EL CAPITAN PRECIOUS METALS INC - FORM 10-Q - May 16, 2011

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EX-32.2 - 906 CERTIFICATION OF CFO - EL CAPITAN PRECIOUS METALS INCp0526_ex32-2.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 March 31, 2011
     
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  o 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  o No þ
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  244,572,765 shares of common stock, par value $0.001, issued and outstanding as of May 13, 2011.

 
(An Exploration Stage Company)

 
Table of Contents
 
 
Page
   
PART I.  FINANCIAL INFORMATION
     
 
 
F-1
 
F-2
  F-3
 
F-6
 
F-8
1
4
4
     
 
     
6
6
6
6
6
6
7
     
SIGNATURES
8
 
 
-i-
PART I.
FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS
(Unaudited)


    March 31,     September 30,  
   
2011
    
2010
  
ASSETS
            
             
CURRENT ASSETS :
            
Cash
  
$
392,840
    
$
955,023
  
Miscellaneous receivables
    
2,882
      
–
  
Prepaid expenses
    
10,270
      
41,903
  
Total Current Assets
    
405,992
      
996,926
  
                 
Furniture and equipment net of accumulated depreciation of $32,727 and $29,222, respectively
    
5,177
      
2,950
  
Investment in El Capitan, Ltd.
    
–
      
788,808
  
Investment in mineral property
    
178,447,032
      
–
  
Notes receivable
    
62,500
      
–
  
Deposits
    
22,440
      
22,440
  
Total Assets
  
$
178,943,141
    
$
1,811,124
  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                 
CURRENT LIABILITIES:
                
Accounts payable
   $ 
85,939
     $
121,956
  
Accrued liabilities
    
27,491
      
343,056
  
Due to affiliated company
    
–
      
28,117
  
Financial derivative liability
    
348,022
      
–
  
Total Current Liabilities
    
461,452
      
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; 244,431,405 and 95,790,069 issued and outstanding, respectively
    
244,431
      
95,790
  
Additional paid-in capital
    
198,943,060
      
20,461,702
  
Deficit accumulated during the exploration stage
    
(20,705,802
)
    
(19,239,497
)
Total Stockholders’ Equity
    
178,481,689
      
1,317,995
  
Total Liabilities and Stockholders’ Equity
  
$
178,943,141
    
$
1,811,124
  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
F-1
(An Exploration Stage Company)
 
CONSOLIDATED STATEMENTS OF EXPENSES
(Unaudited)
 
   
Three Months
Ended March 31,
    
Six Months
Ended March 31,
    
Period From July 26, 2002
(Inception) Through
March 31,
  
   
2011
    
2010
    
2011
    
2010
    
2011
  
                               
OPERATING EXPENSES:
                              
Professional fees
   $ 32,884     $ 1,978     $ 40,809     $ 2,983     $ 3,455,836  
Officer compensation expense
     –       –       –       –       2,863,833  
Administrative consulting fees
     62,500       34,675       127,500       69,256       2,038,266  
Management fees, related parties
     –       –       –       –       320,500  
Legal and accounting fees
     122,530       13,250       177,580       30,836       1,537,967  
Exploration expenses
     176,998       22,949       263,450       33,839       2,753,812  
Warrant, option and stock compensation expenses
     572,585       –       572,585       –       4,649,163  
Other general and administrative
     240,909       11,382       278,429       40,838       1,521,901  
Write-off of accounts payable
     (7,000 )     (15,253 )     (7,000 )     (15,253 )     (63,364 )
Loss on asset dispositions
     –       –       –       –       34,733  
      1,201,406       68,981       1,453,353       162,499       19,112,647  
LOSS FROM OPERATIONS
     (1,201,406 )     (68,981 )     (1,453,353 )     (162,499 )     (19,112,647 )
                                         
OTHER INCOME (EXPENSE):
                                        
Interest income
     968       –       1,352       –       38,317  
Other expenses
     (2,500 )     –       (2,500 )     –       (2,500 )
Forgiveness of debt
     –       –       –       –       115,214  
Interest expense:
                                        
Related parties
     –       –       –       –       (68,806 )
Other
     –       (169 )     –       (398 )     (308,740 )
Loss on financial derivative
     (11,804 )     –       (11,804 )     –       (11,804 )
Gain (loss) on extinguishment of liabilities
     –       2,459       –       2,459       (222,748 )
Accretion of notes payable discounts
     –       –       –       –       (1,132,088 )
      (13,336 )     2,290       (12,952 )     2,061       (1,593,155 )
NET LOSS
   $ (1,214,742 )   $ (66,691 )   $ (1,466,305 )   $ (160,438 )   $ (20,705,802 )
                                         
Basic and diluted net loss per common share
   $ (0.01 )   $ (0.00 )   $ (0.01 )   $ (0.00 )        
                                         
Weighted average number of common shares outstanding
     214,714,259       89,221,595       154,613,073       88,932,865          
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) through March 31, 2011

   
 
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
)
(Continued)
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
EL CAPITAN PRECIOUS METALS, INC.
(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) through March 31, 2011

   
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 unaudited consolidated financial statements.
 
 
EL CAPITAN PRECIOUS METALS, INC.
(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) through March 31, 2011

   
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
  
Common  stock sold by the exercise of warrants
    
366,667
      
366
      
–
      
212,301
      
–
      
212,667
  
Shares issued for acquisition of Gold and Minerals Company, Inc.
    
148,127,043
      
148,127
      
–
      
177,604,325
      
–
      
177,752,452
  
Stock issuance costs for the acquisition
    
–
      
–
      
–
      
(32,324)
      
–
      
(32,324
) 
Common stock issued for services
    
103,000
      
103
      
–
      
111,837
      
–
      
111,940
  
Option expense
    
–
      
–
      
–
      
569,645
         –      
569,645
  
Net loss
    
–
      
–
      
–
      
–
      
(1,466,305
)
    
(1,466,305
)
Balances at March 31, 2011 (Unaudited)
    
244,431,405
    
$
244,431
    
$
–
    
$
198,943,060
    
$
(20,705,802
)
  
$
178,481,689
  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
  
(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)  
 
   
Six Months Ended
March 31,
    
July 26, 2002 
(Inception)
Through
March 31,
  
   
2011
    
2010
    
2011
  
                   
CASH FLOWS FROM OPERATING ACTIVITIES:
                  
Net loss
  
 $
(1,466,305
)
  
 $
(160,438
)
  
 $
(20,705,802
)
                         
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
                        
Warrant and option expense
    
569,645
      
–
      
4,646,223
  
Beneficial conversion feature of notes payable
    
–
      
–
      
225,207
  
Non-cash expense with affiliate
    
–
      
–
      
7,801
  
Stock-based compensation
    
111,940
      
44,729
      
6,541,133
  
Accretion of discount on notes payable
    
–
      
–
      
1,132,088
  
Loss on sale of fixed assets
    
–
      
–
      
34,733
  
Write-off accounts payable and accrued interest
    
(7,000
)
    
(15,253
)
    
(63,364
)
Loss on financial derivative
    
11,804
      
–
      
11,804
  
Forgiveness of debt
     –
 
    
–
      
(115,214
)
Gain on conversion of debt
    
–
      
(2,459
) 
    
(2,459
) 
Provision for uncollectible note receivable
    
–
      
–
      
62,500
  
Non-cash litigation expense
    
214,642
      
–
      
214,642
  
Depreciation
    
3,505
      
2,864
      
78,126
  
Changes in operating assets and liabilities: 
                        
Miscellaneous receivable
    
(2,862
) 
    
–
      
2,001
  
    Interest receivable
    
–
      
–
      
(13,611
)
Prepaid expenses and other current assets
    
35,833
      
19,362
      
(8,543
)
Expense advances on behalf of affiliated company
    
(28,117
)
    
129,029
      
(562,990
)
Accounts payable
    
(42,120
)
    
(11,010
)
    
95,359
  
Accounts payable - Related Party
    
–
      
–
      
364
  
Accrued liabilities
    
(248,412
)
    
(970
)
    
247,797
  
Interest payable, other
    
–
      
–
      
49,750
  
Net Cash Provided by (Used in) Operations
    
(847,447
)
    
5,854
      
(8,122,455
)
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                        
Purchase of property interest
    
–
      
–
      
(100,000
)
Purchase of furniture and equipment
    
(600
)
    
–
      
(148,740
)
Sale of fixed assets
    
–
      
–
      
32,001
  
Deposits
    
–
      
–
      
(22,440
)
Issuance of notes receivable
    
–
      
–
      
(249,430
)
Cash received in acquisition of Gold and Minerals Co., Inc.
    
89,902
      
–
      
89,902
  
Costs associated acquisition share issuance
    
(32,324
) 
    
–
      
(32,324
) 
Payments on notes receivable
    
–
      
–
      
66,930
  
Cash paid in connection with acquisition of DLM Services, Inc.
    
–
      
–
      
(50,000
)
Net Cash Provided by (Used in) Financing Activities
    
56,978
      
–
      
(414,101
)
(Continued)
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
 EL CAPITAN PRECIOUS METALS, INC.
(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)  

   
Six Months Ended
March 31,
    
July 26, 2002 
(Inception)
Through
March 31,
  
   
2011
    
2010
    
2011
  
                   
                   
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
    
212,667
      
–
      
1,550,742
  
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
    
–
      
(6,783
)
    
(117,479
)
Repayment of notes payable, other
    
–
      
–
      
(43,874
)
Net Cash Provided by (Used in) Financing Activities
    
228,286
      
(6,783
) 
    
8,929.396
  
                         
NET (DECREASE) INCEASE IN CASH AND CASH EQUIVALENTS
    
(562,183
)
    
(929
)
    
392,840
  
                         
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
955,023
      
2,348
      
–
  
                         
CASH AND CASH EQUIVALENTS, END OF PERIOD
  
$
392,840
    
$ 
1,419
    
$ 
392,840
  
                         
SUPPLEMENTAL CASH FLOW INFORMATION :
                        
Cash paid for interest
   $
–
     $
398
     $
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
    
–
      
31,176
      
31,176
  
Issuance of common stock to Gold and Minerals Company, Inc. stockholders in connection with the merger of Gold and Minerals Company, Inc.
    
177,752,452
      
–
      
177,752,452
  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
 (An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.
 
Principles of Consolidation
 
With the acquisition of Gold and Minerals Company, Inc. (“Minerals”), the Company also became the 100% owner of EL Capitan, LTD. (“ECL”). Prior to the acquisition of Minerals, the Company owned a 40% interest in ECL, and Minerals owned the remaining 60% interest in ECL. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries El Capitan Precious Metals, Inc., a Delaware corporation; Minerals, a Nevada corporation; and ELC, an Arizona corporation. All significant inter-company accounts and transactions have been eliminated in consolidation.

NOTE 2 – ACQUISITION

On January 18, 2011, at a Special Meeting of the Stockholders of Gold and Minerals Company, Inc. (“Minerals”), the Merger of Minerals into the Company’s wholly owned subsidiary 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 received El Capitan common stock in exchange for their shares of Minerals capital stock. Minerals stockholders received 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. Each share of Minerals common and preferred stock received approximately 1.414156 shares, as rounded to the nearest six (6) decimal places, of El Capitan common stock upon the exchange of Minerals stock. Minerals stockholders did not receive fractional shares of El Capitan common stock, but instead received one whole share for a fractional share after all of a Minerals stockholder’s shares were combined and converted into shares of El Capitan common stock. Most of these El Capitan shares issued have restrictions limiting their transfer during the first 90 days after the Merger, as well as the first year after the Merger. The Company now owns 100% of the Capitan property site and will continue its deployment of business strategies for the sale of the property.
 
 
 
The aggregate purchase price was $177,752,452 and consisted of common stock of the Company and valued at the market closing price on the date of the acquisition. The fair value of the consideration transferred, the assets acquired and the liabilities assumed are set forth in the following table:
 
Consideration:
      
   Common stock issued to Gold and Minerals Company, Inc. stockholders   $ 177,752,452  
         
Allocation of purchase price:
        
   Cash   $ 89,902  
   Notes receivable     62,500  
   Accrued note receivable interest     21  
   Prepaid expenses     4,200  
   Field equipment     5,132  
   Investment in mineral property     177,658,224  
   Accounts payable     (14,103 )
   Accrued professional fees     (17,491 )
   Accrued interest     (1,566 )
   Accrued preferred dividends     (34,367 )
          Total net assets acquired   $ 177,752,452  
 
The notes receivable acquired in the acquisition bear interest at 6% per annum and mature December 31, 2012.

The results of this acquisition are included in the consolidated financial statements from the date of acquisition. The following table presents the pro forma statement of expenses obtained by combining the historical consolidated expenses of the Company and Minerals for the fiscal years ended September 30, 2010 and 2009, giving effect to the merger as if it occurred on the first day of fiscal year 2010 and 2009.

   
Unaudited Pro Forma Combined
For the Years Ended
September 30,
  
   
2010
    
2009
  
             
Revenues
   $ –     $ –  
Net Loss
     (1,681,946 )     (1,085,562 )
Loss per common share – basic and diluted
   $ (0.01 )   $ (0.00 )
Basic and diluted weighted average of common shares outstanding
     239,099,109       236,131,319  
 
NOTE 3 – DERIVATIVE FINANCIAL INSTRUMENT

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
 
The Company reviews the terms of financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. The Company may also issue options or warrants to non-employees in connection with consulting or other services.
 
 

Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instruments are initially recorded at their fair values and are then re-valued at each reporting date, with changes in the fair values reported as charges or credits to income. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

On March 17, 2011, in connection with a settlement agreement with two former officers of the Company, the Company agreed to pay $322,500 of the settlement in shares of common stock to be issued in four monthly installments based on the volume weighted average closing price of the Company’s common stock for the twenty days preceding the each issuance date of the shares. The Company evaluated the instrument under FASB ASC 815-15 and determined that it is required to be accounted for as a derivative due to the number of shares to be issued in the future not being determinable. The fair market value of the derivative instrument at March 17, 2011 was determined to be $336,218 based upon the closing price of the Company’s common stock on that date. On March 31, 2011, the fair market value of the derivative instrument was determined to be $348,022 resulting in a loss on derivative liability of $11,804 for the six months ended March 31, 2011.

Fair value measurement

The Company values its derivative instruments under FASB ASC 820 which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The three levels of the fair value hierarchy defined by ASC 820 are as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date.

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The Company uses Level 1 to value its derivative instruments.
 
 
F-10

The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on March 31, 2011.
 
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Assets
                        
None
   $
–
     $
–
     $
–
     $
–
  
                                 
Liabilities
                                
Derivative financial instruments
   $ 348,022     $
–
     $
–
     $ 348,022  
 
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, as the term is defined by SEC Rule 501, and a non-accredited investor, 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.

On January 18, 2011, warrants were exercised for 366,667 shares of common stock at $0.58 per share and the Company received cash proceeds of $212,667.

On January 19, 2011, the Company issued 148,127,043 shares of common stock valued at $1.20, the closing price on the date of issuance, for a total value of $177,752,452 for the acquisition of Gold and Minerals Company, Inc. A significant portion of the shares were under trading restrictions as provided for in the Merger Agreement and the restrictions are removed quarterly over the twelve months following the merger date.  The Company incurred issuance costs of $32,324 associated with this acquisition.

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 11, 2011, the Company issued 3,000 shares of S-8 common stock pursuant to our 2005 Stock Incentive Plan for outside consulting services valued at $2,940, the value of the closing price of the stock on the date of issuance.

Warrants    

During the six months ended March, 31, 2011, 500,000 warrants at an exercise price of $0.60 expired and 366,667 warrants at an adjusted exercise price of $0.58 were exercised.

During the six months ended March 31, 2011, 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 March 31, 2011.
 
 
F-11
   
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
    
(366,667
 )  
$(0.58)
      
(366,667
 )   
$(0.58)
Balance, March 31, 2011
     –    
–
      
–
    
–
 
Options

On February 7, 2011, the three Directors of the Company were each awarded a two-year 500,000 share 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 fair value of the options was determined to be $892,085 using the Black-Scholes option pricing model and $569,645 was expensed as stock-based compensation during the quarter ended March 31, 2011 and the remaining $322,440 will be expensed over the remaining vesting period. The significant assumptions used in the valuation were: the exercise price noted above, the market value of the Company’s common stock on February 7, 2011, $1.02, expected volatility of 144.58%, risk free interest rate of 0.78% and an expected term of 1.25 years.

During the six months ended March 31, 2011, the Company cancelled 1,500,000 options at an exercise price of $0.14 and 100,000 at an exercise price of $0.56.

The following table sets forth certain terms of the Company’s outstanding options and exercisable options as of March 31, 2011:

   
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
    
1,500,000
     $  1.02      
–
    
–
  
   Exercised
    
–
    
–
      
–
    
–
  
   Expired/Cancelled
    
(1,600,000
)
   $(0.17)      
(1,600,000
) 
   $(0.17)  
Balance, March 31, 2011
    
2,450,000
     $  0.84      
950,000
     $  0.56  
                             
Weighted average contractual life in years
     2.82              4.3        
                             
Aggregate intrinsic value
   $ 750,500           $ 750,500        
 
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 $1.35 closing stock price of the Company’s common stock on March 31, 2011. In-the-money options vested and exercisable aggregated 950,000. 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 2,351,754 shares available for grant under the Plan at March 31, 2011, excluding the 2,450,000 options outstanding.

NOTE 5 – SUBSEQUENT EVENTS

During the period April 1, 2011 through May 20, 2011, the Company issued 141,360 shares of common stock at an aggregate value of $159,406 based upon the closing price on the date of issuance as provided for under the settlement agreement with two former officers of the Company.

 
F-13
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 the 100% 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.

On January 19, 2011, the acquisition of Gold and Minerals Company, Inc. (“Minerals”) became effective. The completion of the Merger gives the Company 100% ownership of the El Capitan property in New Mexico. As a result of the merger, the Company acquired $89,902 in cash and notes receivable and accrued interest aggregating $62,521, and was offset by assuming $67,527 in accounts payable and accrued liabilities.
 

On February 17, 2011, we finalized a confidential Settlement Agreement and Mutual Release (the “Settlement”) that dismissed our lawsuit against two former officers of the Company. The Settlement provided for a cash payment aggregating $177,500 and the issuance of a certain value of common stock over a four month period.

As of March 31, 2011, we had cash on hand aggregating $392,840 and an accumulated deficit of $20,705,802. Based upon our budgeted burn rate for expenses, the completed private placement proceeds and subsequent warrant exercise proceeds should provide adequate working capital for seven months. We are currently evaluating the recovery process research currently being conducted and the estimated costs to finalize this important segment of our business plan. Upon receiving the final results of the current research and estimated costs to conduct the final segments of this research project, we plan to complete an equity raise that will provide adequate funding to sustain the Company and provide a source of funds for the final phases of the recovery process project for 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 management projects. We will continue to be dependent on obtaining additional financing or equity placements as required to continue any additional exploration, metallurgical and recovery program efforts on the El Capitan project. At this time we have no current 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 seeking additional financing during the third calendar quarter of 2011. In the event that we are unable to obtain additional working capital, or are unable to secure financing upon terms the Company deems acceptable or appropriate, we may be forced to reduce our operating expenditures or to cease development and operations altogether.
 
RESULTS OF OPERATIONS

Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010

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 $1,132,425 from $68,981 for the three months ended March 31, 2010 to $1,201,406 for the three months ended March 31, 2011. The increase is mainly attributable to increased expenses in administrative consulting fees of $27,825; exploration expenses of $154,049, of which $109,000 consisted of non-cash stock compensation for precious metals recovery research; legal and accounting of $109,280; professional fees of $30,906; warrant and stock compensation of $572,585; and other general and administrative of $229,527. 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 previously was partially allocated to Minerals. The increase in professional fees consists of $24,800 attributable to the Company retaining the consulting services of the prior chief executive officer of Minerals during the subsequent merger transition period and to adequately assist Minerals stockholders through the transition period. Legal and accounting increases are attributable to non-recurring costs associated with the S-4 Registration Statement; related Proxy Statement filing regarding the Company’s acquisition of Minerals as a wholly owned subsidiary; preparation of a post-effective amendment of registration statement regarding the exercise of warrants; preparation of the Proxy Statement for our Annual Stockholders Meeting; and the final legal and related costs associated with Settlement with two former officers of the Company. Exploration expense increases were mainly attributable to increased costs incurred for recovery process research aggregating $113,139, including the non-cash stock compensation and increased mine consulting of $25,167. The increase in other general and administrative costs and expenses consisted mainly of a non-cash charge of $214,642 related to the settlement with two former officers and increased travel costs of $7,961.
 
 
Our net loss for the three months ended March 31, 2011 increased to $1,214,742 from a net loss of $66,691 incurred for the comparable three month period ended March 31, 2010. The increase in net loss of $1,148,051 for the current period is attributable to the aforementioned increases in operating expenses and a non-cash charge $11,804 for a loss on the financial derivative.

Six Months Ended March 31, 2011 Compared to Six Months Ended March 31, 2010

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 $1,290,854 from $162,499 for the six months ended March 31, 2010 to $1,453,353 for the six months ended March 31, 2011. The increase is mainly attributable to increased expenses in administrative consulting fees of $58,244; exploration expenses of $229,611, of which $109,000 consisted of non-cash stock compensation for precious metals recovery research; legal and accounting of $146,744; professional fees of $37,826; warrant and stock compensation of $572,585; and other general and administrative of $237,591. 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 previously was partially allocated to Minerals. The increase in professional fees consists of $24,800 attributable to the Company retaining the consulting services of the prior chief executive officer of Minerals during the subsequent merger transition period and to adequately assist Minerals stockholders through the transition period and increased electronic filing fees of $14,676 incurred in reference to the SEC required filings. Legal and accounting increases are attributable to non-recurring costs associated with the S-4 Registration Statement, related Proxy Statement filing regarding the Company’s acquisition of Minerals as a wholly owned subsidiary; preparation of a post-effective amendment of a registration statement regarding the exercise of warrants; preparation of the Proxy Statement for our Annual Stockholders Meeting; and the final legal and related costs associated with Settlement with two former officers of the Company. Exploration expense increases were mainly attributable to increased costs incurred for recovery process research aggregating $135,737, including the non-cash stock compensation, increased mine consulting of $38,619 and increased assay costs of $23,598. The increase in other general and administrative costs and expenses consisted mainly of a non-cash charge of $214,642 related to the settlement with two former officers; transfer agent fees of $17,483; travel and entertainment of $11,847; and filing fees aggregating $6,000. These increases were offset by a decrease in web site maintenance of $15,080.
 
Our net loss for the six months ended March 31, 2011 increased to $1,466,305 from a net loss of $160,438 incurred for the comparable six month period ended March 31, 2010. The increase in net loss of $1,305,867 for the current period is attributable to the aforementioned increases in operating expenses and a non-cash charge $11,804 for a loss on the financial derivative.

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 our ability to market the sale of the El Capitan property site and/or the future results of potential operations at such site unless we are able to offset such a price drop by substantially decreased costs of extraction and/or production.
 

We currently are continuing to have geological and metallurgical work performed on samples from our site and developing an economically feasible precious metals recovery process developed by an outside metallurgical firm for our El Capitan ore. We anticipate this research will be completed in the second calendar quarter of 2011. Upon completion of the recovery research, it is our intention to retain the services of an investment banker to market the sale of the El Capitan site to qualified buyers.

Off-Balance Sheet Arrangements
 
During the three months ended March 31, 2011, 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
 
At this time the Company qualifies as a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and is not required to provide the information required under this Item.
 
Item 4.
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 March 31, 2011, 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
 
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). The parties to the lawsuit agreed to mediate the dispute and on February 17, 2011, the parties reached a mutually beneficial confidential Settlement Agreement, which was formalized and signed on March 17, 2011, which fully resolved all employment and business issues between the parties. The Settlement Agreement provides for mutual release, cash payment by us of $177,500, and the issuance of a certain value of common stock, payable over four months. In addition, all outstanding stock options then held by the two former officers were cancelled.
 
Item 1A.
Risk Factors
 
The risk factors set forth in the Company’s Annual Report on Form 10-K for the fiscal year ending September 30, 2010 filed with the SEC on January 13, 2011 contain important factors that could cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management from time to time. Investors are encouraged to review and read such risk factors in relation to the statements herein.
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
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
  
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:   May 16, 2011
By:
/s/  Charles C. Mottley  
   
Charles C. Mottley
President, Chief Executive Officer and Director
(Principal Executive Officer)
  
       
 
Dated:   May 16, 2011
By:
/s/  Stephen J. Antol  
   
Stephen J. Antol
Chief Financial Officer
  
       
 
 
 
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