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EX-32.2 - 906 CERTIFICATION OF CFO - EL CAPITAN PRECIOUS METALS INCp0230_ex32-2.htm
EX-32.1 - 906 CERTIFICATION OF CEO - EL CAPITAN PRECIOUS METALS INCp0230_ex32-1.htm
EX-31.1 - 302 CERTIFICATION OF CEO - EL CAPITAN PRECIOUS METALS INCp0230_ex31-1.htm
EX-31.2 - 302 CERTIFICATION OF CFO - EL CAPITAN PRECIOUS METALS INCp0230_ex31-2.htm
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
þ  
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
   
For The Quarterly Period Ended December 31, 2010
     
o
 
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the transition period from __________ to __________
 
Commission file number:  333-56262
 
EL CAPITAN PRECIOUS METALS, INC.
(Exact name of registrant as specified in its charter)
 
NEVADA
 
88-0482413
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
15225 North 49th Street
Scottsdale, AZ 85254
 (Address of principal executive offices)
 
   (602) 595-4997
(Registrant’s telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  No þ
 
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    þ
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes  No þ
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  244,428,405 shares of common stock, par value $0.001, issued and outstanding as of February 10, 2011.
 
(An Exploration Stage Company)

Form 10-Q for the Quarter Ended December 31, 2010
 
Table of Contents
 
 
Page
   
PART I.  FINANCIAL INFORMATION
     
 
 
F-1
 
F-2
  F-3
 
F-6
 
F-8
1
4
4
     
 
     
5
5
5
5
6
6
6
     
SIGNATURES
7
 
 
-i-

PART I.
FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
  (An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS
(Unaudited)

    December 31,     September 30,  
   
2010
   
2010
 
             
ASSETS
           
             
CURRENT ASSETS :
           
Cash
 
$
636,718
   
$
955,023
 
Prepaid expenses
   
29,846
     
41,903
 
Total Current Assets
   
666,564
     
996,926
 
                 
Furniture and equipment net of accumulated depreciation of $30,654 and $29,222, respectively
   
1,518
     
2,950
 
Investment in El Capitan, Ltd.
   
788,808
     
788,808
 
Deposits
   
22,440
     
22,440
 
Total Assets
 
$
1,479,330
   
$
1,811,124
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
 
$
85,203
   
$
121,956
 
Accrued liabilities
   
312,076
     
343,056
 
Due to affiliated company
   
     
28,117
 
Total Current Liabilities
   
397,279
     
493,129
 
                 
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; 95,834,695 and 95,790,069 issued and outstanding, respectively
   
95,835
     
95,790
 
Additional paid-in capital
   
20,477,276
     
20,461,702
 
Deficit accumulated during the exploration stage
   
(19,491,060
)
   
(19,239,497
)
Total Stockholders’ Equity
   
1,082,051
     
1,317,995
 
Total Liabilities and Stockholders’ Equity
 
$
1,479,330
   
$
1,811,124
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-1

  (An Exploration Stage Company)
 
CONSOLIDATED STATEMENTS OF EXPENSES
(Unaudited)
 
   
Three Months Ended 
December 31,
   
July 26, 2002 
(Inception)
Through
December 31,
 
    2010     2009     2010  
OPERATING EXPENSES:
                 
Professional fees
 
$
7,925
   
$
1,005
   
$
3,422,952
 
Officer compensation expense
   
     
     
2,863,833
 
Administrative consulting fees
   
65,000
     
34,581
     
1,975,766
 
Management fees, related parties
   
     
     
320,500
 
Legal and accounting fees
   
55,050
     
17,586
     
1,415,437
 
Exploration expenses
   
86,452
     
10,890
     
2,576,814
 
Warrant and option expenses
   
     
     
4,076,578
 
Other general and administrative
   
37,520
     
29,456
     
1,280,992
 
Write-off of accounts payable and accrued interest
   
     
     
(56,364
Loss on asset dispositions
   
     
     
34,733
 
Total Operating Expenses
   
251,947
     
93,518
     
17,911,241
 
                         
LOSS FROM OPERATIONS
   
(251,947
)
   
(93,518
)
   
(17,911,241
)
                         
OTHER INCOME (EXPENSE):
                       
Interest income
   
384
     
     
37,349
 
Forgiveness of debt
   
     
     
115,214
 
Interest expense:
                       
Related parties
   
     
     
(68,806
)
Other
   
     
(229
)
   
(308,740
)
Gain (loss) on extinguishment of liabilities
   
     
     
(222,748
)
Accretion of notes payable discounts
   
     
     
(1,132,088
)
Total Other Income (Expense)
   
384
     
(229)
     
(1,579,819
)
                         
NET LOSS
 
$
(251,563
)
 
$
(93,747
)
 
$
(19,491,060
)
                         
Basic and diluted net loss per common share
  $
(0.00
  $
(0.00
       
                         
Weighted average number of common shares outstanding
   
95,818,434
     
88,650,413
         
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) to December 31, 2010
 
   
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 issued 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
)
(Continued)
The accompanying notes are an integral part of these consolidated financial statements.
 
 
EL CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY
(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) to December 31, 2010

   
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 a timing difference on debt discount
 
     
     
     
(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
 
(Continued)
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
EL CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY
(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) to December 31, 2010

   
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 and 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
    525,000      
525
     
     
180,975
     
     
181,500 
 
Conversion of accounts payable and accrued liabilities to equity
 
346,399
     
347
     
     
30,829
     
     
31,176
 
Common stock issued for compensation
 
2,075,927
     
2,076
     
     
647,234
     
     
649,310
 
Sale of common stock
 
4,255,374
     
4,255
     
     
1,485,111
     
     
1,489,366
 
Net loss
 
     
     
     
     
(1,276,529
   
(1,276,529
Balances at September 30, 2010
 
95,790,069
   
$
95,790
   
$
   
$
20,461,702
   
$
(19,239,497
)
 
$
1,317,995
)
                                               
Sale of common stock
 
44,626
     
45
     
     
15,574
     
     
15,619
 
Net loss
 
     
     
     
     
(251,563
)
   
(251,563
)
Balances at December 31, 2010 (Unaudited)
 
95,834,695
   
$
95,835
   
$
   
$
20,477,276
   
$
(19,491,060
)
 
$
1,082,051
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
  
(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)  
 
   
Three Months Ended
December 31,
   
July 26, 2002 
(Inception)
Through
December 31,
 
   
2010
   
2009
   
2010
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
Net loss
 
 $
(251 563
)
 
 $
(93,747
)
 
 $
(19,491,060
)
                         
Adjustments to reconcile net (loss) to net cash used in operating activities
                       
Warrant and option expense
   
     
     
4,076,578
 
Beneficial conversion feature of notes payable
   
     
     
225,207
 
Non-cash expense with affiliate
   
     
     
7,801
 
Stock-based compensation
   
     
     
6,429,193
 
Accretion of discount on notes payable
   
     
     
1,132,088
 
(Gain) loss on sale of fixed assets
   
     
     
34,733
 
Write-off accounts payable and accrued interest
   
     
     
(56,364
)
Forgiveness of debt
   
     
     
(115,214
)
(Gain) on conversion of debt
   
     
     
(2,459
Provision for uncollectible note receivable
   
     
     
62,500
 
Depreciation
   
1,432
     
1,432
     
76,053
 
Changes in operating assets and liabilities: 
                       
Miscellaneous receivable
   
     
     
4,863
 
Interest receivable
   
     
     
(13,611
)
Prepaid expenses and other current assets
   
12,057
     
9,668
     
(32,319
)
Expense advances on behalf of affiliated company
   
(28,117
   
57,104
     
(562,990
)
Accounts payable
   
(36,753
)
   
22,489
     
100,726
 
Accounts payable - Related Party
   
     
     
364
 
Accrued liabilities
   
(30,980
 )
   
4,833
     
465,229
 
Interest payable, other
   
     
     
49,750
 
Net Cash (Used in) Provided by Operations
   
(333,924
)
   
1,779
     
(7,608,932
)
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Purchase of property interest
   
     
     
(100,000
)
Purchase of furniture and equipment
   
     
     
(148,140
)
Sale of fixed assets
   
     
     
32,001
 
Deposits
   
     
     
(22,440
)
Issuance of notes receivable
   
     
     
(249,430
)
Payments received on notes receivable
   
     
     
66,930
 
Cash paid in connection with acquisition of DLM Services, Inc.
   
     
     
(50,000
)
Net Cash (Used in) Financing Activities
   
     
     
(471,079
)
                         
(Continued)
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 EL CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY
(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)  
 
 
   
Three Months Ended
December 31,
   
July 26, 2002 
(Inception)
Through
December 31,
 
   
2010
   
2009
   
2010
 
                   
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Proceeds from the sale of common stock
   
15,619
     
     
4,961,591
 
Costs associated with the sale of stock
   
     
     
(19,363
)
Proceeds from notes payable, related parties
   
     
     
219,900
 
Proceeds from warrant exercise
   
     
     
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
)
   
(117,479
)
Repayment of notes payable, other
   
     
     
(43,874
)
Net Cash Provided by (Used in) Financing Activities
   
15,619
     
(3,391
   
8,716,729
 
                         
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
   
(318,305
)
   
(1,612
)
   
636,718
 
                         
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
955,023
     
2,348
     
 
                         
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
636,718
   
736
   
636,718
 
                         
SUPPLEMENTAL CASH FLOW INFORMATION :
                       
Cash paid for interest
  $
    $
229
    $
172,917
 
Cash paid for income taxes
   
            –
     
           –
     
               –
 
                         
NON-CASH INVESTING AND FINANCING ACTIVITIES :
                       
Fixed assets disposed for accrued liabilities
  $
    $
    $
1,991
 
Issuance of common stock to Gold and Minerals Company, Inc. in connection with the purchase of interest in of El Capitan, Ltd.
   
           –
     
           –
     
                                      8
 
Issuance of common stock to Gold and Minerals Company, Inc. in connection with the purchase of the COD property
   
           –
     
           –
     
            3,600
 
Issuance of common stock to Gold and Minerals Company, Inc. in connection with the purchase of the Weaver property
   
           –
     
           –
     
        3,000
 
Net non-cash advances from affiliated company
   
           –
     
           –
     
       562,990
 
Notes payable and accrued interest converted to equity
   
           –
     
           –
     
2,495,544
 
Accounts payable and accrued liabilities converted to equity
   
    –
     
          6,000
     
        31,176
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 (An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010
(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, 2011, 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, 2010, included in the Company’s Annual Report on Form 10-K, filed January 13, 2011. The consolidated balance sheet at September 30, 2010, has been derived from the audited financial statements included in the 2010 Annual Report.
 
Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2010 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 - MERGER AGREEMENT WITH AFFILIATE
 
On June 28, 2010, the Company and Gold and Minerals Company, Inc., a Nevada corporation (“Minerals”), and MergerCo, a Nevada corporation, the Company’s wholly owned subsidiary, signed the Agreement and Plan of Merger (the “Merger Agreement”), whereby, upon approval of the Minerals’ stockholders, Minerals would be merged into MergerCo, with Minerals being the surviving corporation and becoming a wholly owned subsidiary of the Company (the Merger). Mr. Charles Mottley is a Director of the Company, Minerals and MergerCo.
 
On November 2, 2010, El Capitan filed an S-4 Registration Statement relating to the proposed Merger with the Securities and Exchange Commission (“SEC”).  On November 12, 2010, the SEC declared the S-4 Registration Statement effective. On December 10, 2010, a Proxy Statement/Prospectus relating to the Merger was filed with the SEC pursuant to Rule 424(b)3. Under Minerals charter documents and Nevada law, the approval of the Merger required the affirmative vote of the holders of a majority of the outstanding shares of Minerals common stock and preferred stock (collectively, the “Minerals” capital stock”) at a special meeting of the Minerals stockholders. On January 18, 2011, a Special Meeting of Stockholders of Minerals was held, at which meeting the Merger was approved by Minerals stockholders. See NOTE 5 - Subsequent Events.
 
NOTE 3 - DUE TO AFFILIATE

During the period October 2004 through December 2010, El Capitan made advances or net payments on behalf of Minerals aggregating $2,728,851 relating to costs incurred on behalf of El Capitan, Ltd. (“ECL”) on the El Capitan property site. Pursuant to an agreement with Minerals effective October 1, 2004, costs incurred through July 31, 2010, 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 2010, Minerals has reimbursed El Capitan $2,728,851 of the incurred site costs or other advances. At December 31, 2010, there were no balances due between the affiliates.
 
 
F-8

NOTE 4 - STOCKHOLDERS’ EQUITY

Issuances of Common Stock, Warrants and Options

Common Stock

During the period October 1, 2010, through November 11, 2010, the Company issued 44,626 shares of restricted common stock at $0.35 per share to an accredited investor and a non-accredited investor, as the term is defined by SEC Rule 501, in the aggregate amount of $15,619.  These sales were made pursuant to a private placement of securities under Section 4(2) and Rule 506 promulgated under the Securities Act and without public solicitation. There were no underwriting discounts or commissions paid on these sales of securities.

Warrants 

During the three months ended December 31, 2010, 500,000 warrants at an exercise price of $0.60 expired.

During the three months ended December 31, 2010, 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, 2010.
 
   
Warrants Outstanding
   
Warrants Exercisable
   
Number of 
Shares
   
Weighted
Average Exercise
Price
   
Number of 
Shares
   
Weighted
Average Exercise
Price
                           
Balance, September 30, 2010
   
866,667
    $0.60      
866,667
    $0.60
Granted
   
         
     
Expired/Cancelled
   
(500,000
)
  $(0.60)      
(500,000
)
  $(0.60)
Exercised
   
         
     
Balance, December 31, 2010
   
 366,667
    $0.60      
366,667
    $0.60
                           
Weighted average contractual life in years
   
.05
           
.05
     
                           
Aggregate intrinsic value
  $
29,333
          $
29,333
     
 
At December 31, 2010, the Company had no outstanding warrants which had a right to call feature.
 
Options
 
During the three months ended December 31, 2010, 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, 2010:
 
   
Options Outstanding
   
Options Exercisable
   
Number of 
Shares
   
Weighted
 Average Exercise
Price
   
Number of 
Shares
   
Weighted
Average Exercise
Price
                           
Balance, September 30, 2010
   
2,550,000
    $0.31      
2,550,000
    $0.31
   Granted
   
         
   
   Exercised
   
         
   
   Expired/Cancelled
   
         
   
Balance, December 31, 2010
   
2,550,000
    $0.31      
2,550,000
    $0.31
                           
Weighted average contractual life in years
   
2.1
           
2.1
     
                           
Aggregate intrinsic value
  $
936,000
          $
936,000
     
 
The intrinsic value of each option or warrant share is the difference between the fair market value of the common stock and the exercise price of such option or warrant share to the extent it is "in-the-money.” Aggregate intrinsic value represents the pretax value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the quarter and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the $0.68 closing stock price of the Company’s common stock on December 31, 2010. In-the-money Warrants vested and exercisable were 366,667 and in-the-money options vested and exercisable aggregated 2,550,000. The intrinsic value amounts change based on the market price of the Company’s stock.

The Company has a 2005 Stock Incentive Plan under which 16,000,000 shares are reserved and registered for stock and option grants. There were 2,354,754 shares available for grant under the Plan at December 31, 2010, excluding the 2,550,000 options outstanding.

NOTE 5 – SUBSEQUENT EVENTS

On January 18, 2011, at a Special Meeting of the Stockholders of Minerals, the Merger of Minerals into MergerCo was approved by the Minerals shareholders. The Articles of Merger were filed with and recorded by the State of Nevada on January 19, 2011, and the merger became effective on that date under Nevada law. Under the Merger provisions, holders of Minerals capital stock will receive El Capitan common stock in exchange for their shares of Minerals capital stock.  Minerals stockholders will be entitled to receive an aggregate of approximately 148,127,043 shares of El Capitan common stock in exchange for all of the outstanding shares of Minerals capital stock held immediately prior to the effectiveness of the Merger. It is currently anticipated that each share of Minerals common and preferred stock will be entitled to receive approximately 1.414156 shares, as rounded to the nearest six (6) decimal places, of El Capitan common stock upon the exchange of stock. A Minerals stockholder will not receive fractional shares of El Capitan common stock, but instead will receive one whole share for a fractional share after all of a Minerals stockholder’s shares are combined and converted into shares of El Capitan common stock. Most of these El Capitan shares will have restrictions which will limit their transfer during the first 90 days after the Merger, as well as the first year after the Merger. El Capitan expects the issuance of these shares to commence in February 2011. See NOTE 2 – Merger Agreement With Affiliate.
 
On January 18, 2011, a warrant holder exercised 366,667 warrants at an exercise price at $0.58 a share and the Company received cash proceeds of $212,667.
 
On January 20, 2011, the Company issued 100,000 shares of S-8 common stock pursuant to our 2005 Stock Incentive Plan for outside consulting services valued at $109,000, the value of the closing price of the stock on the date of issuance.

On February 7, 2011, the three members of the Board of Directors of the Company were each awarded a two-year 500,000 stock option at an exercise price of $1.02 per share. The options vest on April 30, 2011, and have a cashless exercise provision. The options were valued at $892,085 using the Black-Scholes option pricing model and this amount will be expensed as stock-based compensation during the vesting period.
 
 
F-10

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following management discussion and analysis of our financial condition and results of operation should be read in conjunction with our unaudited interim consolidated financial statements and related notes which are included in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and the “Risk Factors” section included in our Form 10-K for the year ended September 30, 2010.
 
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, 2010.

Company Overview

El Capitan Precious Metals, Inc. (hereinafter, the “Company,” “we” or “our”) is a precious minerals company based in Scottsdale, Arizona. We are an exploration stage company that owns interests in several properties located in the southwestern United States. We are principally engaged in the exploration of precious metals and other minerals. Our primary asset is a 40% equity interest in El Capitan, Ltd., an Arizona corporation, which holds an interest in the El Capitan property located near Capitan, New Mexico. Additionally, our assets include interests in the COD property located near Kingman, Arizona. There is no assurance that a commercially viable mineral deposit exists on any of our properties. Additional exploration will be required before a final evaluation can be made as to the economic and legal feasibility of any particular property. To date, we have not had any revenue producing operations.

Financial Condition, Liquidity and Capital Resources

In November, 2010, we completed our private placement of 4.3 million shares of restricted Rule 144 common stock at $0.35 per share. The private placement generated cash proceeds aggregating $1,504,986, net of wire fees. The funding will be utilized for working capital for payments of the continued implementation of our business strategies, necessary corporate personnel, and related general and administrative expenses.

On January 18, 2011, a warrant holder exercised 366,667 warrants at an exercise price at $0.58 a share and we received net cash proceeds of $212,667
As of December 31, 2010, we had cash on hand aggregating $636,718 and an accumulated deficit of $19,491,060. Based upon our budgeted burn rate for expenses, including litigation costs against the two former officers of the Company, the completed private placement proceeds and subsequent warrant exercise proceeds aggregating $212,667 in January 2011, should provide adequate working capital for 12 to 15 months. 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 continued exploration of the El Capitan deposit. If management’s plans are not successful, operations and liquidity may be adversely impacted. Historically, we have relied on equity and debt financings to finance our ongoing operations and related research projects. We will continue to be dependent on obtaining additional financing or equity placements as required to continue our exploration, metallurgical and recovery program efforts on the El Capitan project. At this time we have no current plans or arrangements for additional capital requirements, 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 anticipate that we will seek the additional financing scenarios during the third calendar quarter of 2011. 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.

On January 18, 2011, at a Special Meeting of the Stockholders of Minerals, the Merger of Minerals into MergerCo was approved by the Minerals stockholders. On January 19, 2011, the Articles of Merger were filed and recorded by the State of Nevada, and the merger became effective on that date under Nevada law. Pursuant to the Merger, Minerals is now a wholly owned subsidiary of the Company. The completion of the Merger gives the Company 100% ownership of the El Capitan mineral site in New Mexico.
 
RESULTS OF OPERATIONS

Three Months Ended December 31, 2010 Compared to Three Months Ended December 31, 2009

Revenues 

We have not yet realized any revenue from operations, nor do we expect to realize potential revenues until our property is sold or a joint venture is entered into for development and deployment of the site. There is no guaranty that we will achieve proven commercially viable recovery of precious metals at our property site location.

Expenses and Net Loss

Our operating expenses increased $158,429 from $93,518 for the three months ended December 31, 2009 to $251,947 for the three months ended December 31, 2010. The increase is mainly attributable to increased expenses in administrative consulting fees of $30,419; exploration expenses of $75,562; legal and accounting of 37,464; professional fees of $6,920 and other general and administrative of $8,064. The increase in administrative consulting fees is due to an additional consultant for investor relations and the Company assuming the total compensation burden for the Chief Operating Officer, which was partially allocated to Minerals. The increase in professional fees and legal and accounting is attributable to non-recurring costs associated with the S-4 Registration Statement and the related Proxy Statement filing regarding the Company’s acquisition of Minerals as a wholly owned subsidiary of the Company. Exploration expense increases were mainly attributable to increased costs incurred for assaying of $25,181; research conducted on the extraction process of $22,598; mine development costs of $5,391 and professional and legal associated costs of $18,242.
 
Our net loss for the three months ended December 31, 2010 increased to $251,563 from a net loss of $93,747 incurred for the comparable three month period ended December 31, 2009. The increase in net loss of $157,816 for the current period is attributable to the aforementioned increases in operating expenses.
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 exploration companies which have not yet established business operations.

The price of gold and other precious metals 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 potential operations unless we are able to offset such a price drop by substantially decreased estimated costs of extraction of production, if involved in a joint venture, or may affect our ability to market the sale of the El Capitan property site.

We currently are continuing to have geological and metallurgical work performed on samples from our site and developing and economically feasible precious metals recovery process developed by an outside metallurgical firm for our El Capitan ore.

Off-Balance Sheet Arrangements
 
During the three months ended December 31, 2010, we did not engage in any off-balance sheet arrangements as defined in Item 303 (a)(4) of Regulation S-K.

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, 2010, describe our significant accounting policies which are reviewed by management on a regular basis.

New Accounting Pronouncements
 
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
 
Item 4T.
Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in its periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the principal executive officer/principal financial officer, to allow timely decisions regarding required disclosure.
 
As of as of the end of period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act).  The evaluation included certain control areas which are material to the Company and its size as an Exploration Stage Company. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Based upon the evaluation, the principal executive officer/principal financial officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by it in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  In addition, the principal executive officer/principal financial officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive officer/principal financial officer, to allow timely decisions regarding required disclosure.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or fraud. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, during the quarter ended December 31, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II.
OTHER INFORMATION
 
Item 1.
Legal Proceedings
 
We are not a party to any bankruptcy, receivership or other legal proceeding, and to the best of our knowledge, no such proceedings by or against the Company have been threatened.

On August 30, 2010, ECPN filed a civil complaint against Mr. Pavlich and Mr. Wilson, two former officers of the Company, in Clark County, Nevada District Court (File No. A-10-624372-B; Dept. No. XIII). This lawsuit against Mr. Pavlich and Mr. Wilson alleges “... their concerted and detrimental efforts to engage in intentional, willful and injurious bad faith and unfair acts” with respect to their salaries and stock options granted in 2008 as described above “... were prejudicial to the Company and its shareholders.”  The lawsuit seeks to have their original stock options and employment agreements declared invalid and non-binding and their subsequent stock options and employment agreements declared invalid and void.  In addition, the lawsuit seeks damages from each of Mr. Pavlich and Mr. Wilson in a minimum amount of $10,000 and punitive and exemplary damages, plus the Company’s attorneys’ fees. As of January 25, 2011, Mr. Wilson has not been served.

On or about November 15, 2010, Mr. Pavlich filed an answer to the Company’s complaint by way of a Motion To Compel Arbitration(the “Motion”) based upon an arbitration provision in Mr. Pavlich’s original employment agreement and the subsequent employment  agreement.  In the Motion, Mr. Pavlich asserts his claim of $175,000 in salary owed by the Company and the validity of the lower priced options.
 
On or about December 7, 2010, the Company filed an answer to the Motion, claiming that the Company’s complaint against Mr. Pavlich was not based upon a breach of either employment agreement, but rather a breach of his statutory fiduciary duty to the Company and its shareholders, and, therefore, was not impacted by the arbitration provision of the employment agreement. As of January 25, 2011, the Court had not ruled upon the Motion.
 
In January 2011, all parties, including Mr. Wilson, agreed to mediate this dispute. The mediation is presently scheduled for February 17, 2011 in Las Vegas, Nevada.
 
Item 1A.
Risk Factors
 
Not applicable to a smaller reporting company.
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
During the period October 1, 2010, through November 11, 2010, the Company issued 44,626 shares of restricted common stock at $0.35 per share to an accredited investor and a non-accredited investor, as the term is defined by SEC Rule 501, in the aggregate amount of $15,619. These sales were made pursuant to a private placement of securities under Section 4(2) and Rule 506 promulgated under the Securities Act and without public solicitation. There were no underwriting discounts or commissions paid on these sales of securities.
 
Item 3.
Defaults Upon Senior Securities
 
None.
 
Item 4.
(Removed and Reserved)
 
Item 5.
Other Information
 
None.
 
Exhibits
 
(a) 
Exhibits

Exhibit
Number
 
Description
     
2.1
 
Agreement and Plan of Merger between the Company, Gold and Minerals Company, Inc. and MergerCo, dated June 28, 2010 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 7, 2010).
3.1
 
Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Form S-4 Registration Statement #333-170281 filed on November 2, 2010).
3.2
 
Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Form S-4 Registration Statement #333-170281 filed on November 2, 2010).
10.1
 
Stock Option Agreement dated September 9, 2008, between the Company and Kenneth P. Pavlich  (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2010 filed on January 13, 2011).
10.2
 
Stock Option Agreement dated September 9, 2008, between the Company and R. William Wilson (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2010 filed on January 13, 2011).
10.3
 
Joint Venture Agreement dated as of May 4, 2010, between the Company, El Capitan, Ltd. and Planet Resource Recovery, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2010 filed on January 13, 2011).
31.1*
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*
 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
__________________
Filed herewith.
 

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.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
       
       
Dated:   February 11, 2011
By:
/s/  Charles C. Mottley  
   
Charles C. Mottley
President, Chief Executive Officer and Director
(Principal Executive Officer)
 
       
 
Dated:   February 11, 2011
By:
/s/  Stephen J. Antol  
   
Stephen J. Antol
Chief Financial Officer
 
       
 
 
 
7