Table of Contents

 

 

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 June 30, 2014
¨		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

 

 

(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.)

 

8390 Via de Ventura, Suite F-110, #215 Scottsdale, AZ		85258
(Address of principal executive offices)		(Zip Code)

 

(928) 515-1942

(Registrant’s telephone number, including area code)

 

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 ¨

 

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 þ No ¨

 

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 (Check one):

 

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

 

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: 278,053,877 shares of common stock, par value $0.001, of the issuer were issued and outstanding as of August 14, 2014. 

 

 

EL CAPITAN PRECIOUS METALS, INC.

 

Table of Contents

 

			Page
PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements		3
	Consolidated Balance Sheets – June 30, 2014 and September 30, 2013 (Unaudited)		3
	Consolidated Statements of Expenses – Three and nine months ended June 30, 2014 and 2013 (Unaudited)		4
	Consolidated Statement of Stockholders’ Equity – September 30, 2012 through June 30, 2014 (Unaudited)		5
	Consolidated Statements of Cash Flows – Nine months ended June 30, 2014 and 2013 (Unaudited)		6
	Notes to the Consolidated Financial Statements (Unaudited)		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		21
Item 4.	Controls and Procedures		21
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings		22
Item 1A.	Risk Factors		22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		22
Item 3.	Defaults Upon Senior Securities		22
Item 4.	Mine Safety Disclosures		22
Item 5.	Other Information		22
Item 6.	Exhibits		22
SIGNATURES			24

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements

 

 EL CAPITAN PRECIOUS METALS, INC.

 

CONSOLIDATED BALANCE SHEETS

(Unaudited) 

 

		June 30,				September 30,
		2014				2013
ASSETS
CURRENT ASSETS:
Cash		$	112,558			$	373,692
Prepaid expenses and other current assets			97,726				78,526
Deferred costs			—				120,476
Total Current Assets			210,284				572,694
Furniture and equipment, net of accumulated depreciation of $33,989 and $33,102, respectively			518,424				930
Mineral property			1,879,608				1,879,608
Deposits			22,440				22,440
Total Assets		$	2,630,756			$	2,475,672
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	174,061			$	114,877
Accrued liabilities			49,965				40,400
Total Current Liabilities			224,026				155,277
Equipment note payable, net of unamortized discount of $188,719			211,281				—
Total Liabilities			435,307				155,277
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; 276,460,217 and 262,604,345 issued and outstanding, respectively			276,460				262,604
Additional paid-in capital			206,153,030				203,879,146
Accumulated deficit			(204,234,041	)			(201,821,355	)
Total Stockholders’ Equity			2,195,449				2,320,395
Total Liabilities and Stockholders’ Equity		$	2,630,756			$	2,475,672

 

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

 

 

EL CAPITAN PRECIOUS METALS, INC.

 

CONSOLIDATED STATEMENTS OF EXPENSES

(Unaudited)

 

		Three Months Ended June 30,								Nine Months Ended June 30,
		2014				2013				2014				2013
OPERATING EXPENSES:
Professional fees		$	53,947			$	37,798			$	293,585			$	148,795
Administrative consulting fees			65,000				50,000				195,000				155,000
Legal and accounting fees			27,562				32,870				113,056				119,377
Exploration and mine expenses			162,383				169,947				1,215,976				511,005
Other general and administrative			68,640				64,774				555,197				541,393
Total Operating Expenses			377,532				355,389				2,372,814				1,475,570
LOSS FROM OPERATIONS			(377,532	)			(355,389	)			(2,372,814	)			(1,475,570	)
OTHER INCOME (EXPENSE):
Interest income			12				61				85				206
Interest expense			(38,106	)			—				(39,957	)			—
Total Other Income (Expense)			(38,094	)			61				(39,872	)			206
NET LOSS		$	(415,626	)		$	(355,328	)		$	(2,412,686	)		$	(1,475,364	)
Net loss per common share, basic and diluted		$	(0.00	)		$	(0.00	)		$	(0.01	)		$	(0.01	)
Weighted average number of common shares outstanding, basic and diluted			275,491,711				256,376,177				269,845,559				254,322,800

 

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

 

 

EL CAPITAN PRECIOUS METALS, INC.

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

September 30, 2012 through June 30, 2014

(Unaudited)

 

		Common Stock Shares				Common Stock Amount				Additional Paid-in Capital				Accumulated Deficit				Total
Balances at September 30, 2012			251,327,040			$	251,328			$	201,903,913			$	(200,078,743	)		$	2,076,498
Common stock granted for deferred costs			—				—				20,476				—				20,476
Common stock issued for services			60,000				60				15,690				—				15,750
Costs associated with options			—				—				400,283				—				400,283
Sales of common stock			11,217,305				11,216				1,538,784				—				1,550,000
Net loss			—				—				—				(1,742,612	)			(1,742,612	)
Balances at September 30, 2013			262,604,345				262,604				203,879,146				(201,821,355	)			2,320,395
Common stock issued for services			4,350,000				4,350				845,275				—				849,625
Common stock issued with equipment note payable			2,500,000				2,500				219,722				—				222,222
Costs associated with options			—				—				499,869				—				499,869
Options exercised			100,000				100				21,400				—				21,500
Reversal of deferred costs			—				—				(20,476	)			—				(20,476	)
Sales of common stock			6,905,872				6,906				708,094				—				715,000
Net loss			—				—				—				(2,412,686	)			(2,412,686	)
Balances at June 30, 2014			276,460,217			$	276,460			$	206,153,030			$	(204,234,041	)		$	2,195,449

 

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

 

 EL CAPITAN PRECIOUS METALS, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine Months Ended June 30,
		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(2,412,686	)		$	(1,475,364	)
Adjustments to reconcile net loss to net cash used in operating activities:
Warrant and option associated costs			499,869				400,283
Stock-based compensation			849,625				15,750
Amortization of debt discounts			33,503				—
Depreciation			887				1,113
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			(19,200	)			(68,258	)
Deferred costs			100,000				—
Accounts payable			59,183				36,431
Accrued liabilities			3,550				(2,650	)
Interest payable, other			6,016				—
Net Cash Used in Operating Activities			(879,253	)			(1,092,695	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment			(118,381	)			—
Net Cash Used in Investing Activities			(118,381	)			—
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock and subscriptions			715,000				1,100,000
Proceeds from options exercised			21,500				—
Increase in finance contracts			17,439				—
Payments on finance contracts			(17,439	)			—
Net Cash Provided by Financing Activities			736,500				1,100,000
NET (DECREASE) INCREASE  IN CASH AND CASH EQUIVALENTS			(261,134	)			7,305
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			373,692				238,085
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	112,558			$	245,390
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		$	—			$	—
Cash paid for income taxes			—				—
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Reversal of common stock granted for deferred costs		$	20,476			$	—
Common stock issued with equipment note payable			222,222				—
Debt issued for purchase of equipment			400,000				—

  

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

 

 

EL CAPITAN PRECIOUS METALS, INC.

 

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, 2014, 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, 2013, included in the Company’s Annual Report on Form 10-K, filed with the SEC on December 27, 2013. The consolidated balance sheet at September 30, 2013, has been derived from the audited financial statements included in the 2013 Annual Report.

 

Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2013 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. (“G&M”), the Company also became the 100% owner of EL Capitan, Ltd. (“ECL”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries El Capitan Precious Metals, Inc., a Delaware corporation; G&M, a Nevada corporation; and ECL, an Arizona corporation. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

New Accounting Pronouncements

 

In the quarter ending June 30, 2014, the Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to exploration stage.

 

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC during the current reporting period did not, or are not, believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

Management Estimates and Assumptions

 

The preparation of El Capitan’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from these estimates.

 

 

NOTE 2 – MINERAL PROPERTY COSTS

 

Mineral property exploration costs are expensed as incurred until such time as economic reserves are quantified. To date El Capitan has not established any proven or probable reserves on its mineral properties. The Company has capitalized $1,879,608 of mineral property acquisition costs reflecting its investment in the El Capitan site.

 

NOTE 3 – short term note payable

 

On November 21, 2013, the Company entered into an agreement to finance a portion of its insurance premiums in the amount of $17,440 at an interest rate of 10.0% with equal payments of $3,575.58 including interest, due monthly beginning December 21, 2013 and continuing through April 21, 2014. As of June 30, 2014, the outstanding balance under this note payable was $-0-.

 

NOTE 4 – long term note payable

 

On February 28, 2014, the Company agreed to deliver a $400,000 promissory note for a deposit on the purchase of heavy mining equipment. The promissory note accrues interest at 4.5%, with principal and accrued interest payments to be made out of the Company’s proceeds from sale of iron ore from its mining operations. In connection with the transaction, the Company issued 2,500,000 common shares to the lender that resulted in a discount to the note equal to the relative fair value of the common shares of $222,222. The discount is being amortized to interest expense over the expected life of the note through August 31, 2015. During the nine months ended June 30, 2014, amortization expense of $33,503 was recognized. See “Note 5 - Commitments - Additional Financing Agreement,” below. Below is a summary of the outstanding note payable and debt discount at June 30, 2014:

 

Principal amount		$	400,000
Unamortized discount			(188,719	)
Net		$	211,281

 

NOTE 5 – COMMITMENTS

 

In June 2013, the Company signed a contract to have chain of custody head ore located in Denver, Colorado processed by an independent party. The head ore has been shipped to the processing site. The contract called for a $100,000 retainer that was paid in June 2013. Upon completion of the project, if it generated a profit, the Company was to receive the profit from the sale of the recovered precious metals above and beyond the retainer amount paid. Also, the Company was to issue 500,000 shares of the Company’s common stock pursuant to our 2005 Stock Incentive Plan to the processing company. The fair value of the common shares was determined to be $35,000 as of September 30, 2013 and it was being recognized over the service period through the expected completion date of the project in November 2013. The $100,000 retainer and $20,476 of the fair value of the shares were classified as current deferred costs on the balance sheet as of September 30, 2013. In November 2013, the project was completed and a profit was not generated. Accordingly, the $100,000 retainer was expensed and the deferred costs associated with the common shares of $20,476 were reversed during the nine months ended June 30, 2014.

 

Related Party

 

In January 2012, the Company retained Management Resource Initiatives, Inc. (“MRI”) for managing and overseeing the process of marketing and selling the El Capitan property and performing other services aimed at furthering the Company's strategic goals pursuant to an unwritten consulting arrangement. Under this arrangement, the Company pays MRI a monthly consulting fee of $10,000 which was increased to $15,000 effective August 1, 2013. The Company made aggregate payments of $135,000 to MRI during the nine months ended June 30, 2014. MRI is a related party because it is a corporation that is wholly-owned by John F. Stapleton who is the Chief Financial Officer and a Director of El Capitan.

 

 

Purchase Contract with Glencore AG

 

On March 10, 2014, the Company entered into a life-of-mine offtake agreement with Glencore AG (“Glencore”) for the sale of iron ore from the El Capitan property (such agreement is referred to herein as the “Glencore Purchase Contract”). Under the terms of the Glencore Purchase Contract, the Company agreed to sell to Glencore, and Glencore agreed to purchase from the Company, iron ore meeting the applicable specifications from the El Capitan mine. Payment for the iron ore is to be made pursuant an irrevocable letter of credit in favor of the Company. The purchase price is based on an index price less an applicable discount. Either party may terminate the Glencore Purchase Contract following a breach by the other party that remains uncured for a specified period after receipt of written notice.

 

Agreements with Logistica U.S. Terminals, LLC

 

In anticipation of, and in conjunction with, the Glencore Purchase Contract, the Company entered into a Master Services Agreement (the “Master Agreement”) and corresponding Iron Ore Processing Agreement (the “Processing Agreement”) with Logistica U.S. Terminals, LLC (“Logistica”), each effective as of February 28, 2014. Pursuant to these agreements, Logistica agreed to, among other things, provide the logistics required for the Company to fulfill its obligations under the Glencore Purchase Contract, to assist the Company in financing the costs of processing and delivering the iron ore under the Glencore Purchase Contract, and to provide and/or manage the processing of iron ore to be delivered under the Glencore Purchase Contract.

 

Master Agreement with Logistica

 

Under the Master Agreement, the Company agreed that Logistica will be the exclusive logistics agent for the purpose of moving iron ore from the El Capitan property to Glencore’s designated exporting port or final destination. Logistics services include operational supplement chain management and supervision of all logistics providers and operations from the El Capitan mine to the vessel loading port. Logistics services do not include obtaining and maintaining operating, environmental and mining permits, and land and mineral rights, which are the responsibility of the Company. Also under the Master Agreement, Logistica is required to use its best efforts to establish an operating credit line capable of funding all processing and delivery costs and, upon opening and funding such a credit line, will disburse as needed all operating costs contemplated under the Glencore Purchase Contract. The Company is required to reimburse Logistica for all such amounts, without interest, out of payments received from Glencore in respect of the purchase of the iron ore.

 

In consideration for Logistica’s funding and logistics services, the Company will pay Logistica a percentage of ECPN’s profits from the sale of iron ore under the Glencore Purchase Contract. If any sale of iron ore under the Glencore Purchase Contract results in a loss instead of a profit, as a result of a decrease in index pricing of iron or otherwise, then the Company is required to make up the shortfall out of profits from its precious metals processing and refining business, to the extent of available profits therefrom, or otherwise. If iron index prices drop below the price in place at inception of the Glencore Purchase Contract by more than 5%, then the Company will be required to provide Logistica with a greater percentage of profits commensurate with and equivalent to Logistica’s loss of profit share due to the reduction in iron index prices. At inception of the Glencore Purchase Contract, the Platts 62% FE CFR China iron index price was $121.24. In the event of a future sale of the El Capitan property, the Company must either ensure that its agreements with Logistica are assumed by the purchaser or pay Logistica a termination fee.

 

Either party may terminate the Master Agreement following a breach by the other party that remains uncured for 60 days after receipt of written notice. The Master Agreement will otherwise continue indefinitely.

 

 

Processing Agreement with Logistica

 

Under the Processing Agreement, Logistica has agreed to deliver iron ore processing equipment to the El Capitan property and to use it best efforts to process to contract specification, stock pile and load for delivery iron ore that the Company has contracted to sell to Glencore under the Glencore Purchase Contract. In order to do so, Logistica will act as the Company’s turn-key contractor for all of the Company’s iron ore processing and delivery operations at the El Capitan property. In consideration for such services, the Company will pay Logistica a set price per metric ton of iron ore that is processed in accordance with the Glencore Purchase Contract specifications and purchased by Glencore. As additional compensation for entering into the Processing Agreement, the Company issued 4,000,000 shares of common stock to a designee of Logistica under the Company’s 2005 Stock Incentive Plan valued at $800,000. The shares vested immediately upon grant and the $800,000 was expensed in full during the nine months ended June 30, 2014.

 

Either party may terminate the Processing Agreement following a breach by the other party that remains uncured for 60 days after receipt of written notice. The Processing Agreement will otherwise continue indefinitely.

 

Additional Financing Agreement

 

Under a separate agreement with Logistica, also dated February 28, 2014, Logistica agreed to remit a $400,000 payment on the Company’s behalf that represented the remaining balance of the Company’s purchase price for a heavy ore trailing separation line to be used for ore processing at the El Capitan mine site. The Company previously remitted $100,000 toward the purchase of such equipment. In consideration for Logistica remitting such payment, the Company agreed to deliver a $400,000 promissory note to Logistica and issued 2,500,000 shares of common stock to a designee of Logistica under the Company’s 2005 Stock Incentive Plan. The promissory note accrues interest at 4.5%, with principal and accrued interest payments to be made out of the Company’s proceeds from sale of iron ore from its mining operations. The relative fair value of the common stock was determined to be $222,222 and was recorded as a discount to the promissory note that is being amortized to interest expense over the expected life of the note through August 31, 2015.

 

NOTE 6 – STOCKHOLDERS’ EQUITY

 

2011 Equity Purchase Agreement

 

On July 11, 2011, the Company entered into an Equity Purchase Agreement (the “2011 Equity Purchase Agreement”) with Southridge Partners II, LP (“Southridge”), pursuant to which the Company may from time to time, in its discretion, sell newly-issued shares of its common stock to Southridge for aggregate gross proceeds of up to $5,000,000. On April 3, 2013, the Company entered into an amendment (the “Amendment”) to the 2011 Equity Purchase Agreement. Southridge’s purchase commitment under the 2011 Equity Purchase Agreement was scheduled to expire on the earlier of July 11, 2013, or the date on which aggregate purchases by Southridge under the 2011 Equity Purchase Agreement total $5,000,000. Pursuant to the Amendment, the parties agreed to extend Southridge’s purchase commitment for an additional year, expiring July 11, 2014. The maximum amount of Southridge’s aggregate purchase commitment under the 2011 Equity Purchase Agreement remains unchanged at $5,000,000.

 

El Capitan has no obligation to sell any shares under the 2011 Equity Purchase Agreement. The 2011 Equity Purchase Agreement may be terminated by the Company at any time. Southridge will have no obligation to purchase shares under the 2011 Equity Purchase Agreement to the extent that such purchase would cause Southridge to own more than 9.99% of El Capitan’s common stock.

 

 

For each share of the Company’s common stock purchased under the 2011 Equity Purchase Agreement, Southridge will pay 94.0% of the Market Price, which is defined as the average of the two lowest closing bid prices on the Over-the-Counter Bulletin Board, as reported by Bloomberg Finance L.P., during the five trading days following the date on which the Company notifies Southridge of a pending sale (the “Valuation Period”).  After the expiration of the Valuation Period, Southridge will purchase the applicable number of shares subject to customary closing conditions.

 

The initial offering of shares under the 2011 Equity Purchase Agreement is made pursuant to the Company's effective registration statement on Form S-3 (Registration Statement No. 333-175038) previously filed with the Securities and Exchange Commission, and prospectus supplements thereunder. The S-3 registration statement utilized a “shelf” registration process. Under this shelf registration process, from time to time, the Company may sell any combination of the securities described in a prospectus supplement in one or more offerings, up to a total dollar amount of $5,000,000.

 

As of June 30, 2014, the Company had received aggregate proceeds of $4,000,000 under the 2011 Equity Purchase Agreement and had available gross proceeds of $1,000,000 under the 2011 Equity Purchase Agreement to sell newly-issued shares of El Capitan common stock. Subsequent to June 30, 2014 and prior to the filing of this report, the Company received additional aggregate proceeds of $100,000 under the 2011 Equity Purchase Agreement. The 2011 Equity Purchase Agreement expired on July 11, 2014. See “Note 7 - Subsequent Events,” below for details on the new 2014 Equity Purchase Agreement entered into by the Company on July 30, 2014.

 

Issuances of Common Stock, Warrants and Options

 

Common Stock

 

During the nine months ended June 30, 2014, the Company:

 

(i)

issued 4,951,327 shares of common stock under the 2011 Equity Purchase Agreement and received cash proceeds of $500,000;

 

(ii)

issued 4,350,000 shares of common stock for non-employee consulting services valued at $849,625;

 

(iii)

issued 100,000 shares of common stock upon the exercise of non-statutory stock options and the Company received cash proceeds of $21,500;

 

(iv)

issued 1,954,545 shares of common stock to four accredited investors and the Company received cash proceeds of $215,000, and

 

(v)

issued 2,500,000 shares of common stock in connection with financing the acquisition of heavy mining equipment valued at $222,222.

 

Warrants

 

During the nine months ended June 30, 2014, the Company did not issue any warrants.  There were no warrants outstanding as of September 30, 2013 or June 30, 2014.

 

 

Options

 

Aggregate options expense recognized was $499,869  and $400,283 for the nine months ended June 30, 2014 and 2013, respectively, related to the option grants and modifications described below. As of June 30, 2014 and 2013, there was $204,433 and $-0-, respectively of unamortized option expense.

 

During the nine months ended June 30, 2014, the Company:

 

(i)

Granted, pursuant to the 2005 Stock Incentive Plan, to each of two new directors of the Company five-year options to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.3452 per share which will vest in equal monthly installments over two years, commencing on April 17, 2014. The fair value of the options was determined to be $233,638 using the Black-Scholes option pricing model and will be expensed as warrant and option costs over the vesting period. During the nine months ended June 30, 2014, $29,205 was expensed as warrant and option costs and $204,433 remains to be amortized over the remaining vesting period .

 

(ii)

Granted, pursuant to the 2005 Stock Incentive Plan, to each of two existing directors of the Company a five-year stock option to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.31 per share, all of which vested immediately. The fair value of the options was determined to be $209,896 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the nine months ended June 30, 2014.

 

(iii)

Granted, pursuant to the 2005 Stock Incentive Plan, to a consultant five-year stock options to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $0.31 per share with the options vesting on the date of grant. The fair value of the options was determined to be $26,505 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the nine months ended June 30, 2014.

 

(iv)

Amended the expiration date of an aggregate of 500,000 outstanding common stock options. The options were originally scheduled to expire on January 31, 2014. The expiration date of the 500,000 options was extended to January 31, 2019. The incremental increase in the fair value of the options was determined to be $27,718 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the nine months ended June 30, 2014.

 

(v)

Granted, pursuant to the 2005 Stock Incentive Plan, to each of three directors of the Company a five-year stock option to purchase 500,000 of the Company’s common stock at an exercise price of $0.16 per share, all of which vested immediately. The fair value of the options was determined to be $159,456 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the during the nine months ended June 30, 2014.

 

(vi)

Granted, pursuant to the 2005 Stock Incentive Plan, to a consultant five-year stock options to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $0.14 per share with the options vesting on the date of grant. The fair value of the options was determined to be $12,423 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the nine months ended June 30, 2014.

 

(vii)

Granted, pursuant to the 2005 Stock Incentive Plan, to a consultant five-year stock options to purchase an aggregate of 300,000 shares of the Company’s common stock at an exercise price of $0.13 per share with the options vesting on the date of grant. The fair value of the options was determined to be $34,666 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the nine months ended June 30, 2014.

 

 

The Company utilizes the Black-Scholes option pricing model to estimate the fair value of its option awards. The following table summarizes the significant assumptions used in the model during the nine months ended June 30, 2014.

 

Nine Months Ended June 30, 2014:
Exercise prices			$0.13 - $0.38
Expected volatilities			128.52% - 140.83%
Risk free interest rates			0.51% - 1.55%
Expected terms			2.5 - 5.0 years
Expected dividends			—

 

The following table summarizes the option activity for the nine months ended June 30, 2014:

 

			Options Outstanding
							Weighted
							Average
			Number of				Exercise
			Shares				Price
Balance, September 30, 2013			6,100,000			$	0.42
Granted			4,000,000				0.245
Expired/Cancelled			(100,000	)			0.42
Exercised			(100,000	)			0.215
Balance June 30, 2014			9,900,000			$	0.35
Exercisable at September 30, 2013			6,100,000			$	0.42
Exercisable at June 30, 2014			9,025,000			$	0.35

 

The range of exercise prices and the weighted average exercise price and remaining weighted average life of the options outstanding at June 30, 2014 were $0.13 to $1.02 and 4.51 years, respectively. The range of exercise prices and the weighted average exercise price and remaining weighted average life of the vested and exercisable options outstanding at June 30, 2014 were $0.13 to $1.02 and 4.47 years, respectively. The aggregate intrinsic value of the outstanding options and vested options outstanding at June 30, 2014 was $0.

 

The Company adopted its 2005 Stock Incentive Plan (the “2005 Plan”) pursuant to which the Company reserved and registered 30,000,000 shares stock and option grants. As of June 30, 2014, there were 1,485,913 shares available for grant under the 2005 Plan, excluding the 9,900,000 options outstanding.

 

 

NOTE 7 – SUBSEQUENT EVENTS

 

On July 30, 2014, the Company entered into an Equity Purchase Agreement (the “2014 Equity Purchase Agreement”) with Southridge Partners II, LP (“Southridge’) pursuant to which the Company may from time to time, in its discretion, sell newly-issued shares of the Company’s common stock to Southridge for aggregate gross proceeds of up to $1,900,000. Unless terminated earlier, Southridge’s purchase commitment will automatically terminate on the earlier of July 30, 2016, or the date on which aggregate purchases by Southridge under the 2014 Equity Purchase Agreement total $1,900,000. The Company has no obligation to sell any shares under the 2014 Equity Purchase Agreement. See “Item 2 - Financial Condition, Liquidity and Plan of Operation” for additional disclosures.

 

Subsequent to June 30, 2014 and prior to the filing of this report, El Capitan sold an aggregate of 1,593,660 shares to Southridge Partners under the 2011 and 2014 Equity Purchase Agreements with Southridge for aggregate cash proceeds of $250,000.

 

Pursuant to resolutions adopted by the Board, on August 1, 2014, the Company filed a Certificate of Designation (the “Certificate of Designation”) with the Nevada Secretary of State creating a series of preferred stock entitled the Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and designating fifty-one (51) shares of previously undesignated preferred stock as Series B Preferred Stock.

 

On August 1, 2014, the Company issued fifty-one (51) shares of Series B Preferred Stock to John F. Stapleton for a purchase price equal to $1.00 per share.

 

 

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 operations 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, 2013, filed with the U.S. Securities and Exchange Commission (“SEC”) on December 27, 2013.

 

Cautionary Statement on Forward-Looking Statements

 

This Quarterly Report on Form 10-Q may contain certain “forward-looking” statements as such term is defined by the SEC 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,” “intend,” “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 SEC.  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. 

 

Company Overview

 

We are an exploration stage company that has owned interests in several properties located in the southwestern United States in the past. We are principally engaged in the exploration of precious metals and other minerals. At this time, we are not engaged in any revenue-producing operations. We are considered an exploration stage company under the SEC criteria since we have not yet demonstrated the existence of proven or probable reserves at our El Capitan property.  As a result, and in accordance with accounting principles generally accepted in the United States for exploration stage companies, all expenditures for exploration and evaluation of our properties are expensed as incurred. 

 

We have completed testing and enhancement of our recovery process and have determined the existence and concentration of commercially extractable precious metals or other minerals at this property site. Based upon the results to date, we engaged an investment banker on January 31, 2012, to formalize plans for the marketing of the El Capitan property for sale to a major mining company.

 

In late September 2013, with the support of a different technology, we began a project of production processing of El Capitan head ore collected and managed under chain-of-custody guidelines. This is the first production-scale process ever to have been conducted by us. We anticipate the expected results will describe both the effectiveness of the process being used and the precious metals values recoverable, without the use of chemicals. This process involves the fine grinding of head ore and separation of iron ore from the precious metals without the use of cyanide.

 

 

In conjunction with this fine grind/separation recovery method, we processed 30 tons of our stored concentrates produced approximately eight years ago that have been stored at the mine site. This initiative is important for two reasons: first, because it will provide materials process-handling information, and, second, because of the potential cash flow from the spot-market sale of any resulting dore’ bars. If we are able to generate such cash flow, we do not expect the amount to be significant. It is important to note, no direct information related to head ore value is to be gained from these concentrates since they do not have a documented history. The 30 tons of these concentrates was processed to determine the viability of the recovery of precious metals under this technology from these stored concentrates. Although these concentrates lack the pedigree of freshly mined and concentrated ore, testing has revealed that they may yield precious metals that can be sold in the spot market.

 

On November 7, 2013, we announced that we have recovered 1.04 ounces per ton of gold equivalent from our El Capitan property. These results were produced from head ore that has been sold in an arm’s-length transaction to an independent refinery. The chain-of-custody ore was finely milled and magnetically separated using specific gravity concentrating methodology without the use of cyanide. This initial production testing represents the complete methodology - from head ore to final sale.

 

On November 20, 2013, we announced the fine grind/separation recovery method was also used on another 30 tons of stored concentrates that had been produced approximately eight years ago. After storage and possible contamination, these concentrates proved to be incompatible with this recovery process. We decided to discontinue processing of the stored concentrates and focus on processing the head ore and the recovery of precious metals.

 

Based upon results from the fine grind/separation method, we decided to utilize our 5-Acre Small Mining Permit to initiate limited-scale production, which we believe is a major step toward presenting the property for sale to potential industry purchasers. We hope to accomplish this step by demonstrating regular, certified production and sales of precious metals to independent refineries. It is incumbent upon us to demonstrate that the results we have obtained are repeatable. The 5-Acre Small Mining Permit can be moved as the mining plan dictates. We have contracted an independent contract miner to perform the physical mining and crushing, and to stockpile the ore on our owned land. We also retained a professional and experienced mining-management talent to run operations after the iron has been removed from the ore. The personnel will be on site and oversee the fine grinding and separation operations, which will be located on our owned land. The final processed concentrates will be sent off-site for smelting into dore’ bars for sale.

 

On January 6, 2014, we announced that we are working to commence on-site mining operations that will separate precious metals from the iron ore using the fine/grind separation recovery method referred to above and sell the iron ore.

 

During the first six months of 2014, we made major strides towards putting the El Capitan property into limited production.  On March 10, 2014, we entered into a life-of-mine offtake agreement with Glencore AG (“Glencore”) for the sale of iron ore from the El Capitan property (such agreement is referred to herein as the “Glencore Purchase Contract”). Under the terms of the Glencore Purchase Contract, we agreed to sell to Glencore, and Glencore agreed to purchase from us, iron ore meeting the applicable specifications from the El Capitan mine. Payment for the iron ore is to be made pursuant an irrevocable letter of credit in our favor. The purchase price is based on an index price less an applicable discount.

 

In anticipation of, and in conjunction with, the Glencore Purchase Contract, we entered into a Master Services Agreement (the “Master Agreement”) and corresponding Iron Ore Processing Agreement (the “Processing Agreement”) with Logistica U.S. Terminals, LLC (“Logistica”), each effective as of February 28, 2014. Pursuant to these agreements, Logistica agreed to, among other things, provide the logistics required for us to fulfill its obligations under the Glencore Purchase Contract, to assist the Company in financing the costs of processing and delivering the iron ore under the Glencore Purchase Contract, and to provide and/or manage the processing of iron ore to be delivered under the Glencore Purchase Contract. In consideration for such services, the Company will pay Logistica a percentage of the Company’s profits from the sale of iron ore under the Glencore Purchase Contract (or make up the shortfall of any loss out of profits from its precious metals processing and refining business, to the extent of available profits therefrom, or otherwise) and pay a set price per metric ton of iron ore that is processed in accordance with the Glencore Purchase Contract specifications and purchased by Glencore. In addition, the Company issued 4,000,000 shares of common stock to a designee of Logistica.

 

 

Under a separate agreement with Logistica, also dated February 28, 2014, Logistica agreed to remit a $400,000 payment on our behalf that represented the remaining balance of our purchase price for a heavy ore trailing separation line to be used for ore processing at the El Capitan mine site. We previously remitted $100,000 toward the purchase of such equipment. In consideration for Logistica remitting such payment, we agreed to deliver a $400,000 promissory note to Logistica and we issued 2,500,000 shares of common stock to a designee of Logistica. The promissory note accrues interest at 4.5%, with principal and accrued interest payments to be made out of our proceeds from sale of iron ore from its mining operations.

 

For additional information regarding the Glencore Purchase Contract and our agreements with Logistica, see “Note 5 – Commitments” of the Notes to Consolidated Financial Statements. 

 

In late June 2014, the heavy ore tailing separation process line arrived at the El Capitan property and has been successfully assembled and tested.

 

We expect that the planned mining operation will require approximately $2.5 million in an overall budget. We anticipate it will take approximately two to three months to bring the mining operation on-line after financing and final permitting is in place. When mining operations commence, we expect that the proceeds from our sale of the iron will ultimately offset the expense of the mining operations and sales of precious metals to generate cash flow for the Company while we continue to pursue our ultimate strategic goal of selling the El Capitan property. 

 

Financial Condition, Liquidity and Plan of Operation

 

Historically we have relied on equity and debt financings to finance our ongoing operations.  Our only current committed source of financing is the arrangement under our Equity Purchase Agreement (the “Equity Purchase Agreement”) with Southridge Partners II, L.P. (“Southridge”) that we entered into in July 2014. The Equity Purchase Agreement is described below. Although we are assessing our financing alternatives at this time, we currently expect to continue utilizing the Equity Purchase Agreement to implement our business plan on the El Capitan mining project and continue our near-term business strategies, drawing down on the facility as operating costs require. The term of the Equity Purchase Agreement runs through July 2016.

 

A further description of this Equity Purchase Agreement is set forth in Note 7 of the Notes to Consolidated Financial Statements.

 

As of June 30, 2014, we had cash on hand of $112,558 and an accumulated deficit of $204,234,041. Based upon our budgeted burn rate, we had operating capital for approximately 1.2 months as of such date, excluding any cash that would be received by the Company upon the sale of its shares of common stock under the terms of the Equity Purchase Agreement.

 

On July 30, 2014, we entered into the Equity Purchase Agreement with Southridge, pursuant to which the Company may from time to time, in its discretion, sell newly-issued shares of its common stock to Southridge for aggregate gross proceeds of up to $1,900,000. Unless terminated earlier, Southridge’s purchase commitment will automatically terminate on the earlier of July 30, 2016, or the date on which aggregate purchases by Southridge under the Equity Purchase Agreement total $1,900,000. We have no obligation to sell any shares under the Equity Purchase Agreement.

 

As provided in the Equity Purchase Agreement, we may require Southridge to purchase shares of our common stock from time to time by delivering a put notice to Southridge specifying the total purchase price for the shares to be purchased (the “Investment Amount”). We may determine the Investment Amount, provided that such amount may not be more than the lesser of (a) $500,000, or (b) 250% of the average daily trading dollar volume of the Company’s common stock for the 20 trading days preceding the date on which we deliver the applicable put notice. For this purpose, the trading dollar volume for each day is determined by multiplying the closing bid price of the Company’s common stock on the Over-the-Counter Bulletin Board (or such other principal market on which the Company’s stock trades) on such date by the trading volume of our common stock on the Over-the-Counter Bulletin Board (or such other principal market on which our stock trades) on such date. The number of shares issuable in connection with each put notice will be computed by dividing the applicable Investment Amount by the purchase price for such common stock. Southridge will have no obligation to purchase shares under the Equity Purchase Agreement to the extent that such purchase would cause Southridge to own more than 9.99% of our common stock.

 

 

For each share of our common stock purchased under the Equity Purchase Agreement, Southridge will pay a purchase price equal to 94.0% of the Market Price, which is defined as the average of the two lowest closing bid prices on the Over-the-Counter Bulletin Board, as reported by Bloomberg Finance L.P., during the five trading days following delivery of the put notice (the “Valuation Period”). After the expiration of the Valuation Period, Southridge will purchase the applicable number of shares subject to customary closing conditions.

 

The Equity Purchase Agreement contains covenants, representations and warranties of the Company and Southridge that are typical for transactions of this type. In addition, the Company and Southridge have granted each other customary indemnification rights in connection with the Equity Purchase Agreement. The Equity Purchase Agreement may be terminated by the Company at any time.

 

The offering of shares under the Equity Purchase Agreement is being made pursuant to the Company’s effective registration statement on Form S-3 (Registration Statement No. 333-193208) previously filed with the Securities and Exchange Commission, and a prospectus supplement thereunder. The benefits and representations and warranties set forth in the Equity Purchase Agreement are not intended to and do not constitute continuing representations and warranties of the Company or any other party to persons not a party thereto, including without limitation, any future or other investor.

 

Subsequent to June 30, 2014 and prior to the filing of this report, El Capitan sold an aggregate of 1,593,660 shares to Southridge Partners under the Equity Purchase Agreement and similar equity purchase agreement that the Company entered into with Southridge in 2011 (which expired July 11, 2014) for aggregate cash proceeds of $250,000.

 

We expect that the Equity Purchase Agreement will initially provide us with adequate funding to sustain our planned operations and provide a source of funds for our near-term business plan strategy. At this time, the our plans are to utilize such funds to complete any additional permitting requirements that may be required on the El Capitan property (no further exploration plans exist at this time) and pay for necessary corporate personnel and general and administrative operating costs and expenses to be incurred in putting the El Capitan property into limited production, and to support continued marketing of the El Capitan property for sale. To implement the business strategy for our mining plan, however, and to continue to provide funds to support the final phase of our business strategy – namely to continue marketing the El Capitan property for sale - we may need to secure additional adequate financing. We may seek to obtain such financing pursuant to the sale of our equity or debt securities if sources of such financing become available on terms that we believe are acceptable. There is no guaranty that such financing will be available on acceptable terms or at all.

 

RESULTS OF OPERATIONS

 

Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

 

Revenues

 

We have not yet realized any revenue from operations, nor do we expect to realize potential revenues until deployment of our planned mining operation on the El Capitan property. We anticipate generating revenues late in our fourth operating quarter for our fiscal year ending September 30, 2014. There is no guarantee that we will achieve proven commercially viable recovery of precious and other metals at the El Capitan property.

 

Expenses

 

Our operating expenses increased $22,143 from $355,389 for the three months ended June 30, 2013, to $377,532 for the three months ended June 30, 2014. The increase is mainly attributable to increases in professional fees aggregating $16,149.

 

The increase in professional fees is mainly attributable to costs incurred relating to investor relation activities consisting of consulting fees for MRI.

 

 

Other Income (Expenses)

 

Our other expenses increased in the current period of measurement $38,155 to $(38,094) from $61 for the three months ended June 30, 2013. The increase is attributable to increases in interest expense of $4,603 and a non-cash increase of accretion of a note payable of $33,503.

 

Net Loss

 

Our net loss for the three months ended June 30, 2014 increased to $415,626 from a net loss of $355,328 incurred for the comparable three month period ended June 30, 2013. The increase in net loss of $60,298 for the current period is attributable to the aforementioned net increase in operating and other expenses.

 

Nine months Ended June 30, 2014 Compared to Nine Months Ended June 30, 2013

 

Revenues

 

We have not yet realized any revenue from operations, nor do we expect to realize potential revenues until deployment of our planned mining operation on the El Capitan property. We anticipate generating revenues late in our fourth operating quarter for our fiscal year ending September 30, 2014. There is no guarantee that we will achieve proven commercially viable recovery of precious and other metals at the El Capitan property.

 

Expenses

 

Our operating expenses increased $897,244 from $1,475,570 for the nine months ended June 30, 2013 to $2,372,814 for the nine months ended June 30, 2014. The increase is mainly attributable to increases in professional fees aggregating $144,790, administrative consulting wages of $40,000 and exploration expenses of $704,971.

 

The increases in professional fees is mainly attributable to costs incurred relating to investor relation activities and consisted of non-cash stock compensation of $97,844; non-cash stock compensation of $9,625 for miscellaneous legal services and an increase in consulting fees of $42,000 of MRI.

 

The increase in mine related costs is attributable to non-cash stock compensation of $800,000 for services rendered related to deploying our mining operation at the El Capitan property and increases in ore processing costs of $27,250; rental equipment of $40,057; permitting of $19,000 and other mine development costs of $45,375. These increases were offset by decreases in assay costs of $89,605, other mine consulting of $47,373 and mineral extraction costs of $98.398.

 

Other Income (Expense)

 

Our other expenses increased in the current period of measurement $40,078 to $(39,872) from $206 for the nine months ended June 30, 2013. The increase is attributable to increases in interest expense of $6,454 and a non-cash increase in the amortization of debt discount of $33,503.

 

 

Net Loss

 

Our net loss for the nine months ended June 30, 2014 increased to $2,412,686 from a net loss of $1,475,364 incurred for the comparable nine month period ended June 30, 2013. The increase in net loss of $937,322 for the current period is attributable to the aforementioned net increase in operating and other expenses.

 

Factors Affecting Future Operating Results

 

We have generated no revenues, other than interest income and miscellaneous revenue from the sale of two dore’ bars, 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 silver has experienced an increase in value over the past five years.  A historical chart of their respective prices is contained in Item 1, the “Business” portion of the Company’s Annual Report on Form 10-K for the year ended September 30, 2013, filed with the SEC on December 27, 2013.  Beginning in April 2013, the price of gold and silver has experienced a downward swing. A significant permanent drop in the price of gold, silver or other precious metals may have a materially adverse effect on the future results of potential operations and the opportunity to market the sale of the El Capitan property. The costs associated with the recovering of precious metals may also cause a material adverse effect on the financial success of the Company and our ability to market the sale of the El Capitan property.

 

Under the Logistica Master Agreement, Logistica is required to use its best efforts to establish an operating credit line capable of funding all processing and delivery costs and, upon opening and funding such a credit line, will disburse as needed all operating costs contemplated under the Glencore Purchase Contract. We are required to reimburse Logistica for all such amounts, without interest, out of payments received from Glencore in respect of the purchase of the iron ore. If this credit line is not attained or is not in an adequate amount to fund our projected operations, our operations and liquidity may be adversely impacted.

 

Off-Balance Sheet Arrangements

 

During the three months ended June 30, 2014, we did not engage in any off-balance sheet arrangements set forth in Item 303(a)(4) of Regulation S-K. 

 

Contractual Obligations

 

As of June 30, 2014, we had no contractual obligations (including long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations and other long-term liabilities) reflected on our balance sheet under GAAP that are expected to have an adverse effect on our liquidity and cash flows in future periods.

 

Critical Accounting Policies

 

Our unaudited 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, “Business, Basis of Presentation and Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended September 30, 2013, filed with the SEC on December 27, 2013, describes our significant accounting policies which are reviewed by management on a regular basis.

 

 

New Accounting Pronouncements

 

Management does not believe that any 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

 

Our exposure to market risks is limited to changes in interest rates. We do not use derivative financial instruments as part of an overall strategy to manage market risk.

 

We have long-term debt outstanding with a fixed rate of interest and have no investment in debt instruments other than highly liquid short-term investments. Accordingly, we consider our interest rate risk exposure to be insignificant at this time.

 

Item 4.

Controls and Procedures

 

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 and principal financial officer, to allow timely decisions regarding required disclosure.

 

As of the end of the 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. Based upon the evaluation, our Chief Executive Officer and Chief 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, our Chief Executive Officer and Chief 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 Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

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 June 30, 2014, 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 material pending legal proceedings and to our knowledge, no such proceedings by or against the Company have been threatened.

 

Item 1A.

Risk Factors

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in our Annual Report on Form 10-K for the year ended September 30, 2013, filed with the U.S. Securities and Exchange Commission on December 27, 2013, in addition to the other information included in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management from time to time prior to investing in our common stock.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

The Company issued 1,954,545 shares of common stock to four accredited investors and the Company received cash proceeds of $215,000 which was used for working capital.

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

Item 5.

Other Information

 

None.

 

Item 6.

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		Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 31, 2011).
3.3		Certificate of Designation of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 1, 2014).
3.4		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).
4.1		Rights Agreement dated August 25, 2011 by and between El Capitan Precious Metals, Inc. and OTR, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 31, 2011).

Continued 

 

 

Exhibit Number		Description
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 and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*#		XBRL Instance Document**
101.SCH*#		XBRL Extension Schema Document**
101.CAL*#		XBRL Extension Calculation Linkbase Document**
101.DEF*#		XBRL Extension Definition Linkbase Document**
101.LAB*#		XBRL Extension Labels Linkbase Document**
101.PRE*#		XBRL Extension Presentation Linkbase Document**

__________________ 

*	Filed herewith.

#	In accordance with Rule 406T of Regulation S-T, this information is deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	EL CAPITAN PRECIOUS METALS, INC.
Dated:   August 14, 2014	By:	/s/  Charles C. Mottley
		Charles C. Mottley Chief Executive Officer, President and Director (Principal Executive Officer)

 

Dated:   August 14, 2014	By:	/s/  John F. Stapleton
		John F. Stapleton Chief Financial Officer and Director (Principal Financial Officer)