated February 12, 2008 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed February 12, 2008).
   
2.2
Escrow Agreement by and among the Company, Larry Lozensky and Escrow Agent (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed February 12, 2008).
   
31.1
Certification of Charles C. Mottley pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2
Certification of Stephen J. Antol pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1
Certification of Mottley pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2
Certification of Stephen J. Antol pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated: February 12, 2010  
EL CAPITAN PRECIOUS METALS, INC.
     
 
By:  
/s/ Charles C. Mottley
 
       Charles C. Mottley
 
       President, Chief Executive Officer and Director
     
Dated: February 12, 2010  
By:  
/s/ Stephen J. Antol
 
        Stephen J. Antol
 
        Chief Financial Officer
 
 
4

 

 
Exhibit No.
 
Description
31.1
 
Certification of Charles C. Mottley pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
Certification of Stephen J. Antol pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
 
Certification of Charles C. Mottley pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 
Certification of Stephen J. Antol pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
 
 
5