UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the
fiscal year ended
September 30, 2012
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the
transition period from ___________ to ____________
Commission
File Number: 333-56262
(Exact name of
registrant as specified in its charter)
Nevada
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88-0482413
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(State or Other Jurisdiction
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(I.R.S. Employer
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Incorporation or Organization)
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Identification No.)
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8390 Via de Ventura, Suite F-110
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Scottsdale. Arizona
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85258
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(Address of Principal
Executive Offices)
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(Zip Code)
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Registrant’s
telephone number, including area code:
(928) 515-1942
Securities registered
pursuant to Section 12(b) of the Exchange Act:
None
.
Securities registered
under Section 12(g) of the Exchange Act:
None
.
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
¨
No
þ
Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
¨
No
þ
Indicate by check
mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve 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 such shorter period that the registrant was required to submit and post such files). Yes
þ
No
¨
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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. (Check one):
Large accelerated
filer
¨
Accelerated filer
þ
Non-accelerated
filer
¨
Smaller reporting company
¨
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
¨
No
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The aggregate market value of the registrant’s
voting stock held as of March 30, 2012 (the last business day of the registrant’s most recently completed second fiscal quarter,
by non-affiliates of the registrant was approximately $58,090,349 based on the last trading price of the registrant’s common
stock of $0.27 as reported on the OTC Bulletin Board on such date.
As of December 10, 2012, the registrant had
252,868,775 shares of its $.001 par value common stock issued and outstanding.
Documents incorporated by reference: None.
EL CAPITAN
PRECIOUS METALS, INC.
TABLE OF
CONTENTS
CAUTIONARY
STATEMENT ON FORWARD-LOOKING STATEMENTS
This report 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.
These risks and uncertainties and other factors
include, but are not limited to those set forth under
Item 1A - Risk Factors
of this Annual Report on Form 10-K.
Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements. All
subsequent written and oral forward-looking statements attributable to the company or to persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Except as otherwise required by applicable law, we undertake no obligation
to publicly update or revise any forward-looking statements or the risk factors described in this Annual Report or in the documents
we incorporate by reference, whether as a result of new information, future events, changed circumstances or any other reason
after the date of this Annual Report on Form 10-K.
Given these risks and uncertainties, readers are cautioned not
to place undue reliance on our forward-looking statements.
PART I
Business Overview
El Capitan Precious Metals, Inc., a Nevada corporation
(“ECPN”), is a precious minerals company based in Scottsdale, Arizona. Together with its consolidated subsidiaries
(collectively referred to as “El Capitan,” the “Company,” “our” or “we”), ECPN
is 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. Our primary asset is the 100% equity
interest in El Capitan, Ltd., an Arizona corporation (“ECL”), which holds an interest in the El Capitan property located
near Capitan, New Mexico. We have completed the research and confirmation procedures on the recovery process on for
the El Capitan property ore and evaluation as to the economic and legal feasibility of the property. To date, we have not
had any material revenue producing operations. There is no assurance that a commercially viable mineral deposit exists
on our property.
We have concentrated on the finalization of
the precious metals extraction process for our El Capitan property during our fiscal year ended September 30, 2012 and have determined
the existence and concentration of commercially extractable precious metals and economically feasible with today’s market
prices. Based upon the results to date, we have 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.
Our Company and its Subsidiaries
El Capitan Precious Metals, Inc. is a Nevada
corporation that owns 100% of the outstanding common stock of El Capitan Precious Metals, Inc., a Delaware corporation (“El
Capitan Delaware”). Previous to January 19, 2011, El Capitan Delaware owned a 40% interest in ECL. On January
19, 2011, we acquired the remaining 60% interest in ECL from Gold and Minerals Company, Inc. (“G&M”) by merging
an acquisition subsidiary created by ECPN with and into G&M. In connection with the merger, each share of G&M common and
preferred stock outstanding was exchanged for approximately 1.414156 shares, as rounded to the nearest six (6) decimal places, of
ECPN common stock, resulting in the issuance of an aggregate of 148,127,043 shares of ECPN common stock to former G&M stockholders.
Upon closing of the merger, G&M became a wholly-owned direct ECPN subsidiary and our consolidated Company acquired 100% of
ECL. As a result, we now own 100% of the Capitan property site.
Price of Precious Metals
Gold, silver and platinum are each traded as
investments on various world markets including London, New York, Zurich and Tokyo and are fixed twice daily in London. The “fix”
is the reference price on which a large number of precious metal transactions around the world are based. The price is set by a
number of market members matching buy and sell orders from all over the world.
High, low and average London afternoon
fix prices for gold and silver for the period from January 1, 2012 to September 30, 2012 and for the last five calendar years
are as follows:
Gold - London Afternoon Fix Prices - US Dollars
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High
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Low
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Average
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Period
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For the nine months ended September 30, 2012
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$
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1,785
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$
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1,540
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$
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1,652
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For the year ended December 31, 2011
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1,895
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1,319
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1,572
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For the year ended December 31, 2010
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1,421
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1,058
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1,225
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For the year ended December 31, 2009
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1,213
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810
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972
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For the year ended December 31, 2008
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1,011
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713
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872
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For the year ended December 31, 2007
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841
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608
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608
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Data Source: Kitco
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Silver - London Afternoon Fix Prices - US Dollars
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High
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Low
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Average
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Period
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For the nine months ended September 30, 2012
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$
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37.23
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$
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26.67
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$
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30.65
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For the year ended December 31, 2011
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48.70
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26.16
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35.12
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For the year ended December 31, 2010
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30.70
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15.14
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20.19
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For the year ended December 31, 2009
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19.18
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10.51
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14.67
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For the year ended December 31, 2008
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20.92
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8.88
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14.99
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For the year ended December 31, 2007
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15.82
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11.67
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13.38
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Data Source: Kitco
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Our ability to sell our property will be highly
dependent upon the price of these precious metals, the market for which can be highly volatile. There is no assurance that the
recoverability of precious metals from the El Capitan property, that we will generate significant revenue from the sale of the
El Capitan property.
Competition
The mining industry has historically been highly
competitive. It is dominated by multi-billion dollar, multi-national companies that possess resources significantly greater than
ours. Additionally, due to our limited resources, we do not intend to develop any of our properties on our own, but rather to only
perform exploration on our properties with the anticipation of selling or developing through an appropriate joint venture any properties
in which our exploration proves successful. Given our size and financial condition, there is no assurance we can compete with any
larger companies for the acquisition of additional potential mineral properties of which the Company has no current plans.
Government Regulation
Mining and exploration is highly regulated and
subject to various constantly changing federal and state laws and regulations. These laws are becoming more and more restrictive,
and include without limitation: the Clean Water Act; the Clean Air Act; the Comprehensive Environmental Response, Compensation
and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Endangered Species Act; the Federal Land Policy
and Management Act; the National Environmental Policy Act; the Resource Conservation and Recovery Act; and related state laws.
The environmental protection laws dramatically impact the mining and mineral extraction industries as it pertains to both the use
of hazardous materials in the mining and extraction process and from the standpoint of returning the land to a natural look once
the mining process is completed. Compliance with federal and state environmental regulations can be expensive and time consuming,
and given our limited resources, such regulations may have a material effect on the success of our operations.
Compliance with the various federal and state
government regulations requires us to obtain multiple permits for each mining property. Although the requirements may differ slightly
in each of the respective states in which we may hold claims or may hold claims in the future, the process of securing such permits
generally require the filing of a “Notice of Intent to Locate Mining Claims” and the payment of a fee of $25 to the
Bureau of Land Management (“BLM”) office in the state in which the claim is located. Subsequently, we are required
to file and record a New Location Notice for each such claim within 90 days of locating the claim, the fee for which is approximately
$165. On an annual basis, we are required to pay a maintenance fee of $140 per claim, together with payments of approximately $5
each for annual bulk fuel and water well permits.
To the extent we intend to take action on a
property that is more than “casual use,” which generally includes activities that cause only negligible disturbance
to the land (this would not generally include drilling or operating earthmoving equipment on the property), we are required to
prepare and file with the BLM either a notice of operation or plan of operation identifying the activity we intend to take on the
property, including a plan of reclamation indicating how we intend to return the land to its prior state upon completion of our
activities. For each claim that we file a notice or plan of operations, we are required to pay a one-time reclamation bond to the
BLM to be used toward restoration of the property upon completion of our activities. The amount of the reclamation bond is determined
by the BLM based upon the scope of the activity described in the notice or plan of operation, and will thus vary with each property.
We filed an original plan of operation on the El Capitan property. We were required to pay a reclamation bond of $15,000 in connection
with that plan of operation, and upon payment were issued a notice to proceed from the BLM. This allowed us to proceed with our
current plan of operation on up to five (5) acres. The permit was received by ECPN from the previous owners of the El Capitan
property under a grandfather clause and allows operations on five (5) acres of the property at a time.
In July 2007, we submitted a Plan of
Operation for continued exploration on a 2,000 acre parcel within our more than 7,000 acres, at that time, ECPN claim block near
Capitan, New Mexico with the U.S. Forest Service (“USFS”). We hired an experienced environmental services firm to
manage this effort. Having this permit in place would provide the opportunity for a professional and methodical investigation
into the additional geologic potential of this portion of our holdings, without requiring further time-consuming permitting efforts.
The area being permitted will allow access to a number of high-potential targets identified through previous surface sampling
and remote sensing efforts, as well as to the prospective area to the west of the existing deposit, which remains open to geologic
resource extension. The USFS permitting effort is governed by the National Environmental Policy Act of 1970 (“NEPA”)
and under the General Mining Law of 1872. In conjunction with the USFS filing, the Company submitted an Exploration Permit with
the New Mexico Mining and Minerals Division. The permitting process is a robust process that can take a significant amount of
time to complete. The typical process generally takes longer than the prescribed regulatory time frame, and is dependent upon
a number of factors outside of our control, including, without limitation, governmental approvals, licensing and permitting, as
well as potential opposition by third parties. Both permits must be approved prior to the commencement of drilling activity.
In July 2008, we entered into a Memorandum of
Understanding with the USFS related to the permitting of 112 exploration drill holes planned on 2,000 acres of the ECPN claims
in Lincoln County, New Mexico. The action signaled the initiation of the Federal Environmental Assessment (“EA”) permitting
process. It was originally anticipated that the receipt of these two permits would occur in the second or third quarter of 2009.
Subsequently in late 2008, this process was put on hold due to a lack of working capital and a potential conflict of interest with
the USFS by the environmental services firm we were utilizing for the permitting process.
In December 2009, we hired a new experienced
environmental services firm, AMEC Environment & Infrastructure, Inc. (“AMEC”), to manage and oversee our continued
permitting process. AMEC has drafted a replacement Plan of Operations (“PoO”) and submitted it to the USFS. The USFS
has provided technical comments on the PoO and AMEC has responded to their comments and submitted a revised PoO for approval. AMEC
has met with representatives of the USFS at the project site to review the proposed exploration locations and general discussion
of the project. Subsequent to the meeting, the USFS agreed to work with AMEC to develop the third part of the National Environmental
Policy Act (“NEPA”) scope of work. The USFS provided a draft NEPA scope of work template to AMEC in electronic format.
AMEC revised the draft template and submitted it to the USFS for review and approval.
AMEC has also prepared the Stormwater Pollution
Prevention Plan (“SWPPP”) that will be sent to the agencies upon permit approval. Informational copies of the SWPPP
will be provided to the New Mexico Energy, Minerals, and Natural Resources Department Mining and Minerals Division (“MMD”),
and the United States Forest Service (“USFS”). The SWPPP is an EPA required document for construction projects
that disturb more than one (1) acre of land. Prior to field activities, coverage under the New Mexico Construction General
Permit (“CGP”) will be obtained by filing a Notice of Intent (“NOI”) with EPA Region 6. Coverage under
the CGP is required prior to field work. A copy of the SWPPP must be maintained at the project site during all construction
activities. New Mexico does not have primacy over the SWPPP requirements. EPA Region 6 is the primary agency.
AMEC prepared and submitted a revised New
Mexico Mining and Minerals Subpart 4 Exploration permit application. The revised application was submitted on September 16,
2011. AMEC responded in writing on October 24, 2011 to administrative comments received on the application, related to fees,
additional copies of the application and completion of the public notice. AMEC has completed the required MMD Public Notice
process and submitted the required proof of notice information to the MMD on August 8, 2012. To date, AMEC has not received
any comments from MMD from concerned citizens. MMD issued administrative completeness determination on October 4, 2012. The
MMD has distributed the application to other State agencies for review and comment. The agency comment period will close on
December 31, 2012. MMD has requested a site visit as part of the agency review process. The agency site visit was made on December 5 and 6, 2012.
Although there is no guarantee that the regulatory
agencies will approve, in a timely manner, if at all, the necessary permits for our current and anticipated explorations, we are
not aware of any material impediments to obtaining the necessary permits in due course. The permitting process on the State and
Federal level is moving forward as planned.
Employees
We currently have informal arrangements with
three individuals, two of whom are officers and Directors of the Company, who serve as support staff for the functioning of all
the corporate activities. There are no written agreements with these individuals. Additionally, we use consultants for the testing
and exploration and development of property claims. If administrative requirements expand, we anticipate that we may hire additional
employees, and utilizing a combination of employees and consultants as necessary to conduct of these activities.
Available Information
ECPN is a Nevada corporation with its principal
executive offices located at 8390 Via de Ventura, Suite F-110, Scottsdale, Arizona 85258, and its administrative office located
at 5871 Honeysuckle Road, Prescott, Arizona 86305. The Company’s telephone number is (928) 515-1942. ECPN’s
website address is www.elcapitanpmi.com. Our website contains links to download free of charge our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with,
or furnish it to, the SEC. Unless expressly noted, none of the information on our website is part of this Annual Report.
Our common stock is thinly traded, and
there is no guarantee of the prices at which the shares will trade.
Trading of our common stock is conducted on
the Over-the-Counter Bulletin Board, or “OTCBB,” under the symbol “ECPN.” This has an adverse
effect on the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price,
but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage
of ECPN. This may result in lower prices for your common stock than might otherwise be obtained and could also result
in a larger spread between the bid and asked prices for our common stock. Historically, our common stock has been thinly
traded, and there is no guarantee of the prices at which the shares will trade, or of the ability of stockholders to sell their
shares without having an adverse effect on market prices.
Our stock price may be volatile and as
a result you could lose all or part of your investment.
In addition to volatility associated with securities
traded on the OTCBB in general, the value of your investment could decline due to the impact of any of the following factors upon
the market price of our common stock:
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adverse changes in the worldwide prices for gold or silver;
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disappointing results from our exploration or development efforts;
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failure to meet operating budget;
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decline in demand for our common stock;
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downward revisions in securities analysts’ estimates or changes in general market conditions;
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technological innovations by competitors or in competing technologies;
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investor perception of our industry or our prospects; and
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general economic trends.
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In addition, stock markets have experienced
extreme price and volume fluctuations and the market prices of securities generally have been highly volatile. These fluctuations
commonly are unrelated to operating performance of a company and may adversely affect the market price of our common stock. As
a result, investors may be unable to resell their shares at a fair price.
We have never paid dividends on our common
stock and we do not anticipate paying any dividends in the foreseeable future.
We have not paid dividends on our common stock
to date, and we may not be in a position to pay dividends in the foreseeable future. Our ability to pay dividends depends on our
ability to successfully develop the El Capitan property and generate revenue from future operations. Further, our initial earnings,
if any, will likely be retained to finance our growth. Any future dividends will depend upon our earnings, our then-existing financial
requirements and other factors and will be at the discretion of our Board of Directors.
Because our common stock is a “penny
stock,” it may be difficult to sell shares of our common stock at times and prices that are acceptable.
ECPN common stock is a “penny stock.”
Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk disclosure document prepared
by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the
penny stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding
broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser,
and obtain the purchaser’s written agreement to the purchase. The penny stock rules may make it difficult for you to sell
your shares of our common stock. Because of these rules, many brokers choose not to participate in penny stock transactions and
there is less trading in penny stocks. Accordingly, you may not always be able to resell shares of our common stock publicly at
times and prices that you feel are appropriate.
A significant number of shares of our
common stock have become available for sale, which could depress the price of our common stock
.
Future sales of a substantial number of shares
of our common stock in the public market could adversely affect the market price for our common stock and make it more difficult
for shareholders to sell our common stock at times and prices that they believe are appropriate. As of December 10, 2012, we had
issued and outstanding 252,868,775 shares of common stock, and have 4,650,000 shares issuable upon the exercise of outstanding
options. In connection with the closing of the Company’s acquisition of Gold and Minerals Company, Inc. in January
2011, the Company issued 148,127,043 shares of our common stock to Gold and Minerals Company, Inc. stockholders. Upon
the initial issuance of these shares, the major portion of these shares was not free trading shares. Most of these shares issued
had restrictions limiting their transfer during the first 90 days after the acquisition, as well each subsequent 90 day period
for first year after the acquisition. As these shares are now available for free trading, given the historical levels of trading
of the Company’s shares, sales of such shares may depress the market price of our common stock. Currently all shares associated
with this acquisition are free trading.
We may raise additional capital to fund
our operations. The manner in which we raise any additional funds may affect the value of your investment in our common stock.
Although we have no current expectation to pursue
financings beyond those contemplated by the equity purchase agreement (discussed below and in Item 5 of this Annual Report on Form
10-K), we may be required to do so if our circumstances change or opportunities requiring expenditures in excess of the proceeds
available under the equity purchase agreement present themselves. Other than pursuant to the equity purchase agreement with Southridge,
as detailed below, we have no current committed sources of additional capital. We do not know whether additional financing will
be available on terms favorable or acceptable to us when needed, if at all. To the extent that we raise additional capital by issuing
equity securities, our stockholders may experience dilution. In addition, we may grant future investors rights superior to those
of our existing stockholders. If we raise additional funds by incurring debt, we could incur significant interest expense and become
subject to covenants in the related transaction documentation that could affect the manner in which we conduct our business. If
adequate additional capital is not available when required, we may be forced to reduce or eliminate our marketing efforts for the
sale of the El Capitan property.
Risks Relating to the Equity Purchase Agreement
In connection with the Equity Purchase Agreement
with Southridge Partners II, LP (“Southridge”), further described in Item 5 of this Annual Report on Form 10-K, the
following risk factors should be taken into account by investors:
Southridge will pay less than the then-prevailing
market price for our common stock under the equity purchase agreement at the time of issuance of the shares.
The common stock to be issued to Southridge
pursuant to the terms of the equity purchase agreement will be purchased at a 6.0% discount to 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 written request of the Company to exercise its option to sell shares of its common stock to Southridge. Southridge
will have the ability to sell the shares of our common stock issuable under the equity purchase agreement either in advance of
or upon receiving such shares and to realize the profit equal to the difference between the discounted price and the current market
price of the shares.
We may not be able to access sufficient
funds under the equity purchase agreement when needed.
Our ability to put shares to Southridge and
obtain funds under the equity purchase agreement is limited by terms and conditions set forth in such agreement and applicable
market regulations. The terms of the equity purchase agreement restrict the amount of shares we may sell to Southridge
at any one time, which is determined by, among other things, the trading volume of our common stock. Accordingly, the equity purchase
agreement may not be available to satisfy all of our funding needs from time to time during the term of the equity purchase agreement.
The sale of our common stock to Southridge
and any future sales of our common stock may depress our stock price.
If we elect to sell shares to Southridge under
the equity purchase agreement, any such sales will have a dilutive impact on our existing stockholders. Southridge may resell
some or all of the shares we issue to it pursuant to terms of the equity purchase agreement and such sales could cause the market
price of our common stock to decline.
Risks Relating to Our Financial Condition
The volatility of precious metal prices
may negatively affect our potential earnings.
We anticipate that a significant portion of
our future revenues will come from the sale of our El Capitan property. Our earnings will be directly affected by the prices of
precious metals believed to be located on such property. Demand for precious metals can be influenced by economic conditions, including
worldwide production, attractiveness as an investment vehicle, the relative strength of the U.S. dollar and local investment currencies,
interest rates, exchange rates, inflation and political stability. The aggregate effect of these factors is not within our control
and is impossible to predict with accuracy. The price of precious metals has on occasion been subject to very rapid short-term
changes due to speculative activities. Downward fluctuations in precious metal prices may adversely affect the value of any discoveries
made at the site with which our Company is involved. If the market prices for these precious metals falls below the mining and
development costs we incur to produce such precious metals, we will experience the inability to sell our El Capitan property.
We have not had revenue-generating operations
and may never generate revenues.
With the exception of immaterial revenue from
the sale of two dore’ bars, we have not yet had revenue-generating operations, and it is possible that we will not find marketable
amounts of minerals on our El Capitan property or that the property will ever be sold. Should we fail to obtain working
capital through other avenues, our ability to continue to market our El Capitan property.
Risks Relating to Our Business
Until we confirm recoverable precious
metals on our El Capitan property, we may not have any potential of generating any revenue.
Our ability to sell the El Capitan property
depends on the success of our exploration program and the development of a cost-effective process for recovering precious metals
from the ore at the El Capitan property. We have not established proven or probable reserves at our El Capitan property.
Even if exploration leads to a valuable deposit, it might take several years for us to enter into an agreement for sale or joint
venture development of the property. During that time, depending on economic conditions and the underlying market values of the
precious metals that may be recovered, it might become financially or economically unfeasible to extract the minerals at the property.
We may not be able to sell the El Capitan
property or on terms acceptable to us.
We are concentrating on of our El Capitan property
and developing a strategic plan to sell with respect to the El Capitan property. There is no guarantee that we will
be able to find a potential acquirer on terms that are acceptable to us or at all.
Our inability to establish the existence
of mineral resources in commercially exploitable quantities on our El Capitan property may cause our business to fail.
The El Capitan property is in the exploration
stage. To date, we have not established a mineral reserve on the El Capitan property. A “reserve,” as defined by the
Securities and Exchange Commission’s Industry Guide 7, is that part of a mineral deposit that can be economically and legally
extracted or produced at the time of the reserve determination. A reserve requires a feasibility study demonstrating with reasonable
certainty that the deposit can be economically and legally extracted and produced. At this time it is not ascertainable
or it is possible that the El Capitan property does not contain a reserve and all resources we spend on exploration of this property
may be lost. We have not received feasibility studies nor obtained necessary operating permits with regard to the El Capitan property.
As a result, we have no reserves at the El Capitan property. In the event we are unable to establish reserves or measured resources
acceptable under industry standards, we may otherwise be unable to sell or joint venture the development of the El Capitan property,
the business of ECPN may fail.
The feasibility of mining our El Capitan
property has not been established, meaning that we have not completed engineering, permitting or other work necessary to determine
if it is commercially feasible to develop this property.
We currently have not established proven or
probable reserves on the El Capitan property. Although studies thus far carried out on the El Capitan property have
yielded promising results with respect to potential economic viability, substantial additional feasibility work and expenditures
are required to demonstrate economic viability. The mineralized materials identified to date on this property have not and may
never demonstrate economic viability. The feasibility of mining has not been, and may never be, established. Whether a mineral
deposit can be commercially viable depends upon a number of factors, including the particular attributes of the deposit, including
size, grade and proximity to infrastructure; metal prices, which can be highly variable; and government regulations, including
environmental and reclamation obligations. If we are unable to establish some or all of our mineralized material as proven or probable
reserves in sufficient quantities to justify commercial operations, we may not be able to raise sufficient capital to develop a
mine or sell the El Capitan property site. If we are unable to establish such reserves or measured resources acceptable under industry
standards, the market value of our securities may decline.
Uncertainty of mineralization estimates
may diminish our ability to properly value our property.
We rely on estimates of the content of mineral
deposits on our properties, which estimates are inherently imprecise and depend to some extent on statistical inferences drawn
from both limited drilling on our properties and the placement of drill holes that may not be spaced close enough to one another
to enable us to establish probable or proven results. These estimates may prove unreliable. Additionally, we have previously relied
upon various certified independent laboratories to assay our samples, which may produce results that are not as consistent as a
larger commercial laboratory might produce. Reliance upon erroneous estimates may have an adverse effect upon the financial
success of the Company.
Any loss of the industry experience of
members of our Board and/or our officers may affect our ability to achieve our business objectives.
The skills of the Company’s directors
span mining, business and legal expertise. The Company relies on contractors and consultants for certain industry matters.
All of these relationships and the background of the directors would be difficult to replace. Fulfilling the Company objectives
might be negatively affected or prove more costly to obtain if we were to lose the services of these directors, contractors or
consultants. The Company does not own life insurance on any of our officers, directors, contractors or consultants.
The nature of mineral exploration is inherently
risky, and we may not ever discover marketable amounts of precious minerals.
Exploration for minerals is highly speculative
and involves greater risk than many other businesses. Most exploration programs fail to result in the discovery of economically
feasible mineralization. Our exploration and mining efforts are subject to the operating hazards and risks common to the industry,
such as:
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•
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economically insufficient mineralized materials;
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•
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decrease in values due to lower metal prices;
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•
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fluctuations in production cost that may make mining uneconomical;
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•
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unanticipated variations in grade and other geologic problems;
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•
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unusual or unexpected formations;
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•
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difficult surface conditions;
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•
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metallurgical and other processing problems;
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•
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environmental hazards;
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•
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water conditions; and
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•
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governmental regulations.
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Any of these risks can adversely affect the
feasibility of development of our El Capitan property, production quantities and rates, and costs and expenditures. We currently
have no insurance to guard against any of these risks. If we determine that capitalized costs associated with any of our El
Capitan property are likely not to be recovered, a write-down of our investment would be necessary. All of these factors may result
in unrecoverable losses or cause us to incur potential liabilities, which could have a material adverse effect on our financial
position.
The effect of these factors cannot be accurately
predicted, and the combination of any of these factors may prevent us from selling or otherwise developing the El Capitan property
and receiving an adequate return on our invested capital.
Extensive government regulation and environmental
risks may require us to discontinue or delay our marketing activities for the sale of El Capitan property.
Our business is subject to extensive federal,
state and local laws and regulations governing exploration, development, production, labor standards, occupational health, waste
disposal, and use of toxic substances, environmental regulations, mine safety and other matters. Additionally, new legislation
and regulations may be adopted at any time that may affect our business. Compliance with these changing laws and regulations could
require increased capital and operating expenditures and could prevent or delay the sale of the El Capitan property.
Any failure to obtain government approvals
and permits may require us to discontinue future exploration on our El Capitan property.
We are required to seek and maintain federal
and state governmental approvals and permits in order to conduct exploration and other activities on our El Capitan property. The
permitting requirements for our respective claims and any future properties we may acquire will be somewhat dependent upon the
state in which the property is located, but generally will require an initial filing and fee (of approximately $25) relating to
giving notice of an intent to make a claim on such property, followed by a one-time initial filing of a location notice with respect
to such claim (approximately $165), an annual maintenance filing for each claim (generally $140 per claim per year), annual filings
for bulk fuel and water well permits (typically $5 per year each) and, to the extent we intend to take any significant action on
a property (other than casual, surface-level activity), a one-time payment of a reclamation bond to the Bureau of Land Management
(the “BLM”), which is to be used for the reclamation of the property upon completion of exploration or other significant
activity. In order to take any such significant action on a property, we are required to provide the BLM with either a notice of
operation or a plan of operation setting forth our intentions. The amount of the reclamation bond is determined by the BLM based
upon the scope of the activity described in the notice or plan of operation. With respect to the current plan of operations on
the El Capitan property, the reclamation bond was $15,000, but this amount will vary with each property and respective notice or
plan of operation.
Obtaining the necessary permits can be a complex
and time-consuming process involving multiple jurisdictions, and requiring annual filings and the payment of annual fees. Additionally,
the duration and success of our efforts to obtain permits are contingent upon many variables outside of our control and may increase
costs of or cause delay to our mining endeavors. There can be no assurance that all necessary approvals and permits will be obtained,
and if they are obtained, that the costs involved will make it economically unfeasible to continue our exploration of the El Capitan
property. Additionally, there is no guaranty that the permits required will be issued or that the Company will be able
to comply with all of the terms of the permits and avoid delay. For example, on March 30, 2007, the New Mexico Energy,
Minerals and Natural Resources Department issued a Cessation Order due to un-permitted exploration activities of the Company. On
September 17, 2007, the New Mexico Energy, Minerals and Natural Resources Department issued their Completion of Abatement Steps
for Cessation Order confirming that the abatement steps required under the original order had been completed. On October
3, 2008, the New Mexico Energy, Minerals and Natural Resources Department issued their Termination Report and Confirmation of Completion
of Work for Reclamation Activities confirming that the reclamation activities required under the original order had been completed. Delays
of this type can cost the Company time and expense and delay its ability to successfully exploit our El Capitan property.
The approval process for certain exploration
permits provides for notice to the public and allows for the public to comment on the application. The governmental permitting
authorities are obligated to consider the comments received from the public and to assess the merits thereof as part of the approval
process. The public notice period for the current El Capitan property exploration permits remains open. To date, we have received
both positive and negative comments from individuals regarding our proposed exploration activities. It is possible that public
comments may ultimately be deemed to have sufficient merit to delay or even deny our application.
Mineral exploration is extremely competitive,
and we may not have adequate resources to successfully compete.
There is a limited supply of desirable mineral
properties available for claim staking, lease or other acquisition in the areas where we contemplate participating in exploration
activities. We compete with numerous other companies and individuals, including competitors with greater financial,
technical and other resources than we possess, and that are in a better position than us to search for and acquire attractive mineral
properties. Additionally, due to our limited financial and other resources, we do not anticipate developing or producing on our
El Capitan property without a strong financial operating partner, if at all. Alternatively, we have elected to sell the El Capitan
property with the current mineralization information we have.
Title to any of our properties may prove
defective, possibly resulting in a complete loss of our rights to such properties.
The primary portion of our holdings includes
unpatented mining claims. The validity of unpatented claims is often uncertain and may be contested. These claims are located on
federal land or involve mineral rights that are subject to the claims procedures established by the General Mining Law of 1872,
as amended. We are required to make certain filings with the county in which the land or mineral is situated and annually with
the Bureau of Land Management and pay an annual holding fee of $140 per claim. If we fail to make the annual holding payment or
make the required filings, our mining claims would become invalid. In accordance with the mining industry practice, generally a
company will not obtain title opinions until it is determined to sell a property. Also no title insurance is available for mining.
Accordingly, it is possible that title to some of our claims may be defective and in that event we would not have good and valid
title to the El Capitan property, and we would be forced to curtail or cease our exploratory programs on the property site.
ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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None.
El Capitan Property
Our primary asset is the 100% equity
interest in El Capitan, Ltd., an Arizona corporation (“ECL”), which holds a 100% interest in the El Capitan property
located near Capitan, New Mexico (the “El Capitan Property”).
Below is a map setting forth the location
of the El Capitan Property.
Location and Access to Deposits
The El Capitan Property is situated in the Capitan
Mountains, near the city of Capitan, in southwest New Mexico. The main site can be reached by going north from Capitan on State
Road 246 for 5.5 miles, turning right onto an improved private road and proceeding for about 0.7 miles.
Description of Interests
The El Capitan Property originally consisted
of four (4) patented and nine (9) Bureau of Land Management (“BLM”) lode claims; a mineral deposit is covered by these
claims. The lode claims, known as Mineral Survey Numbers 1440, 1441, 1442 and 1443, were each located in 1902 and patented in 1911.
On January 1, 2006, ECL finalized the purchase of the four patented mining claims on the property, which constitute approximately
77.5 acres in the aggregate.
The El Capitan Property originally consisted
of approximately 200 acres of mineral lands bounded by the Lincoln National Forest in Lincoln County, New Mexico. During October
and November 2005, based upon recommendations from our consulting geologist, we staked and claimed property surrounding the El
Capitan site located in Lincoln County, New Mexico, increasing the total claimed area to approximately 10,000 acres. In
August 2006, we reduced the number of claims to cover approximately 7,400 acres, and in August 2009, we reduced the number of claims
to approximately 2,800 acres based upon continuing geological work and recommendations by our consulting geologist. In
October and November 2011, at the recommendation of the Company’s geological consultant, the Company filed an additional
48 claims of approximately 20 acres each on property adjacent to the Company’s existing claims, aggregating an additional
960 acres.
As of September 30, 2012, we own four patented
claims, covering approximately 77.5 acres, and 188 lode claims with the BLM covering approximately 3,760 acres at the El Capitan
Property. The map sets forth on Exhibit 99.1 to this Amendment No. 1 shows the location of our claims on the El Capitan
Property as of September 30, 2012.
Previous Operations
To our knowledge, prior to its acquisition by
ECL, the property was last active in 1988. The property was previously drilled as an iron (Fe) resource by the U.S. Bureau of Mines
in 1944 and 1948. From 1961 to 1988, to our knowledge, an estimated 250,000 tons of iron ore were produced on the property. Prior
to December 2004, there had not been any significant exploration completed on the property. There had only been shallow drilling
of the upper magnetite horizon, which was completed by the U.S. Bureau of Mines in 1944 and 1948, and additionally performed by
ECL in 2002. Additionally, there was geologic mapping of the property at a scale of 1:3,600 by Kelley in 1952. ECPN
has made its annual maintenance filings and payment of an annual maintenance fee to the BLM for the claims ($140 per year) and
of bulk fuel and water well permits on the El Capitan site.
Geology
The main El Capitan deposit is exposed in an
open-pit and outcrops within a nearly circular 1,300 foot diameter area, with smaller bodies stretching eastward for a distance
of up to 7,000 feet. The El Capitan Property includes two magnetite-dominant bodies. The upper magnetite zone lies below a limestone
cap that is a few tens of feet thick, and that is bleached and fractured with hematite-calcite fracture filling. Hematite is an
iron oxide mineral, and calcite is a calcium carbonate mineral. Below the limestone cap, there is a mineral deposit which consists
mainly of calc-silicate minerals, or minerals which have various ratios of calcium, silicon and oxygen. Beneath the calc-silicate
deposit is granite rock. The El Capitan Property has an abundance of hematite, which occurs with calcite in later stage fracture
fillings, breccias (rock composed of sharp-angled fragments), and stockworks (multi-directional fractured rock containing veinlets
of hydrothermally introduced materials).
Potential mineralization has been defined as
two separate types: (i) magnetite iron, and (ii) hematite-calcite mineralized skarn and limestone, which may contain precious metals.
By using core holes located at strategic points throughout the property, we have been able to develop subsurface information and
define the mineralization. To date, there have been no proven commercial precious metals reserves on the El Capitan Property site.
To establish “reserves” (as defined under Industry Guide 7 issued by the SEC), we will be required to establish that
the property is commercially viable. As of September 30, 2012, we have not completed a feasibility study on the property,
and thus cannot identify the economic significance of the property, if any, at this time.
Exploration and Development
We currently do not have any detailed
plans to conduct further exploration on the El Capitan Property.
The Company has worked with third parties to
analyze samples from the El Capitan Property to create an economically feasible recovery model for the precious metals for the
El Capitan Property ore. We have successfully utilized a repeatable concentration and recovery procedure, which is a modified fire
assay technique, to allow evaluation of the ore. Results using this procedure have been positive and show potential ore-grade gold
and silver deposits. Based upon these results and part of our strategic plan, on January 31, 2012 the Company engaged an investment
banking firm to market and sell the El Capitan Property to a major mining company. Given the Company’s current plans to market
the property for sale, the Company does not currently have any timetable, budget or plan to conduct further exploration on the
El Capitan Property. The Company has not, and does not intend to, file any geological reports on SEDAR for review by
Canadian authorities.
The Company and Gold and Minerals Company, Inc.
(“G&M”), a wholly owned subsidiary of the Company, have incurred at total of $8,886,488 in exploration costs associated
with the El Capitan Property. G&M has incurred $5,275,916 in exploration costs, commencing January 1, 1994 through
September 30, 2012, and the Company has incurred $3,610,572 in exploration costs, from its inception on July 26, 2002 through September
30, 2012. The foregoing exploration costs include those costs associated with drilling, assaying, filing fees, extraction
process development, consultant, geological, metallurgical, chemist, environmental and legal fees, and other miscellaneous property
development costs.
The following describes the Company’s
historical extraction and analysis of samples from the El Capitan Property.
Over the years, samples taken on the El Capitan
Property, including samples taken by ECL, have given low-grade precious metal results when using standard fire assay methods. Through
August 2006, due to the unique nature of the mineralization of the El Capitan Property, we have at times utilized testing and assaying
methods that may be uncommon, including the use of alkali fusion assays, a more aggressive form of assay which completely converts
the sample into a water soluble salt.
In January 2005, ECL completed a preliminary
32-sample surface sampling and assay program on the El Capitan Property to determine the property’s gold and platinum potential. This
preliminary sampling was completed by Dr. Clyde L. Smith, Ph.D. This preliminary sampling and assay program was followed
by three stages of diamond drilling and rotary drilling, totaling 45 holes between April 2005 and September 2006.
In 2007, ECPN engaged Dr. Smith to
prepare a report to “provide an explanation of the work conducted on the El Capitan Gold-Platinum Project ... and to
summarize the results of the geologic investigations ...” In this report, dated April 16, 2007, Dr. Smith
states, “This resource [the El Capitan Property] qualifies as a ‘measured resource’ based upon the Canadian
National Instrument 43-101 guidelines. Preliminary hydrometallurgical extraction results indicate potentially
acceptable levels of recovery of both gold and platinum.”
We have retained the services of Dr. Smith to
manage the investigation of the El Capitan Property. Dr. Smith is a Consulting Geologist with over 33 years of experience in the
mining industry. Dr. Smith holds a B.A. from Carleton College, a M.Sc. from the University of British Columbia, and a Ph.D. from
the University of Idaho. Dr. Smith also served as a member of the Industrial Associates of the School of Earth Sciences at Stanford
University for several years. ECL has also retained the services of a Ph.D. chemist to compile the prior and ongoing metallurgical
and geological information for incorporation into a formal presentation for the purpose of the future marketing of the property.
We retained a small metallurgical R&D lab
in August 2006 to assess the potential for a modified fire assay technique that we believe is more appropriate for the material
from the El Capitan deposit. Throughout 2007 investigations into the potential use of various industry-standard fire assay techniques
to estimate the metal content of the El Capitan mineral samples were conducted. Such standard fire assay techniques
produced limited improved results, and beginning in early 2008 and through early 2009, we conducted research into other assay
techniques, including leaching, acid dissolution, and the addition of various precious metal collecting agents during the assay
process. In early 2009, we completed these research analytical projects at the commercial laboratory and small, R&D-oriented
facility we had contracted with. The results obtained were encouraging but resulted in inconsistent tests results.
In May
2009, we received results from a commercial lab for additional assay tests. These assay tests conducted were comparable
to the test procedures used in December 2008. The gold values indicated average gold grades of .032 ounces per ton,
which were similar to the December 2008 values, representing recoverable values using standard extraction techniques. The assay
tests also indicated average silver grades of 1.25 ounces per ton, equating to an average gold equivalent of .05 ounces per ton. The
December 2008 tests did not test for silver values. Our consultants determined that the low assay results reported
in February 2009 came from an entirely different assay procedure and therefore were not comparable to the results obtained in
the December 2008 and May 2009 tests.
In June 2009, we contacted Planet Resource Recovery,
Inc. (“PRR”), for PRR to evaluate the use of its recovery technology in recovering precious metals from concentrates
produced from El Capitan Property head ore. Effective May 4, 2010, we entered into a Joint Venture Agreement with PRR to process
approximately 200 tons of concentrate from the El Capitan Property. As part of the Agreement, PRR was to build a production facility
for this El Capitan recovery process at their Texas site. The production facility was not completed and we are currently storing
our concentrates in a secure site on property occupied by PRR.
In March 2010, we started a separate project
using a team of experienced mining chemists and metallurgists to develop an assay process and a commercial precious metals recovery
process for the ore from the El Capitan Property. This team initially focused on three (3) different recovery processes. By September
2010, this team had developed processes which yielded “metal in hand” assays, which indicates the El Capitan ore could
be of commercial grade, if the recovery cost is not prohibitive.
In September 2010, we announced that our
team of chemists and metallurgists had developed a gold recovery process which uses “lead collection with silver inquarting.”
An independent certified analytical laboratory utilized this recovery process to recover metal from 3,000 tons of El Capitan head
ore and produced a certified report of such results, indicating a value of 0.421 ounces of gold per ton of ore.
On November 3, 2010, we engaged another qualified
consulting company to initially analyze ten core samples from the El Capitan Property, utilizing three different recovery
processes. In 2011, the consultant company conducted tests to confirm the recovery of precious metals from the El Capitan
ore under various methods of recovery. In April 2011, we received results that indicated potential economic values of gold, as
well as the presence of platinum group metals (“PGM”). The results differed by analytical method, and the consulting
company has proposed to undertake additional testing to achieve comparable results before proceeding with analysis and process
testing of additional samples. In August 2011, we received the analytical data from work performed by the consulting
company. This third party source has taken considerable time to perform the needed research to confirm the values of the PGM and
gold samples taken from “Chain-of-Custody” head ore removed from the El Capitan Property. Review of the data supports
El Capitan’s expectations of commercially recoverable precious metals, and the most recent samples of ore have produced
dore’ bars sold on the basis of their 1.2 ounces of gold equivalent per ton.
Additional work by the consultant company has
been put on hold as we have concentrated on the recovery process involving silver–lead inquarting and a carbon pre-roast
process of the El Capitan ore.
The Company’s prior results have been
replicated with “Chain-of-Custody” ore collected under the direction of a qualified metallurgical engineer and an independent
laboratory. The Company has successfully utilized a repeatable concentration and recovery procedure, which is a modified fire assay
technique, to allow evaluations of the ore. Results using this procedure have been positive and show potential ore-grade gold and
silver deposits. The Company has not, and does not intend to, file any geological reports on SEDAR for review by Canadian authorities.
The geological report will be used solely for purposes of presenting the El Capitan Property to the market for sale. The final
recovery process has been developed for the El Capitan ore that is well in line with the ore values being recovered to ensure the
recovery process is not prohibitive in comparison to the price of the precious metals recoverable at the El Capitan Property.
Based upon are 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.
After the Company announced the silver-lead inquart of three dore’ bar tests of concentrates it continued
its verification of metals values with 20 chain of custody head ore samples. These analyses was performed for the due diligence
requirements for Houlihan Lokey, the Company’s investment banker. These tests were concluded in September, 2012.
These results are listed below. Further tests were performed with material prepared by Proven Technologies, LLC (‘Proven”)
are also listed below.
We have also been working with Proven, located
in Houston, Texas, and we have contracted with them to process the approximate 130 tons of concentrate which we have previously
produced and have stored in Houston. An earlier contract with Planet Resources of Houston, Texas, to attempt to process 200 tons of concentrates
caused the Company to ship 130 tons to Houston. When Planet failed to perform, those 130 tons of concentrate were stored
in Houston. Proven has developed a specific gravity separation system utilizing high pressure air and
cyclone technology. Initially, the heavier material separated by Proven will be sent to Phoenix, Arizona for processing by the
Sundancer Method and smelted. The dore’ bars that will be produced will then be delivered to a precious metal refiner for
final analysis and sale. After all expenses, Proven and the Company will split the remaining profits on a 50-50 basis.
The Proven MRC mill and separator utilizes no
water or caustic leaching reagents such as cyanide and provides zero environmental impact and is considered a “green technology”.
The ore is first milled to a very fine screen size.
The process utilizes compressed air and
collision forces to separate by specific gravity the precious metals from the host rock.
The following is metallurgical data from the
aforementioned tests we have conducted:
Metallurgical Data
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Sample
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Sample Size
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(10 to 1)
Cons or
Head Ore
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Silver
Oz/Ton of
Head Ore
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Gold
Oz/Ton of
Head Ore
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Dore’ Bar 1 – Sold
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200 lbs
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Magnitite Cons
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41 ozs
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.19 ozs
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Dore’ Bar 2 – Sold
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20 lbs
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Magnitite Cons
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190 ozs
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-0- (inquarted with gold)
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El Capitan Cons
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9 x 1 lbs
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Magnitite Cons
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158 ozs (average)
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.14 ozs (average)
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Hazen (chain of custody)
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20 x 1 lbs
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Hematite Head Ore
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77 ozs (average)
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.13 ozs (average)
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Proven Technology
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700 lbs
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Cons
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179 ozs
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-0-
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These results are not necessarily representative
of the 141,000,000 tons of measured reserves. They are samples.
The final recovery process has been developed for the El Capitan
ore that is well in line with the ore values being recovered to ensure the recovery process is not prohibitive in comparison to
the price of the precious metals recoverable at the El Capitan Property.
The Company engages third party consultants
to provide extraction and analysis of samples. As part of its selection process, the Company takes into account the
quality assurance practices of such consultants prior to engagement. Consequently, the Company has not created an independent
quality assurance program.
Description of Equipment
From time to time, we have entered into agreements
with various contractors to conduct exploration projects on the El Capitan Property. Each of the respective contractors utilizes
its own equipment to conduct such exploration and testing or other contracted services, and must provide their own source of power
and water to be utilized at the El Capitan Property.
COD Property
The COD Property is an underground property
located in the Cerbat mountains in Mohave County, Arizona, approximately 11 miles north, northwest of Kingman, Arizona. The Cerbat
mountains consist mainly of pre-Cambrian metamorphic rock which is intruded by granite, overlain by younger Tertiary-era volcanic
rock. The property can be reached by taking Interstate 40 north out of Kingman to the Stockton Hill Road exit. After going approximately
five (5) miles north on Stockton Hill Road, there is a subdivision road extending west. Following the subdivision road to the second
southern extension road, the visitor will see road signs showing the directions to the property from that point.
The COD Property contains 13 claims granted
by the BLM. This property has previously been mined through two underground shafts leading to seven levels, most recently in the
mid 1980’s. The COD Property was originally mined in 1878.
Pursuant to a joint venture agreement with U.S.
Canadian Minerals, Inc. (“U.S. Canadian”) entered into in May 2004, we transferred an 80% interest in the COD Property
to U.S. Canadian. Pursuant to the agreement, we planned to explore the property to determine the feasibility of recovering gold
and silver from the tailings of the COD Property. We were to receive 50% of the profits from the gold and silver tailings,
if any. We were required to contribute the equipment necessary for such exploratory operations. U.S. Canadian agreed to contribute 90
days operating capital to provide for at least three workers, fuel, necessary equipment, and equipment repair and maintenance.
After the 90-day period, the parties were to split the costs and expenses related to the operation of the mine in accordance with
their profit participation in the COD Property. To date, we have spent approximately $2,500 on this project. On August
29, 2005, we executed a Quit Claim Deed in favor of U.S. Canadian covering all of the mining claims identified in the joint venture
for purposes of facilitating the management of the claims by U.S. Canadian pursuant to the joint venture. There has been no activity
by us at this property in the years ended September 30, 2011, 2010 and 2009. We were advised by U.S. Canadian on October 21, 2009,
that they had transferred all of their interest in the COD Property to an unrelated party. On January 11, 2010, U.S. Canadian
and the unrelated party rescinded the October 21, 2009 transaction and a Quit Claim Deed on the COD Property was returned to U.S.
Canadian. U.S. Canadian, now known as Noble Consolidated Industries Corp. (“Noble”), is listed on the Gray Market
Sheets with no value or trading activity. Based upon the events and financial condition of Noble, we have determined that this
joint venture is not viable and, as a result, the Company does not consider the COD Property to be a material property of the Company
at this time.
Executive Offices and Administrative Offices
Our executive and administrative office
was located at 15225 N. 49
th
Street, Scottsdale, Arizona 85254 until late November 2012, when the executive office
was moved to 8390 Via de Ventura, Suite F-110, Scottsdale, Arizona 85258 and the administrative office was moved to 5871
Honeysuckle Road, Prescott. Arizona, 86305. The administrative office premises are contributed free of charge by Mr. Stephen
J. Antol, Controller for the Company. We believe that the offices are adequate to meet our current operational requirements.
Other than our property as described above, we do not own any real property.
ITEM 3.
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LEGAL PROCEEDINGS
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We are not currently
subject to any legal proceedings, and to the best of our knowledge, no such proceeding is threatened, the results of which would
have a material impact on our properties, results of operation, or financial condition. Nor, to the best of our knowledge,
are any of our officers or directors involved in any legal proceedings in which we are an adverse party.
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
Not applicable.
PART II
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market Information
Our common stock is quoted on the Over-the-Counter
Bulletin Board, or “OTC Bulletin Board,” under the trading symbol “ECPN” The following table sets forth
the range of high and low closing bid quotes of our common stock per quarter as reported by the OTC Bulletin Board for the past
two fiscal years ended September 30, 2012 and 2011, respectively. All quoted prices reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not necessarily represent actual transactions.
|
|
Price Range
|
|
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
$
|
0.52
|
|
|
$
|
0.21
|
|
June 30, 2012
|
|
$
|
0.37
|
|
|
$
|
0.17
|
|
March 31, 2012
|
|
$
|
0.58
|
|
|
$
|
0.15
|
|
December 31, 2011
|
|
$
|
0.72
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
$
|
0.98
|
|
|
$
|
0.42
|
|
June 30, 2011
|
|
$
|
1.38
|
|
|
$
|
0.56
|
|
March 31, 2011
|
|
$
|
1.58
|
|
|
$
|
0.62
|
|
December 31, 2010
|
|
$
|
0.70
|
|
|
$
|
0.42
|
|
Holders
As of December 10, 2012, we had approximately
1,451 holders of record of our common stock, one of which was Cede & Co., a nominee for Depository Trust Company, or DTC. Shares
of common stock that are held by financial institutions as nominees for beneficial owners are deposited into participant accounts
at DTC, and are considered to be held of record by Cede & Co. as one stockholder. As of December 10, 2012, we had approximately
7,100 beneficial holders of our common stock.
Dividends
To date, the Company has not paid, nor declared,
any cash dividends since its inception, and does not intend to declare any such dividends in the foreseeable future. Our ability
to pay dividends is subject to limitations imposed by Nevada law. Under Nevada law, dividends may be paid to the extent that a
corporation’s assets exceed its liabilities and it is able to pay its debts as they become due in the usual course of business.
Stock Performance Graph
The Securities and Exchange Commission
requires that we include in this report a line-graph presentation comparing cumulative return to our stockholders (based on appreciation
of the market price of our common stock) on an indexed basis with (i) a broad equity market index and (ii) an appropriate
published industry or line-of-business index, or peer group index constructed by us. The following presentation compares our common
stock price for the period from September 30, 2007 through September 30, 2012, to the S&P BMI Gold & Precious Metal Index
and to a peer group index.
We have elected to create a
peer group index in compiling our stock performance graph because we believe a peer group index represents a comparison
to companies within our industry that have a similar market capitalization to ours. The peer group index includes the
following companies: Brigus Gold Corp., Santa Fe Gold Corporation, Starcore International Mines Ltd., and IMPACT Silver Corp.
The presentation assumes that the value
of an investment in each of our common stock, the S&P BMI Gold & Precious Metal Index and the peer group index was $100
on September 30, 2007, and that any dividends paid were reinvested in the same security.
Recent Sales of Unregistered Securities
During our fiscal year ended September 30,
2012, we had no sales of unregistered securities.
ITEM 6.
|
SELECTED FINANCIAL DATA
|
The following selected financial data sets
forth our summary historical financial data as of and for the fiscal years ended September 30, 2012, 2011, 2010, 2009 and 2008.
This information was derived from our audited consolidated financial statements for each period. Our selected historical
financial data is qualified in its entirety by, and should be read in conjunction with,
“Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
and the financial statements and the notes
thereto included elsewhere in this report. For additional information relating to our operations, see
“
Item 1. Business
”
and
“
Item 2. Properties
.”
|
|
Year Ended September 30,
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Operating expenses
|
|
$
|
1,918,415
|
|
|
$
|
178,949,160
|
|
|
$
|
1,279,249
|
|
|
$
|
953,699
|
|
|
$
|
2,501,610
|
|
Loss from operations
|
|
|
(1,918,415
|
)
|
|
|
(178,949,160
|
)
|
|
|
(1,279,249
|
)
|
|
|
(953,699
|
)
|
|
|
(2,501,610
|
)
|
Other income (expense)
|
|
|
211
|
|
|
|
28,118
|
|
|
|
2,720
|
|
|
|
198
|
|
|
|
114,127
|
|
Net loss
|
|
|
(1,918,204
|
)
|
|
|
(178,921,042
|
)
|
|
|
(1,276,529
|
)
|
|
|
(953,501
|
)
|
|
|
(2,387,483
|
)
|
Basic & diluted loss per share
|
|
|
(0.01
|
)
|
|
|
(0.89
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
Weighted average shares outstanding
|
|
|
248,234,847
|
|
|
|
199,934,079
|
|
|
|
90,972,066
|
|
|
|
88,004,276
|
|
|
|
82,234,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
238,085
|
|
|
$
|
319,939
|
|
|
$
|
955,023
|
|
|
$
|
2,348
|
|
|
$
|
32,456
|
|
Total current assets
|
|
|
300,518
|
|
|
|
355,328
|
|
|
|
996,926
|
|
|
|
28,537
|
|
|
|
124,941
|
|
Property and equipment, net
|
|
|
2,095
|
|
|
|
3,707
|
|
|
|
2,950
|
|
|
|
8,677
|
|
|
|
18,556
|
|
Land and mineral rights
|
|
|
1,879,608
|
|
|
|
1,879,608
|
|
|
|
788,808
|
|
|
|
788,808
|
|
|
|
788,808
|
|
Total assets
|
|
|
2,204,661
|
|
|
|
2,261,083
|
|
|
|
1,811,124
|
|
|
|
848,462
|
|
|
|
959,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
128,163
|
|
|
|
165,547
|
|
|
|
493,129
|
|
|
|
605,290
|
|
|
|
190,611
|
|
Long-term obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total stockholders’ equity
|
|
|
2,076,498
|
|
|
|
2,095,536
|
|
|
|
1,317,995
|
|
|
|
243,172
|
|
|
|
769,332
|
|
Total liabilities and stockholders’ equity
|
|
|
2,204,661
|
|
|
|
2,261,083
|
|
|
|
1,811,124
|
|
|
|
848,462
|
|
|
|
959,943
|
|
The foregoing should be read in conjunction
with the Financial Statements of the Company and notes thereto included elsewhere in the Annual Report. See
“Item
8. Financial Statements”
below.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
The following discussion should be read in conjunction
with the Financial Statements of the Company and notes thereto included elsewhere in the Annual Report. See
“Item 8.
Financial Statements”
below.
Readers are cautioned that the following discussion
contains certain forward-looking statements that involve risks, uncertainties and assumptions and should be read in conjunction
with the
“Cautionary Statement on Forward-Looking Statements”
appearing at Page 4 of this Annual Report.
Overview of Business
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.
For complete details regarding the business
of the Company, see
“Item 1. Business”
and
“Item 2. Properties,”
above.
Results of Operations - Fiscal year ended September 30, 2012
compared to fiscal year ended September 30, 2011
.
We have not yet realized any revenue from
operations, nor do we expect to realize potential revenues in our fiscal year 2013, if ever. We realized a net decrease in
operating expenses of $177,030,745 from $178,949,160 for the year ended September 30, 2011 to $1,918,415 for the year ended
September 30, 2012. The decrease is comprised mainly of decreases due to the loss on the impairment of mineral property of
$176,567,424, in legal and accounting fees of $162,051 and other general and administrative of $687,585. These decreases
were offset mainly by increases in professional fees of $282,313 and exploration costs of $102,002.
The decrease in legal and accounting
fees in the current year are attributable to costs incurred in the prior year associated with the merger of G&M into the
Company and fees related with SEC filings associated with the merger and the transactions related to the Equity Purchase
Agreement with Southridge, as further described below. The decrease in other general and
administrative in the current year is attributable to non-recurring settlement costs associated with two former officers of
the Company aggregating $214,642 in the prior year; decreased costs attributable to issued options aggregating $415,447 and
decreased stock-based compensation of $56,540.
The increased exploration cost in
the current year is due to research activity on our recovery processes for precious metals on our El Capitan property ore and
consisted of increased costs associated with outside contractors utilized for chain of custody work for our investment
banker aggregating $122,597; increased costs for outside professional mine consultants of $14,767 and offset by decreased
costs incurred for assays of $38,167.
Our net loss decreased for the fiscal year ended
September 30, 2012 by $177,002,838 from $178,921,042 for the year ended September 30, 2011, to $1,918,204 for the current year
ended September 30, 2012. The decrease in the net loss is mainly attributable to the net decrease in operating expenses and the
recording of an impairment loss of $176,567,424 on the Company's mineral property in the prior year, as detailed above.
Results of Operations - Fiscal year ended September 30, 2011
compared to fiscal year ended September 30, 2010
.
We have not yet realized any revenue from operations,
nor do we expect to realize potential revenues in our fiscal year 2012, if ever. We realized a net increase in operating expenses
of $177,669,911 from $1,279,249 for the year ended September 30, 2010 to $178,949,160 for the year ended September 30, 2011. The
increase is comprised mainly of a loss on the impairment of mineral property in fiscal 2011 of $176,567,424, increases in legal
and accounting fees of $230,628, exploration costs of $313,329, reduction in write-off of accounts payable and accrued interest
of $49,364, warrant and option associated costs of $745,213 and other general and administrative of $294,298. These increases were
mainly offset by decreases in professional fees of $76,030, and administrative consulting fees of $521,256.
The increase in legal and accounting fees are
attributable to costs associated with the merger of G&M into the Company and fees related with SEC filings associated with
the conversion of warrants and the transactions related to the Equity Purchase Agreement with Southridge, as further described
below in this Annual Report. The increased exploration costs are due to significant increased research activity on recovery processes
for precious metals on our El Capitan ore. The increased warrant and option cost is associated with the Company’s decision
to issue non-cash incentive compensation to its officers and directors to reserve its capital for exploratory purposes. A total
of 1,500,000 options were issued to the directors of the Company, and no stock compensation was issued to our directors in the
current fiscal year. The Company did not issue any new stock options or warrants during the fiscal year ended September 30, 2010.
The prior fiscal year period’s administrative consulting fees consisted of $649,310 non-cash stock compensation to the directors,
officers and chief financial officer of the Company for services rendered and cash compensation aggregating $131,946. The increase
in other general and administrative is comprised of non-recurring settlement costs associated with two former officers of the
Company aggregating $214,642; increased transfer agent costs of $18,394 relating to the merger of G&M; costs incurred for
shareholder and director meetings of $39,311 and travel, food and entertainment of $12,716. The decrease in professional fees
was attributable to decreased fees associated with public relations of $145,703 and was offset by increased electronic filing
fees of $15,024 due to the SEC filings related to the Company’s merger with G&M and outside consultant costs associated
mainly with the G&M merger transaction of $54,549.
Our net loss increased for the fiscal year
ended September 30, 2011 by $177,644,513 from $1,276,529 for the fiscal year ended September 30, 2010, to $178,921,042 for the
fiscal year ended September 30, 2011. The increase in the net loss is mainly attributable to the net increase in operating expenses
and the recording of an impairment loss of $176,567,424 on the Company's mineral property in the fiscal year ended September
30, 2011, as detailed above.
Liquidity and Capital Resources
To fund our operational expenses in the
fiscal years ended September 30, 2012, 2011 and 2010, we mainly relied on an Equity Purchase Agreement in fiscal years 2012
and 2011 and on the private placement of common stock in fiscal year 2010, as described below.
Historically we have relied on equity and debt
financings to finance our ongoing operations. On May 19, 2010, the Board of Directors authorized a private placement
of 3.2 million shares of restricted common stock at $0.35 per share. On July 23, 2010, the Board of Directors authorized an increase
in the private placement to 4.3 million shares at $0.35 per share.
The working capital funds from this private
placement were utilized for payments for the continued implementation of our business strategies mainly associated with our El
Capitan property, necessary corporate personnel, and related general and administrative expenses during our fiscal years ended
September 30, 2011 and 2010. We also utilized this funding to complete the merger of G&M into our wholly owned subsidiary and
gain 100% ownership of the El Capitan property in January 2011. As part of the merger with G&M we received cash of $89,902
and collected $62,520 on notes receivable in our fiscal year ended September 30, 2011.
During our fiscal year ended September 30, 2011,
we also raised $212,667 from the sale of warrants and received proceeds of $500,000 from the sales of shares under the Equity Purchase
Agreement (the “Agreement”), with Southridge Partners II, LP (“Southridge’), as described below.
To continue our exploration, metallurgical
and recovery program efforts on the El Capitan project and continue our business strategies for our fiscal year 2012, on July
11, 2011, we entered into the Agreement with Southridge. The term of the Agreement is two years, and can be terminated by the
Company at any time. Under the Agreement, the Company may from time to time, in its discretion, sell newly-issued shares
of our common stock for aggregate proceeds of up to $5,000,000. We have no obligation to sell any shares under the
Agreement. The shares to be sold under the Agreement will be made pursuant to our effective registration statement on Form S-3
filed with the Securities and Exchange Commission. For a complete description of the Agreement, see Note 9 of the Financial Statements
of the Company set forth in Item 8 of this Annual Report.
During our fiscal year ended September 30, 2012,
funding for operations was provided for under this Agreement and we received working capital proceeds of $1,450,000. The proceeds
received from the Agreement are utilized by the Company for working capital and general corporate purposes, including continuing
our strategic plan to market and sell our El Capitan property to a producing mining company and paying for necessary corporate
administration costs.
As of September 30, 2012, we have sold Southridge
shares of stock for aggregate proceeds of $1,950,000 and had a remaining ability to sell to Southridge $3,050,000 in shares of
common stock of the Company under the Agreement. Subsequent to September 30, 2012, and prior to the filing of this report, we
sold additional shares to Southridge under the Agreement for cash proceeds of $400,000.
In January 2012, we retained an investment banker
to provide the professional services and direction to market and sell the El Capitan property. The investment banker has been working
with our Board of Directors to position the El Capitan property for presentation to potential buyers.
As of September 30, 2012, we had cash on
hand of $238,085 and an accumulated deficit of $200,078,743. Based upon our budgeted burn rate we currently have
operating capital for approximately three months, excluding any cash that would be received by the Company upon the sale of
its shares of common stock under the terms of the Agreement. During our fiscal year 2013 we will continue to utilize the
Southridge financing facility to fund our necessary operations and draw down on the facility as operating costs require. In
July 2013 it will be necessary to renew the Agreement or find other suitable financing for the Company to finance our
ongoing administrative costs and costs associated with the continued marketing of the El Capitan property for sale. If
management’s plans are not successful, operations and liquidity may be adversely impacted.
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.
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.
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 this Annual Report. A significant drop in the price of gold, silver or other precious
metals may have a materially adverse affect 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.
Off-Balance Sheet Arrangements
During the year ended September 30, 2012, we
did not engage in any off balance sheet arrangements as defined in Item 303(c) of the 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, “Business,
Basis of Presentation and Significant Accounting Policies” in the Notes to the Consolidated Financial Statements for the
year ended September 30, 2012, describes our significant accounting policies which are reviewed by management on a regular basis.
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
|
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 no debt outstanding nor do we have any 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 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
EL CAPITAN
PRECIOUS METALS, INC.
(An Exploration
Stage Company)
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
|
|
30
|
|
|
|
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
|
|
32
|
|
|
|
Consolidated Balance Sheets - September 30, 2012 and September 30, 2011
|
|
34
|
|
|
|
Consolidated Statements of Expenses – Years ended September 30, 2012, 2011 and 2010, and for the period from July 26, 2002 (inception) through September 30, 2012
|
|
35
|
|
|
|
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) - period from July 26, 2002, (inception) through September 30, 2012
|
|
36
|
|
|
|
Consolidated Statements of Cash Flows - Years ended September 30, 2012, 2011 and 2010, and for the period from July 26, 2002 (inception) through September 30, 2012
|
|
40
|
|
|
|
Notes to Consolidated Financial Statements
|
|
42
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of El Capitan Precious Metals, Inc.
(An Exploration Stage Company)
Scottsdale, Arizona
We have audited the internal control of El
Capitan Precious Metals, Inc. and Subsidiaries (an exploration stage company) (collectively, the “Company”) over its
financial reporting as of September 30, 2012 based on criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control over Financial
Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. 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.
In our opinion, El Capitan Precious Metals,
Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September
30, 2012, based on criteria established in the Internal Control over financial of audit Committee of Sponsoring Organizations of
the Treadway Commission.
We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as
of September 30, 2012 and 2011, and the related consolidated statements of expenses, stockholders’ equity, and cash flows
for the years ended September 30, 2012, 2011 and 2010 and for the period from July 26, 2002 (inception of exploration stage) to
September 30, 2012 and our report dated December 14, 2012 expressed an unqualified opinion on those consolidated financial statements.
/s/ MaloneBailey,
LLP
www.malonebailey.com
Houston, Texas
December 14, 2012
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of El Capitan Precious Metals, Inc.
(An Exploration Stage Company)
Scottsdale, Arizona
We have audited the accompanying consolidated
balance sheets of El Capitan Precious Metals, Inc. and Subsidiaries (an exploration stage company) (the “Company”)
as of September 30, 2012 and 2011, and the related consolidated statements of expenses, stockholders’ equity, and cash flows
for the years ended September 30, 2012, 2011 and 2010 and for the period from July 26, 2002 (inception of exploration stage) to
September 30, 2012. The consolidated financial statements for the period from July 26, 2002 through September 30, 2006 were audited
by other auditors whose reports expressed unqualified opinions on those statements. The consolidated financial statements for the
period from July 26, 2002 through September 30, 2006, include total revenues and net loss of $0 and $10,184,209 respectively. Our
opinion on the consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the period from
July 26, 2002 through September 30, 2012, insofar as it relates to amounts for prior periods through September 30, 2006, is based
solely on the report of other auditors. These consolidated financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial position of the Company as of September 30, 2012 and 2011 and
the results of its operations and cash flows for the years ended September 30, 2012, 2011 and 2010 and for the period from July
26, 2002 through September 30, 2012, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of September 30, 2012, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated December
14, 2012 expressed an unqualified opinion.
/
s/ MaloneBailey,
LLP
www.malonebailey.com
Houston, Texas
December 14, 2012
EL CAPITAN PRECIOUS METALS,
INC.
(An Exploration
Stage Company)
CONSOLIDATED
BALANCE SHEETS
|
|
September 30,
|
|
|
2012
|
|
2011
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS :
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
$
|
238,085
|
|
|
$
|
319,939
|
|
Prepaid
expense and other current assets
|
|
|
62,433
|
|
|
|
35,389
|
|
Total
Current Assets
|
|
|
300,518
|
|
|
|
355,328
|
|
|
|
|
|
|
|
|
|
|
Furniture
and equipment net of accumulated depreciation of $37,069 and $34,197, respectively
|
|
|
2,095
|
|
|
|
3,707
|
|
Mineral property
|
|
|
1,879,608
|
|
|
|
1,879,608
|
|
Deposits
|
|
|
22,440
|
|
|
|
22,440
|
|
Total
Assets
|
|
$
|
2,204,661
|
|
|
$
|
2,261,083
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
83,163
|
|
|
$
|
111,406
|
|
Accrued
liabilities
|
|
|
45,000
|
|
|
|
54,141
|
|
Total
Current Liabilities
|
|
|
128,163
|
|
|
|
165,547
|
|
|
|
|
|
|
|
|
|
|
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; 251,327,040 and 245,582,461
issued and outstanding, respectively
|
|
|
251,328
|
|
|
|
245,582
|
|
Additional paid-in capital
|
|
|
201,903,913
|
|
|
|
200,010,493
|
|
Deficit accumulated
during the exploration stage
|
|
|
(200,078,743
|
)
|
|
|
(198,160,539
|
)
|
Total
Stockholders’ Equity
|
|
|
2,076,498
|
|
|
|
2,095,536
|
|
Total Liabilities
and Stockholders’ Equity
|
|
$
|
2,204,661
|
|
|
$
|
2,261,083
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
EL
CAPITAN PRECIOUS METALS, INC.
(An Exploration
Stage Company)
CONSOLIDATED
STATEMENTS OF EXPENSES
|
|
|
|
|
|
|
|
July 26, 2002
|
|
|
|
|
|
|
|
|
(Inception)
|
|
|
|
|
|
|
|
|
Through
|
|
|
For
the Years Ended September 30,
|
|
September
30,
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
|
|
|
|
|
|
|
(Unaudited)
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
$
|
370,565
|
|
|
$
|
88,252
|
|
|
$
|
164,282
|
|
|
$
|
3,873,844
|
|
Officer compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,863,833
|
|
Administrative consulting fees
|
|
|
255,000
|
|
|
|
260,000
|
|
|
|
781,256
|
|
|
|
2,425,766
|
|
Management fees, related party
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
320,500
|
|
Legal and accounting fees
|
|
|
178,909
|
|
|
|
340,960
|
|
|
|
110,332
|
|
|
|
1,880,256
|
|
Exploration costs
|
|
|
611,106
|
|
|
|
509,104
|
|
|
|
195,775
|
|
|
|
3,610,572
|
|
Other general and administrative
|
|
|
502,835
|
|
|
|
1,190,420
|
|
|
|
83,968
|
|
|
|
7,013,305
|
|
Write-off of accounts payable and accrued interest
|
|
|
—
|
|
|
|
(7,000
|
)
|
|
|
(56,364
|
)
|
|
|
(63,364
|
)
|
Loss on impairment of mineral property
|
|
|
—
|
|
|
|
176,567,424
|
|
|
|
—
|
|
|
|
176,567,424
|
|
(Gain) loss on asset dispositions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34,733
|
|
Total Operating Expenses
|
|
|
1,918,415
|
|
|
|
178,949,160
|
|
|
|
1,279,249
|
|
|
|
198,526,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(1,918,415
|
)
|
|
|
(178,949,160
|
)
|
|
|
(1,279,249
|
)
|
|
|
(198,526,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
211
|
|
|
|
2,283
|
|
|
|
715
|
|
|
|
39,459
|
|
Other income
|
|
|
—
|
|
|
|
18,632
|
|
|
|
—
|
|
|
|
18,632
|
|
Forgiveness of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
115,214
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(68,806
|
)
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
(454
|
)
|
|
|
(308,740
|
)
|
Gain (loss) on extinguishment of liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
2,459
|
|
|
|
(222,748
|
)
|
Gain on derivative instrument liability
|
|
|
—
|
|
|
|
7,203
|
|
|
|
—
|
|
|
|
7,203
|
|
Accretion of notes payable discounts
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,132,088
|
)
|
Total Other Income (Expense)
|
|
|
211
|
|
|
|
28,118
|
|
|
|
2,720
|
|
|
|
(1,551,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE PROVISION FOR INCOME TAXES
|
|
|
(1,918,204
|
)
|
|
|
(178,921,042
|
)
|
|
|
(1,276,529
|
)
|
|
|
(200,078,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(1,918,204
|
)
|
|
$
|
(178,921,042
|
)
|
|
$
|
(1,276,529
|
)
|
|
$
|
(200,078,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share -
basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.89
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
248,234,847
|
|
|
|
199,934,079
|
|
|
|
90,972,066
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
EL
CAPITAN PRECIOUS METALS, INC.
(An Exploration
Stage Company)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002
(Inception) through September 30, 2012
|
|
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
|
)
|
Balances at September 30, 2002 (Unaudited)
|
|
|
3,315,000
|
|
|
$
|
3,315
|
|
|
$
|
—
|
|
|
$
|
(3,306
|
)
|
|
$
|
(21,577
|
)
|
|
$
|
(21,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of DML Services on March 17, 2003
|
|
|
6,720,000
|
|
|
|
6,720
|
|
|
|
—
|
|
|
|
(56,720
|
)
|
|
|
—
|
|
|
|
(50,000
|
)
|
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
|
|
Common stock issued for interest expense related to a note payable
|
|
|
525,000
|
|
|
|
525
|
|
|
|
—
|
|
|
|
16,975
|
|
|
|
—
|
|
|
|
17,500
|
|
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
|
|
Issuance of common stock to Gold and Minerals Company, Inc. in connection with purchase of COD property in August 2003
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
—
|
|
|
|
—
|
|
Common stock issued for compensation
|
|
|
3,650,164
|
|
|
|
3,650
|
|
|
|
—
|
|
|
|
516,350
|
|
|
|
—
|
|
|
|
520,000
|
|
Common stock issued for notes payable
|
|
|
1,827,938
|
|
|
|
1,827
|
|
|
|
—
|
|
|
|
381,173
|
|
|
|
—
|
|
|
|
383,000
|
|
Common stock issued for services and expenses
|
|
|
2,082,234
|
|
|
|
2,083
|
|
|
|
—
|
|
|
|
393,682
|
|
|
|
—
|
|
|
|
395,765
|
|
Costs associated with warrants and options issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
108,000
|
|
|
|
—
|
|
|
|
108,000
|
|
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
|
)
|
(Continued)
The
accompanying notes are an integral part of these consolidated financial statements.
EL
CAPITAN PRECIOUS METALS, INC.
(An
Exploration Stage Company)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July
26, 2002 (Inception) through September 30, 2012
(Continued)
|
|
Common Stock Shares
|
|
Common Stock Amount
|
|
Stock Subscriptions
|
|
Additional Paid-in Capital
|
|
Deficit Accumulated During the Exploration Stage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion of notes payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,635
|
|
|
|
—
|
|
|
|
21,635
|
|
Common stock issued for notes payable
|
|
|
383,576
|
|
|
|
384
|
|
|
|
—
|
|
|
|
153,042
|
|
|
|
—
|
|
|
|
153,426
|
|
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
|
|
Costs associated with warrants and options issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
149,004
|
|
|
|
—
|
|
|
|
149,004
|
|
Discounts on issuance of notes payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
113,448
|
|
|
|
—
|
|
|
|
113,448
|
|
Subscribed stock issued
|
|
|
200,000
|
|
|
|
200
|
|
|
|
(50,000
|
)
|
|
|
49,800
|
|
|
|
—
|
|
|
|
—
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion of notes payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
128,572
|
|
|
|
—
|
|
|
|
128,572
|
|
Common stock issued for compensation
|
|
|
364,912
|
|
|
|
364
|
|
|
|
—
|
|
|
|
286,772
|
|
|
|
—
|
|
|
|
287,136
|
|
Common stock issued for exercise of options and warrants
|
|
|
498,825
|
|
|
|
499
|
|
|
|
—
|
|
|
|
256,251
|
|
|
|
—
|
|
|
|
256,750
|
|
Common stock issued for notes payable
|
|
|
2,124,726
|
|
|
|
2,125
|
|
|
|
—
|
|
|
|
1,147,875
|
|
|
|
—
|
|
|
|
1,150,000
|
|
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
|
|
Costs associated with warrants and options issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
163,750
|
|
|
|
—
|
|
|
|
163,750
|
|
Discounts on issuance of convertible notes payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,018,640
|
|
|
|
—
|
|
|
|
1,018,640
|
|
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
|
|
(Continued)
The
accompanying notes are an integral part of these consolidated financial statements.
EL
CAPITAN PRECIOUS METALS, INC.
(An
Exploration Stage Company)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July
26, 2002 (Inception) through September 30, 2012
(Continued)
|
|
Common Stock Shares
|
|
Common Stock Amount
|
|
Stock Subscriptions
|
|
Additional Paid-in Capital
|
|
Deficit Accumulated During the Exploration Stage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for compensation
|
|
|
966,994
|
|
|
|
968
|
|
|
|
—
|
|
|
|
604,583
|
|
|
|
—
|
|
|
|
605,551
|
|
Common stock issued for exercise of options and warrants
|
|
|
2,258,000
|
|
|
|
2,258
|
|
|
|
—
|
|
|
|
1,121,742
|
|
|
|
—
|
|
|
|
1,124,000
|
|
Common stock issued for notes payable
|
|
|
1,500,000
|
|
|
|
1,500
|
|
|
|
—
|
|
|
|
748,500
|
|
|
|
—
|
|
|
|
750,000
|
|
Common stock issued for services
|
|
|
80,216
|
|
|
|
81
|
|
|
|
—
|
|
|
|
52,325
|
|
|
|
—
|
|
|
|
52,406
|
|
Common stock sold in private placement
|
|
|
50,000
|
|
|
|
50
|
|
|
|
—
|
|
|
|
24,950
|
|
|
|
—
|
|
|
|
25,000
|
|
Costs associated with warrants and options issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,249,475
|
|
|
|
—
|
|
|
|
2,249,475
|
|
Reverse provision for deferred income tax related to a timing difference on debt discount
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
80,322
|
|
|
|
—
|
|
|
|
80,322
|
|
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 issued for compensation
|
|
|
1,637,356
|
|
|
|
1,637
|
|
|
|
—
|
|
|
|
358,774
|
|
|
|
—
|
|
|
|
360,411
|
|
Common stock issued for exercise of options and warrants
|
|
|
1,257,500
|
|
|
|
1,257
|
|
|
|
—
|
|
|
|
176,568
|
|
|
|
—
|
|
|
|
177,825
|
|
Common stock issued for exercise of cashless warrants
|
|
|
12,000
|
|
|
|
12
|
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
—
|
|
Common stock issued for services
|
|
|
3,213,150
|
|
|
|
3,212
|
|
|
|
—
|
|
|
|
662,035
|
|
|
|
—
|
|
|
|
665,247
|
|
Common stock sold in private placement
|
|
|
300,000
|
|
|
|
300
|
|
|
|
—
|
|
|
|
149,700
|
|
|
|
—
|
|
|
|
150,000
|
|
Costs associated with warrants and options issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for compensation
|
|
|
562,500
|
|
|
|
563
|
|
|
|
—
|
|
|
|
44,437
|
|
|
|
—
|
|
|
|
45,000
|
|
Common stock issued for exercise of options and warrants
|
|
|
725,000
|
|
|
|
725
|
|
|
|
—
|
|
|
|
35,525
|
|
|
|
—
|
|
|
|
36,250
|
|
Common stock issued for services
|
|
|
1,127,744
|
|
|
|
1,127
|
|
|
|
—
|
|
|
|
95,205
|
|
|
|
—
|
|
|
|
96,332
|
|
Costs associated with warrants and options issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
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
|
|
(Continued)
The
accompanying notes are an integral part of these consolidated financial statements.
EL
CAPITAN PRECIOUS METALS, INC.
(An
Exploration Stage Company)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July
26, 2002 (Inception) through September 30, 2012
(Continued)
|
|
Common Stock Shares
|
|
Common Stock Amount
|
|
Stock Subscriptions
|
|
Additional Paid-in Capital
|
|
Deficit Accumulated During the Exploration Stage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for compensation
|
|
|
2,075,927
|
|
|
|
2,076
|
|
|
|
—
|
|
|
|
647,234
|
|
|
|
—
|
|
|
|
649,310
|
|
Common stock issued for services
|
|
|
525,000
|
|
|
|
525
|
|
|
|
—
|
|
|
|
180,975
|
|
|
|
—
|
|
|
|
181,500
|
|
Common stock sold in private placement
|
|
|
4,255,374
|
|
|
|
4,255
|
|
|
|
—
|
|
|
|
1,485,111
|
|
|
|
—
|
|
|
|
1,489,366
|
|
Conversion of accounts payable and accrued liabilities to equity
|
|
|
346,399
|
|
|
|
347
|
|
|
|
—
|
|
|
|
30,829
|
|
|
|
—
|
|
|
|
31,176
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
183,000
|
|
|
|
183
|
|
|
|
—
|
|
|
|
175,757
|
|
|
|
—
|
|
|
|
175,940
|
|
Common stock issued for the acquisition of Gold and Minerals Company, Inc.
|
|
|
148,127,043
|
|
|
|
148,127
|
|
|
|
—
|
|
|
|
177,604,325
|
|
|
|
—
|
|
|
|
177,752,452
|
|
Common stock issued for exercise of warrants
|
|
|
366,667
|
|
|
|
367
|
|
|
|
—
|
|
|
|
212,300
|
|
|
|
—
|
|
|
|
212,667
|
|
Common stock issued under settlement agreement
|
|
|
332,285
|
|
|
|
332
|
|
|
|
—
|
|
|
|
328,683
|
|
|
|
—
|
|
|
|
329,015
|
|
Common stock sold in private placement
|
|
|
783,396
|
|
|
|
783
|
|
|
|
—
|
|
|
|
514,836
|
|
|
|
—
|
|
|
|
515,619
|
|
Costs associated with options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
745,213
|
|
|
|
—
|
|
|
|
745,213
|
|
Merger rounding share issued
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
Stock issuance costs for the acquisition
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(32,324
|
)
|
|
|
—
|
|
|
|
(32,324
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(178,921,042
|
)
|
|
|
(178,921,042
|
)
|
Balances at September 30, 2011
|
|
|
245,582,461
|
|
|
$
|
245,582
|
|
|
$
|
—
|
|
|
$
|
200,010,493
|
|
|
$
|
(198,160,539
|
)
|
|
$
|
2,095,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
435,000
|
|
|
|
435
|
|
|
|
—
|
|
|
|
118,965
|
|
|
|
—
|
|
|
|
119,400
|
|
Common stock sold in private placement
|
|
|
5,289,384
|
|
|
|
5,291
|
|
|
|
—
|
|
|
|
1,444,709
|
|
|
|
—
|
|
|
|
1,450,000
|
|
Costs associated with options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
329,766
|
|
|
|
—
|
|
|
|
329,766
|
|
Gold and Minerals Company, Inc. merger rounding shares
|
|
|
20,195
|
|
|
|
20
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,918,204
|
)
|
|
|
(1,918,204
|
)
|
Balances at September 30, 2012
|
|
|
251,327,040
|
|
|
$
|
251,328
|
|
|
$
|
—
|
|
|
$
|
201,903,913
|
|
|
$
|
200,078,743
|
|
|
$
|
2,076,498
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
EL
CAPITAN PRECIOUS METALS, INC.
(An Exploration
Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
July 26, 2002
|
|
|
|
|
|
|
|
|
(Inception)
|
|
|
|
|
|
|
|
|
Through
|
|
|
For the Years Ended September 30,
|
|
September 30,
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
|
|
|
|
|
|
|
(Unaudited)
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,918,204
|
)
|
|
$
|
(178,921,042
|
)
|
|
$
|
(1,276,529
|
)
|
|
$
|
(200,078,743
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant and option associated costs
|
|
|
329,766
|
|
|
|
745,213
|
|
|
|
—
|
|
|
|
5,151,557
|
|
Beneficial conversion feature of notes payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
225,207
|
|
Non-cash expense with a affiliate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,801
|
|
Stock-based compensation
|
|
|
119,400
|
|
|
|
175,940
|
|
|
|
830,810
|
|
|
|
6,724,533
|
|
Non-cash merger related costs
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
Accretion of discounts on notes payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,132,088
|
|
(Gain) loss on fixed asset disposition
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34,733
|
|
(Gain) on derivative instruments liability
|
|
|
—
|
|
|
|
(7,203
|
)
|
|
|
—
|
|
|
|
(7,203
|
)
|
Loss on impairment of mineral property
|
|
|
—
|
|
|
|
176,567,424
|
|
|
|
—
|
|
|
|
176,567,424
|
|
Write-off accounts payable and accrued interest
|
|
|
—
|
|
|
|
(7,000
|
)
|
|
|
(56,364
|
)
|
|
|
(63,364
|
)
|
Forgiveness of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(115,214
|
)
|
(Gain) on conversion of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,459
|
)
|
|
|
(2,459
|
)
|
Provision for uncollectible note receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62,500
|
|
Non-cash litigation settlement
|
|
|
—
|
|
|
|
214,642
|
|
|
|
—
|
|
|
|
214,642
|
|
Depreciation
|
|
|
3,472
|
|
|
|
4,975
|
|
|
|
5,727
|
|
|
|
83,068
|
|
Net change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,863
|
|
Interest receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,611
|
)
|
Prepaid expenses and other current assets
|
|
|
(27,044
|
)
|
|
|
10,714
|
|
|
|
(15,714
|
)
|
|
|
(60,706
|
)
|
Advances on behalf of affiliated company
|
|
|
—
|
|
|
|
(28,117
|
)
|
|
|
(18,944
|
)
|
|
|
(562,990
|
)
|
Accounts payable
|
|
|
(28,243
|
)
|
|
|
(16,653
|
)
|
|
|
(1,285
|
)
|
|
|
92,583
|
|
Accounts payable - related party
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
364
|
|
Accrued liabilities
|
|
|
(9,141
|
)
|
|
|
(221,762
|
)
|
|
|
5,980
|
|
|
|
265,306
|
|
Interest payable, other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,750
|
|
Net Cash Used in Operating Activities
|
|
|
(1,529,994
|
)
|
|
|
(1,482,868
|
)
|
|
|
(528,778
|
)
|
|
|
(10,287,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(100,000
|
)
|
Purchase of furniture and equipment
|
|
|
(1,860
|
)
|
|
|
(600
|
)
|
|
|
—
|
|
|
|
(150,600
|
)
|
Proceeds from sale of fixed assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,001
|
|
Deposits
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(22,440
|
)
|
Issuance of notes receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(249,430
|
)
|
Payments received on note receivable
|
|
|
—
|
|
|
|
62,520
|
|
|
|
—
|
|
|
|
129,450
|
|
Cash received in acquisition of Gold and Minerals Co., Inc.
|
|
|
—
|
|
|
|
89,902
|
|
|
|
—
|
|
|
|
89,902
|
|
Costs associated with acquisition share issuance
|
|
|
—
|
|
|
|
(32,324
|
)
|
|
|
—
|
|
|
|
(32,324
|
)
|
Cash paid in connection with acquisition of DML Services, Inc.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(50,000
|
)
|
Net Cash Used in Investing Activities
|
|
|
(1,860
|
)
|
|
|
119,498
|
|
|
|
—
|
|
|
|
(353,441
|
)
|
(Continued)
The
accompanying notes are an integral part of the consolidated financial statements.
EL CAPITAN PRECIOUS METALS, INC.
(An
Exploration Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Continued)
|
|
|
|
|
|
|
|
July 26, 2002
|
|
|
|
|
|
|
|
|
(Inception)
|
|
|
|
|
|
|
|
|
Through
|
|
|
For the Years Ended September 30,
|
|
September 30,
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
|
|
|
|
|
|
|
(Unaudited)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
1,450,000
|
|
|
|
515,619
|
|
|
|
1,489,366
|
|
|
|
6,911,591
|
|
Costs associated with 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
|
|
Repayments of notes payable, related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(61,900
|
)
|
Payments on finance contracts
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,913
|
)
|
|
|
(117,479
|
)
|
Repayments of notes payable, other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(43,874
|
)
|
Net Cash Provided by Financing Activities
|
|
|
1,450,000
|
|
|
|
728,286
|
|
|
|
1,481,453
|
|
|
|
10,879,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH
|
|
|
(81,854
|
)
|
|
|
(635,084
|
)
|
|
|
952,675
|
|
|
|
238,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF YEAR
|
|
|
319,939
|
|
|
|
955,023
|
|
|
|
2,348
|
|
|
|
—
|
|
CASH, END OF YEAR
|
|
$
|
238,085
|
|
|
$
|
319,939
|
|
|
$
|
955,023
|
|
|
$
|
238,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
454
|
|
|
$
|
172,917
|
|
Cash paid for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets disposed for accrued liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
1,991
|
|
Issuance of common stock to Gold and Minerals Co., Inc. in connection with the purchase of interest in of El Capitan, Limited
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28
|
|
Issuance of common stock to Gold and Minerals Co., Inc. in connection with the purchase of the COD property
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,600
|
|
Issuance of common stock to Gold and Minerals Co., 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 former Company officers
|
|
|
—
|
|
|
|
329,015
|
|
|
|
—
|
|
|
|
329,015
|
|
Issuance of common stock to Gold and Minerals Co., Inc. stockholders in connection with the merger of Gold and Minerals Co., Inc.
|
|
|
—
|
|
|
|
177,752,452
|
|
|
|
—
|
|
|
|
177,752,452
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
EL CAPITAN
PRECIOUS METALS, INC.
(An Exploration
Stage Company)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September
30, 2012
NOTE
1 – BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business,
Operations and Organization
On
July 26, 2002, El Capitan Precious Metals, Inc. (“the Company” or “El Capitan”) was incorporated as a
Delaware corporation to engage in the business of acquiring properties containing precious metals, principally gold, silver, and
platinum. On March 18, 2003, El Capitan Precious Metals, Inc. (Delaware) entered into a share exchange agreement with DML Services,
Inc. (“DML”), a Nevada corporation, and became the wholly owned subsidiary of DML. On April 11, 2003, DML changed
its name to El Capitan Precious Metals, Inc. The results of El Capitan Precious Metals, Inc., a Nevada corporation (formerly DML
Services, Inc.), and its wholly owned Delaware subsidiary of the same name (collectively “El Capitan” or the “Company”)
are presented on a consolidated basis.
The
transaction was recorded as a reverse acquisition based on factors demonstrating that El Capitan constituted the accounting acquirer.
The shareholders of El Capitan received 85% of the post-acquisition outstanding common stock of DML. In addition, post-acquisition
management personnel and the sole board member of El Capitan consisted of individuals previously holding positions with El Capitan.
The historical stockholders’ equity of El Capitan prior to the exchange was retroactively restated (a recapitalization)
for the equivalent number of shares received in the exchange after giving effect to any differences in the par value of the DML
and El Capitan common stock, with an offset to additional paid-in capital. The restated consolidated deficit accumulated during
the development stage of the accounting acquirer (El Capitan) has been carried forward after the exchange.
El
Capitan is in the exploration stage and since inception, has completed certain acquisitions and transactions (see Note 2),
but has not had any revenue producing operations.
Principals
of Consolidation
With
the acquisition of Gold and Minerals Company, Inc. (“Minerals”) (see Note 2), 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 ECL, an Arizona corporation.
All significant inter-company accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current year presentation.
Cash
and Cash Equivalents
El
Capitan considers those short-term, highly liquid investments with maturities of three months or less as cash and cash equivalents.
At times, cash in banks may be in excess of the FDIC limits.
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.
Fair
Value of Financial Instruments
The
fair values of El Capitan’s financial instruments include cash, investments, accounts payable, accrued expenses and notes
payable approximate their carrying amounts because of the short maturities of these instruments or because of restrictions.
Furniture
and Equipment
Furniture
and equipment are stated at cost. Depreciation is calculated for financial statements using the straight-line basis over the estimated
useful lives as follows:
Office furniture and equipment
|
|
|
3-10 years
|
|
Mine equipment
|
|
|
7 years
|
|
Depreciation
expense for the years ended September 30, 2012, 2011 and 2010 was $3,472, $4,975 and $5,727, respectively.
Net
Income (Loss) Per Share
The
Company calculates net income (loss) per share as required by Accounting Standards Codification subtopic 260-10, Earnings per
Share (ASC 260-10”). Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average
number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income (loss) by
the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when they are
anti-dilutive, common stock equivalents, if any, are not considered in the computation. For the years ended September 30, 2012,
2011 and 2010, the impact of outstanding stock equivalents has not been included as they would be anti-dilutive.
Stock-Based
Compensation
FASB
ASC 718 requires companies to measure all stock compensation awards using a fair value method and recognize the related compensation
cost in its financial statements. Beginning with El Capitan’s quarterly period that began on October 1, 2006, El Capitan
adopted the provisions of FASB ASC 718 and expenses the fair value of employee stock options and similar awards in the financial
statements.
The
Company accounts for share based payments in accordance with ASC 718,
Compensation - Stock Compensation
, which requires
all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements
based on the grant date fair value of the award. In accordance with ASC 718-10-30-9,
Measurement Objective – Fair Value
at Grant Date
, the Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation
of the share-based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate
inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders.
The simplified method is used to determine compensation expense since historical option exercise experience is limited relative
to the number of options issued. The compensation cost is recognized ratably using the straight-line method over the expected
vesting period.
El
Capitan recognized stock-based administrative compensation aggregating $329,766, $745,213 and $-0- for common stock options issued
to administrative personnel and consultants during the years ended September 30, 2012, 2011 and 2010, respectively. Also during
the years ended September 30, 2012, 2011 and 2010, the Company paid stock based compensation to consultants aggregating $119,400,
$175,940 and $830,810, respectively.
Impairment
of Long-Lived Assets
The Company reviews
and evaluates long-lived assets for impairment when events or changes in circumstances indicate the related carrying amounts may
not be recoverable. The assets are subject to impairment consideration under ASC 360-10-35-17, Measurement of an Impairment Loss,
if events or circumstances indicate that their carrying amount might not be recoverable. As of September 30, 2012, precious metals
recovery process for precious metals is on target with the Company’s updated report from our independent geologist in January
2012 and no events or circumstances have happened to indicate the related carrying values of the properties may not be recoverable.
When the Company determines that an impairment analysis should be done, the analysis will be performed using the rules of ASC
930-360-35, Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Lived Assets.
An
impairment loss is recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition
is less than its carrying amount. When impairment is identified, the carrying amount of the asset is reduced to its estimated
fair value. Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell at the
date management commits to a plan of disposal. During the fiscal year ended September 30, 2011, the Company recorded an impairment
loss of $176,567,424 on its mineral property (see Note 2). There were no impairments to long-lived assets for the Company’s
fiscal years ended 2012, or 2010
.
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.
Income
Taxes
El
Capitan computes deferred income taxes under the asset and liability method prescribed by FASB ASC 740. Under this method, deferred
tax assets and liabilities are recognized for temporary differences between the financial statement amounts and the tax basis
of certain assets and liabilities by applying statutory rates in effect when the temporary differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized.
Recently
Issued Accounting Pronouncements
Amendments
to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards
(Topic 820)—Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair
value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. This
new guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about
fair value between IFRS and U.S. GAAP. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure
requirements particularly for level 3 fair value measurements. The amendments are effective for interim and annual periods beginning
after December 15, 2011. The Company adopted this adopted this updated authoritative guidance there was no material impact
on the Company consolidated financial statement disclosures.
In
May 2011, the FASB issued Accounting Standards Update No. 2011-04,
“Fair Value Measurements (Topic 820): Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”
(“ASU 2011-04”).
ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing
information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures
for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied
prospectively. The Company has adopted this standard did not materially expand its consolidated financial statement note disclosures.
In
June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income”
(“ASU 2011-05”), which amends current comprehensive income guidance. This accounting update eliminates the option
to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company
must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections,
net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public
companies during the interim and annual periods beginning after December 15, 2011, with early adoption permitted. The adoption
of ASU 2011-05 did not have an impact on the Company’s consolidated financial position, results of operations or cash flows
as it only requires a change in the format of the current presentation.
In
July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.” This
pronouncement was issued to simplify how entities test for impairment of indefinite-lived intangible assets. Under this pronouncement,
an entity has the option first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived
intangible asset is impaired. In conclusion of this assessment, if an entity finds that it is not more likely than not that an
indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes
otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative
impairment test by comparing the fair value with the carrying amount in accordance with ASC Topic 350, “Intangibles –
Goodwill and Other.” This pronouncement is effective for annual and interim impairment tests performed for fiscal years
beginning after September 15, 2012 with early adoption permitted. The adoption of this pronouncement is not expected to have
a material impact on the Company’s consolidated financial statements.
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.
NOTE
2 – ACQUISITIONS AND DIVESTITURES
Acquisition
of El Capitan Property from Gold and Minerals Company, Inc
.
In
October 2003, El Capitan completed the acquisition of a 40% equity interest in El Capitan, Limited (“ECL”), an Arizona
corporation, which prior to the transaction was a wholly-owned subsidiary of Gold and Minerals Company, Inc. (“Minerals”),
a Nevada corporation. Minerals may be considered affiliated with El Capitan in that it is a shareholder of El Capitan. Minerals
is involved in the exploration and testing of potential mineral properties. Consideration for the acquisition consisted of the
issuance of 30,225,000 shares of El Capitan’s common stock to Minerals (which occurred in November 2002, and which constituted
a 77.5% equity ownership in El Capitan prior to the reverse acquisition) and $100,000 cash, of which $86,000 was paid through
September 30, 2003, and $14,000 was paid in October 2003. Minerals retained the remaining 60% ownership in ECL.
During
the quarter ended December 31, 2005, ECL finalized the purchase of four patented mining claims, constituting approximately 77.5
acres in aggregate, located in Lincoln County, New Mexico. The purchased claims are located on the property, which is owned by
ECL. In consideration for the claims, ECL transferred 2,100,000 shares of El Capitan’s common stock owned by Minerals. Pursuant
to an agreement between ECL and the selling parties, the stock was valued at $0.82 per share, the market value of the stock on
November 11, 2005.
Acquisition
of Gold and Minerals Company, Inc
.
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. During the year ended September 30, 2011, the Company collected
the notes receivable.
Due to insufficient mineral property
testing data being available to determine the fair value of the property, for conservative purposes, the fair value of the mineral
property was impaired down to its original book value. Management believes the book value of the property is representative of
its fair value. During the year ended September 30, 2011, the Company recorded an impairment loss of $176,567,424. The mineral
property had a fair value of $1,879,608 as of September 30, 2012 and 2011.
The assets of ECL primarily consist of the El Capitan
property, an inactive iron and related mineral property located in New Mexico. At September 30, 2012, the property contained four
patented claims and 188 unpatented claims encompassing approximately 3,840 acres in the Capitan Mountains in Lincoln County, New
Mexico. The property has no proven reserves.
Purchase
of Mining Claims from Minerals
In
August 2003, El Capitan acquired from Minerals certain mining claims granted by the United States Bureau of Land Management, buildings
and personal property known as the COD property located near Kingman, Arizona. The COD property is an inactive underground mineral
property consisting of thirteen mining claims as well as various outbuildings and other associated personal property. In consideration
for the purchase, we issued 3,600,000 shares of El Capitan’s common stock to Minerals, having a market value on the date
of the transaction of approximately $1,440,000. Because the COD property was acquired from El Capitan’s then controlling
stockholder in exchange for El Capitan’s common stock, and Minerals had no economic monetary basis in the property, the
transaction was accounted for as a non-monetary exchange and the COD property was recorded, in accordance with Generally Accepted
Accounting Principles (GAAP), at no value on El Capitan’s consolidated financial statements.
Acquisition
of Weaver Mining Claims
In
July 2004, El Capitan acquired from Minerals the Weaver property located near Congress, Arizona. Consideration for this purchase
was 3,000,000 shares of our common stock, which had a market value of $400,000 on the closing date. At the time the Weaver property
was acquired from a controlling stockholder of El Capitan in exchange for El Capitan’s common stock, Minerals had no economic
monetary basis in the property. Accordingly, the transaction was accounted for as a non-monetary exchange and the Weaver property
was recorded at no value on El Capitan’s consolidated financial statements and was done in accordance with current GAAP.
During
the fiscal year ended September 30, 2009, El Capitan sold the Weaver property to a non-affiliated entity for $20,000.
NOTE
3 – RELATED PARTY TRANSACTIONS
Consulting
Agreements
Effective
May 1, 2009, El Capitan has informal arrangements with two individuals, one of whom is an officer and is also director of El Capitan,
pursuant to which such individuals serve as support staff for the functioning of the home office and all related corporate activities
and projects.
Effective
June 1, 2010, El Capitan amended the aggregate monthly payments with two individuals under the arrangements to $16,667. Effective
July 1, 2010, El Capitan made a formal arrangement with an officer of the Company to oversee investor relations at remuneration
of $5,000 a month through June 2012. There are no written agreements with these individuals.
Total
administrative consulting fees expensed under these informal agreements for the year ended September 30, 2012, 2011 and 2010 was
$255,000, $260,000 and $781,256, respectively.
In January 2012, we retained Management
Resource Initiatives, Inc., a company controlled by a Director of El Capitan, for services with a monthly consulting fee of $10,000
(see Note 6).
NOTE
4 – 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 31, 2011
was determined to be $348,022 based upon the closing price of the Company’s common stock on that date. Through June 30,
2011, the share settlement obligation was fulfilled through the issuance of 332,285 common shares and the fair market value of
the derivative instrument was determined to be $-0- as of June 30, 2011, resulting in a gain on derivative liability of $7,203
for the year ended September 30, 2011.
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).
NOTE
5 – FAIR VALUE MEASUREMENTS
U.S.
accounting standards require disclosure of a fair-value hierarchy of inputs the Company uses to value an asset or a liability.
In September 2006, the FASB issued new accounting guidance, which establishes a framework for measuring fair value under generally
accepted accounting principles (“GAAP”) and expands disclosures about fair value measurements. The Company previously
partially adopted this guidance for all instruments recorded at fair value on a recurring basis. In the second quarter of fiscal
2010, the Company adopted the remaining provisions of the guidance for all non-financial assets and liabilities that are not re-measured
at fair value on a recurring basis. The adoption of these provisions did not have an impact on the Company’s consolidated
financial statements.
Fair value standards define fair value as 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. Additionally, the standards
establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires that
the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the fair-value
hierarchy are described 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
following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured
at fair value on September 30, 2012 and 2011.
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
Mineral property
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,879,608
|
|
|
$
|
1,879,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
mineral property associated with the El Capitan project which the Company which the Company is intending to market the site for
sale to a major mining company and is classified as Level 3. The fair value of the mineral property is determined based upon the
cost basis the of El Capitan’s investment in the mineral property under U.S. GAAP. A qualified independent third party appraisal
has been done on the property. The appraised value was established based upon comparable sales of similar assets, certain assumptions
regarding market demand for this asset and detail property data input as supplied by the Company’s consulting geologist.
As this valuation was based upon unobservable inputs, El Capitan classified the mineral property as Level 3. There was no change
in the carrying valuation of the mineral property during the year ended September 30, 2012.
NOTE
6 – COMMITMENTS AND CONTINGENCIES
On
January 31, 2012, the Company engaged Houlihan Lokey Capital, Inc. as its exclusive financial advisor to assist the Company in
evaluating potential strategic alternatives related to the approximately 3,740 acre property located near Capitan, New Mexico,
including the potential sale of the property. As part of the contract the Company paid a retainer of $100,000 and is committed
to a monthly payment of approximately $2,000 for fees and cost incurred.
In January 2012, we retained Management Resource
Initiatives, Inc. for managing and overseeing the process of marketing and selling the Company and performing other services aimed
at furthering the Company's strategic goals pursuant to an unwritten consulting arrangement. Under this arrangement, the Company
pays Management Resource Initiatives a monthly consulting fee of $10,000. The Company made aggregate payments of $90,000 to Management
Resource Initiatives during fiscal 2012. Management Resource Initiatives is a related party because it is a corporation that is
wholly-owned by John F. Stapleton who is a Director of El Capitan.
NOTE
7 – INCOME TAXES
El
Capitan has incurred no income taxes during the period from July 26, 2002 (inception) through September 30, 2012. The calculated
tax deferred benefit at September 30, 2012, 2011 and 2010 is based on a Federal statutory income tax rate of 34% applied to the
loss before provision for income taxes.
The
following table accounts for the differences between the actual income tax benefit and amounts computed for the years ended September
30, 2012, 2011 and 2010:
|
|
Year Ended September 30,
|
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
(expense) benefit at the federal statutory rate
|
|
$
|
539,141
|
|
|
$
|
647,309
|
|
|
$
|
433,769
|
|
State tax (expense) benefit
|
|
|
110,524
|
|
|
|
132,698
|
|
|
|
88,923
|
|
Expiration of state operating losses
|
|
|
(136,624
|
)
|
|
|
(209,208
|
)
|
|
|
(226,006
|
)
|
Decrease (increase) in valuation allowance
|
|
|
(513,041
|
)
|
|
|
(570,799
|
)
|
|
|
(296,686
|
)
|
Income tax expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
components of the deferred tax asset and deferred tax liability at September 30, 2012 and 2011 are as follows:
|
|
Year Ended September 30,
|
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
6,300,581
|
|
|
$
|
5,787,539
|
|
Valuation allowance
|
|
|
(6,300,581
|
)
|
|
|
(5,787,539
|
)
|
Net deferred tax
asset after valuation allowance
|
|
$
|
—
|
|
|
$
|
—
|
|
A
valuation allowance has been provided to reduce the net deferred tax asset, as management determined that it is more likely than
not that the deferred tax assets will not be realized. The prior year’s net tax benefits have been restated in the current
year to reflect presentation in the current year.
At
September 30, 2012, El Capitan has net operating loss carry forwards for financial statement purposes for Federal income tax approximating
$17,470,000. These losses expire in varying amounts between September 30, 2023 and September 30, 2032.
At
September 30, 2012, El Capitan has net operating loss carry forwards for financial statement purposes for State income tax approximating
$5,160,000. These losses expire in varying amounts between September 30, 2014 and September 30, 2017.
NOTE
8 – 2005 STOCK INCENTIVE PLAN
On
June 2, 2005, the Board of Directors adopted El Capitan’s 2005 Stock Incentive Plan which reserved 8,000,000 shares for
issuance under the Plan out of the authorized and unissued shares of par value $0.001 common stock of El Capitan. On July 8, 2005,
the Board of Directors authorized El Capitan to take the steps necessary to register the Plan shares under a registration statement
on Form S-8. On July 19, 2005, the Form S-8 was filed with the SEC for 5,000,000 shares. On October 18, 2007, Form S-8 was filed
with the SEC for registering the remaining 3,000,000 shares. On July 30, 2008, the Board of Directors increased the
number of share of El Capitan’s common stock authorized for issuance under this plan to 16,000,000 shares. On August 21,
2009, Form S-8 was filed with the SEC to register the remaining 8,000,000 shares authorized under the plan. On July 7, 2011, the
Board of Directors increased the number of share of El Capitan’s common stock authorized for issuance under this plan to
30,000,000 shares. On October 20, 2011, Form S-8 was filed with the SEC to register the 14,000,000 share increase authorized under
the plan.
At September 30, 2012, the 2005 Stock Incentive Plan has 13,384,469 shares available for grant.
NOTE
9 – STOCKHOLDERS’ EQUITY
Equity
Purchase Agreement
On
July 11, 2011, the Company entered into an Equity Purchase Agreement (the “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. Unless terminated earlier, Southridge’s
purchase commitment will automatically terminate on the earlier of July 11, 2013 or the date on which aggregate purchases by Southridge
under the Agreement total $5,000,000. El Capitan has no obligation to sell any shares under the Agreement. The Agreement may be
terminated by the Company at any time.
Southridge will have no obligation to purchase shares under
the Agreement to the extent that such purchase would cause Southridge to own more the 9.99% of the El Capitan’s common stock.
As of September 30, 2012, the Company had available gross proceeds of $3,050,000 under the Agreement to sell newly-issued shares
of El Capitan common stock.
For
each share of the Company’s common stock purchased under the 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 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.
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 Agreement.
Details of the Agreement may be found in the Company’s 8-K filing with the Securities and Exchange Commission on July 12,
2011. Concurrently with the execution of the Agreement on July 11, 2011, the Company issued 80,000 restricted shares of its common
stock at a value of $64,000 based upon the closing price of the stock, to Southridge as consideration for entry into the Agreement.
The
offering of shares under the Agreement is being 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 a 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 this prospectus in one or more offerings, up
to a total dollar amount of $5,000,000.
Common
Stock
During
the Company’s fiscal year ended September 30, 2012, El Capitan
issued 5,289,384 shares of common
stock at an average price of $0.28 at per share under the terms Equity Purchase Agreement and received cash proceeds of $1,450,000.
On
September 7, 2012, El Capitan
issued 15,000 shares of S-8 common stock pursuant to our 2005 Stock Incentive
Plan for outside consulting services valued at $6,600, the value of the closing price of the stock on the date of issuance.
During
the quarter ended June 30, 2012, El Capitan
issued 320,000 shares of S-8 common stock pursuant to our
2005 Stock Incentive Plan for outside consulting services from two consultants valued at $79,800, the value of the closing price
of the stock on the date of issuance.
On
March 6, 2012, El Capitan
issued 100,000 shares of S-8 common stock pursuant to our 2005 Stock Incentive
Plan for outside consulting services valued at $33,000, the value of the closing price of the stock on the date of issuance.
On
July 19, 2011,
El Capitan issued 738,770 shares of common stock at $0.68 at per share under the terms Equity Purchase Agreement
and received cash proceeds of $500,000.
On July 7, 2011, El Capitan issued 80,000
restricted common shares at $0.80, the closing market price on the date of issuance, pursuant to the terms of the Equity Purchase
Agreement. The shares were valued and expensed at $64,000.
During
the quarter ended June 30, 2011,
El Capitan issued 332,285 shares of S-8 common stock at an aggregate value of $329,014
based upon the closing price on the date of issuances as provided for under the settlement agreement with two former officers
of the Company.
On
May 13, 2011,
El Capitan
issued one (1) rounding share of common stock to a Minerals stockholder
as provided for under the Merger Agreement with Minerals.
On
February 11, 2011,
El Capitan
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.
On
January 20, 2011, El Capitan
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
January 19, 2011, El Capitan
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 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.
During the
period October 1, 2010, through November 11, 2010,
El Capitan
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.
During
the fiscal year ended September 30, 2010, El Capitan issued 4,255,374 shares of restricted common stock at $0.35 per share to
eighty-five (85) accredited investors and to twenty-nine (29) non-accredited investors, as the term is defined by SEC Rule 501,
in the aggregate amount of $1,489,366. 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.
During
fiscal 2010, El Capitan issued 525,000 shares of its S-8 common stock pursuant to its 2005 Stock Incentive Plan for outside consulting
services valued at $181,500.
During
fiscal 2010, El Capitan issued 1,500,000 shares of its S-8 common stock pursuant to its 2005 Stock Incentive Plan for compensation
to its Board of Directors for services valued at $525,000 and 250,000 restricted shares to an officer for a performance bonus
valued at $80,000.
During
fiscal 2010, El Capitan issued 346,399 shares of its S-8 common stock pursuant to its 2005 Stock Incentive Plan for payment accounts
payable and accrued liabilities with an aggregated value of $31,176. The issuance resulted in a gain on the extinguishment of
liabilities totaling $2,459 for the year ended September 30, 2010.
During
fiscal 2010, El Capitan issued 325,927 shares of its S-8 common stock pursuant to its 2005 Stock Incentive Plan for administrative
consulting fees valued at $44,310.
During
fiscal 2009, El Capitan issued 1,127,744 shares of its S-8 common stock pursuant to its 2005 Stock Incentive Plan for consulting
services valued at $96,312.
During
fiscal 2009, El Capitan issued 725,000 shares of common stock for $36,250 to shareholders for the exercise of warrants at $0.05
per share.
During
fiscal 2009, El Capitan issued 562,500 shares of its S-8 common stock pursuant to its 2005 Stock Incentive Plan for severance
benefits and compensation valued at $45,000.
During
fiscal 2008, El Capitan sold 300,000 restricted common shares to accredited investors pursuant to a private placement of securities
under Section 4(2) and Rule 506 promulgated under the Securities Act, for $150,000. The shares were sold along with 300,000 common
stock warrants with a term of 2 years and an exercise price of $0.60 per share.
During
fiscal 2008, El Capitan issued 12,000 restricted common shares for the cashless exercise of warrants.
During
fiscal 2008, El Capitan issued 1,257,500 shares of common stock for $177,825 to shareholders for the exercise of warrants at prices
from $0.11 to $0.44 per share.
During
fiscal 2008, El Capitan issued 1,637,356 shares of its S-8 common stock pursuant to its 2005 Stock Incentive Plan for severance
benefits and compensation valued at $360,411.
During
fiscal 2008, El Capitan issued 3,213,150 shares of its S-8 common stock pursuant to its 2005 Stock Incentive Plan for consulting
services valued at $665,247.
In
November 2006, El Capitan issued 1,500,000 shares of common stock at $0.50 per share pursuant to the terms of conversion of a
convertible note payable of $750,000.
In
October 2006, El Capitan sold 50,000 restricted common shares to an accredited investor pursuant to a private placement of securities
under Section 4(2) and Rule 506 promulgated under the Securities Act, for $25,000.
During
quarter ended December 31, 2006, El Capitan issued 2,090,000 shares of common stock for $1,045,000 to shareholders on the exercise
of warrants at $0.50 per share. The warrant conversions, pursuant to a Written Action of the Board of Directors on September 29,
2006, also provided for each share of common stock issued under the warrant conversion, a two-year warrant to purchase one share
of common stock at an exercise price of $1.37 per share.
During
fiscal 2007, El Capitan issued 168,000 shares of restricted common stock for $79,000 to shareholders for the exercise of warrants
at $0.50 per share.
During
fiscal 2007, El Capitan issued 966,994 shares of its S-8 common stock pursuant to its 2005 Stock Incentive Plan for severance
benefits and compensation valued at $605,551.
During
fiscal 2007, El Capitan issued 80,216 shares of its S-8 common stock pursuant to its 2005 Stock Incentive Plan for consulting
services valued at $52,406.
During
the year ended September 30, 2006, El Capitan issued 310,000 common shares value at $275,000 for services, sold 2,189,697 shares
of common stock in a private placement for $1,160,965, issued 2,124,726 shares of common stock for payment of notes payable of
$1,150,000, issued 498,825 shares of common stock for the exercise of options and warrants aggregating $256,750, and issued 364,912
shares of common stock valued at $287,136 for compensation.
During
the year ended September 30, 2005, El Capitan issued 200,000 shares of common stock as subscribed stock at a value of $50,000,
issued 2,290,557 shares of common stock valued at $1,256,535 for services, sold 3,865,000 shares of common stock in a private
placement for $1,789,137, and issued 383,576 shares of common stock for payment of notes payable aggregating $153,426.
During
the year ended September 30, 2004, El Capitan issued 3,650,164 shares of common stock valued at $520,000 for compensation, issued
2,082,234 shares of common stock valued at $395,765 for services and expenses, issued 1,827,938 shares of common stock for payment
of notes payable of $383,000, and issued 3,000,000 shares of common stock in connection with the purchase of the Weaver property.
During
the year ended September 30, 2003, El Capitan issued 35,685,000 shares of common stock to Gold and Minerals Company, Inc., for
the purchase of a 40% interest in El Capitan, Limited, and issued 6,720,000 shares of common stock in connection with the acquisition
of DML Services. In addition, El Capitan issued and 525,000 shares of common stock valued at $17,500 for interest expense related
to a note payable, issued 150,000 shares of common stock valued at $189,000 for services, issued 2,114,280 shares of common stock
valued at $850,000 for compensation, and 3,600,000 shares of common stock to Gold and Minerals Company, Inc. in connection with
the purchase of the COD property.
During
the year ended September 30, 2002, El Capitan issued 3,315,000 common shares at its initial issuance.
Warrants
During
fiscal 2008, El Capitan granted 300,000 common stock warrants along with 300,000 common shares for $150,000. The warrants had
terms of 2 years and were exercisable at $0.60. The warrants expired during the fiscal year ended September 30, 2010.
On
May 9, 2008, El Capitan modified the terms of 150,000 warrants previously granted. The exercise price of the warrants was reduced
from $0.50 to $0.16. The modification resulted in additional warrant expense of $9,308. The significant assumptions used in the
Black-Scholes option pricing model to compute the fair value of the modification of these warrants include the following: remaining
term of 0.6 years, expected volatility of 103.51%, risk-free interest rate of 1.66% and the market price of El Capitan’s
common stock on the modification date. The warrants were subsequently exercised for cash.
During
July 2008, El Capitan modified the terms of 1,007,500 warrants previously granted. The exercise price of the warrants was reduced
from $0.50 to $0.11. The modification resulted in additional warrant expense of $45,656. The significant assumptions used in the
Black-Scholes option pricing model to compute the fair value of the modification of these warrants include the following: remaining
term of 0.8 years, expected volatility between 94.96 and 107.59%, risk-free interest rates of 1.31% to 1.68% and the market price
of El Capitan’s common stock on the modification date. The warrants were subsequently exercised for cash.
In
December 2008, El Capitan modified the terms of 540,000 warrants previously granted. The exercise price of the warrants was reduced
from $0.50 to $0.05. The modification resulted in additional warrant expense of $11,516. The significant assumptions used in the
Black-Scholes option pricing model to compute the fair value of the modification of these warrants include the following: remaining
term of 0.8 years, expected volatility of 107%, risk-free interest rate of 1.31% and the market price of El Capitan’s common
stock on the modification dates. The warrants were subsequently exercised $27,000.
In
January 2009, El Capitan modified the terms of 185,000 warrants previously granted. The exercise price of the warrants was reduced
from $0.50 to $0.05. The modification resulted in additional warrant expense of $3,941. The significant assumptions used in the
Black-Scholes option pricing model to compute the fair value of the modification of these warrants include the following: remaining
term of 0.8 years, expected volatility of 107%, risk-free interest rate of 1.31% and the market price of El Capitan’s common
stock on the modification date. The warrants were subsequently exercised for $9,250.
During
the year ended September 30, 2010, 68,364 warrants at an exercise price of $0.50 expired.
During
the year ended September 30, 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 years ended September 30, 2012, 2011 and 2010, the Company did not issue any warrants.
The
following table summarizes the warrant activity for the years ended September 30, 2012, 2011 and 2010:
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
Number of
Shares
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number of
Shares
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September
30, 2009
|
|
1,235,031
|
|
|
$
|
0.59
|
|
|
1,235,031
|
|
|
$
|
0.59
|
|
Granted
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Expired/Cancelled
|
|
(368,364
|
)
|
|
|
(0.58
|
)
|
|
(368,364
|
)
|
|
|
(0.58
|
)
|
Exercised
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
September 30, 2011
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Expired/Cancelled
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September
30,
2012
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Options
During
fiscal 2007, El Capitan granted employees and directors an aggregate of 4,550,000 options with terms ranging between 3 and 10
years and exercise prices ranging from $0.41 to $1.20. The fair value of the options granted was estimated using the Black-Scholes
option pricing model. The assumptions used in the model included the following: the exercise prices noted above, expected terms
of 1.50 to 5.75 years (the options qualify as “plain vanilla” options under the provisions of Staff Accounting Bulletin
No. 107 ("SAB No. 107") and, due to limited option exercise data available to El Capitan, the term was estimated pursuant
to the provisions of SAB No. 107), expected volatilities ranging from 119.50% to 128.91%, risk-free interest rates
of 4.62% to 5.03%, the market price of El Capitan’s common stock on the grant dates of the options and expected dividend
yield of zero. The fair value of these options is being expensed on a straight line basis over their vesting periods. During the
years ended September 30, 2009 and 2008, $28,634 and $956,354, respectively, was expensed related to these options.
During
fiscal 2008, El Capitan granted employees and directors an aggregate of 4,126,000 options with terms of 10 years and exercise
prices ranging from $0.14 to $0.19. The fair value of the options granted was estimated using the Black-Scholes option pricing
model. The assumptions used in the model included the following: the exercise prices noted above, expected terms of 5.25 to 5.75
years (the options qualify as “plain vanilla” options under SAB No. 107 and, due to limited option exercise data available
to El Capitan, the term was
estimated pursuant to the provisions
of SAB No. 107), expected volatilities ranging from 110.88% to 117.25%, risk-free interest rates of 3.45% to 3.62%
, the market price of El Capitan’s common stock on the grant dates of the options and expected dividend yield of zero. The
fair value of these options is being expensed on a straight line basis over their vesting periods. During the year ended September
30, 2009 and 2008, $205,668 and $145,269, respectively, was expensed related to these options.
During
the year ended September 30, 2010, 450,000 options at an exercise price of $0.70 expired, and 250,000 options previously
granted to the former CEO and President of the Company were cancelled due to the original amount granted being granted in
excess of the annual amount allowed to any single individual under the 2005 Stock Incentive Plan.
During
the year ended September 30, 2010, the Company did not grant any 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 $745,213 using the Black-Scholes option pricing model was expensed as stock-based compensation. The significant
assumptions used in the valuation were: the exercise price $1.02, on February 7, 2011, the market value of the Company’s
common stock, expected volatility of 123.942%, risk free interest rate of 0.31% and
expected dividend yield of zero.
T
he
options qualify as “plain vanilla” options under the provisions of SAB No. 107.
During
the year ended September 30, 2011, the Company cancelled 1,500,000 options at an exercise price of $0.14 and 100,000 options at
an exercise price of $0.56.
On
November 1, 2011, pursuant to the 2005 Stock Incentive Plan, the Company granted to a consultant a two-year stock option to purchase
100,000 shares of the Company common stock, at an exercise price of $0.42 per share. The option became fully vested upon the execution
of an engagement agreement between the Company and specified investment banker or one of its affiliates that occurred on January
31, 2012. The fair value of the options was determined to be $24,628, using the Black-Scholes option pricing model, was expensed
as stock-based compensation. The significant assumptions used in the valuation were: the exercise price $0.42, on November 1,
2011, the market value of the Company’s common stock, expected volatility of 115.379%, risk free interest rate of 0.23%,
expected term of two years and expected dividend yield of zero.
On
January 31, 2012, pursuant to the 2005 Stock Incentive Plan, the Company granted to the chairman of the board of directors a two-year
stock option to purchase 500,000 shares of the Company common stock, which vested immediately, at an exercise price of $0.38 per
share. The fair value of the options was determined to be $80,375, using the Black-Scholes option pricing model and was expensed
as stock-based compensation. The significant assumptions used in the valuation were: the exercise price $0.38, on January 31,
2012, the market value of the Company’s common stock, expected volatility of 111.377%, risk free interest rate of 0.22%,
expected term of one year and expected dividend yield of zero.
On
July 6, 2012, two Directors of the Company were each awarded a ten-year 500,000 share stock option at an exercise price of $0.21
per share which vested immediately and have a cashless exercise provision. The fair value of the options was determined to be
$181,756 using the Black-Scholes option pricing model was expensed as stock-based compensation. The significant assumptions used
in the valuation were: the exercise price $0.21, on July 6, 2012, the market value of the Company’s common stock, expected
volatility of 133.12%, risk free interest rate of 0.64%, expected term of five years and expected dividend yield of zero.
On
July 6, 2012, a new Director of the Company was awarded a ten-year 500,000 share stock option at an exercise price of $0.21
per share which will have a twelve month vesting period and a cashless exercise provision. The fair value of the options was
determined to be $90,878 using the Black-Scholes option pricing model was expensed as stock-based compensation. The
significant assumptions used in the valuation were: the exercise price $0.21, on July 6, 2012, the market value of the
Company’s common stock, expected volatility of 133.12%, risk free interest rate of 0.64%, expected term of five
years and expected dividend yield of zero. Stock-based compensation was recorded related to this grant during the year ended
September 30, 2012, of $22,720 and $68,158 will be expensed over the remaining vesting period.
On
July 6, 2012, pursuant to the 2005 Stock Incentive Plan, the Company granted to a consultant a ten year stock option to purchase
100,000 shares of the Company common stock, at an exercise price of $0.21 per share which vested immediately and has a cashless
exercise provision. The fair value of the options was determined to be $20,287, using the Black-Scholes option pricing model,
was expensed as stock-based compensation. The significant assumptions used in the valuation were: the exercise price $0.21 on
July 6, 2012, the market value of the Company’s common stock, expected volatility of 132.11%, risk free interest rate of
1.571%, expected term of ten years and expected dividend yield of zero.
The
following table summarizes the option activity for the years ended September 30, 2012, 2011 and 2010:
|
Options Outstanding
|
|
|
Number of
Shares
|
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Balance,
September
30, 2009
|
3,250,000
|
|
|
$
|
0.35
|
|
Granted
|
—
|
|
|
|
—
|
|
Exercised
|
—
|
|
|
|
—
|
|
Expired/Cancelled
|
(700,000
|
)
|
|
$
|
(0.50
|
)
|
|
|
|
|
|
|
|
Balance,
September 30, 2010
|
2,550,000
|
|
|
$
|
0.31
|
|
Granted
|
1,500,000
|
|
|
$
|
1.02
|
|
Exercised
|
—
|
|
|
|
—
|
|
Expired/Cancelled
|
(1,600,000
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
Balance,
September 30, 2011
|
2,450,000
|
|
|
$
|
0.84
|
|
Granted
|
2,200,000
|
|
|
$
|
0.26
|
|
Exercised
|
—
|
|
|
|
—
|
|
Expired/Cancelled
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance,
September
30,
2012
|
4,650,000
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
Exercisable
at
September
30,
2012
|
4,275,000
|
|
|
$
|
0.60
|
|
The
range of exercise prices and the weighted average exercise price and remaining weighted average life of the options outstanding
at September 30, 2012 were $0.21 to $1.02 and 4.2 years, respectively. The aggregate intrinsic value of the outstanding
options at September 30, 2012 was $386,750.
El
Capitan has a stock incentive plan under which 30,000,000 shares are reserved and registered for stock and option grants. There
were 13,384,469 shares available for grant under the Plan at September 30, 2012, excluding the 4,650,000 options outstanding.
NOTE
10 – QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The
following tables set forth the consolidated statements of operations for each of our last twelve quarters. This quarterly
information is derived from unaudited interim financial statements and has been prepared on the same basis as the annual consolidated
financial statements. In management’s opinion, this quarterly information reflects all adjustments necessary for fair presentation
of the information for the periods presented. The operating results for any quarter are not indicative of results for any future
period.
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Total
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
$
|
369,669
|
|
|
$
|
608,808
|
|
|
$
|
439,968
|
|
|
$
|
499,970
|
|
|
$
|
1,918,415
|
|
Loss from Operations
|
|
|
(369,669
|
)
|
|
|
(608,808
|
)
|
|
|
(439,968
|
)
|
|
|
(499,970
|
)
|
|
|
(1,918,415
|
)
|
Total Other Income (Loss)
|
|
|
61
|
|
|
|
55
|
|
|
|
53
|
|
|
|
42
|
|
|
|
211
|
|
Net Loss
|
|
$
|
(369,608
|
)
|
|
$
|
(608,753
|
)
|
|
$
|
(439,915
|
)
|
|
$
|
(499,928
|
)
|
|
$
|
(1,918,204
|
)
|
Net Loss Share
|
|
$
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
Weighted Average Shares Outstanding
|
|
|
245,970,992
|
|
|
|
247,610,100
|
|
|
|
249,121,239
|
|
|
|
250,615,320
|
|
|
|
248,234,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
$
|
251,947
|
|
|
$
|
1,201,406
|
|
|
$
|
592,112
|
|
|
$
|
176,903,695
|
|
|
$
|
178,949,160
|
|
Loss from Operations
|
|
|
(251,947
|
)
|
|
|
(1,201,406
|
)
|
|
|
(592,112
|
)
|
|
|
(176,903,695
|
)
|
|
|
(178,949,160
|
)
|
Total Other Income (Loss)
|
|
|
384
|
|
|
|
(13,336
|
)
|
|
|
33,252
|
|
|
|
7,818
|
|
|
|
28,118
|
|
Net Loss
|
|
$
|
(251,563
|
)
|
|
$
|
(1,214,742
|
)
|
|
$
|
(558,860
|
)
|
|
$
|
(176,895,877
|
)
|
|
$
|
(178,921,042
|
)
|
Net Loss Share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(0.89
|
)
|
Weighted Average Shares Outstanding
|
|
|
95,818,434
|
|
|
|
214,714,259
|
|
|
|
244,580,999
|
|
|
|
245,429,223
|
|
|
|
199,934,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
$
|
93,518
|
|
|
$
|
68,981
|
|
|
$
|
818,244
|
|
|
$
|
298,506
|
|
|
$
|
1,279,249
|
|
Loss from Operations
|
|
|
(93,518
|
)
|
|
|
(68,981
|
)
|
|
|
(818,244
|
)
|
|
|
(298,506
|
)
|
|
|
(1,279,249
|
)
|
Total Other Income (Loss)
|
|
|
(229
|
)
|
|
|
2,290
|
|
|
|
52
|
|
|
|
607
|
|
|
|
2,720
|
|
Net Loss
|
|
$
|
(93,747
|
)
|
|
$
|
(66,691
|
)
|
|
$
|
(818,192
|
)
|
|
$
|
(297,899
|
)
|
|
$
|
(1,276,529
|
)
|
Net Loss Share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
Weighted Average Shares Outstanding
|
|
|
88,650,413
|
|
|
|
89,221,595
|
|
|
|
90,881,551
|
|
|
|
95,095,668
|
|
|
|
90,972,066
|
|
NOTE 11 - SUBSEQUENT EVENTS
Between October and December 2012
,
El Capitan issued
1,496,735 shares of common stock at $0.21 - $0.43 per share under the terms
Equity Purchase Agreement and received aggregate cash proceeds of $400,000.
Between October and December 2012
,
El Capitan
issued an aggregate of 45,000 shares of common stock for outside consulting services
valued at $12,750.
On November 30, 2011, El Capitan amended the
expiration date of an aggregate of 1,500,000 outstanding common stock options. The options originally expired on February 7, 2013.
The expiration date of 1,000,000 of the options was extended to February 7, 2018 and the expiration date of 500,000 of the options
was extended to June 22, 2013.
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
|
There have been
no changes in our accountants during the last two fiscal years, and we have not had any material disagreements with our existing
accountants during that time.
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision
and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,”
as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed
to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s
rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure
that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated
and communicated to the company’s management, including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded as of September 30, 2012, that our disclosure controls and procedures
were effective.
Management’s Report on Internal Control over Financial
Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting (as
defined in Rule 13a-15(f) of the Exchange Act) is a process to provide reasonable assurance regarding the reliability of our financial
reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal
control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions;
providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing
reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and
providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect
on our financial statements would be prevented or detected on a timely basis.
Because of its inherent limitations, internal
control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements
would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risks
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Management conducted an evaluation of the effectiveness,
as of September 30, 2012, of our internal control over financial reporting based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this
evaluation, management concluded that the Company’s internal control over financial reporting was effective as of September
30, 2012.
Report of Independent Registered Public Accounting Firm
MaloneBailey, LLP, the independent registered
public accounting firm who audited our consolidated financial statements as of and for the year ended September 30, 2012, has issued
an attestation report on our internal control over financial reporting as of September 30, 2012. That attestation report is included
in this annual report on Form 10-K.
Changes in Internal Control Over Financial Reporting
During the fiscal quarter ended September 30,
2012, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B.
|
OTHER INFORMATION
|
None.
PART III
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Identification of Directors and Executive Officers
The following table sets forth the name, age,
position and office term of each executive officer and directors of the Company as of September 30, 2012.
Name
|
|
Age
|
|
Position
|
|
Director Since
|
|
|
|
|
|
|
|
Charles C. Mottley
|
|
|
78
|
|
|
President, Chief Executive Officer, Director
|
|
April 21, 2009
|
Arly Richau
|
|
|
61
|
|
|
Secretary, Director
|
|
July 6, 2012
|
John F. Stapleton
|
|
|
69
|
|
|
Chief Financial Officer, Director, Chairman of the Board
|
|
April 21, 2009
|
Charles C. Mottley
- Mr. Mottley was
Chairman of the Board of Gold and Minerals Company, Inc. since February 2009 until the merger into the Company; and was on the
Board of Trustees at Hampden-Sydney College from 2007 to May 2011. Mr. Mottley was President and a Director of El Capitan Precious
Metals, Inc. from July 2002 to April 2007, when he resigned as president, but continued to serve as a Director until September
2007. He also provided consulting services to our Company from June 2007 to June 2008. Mr. Mottley also served as Chairman and
Chief Executive Officer of Gold and Minerals Company, Inc., from 1978 until July 2005, at which time he resigned those positions.
He was on the Board of the National Mining Association from 2005 to 2007 and has been employed in the mining industry in various
capacities from equipment sales and services to active mining operations for over 36 years. Mr. Mottley is the author of five
books and is the founder of the Fatherhood Foundation in Scottsdale, Arizona. Mr. Mottley received a Bachelor of Arts Degree from
Hampden-Sydney College in 1958. On January 20, 2012, Mr. Mottley filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code in the Unites States Bankruptcy Court in and for the District of Arizona (Case No. 10-01419 GBN).
John F. Stapleton
– Mr. Stapleton
has been a Company director and Chairman of the Company’s Board of Directors since April 2009, and has served as Chief Financial
Officer since February 2012. Mr. Stapleton has extensive experience with early-stage development companies and contributes a unique
set of skills needed to achieve a focused strategy, early-stage funding, basic infrastructure and business model, all of which
are central to creating a solid business platform to launch and scale a successful venture. Mr. Stapleton has a history of founding
and supporting more than 25 emerging technology companies. As a senior officer and investor, Mr. Stapleton has been instrumental
in the development and financing of several companies. Mr. Stapleton currently serves as a director on the emerging company boards
of Advanced Circulatory Systems and Visible Customer.
Arly Richau
–
Arly Richau has served as Director and Secretary of the Company since July 6, 2012.
Mr. Richau earned his law degree from the University of North Dakota and has been in private practice in Phoenix, Arizona since
1997. He has been involved in various aspects of legal representation of the El Capitan mining project since 2011, including General
Counsel to the Board of Directors of El Capitan Precious Metals, Inc. since its January 2011 merger with Gold and Minerals Company,
Inc.
Audit Committee; Financial Expert
The Company has a standing audit committee comprised
of two directors, John Stapleton and Arly Richau. As set forth in the Company’s written audit committee charter, the
audit committee assists the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of the
accounting, auditing, and reporting practices of the Company, and such other duties as directed by the Board. The committee’s
role includes a particular focus on the qualitative aspects of financial reporting to shareholders, and on the Company’s
processes to manage business and financial risk, and for compliance with significant applicable legal, ethical, and regulatory
requirements. The committee is directly responsible for the appointment, compensation, and oversight of the public accounting firm
engaged to prepare and issue an audit report on the financial statements of the Company. We have posted our audit committee charter
on our website at
www.elcapitanpmi.com
.
Mr. Richau is “independent” under
the NASDAQ listing standards and applicable SEC rules and each member is free of relationships that, in the opinion of the Board,
would interfere with his individual exercise of independent judgment. Neither of Messrs. Stapleton nor Richau is an “audit
committee financial expert” as defined by the rules promulgated by the Securities and Exchange Commission. However, Mr. Stapleton
has financial management experience and each member is able to read and understand fundamental financial statements, including
our consolidated balance sheet, consolidated statement of expenses and consolidated statement of cash flows, and is generally knowledgeable
in financial and auditing matters. Given the Company’s current lack of capital to engage an “expert,” and the
knowledge of the current members of the audit committee, the Company has determined that its current member of the audit committee
sufficiently operate and function without an “audit committee financial expert.”
Code of Ethics for Senior Financial Management
We have adopted a Code of Ethics that applies
to our principal executive, financial and accounting officers (or persons performing similar functions). A copy of the Code of
Ethics will be provided, without charge, to any person requesting it in writing, addressed to the attention of the Controller,
El Capitan Precious Metals, Inc., 5871 Honeysuckle Road, Prescott, Arizona 86305. We have posted the Code of Ethics on our website
at
www.elcapitanpmi.com
.
Nominating Committee
There have been no material changes to the procedures
by which security holders may recommend nominees to the Company’s board of directors.
C
ompliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act
of 1934 requires executive officers and directors and persons who beneficially own more than 10% of our common stock to file initial
reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. Executive officers, directors
and greater-than-10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports
they file. Based solely on a review of the copies of such forms furnished to us during our fiscal year ending September 30, 2012
and written representations from the executive officers, directors and greater-than-10% beneficial owners of our common stock, all
filers known by the Company required to make such filings were in compliance with Section 16(a) for the fiscal year ended September
30, 2012.
ITEM 11.
|
EXECUTIVE COMPENSATION
|
Compensation Discussion and Analysis
This section contains a discussion of the material
elements of compensation awarded to, earned by or paid to (i) all individuals serving and our principal executive officer during
fiscal 2012, (ii) all individuals serving as our principal financial officer during fiscal 2012, and (iii) our three most highly
compensated other executive officers who were serving as executive officers at the end of fiscal 2012 (or such lesser number then
serving as an executive officers). These individuals are referred to in this report as the “named executive officers.”
The Company’s current
executive officers include Charles C. Mottley, President and Chief Executive Officer, and John F. Stapleton, Chief Financial
Officer since February 2012. Messrs. Mottley and Stapleton also serve as members of the Company’s Board of Directors.
Named executive officers about which information is set forth in the compensation tables below also include Stephen J. Antol,
who served as Chief Financial Officer until February 2012. During fiscal 2011 and 2012, the Company elected to pay limited
cash salaries and, instead, relied primarily upon stock option grants awarded to executive officers in their capacity as
Company directors as a means of compensation. The Board believes that this compensation policy is
warranted based in large part on the Company’s limited cash resources. The Board also believes that equity incentive
compensation in the form of stock option grants aligns the interests of the Company’s executives with that of
the Company’s stockholders, namely to maximize stockholder equity returns. In light of the Company’s current plan
to market the El Capitan property for sale to a major mining company, the Board believes that stock options provide a
meaningful incentive for management to execute on this strategic goal. In fiscal 2010, the Company compensated its executive
officers with limited cash salaries and grants of common stock.
As President and Chief Executive Officer, the
Company pays Mr. Mottley a salary of $10,000 per month and granted 500,000 share stock options to Mr. Mottley on each of February
7, 2011 and July 6, 2012 as compensation for his services as a director. As Chief Financial Officer since February 2012, the Company
granted a 500,000 share stock option to Mr. Stapleton on July 6, 2012 as compensation for his services as a director. In addition,
on January 31, 2012, the Company granted a 500,000 share stock option to Mr. Stapleton in his capacity as a director that vested
in its entirety in February 2012 upon the Company engaging an investment banking firm to market the El Capitan property for sale.
Mr. Stapleton does not receive compensation from the Company. As Chief Financial Officer until February 2012, the Company paid
Mr. Antol $6,667 per month. Mr. Antol continues to serve as the Company’s Controller.
None of Messrs. Mottley, Stapleton or Antol
are subject to written employment agreements.
Summary Compensation Table
The following table sets forth the compensation
awarded to, earned by or paid to, as of each of the fiscal years ended September 30, 2012, 2011 and 2010, each named executive
officer.
Name and Principal Position
|
|
|
Fiscal Year
|
|
|
Salary
|
|
|
Option Awards
(1)
|
|
|
All Other
Compensation
(1)
|
|
|
Total
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles C. Mottley (2)
|
|
|
2012
|
|
|
$
|
120,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
120,000
|
|
President, Chief Executive Officer,
|
|
|
2011
|
|
|
$
|
120,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
120,000
|
|
Director
|
|
|
2010
|
|
|
$
|
88,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
88,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen J. Antol (4)
|
|
|
2012
|
|
|
$
|
45,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
45,000
|
|
Former Chief Financial Officer
|
|
|
2011
|
|
|
$
|
80,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
80,000
|
|
|
|
|
2010
|
|
|
$
|
73,256
|
|
|
$
|
—
|
|
|
$
|
80,000
|
(3)
|
|
$
|
153,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Stapleton (5)
|
|
|
2012
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Director, Chairman of the Board
|
|
|
2011
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Chief Financial Officer
|
|
|
2010
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
________________
(1)
|
Amounts shown reflect the grant date fair value, calculated in accordance with FASB ASC 718, for stock based incentives granted during the fiscal years ended September 30, 2012, 2011 and 2010. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For a discussion of the assumptions relating to our valuations of the option awards, see Note 1 to the financial statements included in this Annual Report on Form 10-K. These amounts reflect our accounting expense for these stock options and do not correspond to the actual value that may be recognized by the named executive officers.
|
(2)
|
Mr. Mottley was appointed to the Board of Directors on April 21, 2009, and was appointed ECPN’s President and Chief Executive Officer on April 30, 2009. Mr. Mottley currently has no employment contract with ECPN. Effective June 1, 2010, the Board of Directors authorized monthly compensation of $10,000 per month for Mr. Mottley’s services as President and Chief Executive Officer.
|
(3)
|
Issuance of common stock valued at market price on the date of issuance.
|
(4)
|
Mr. Antol was appointed ECPN’s Chief Financial Officer on April 30, 2009. Mr. Antol currently has no employment contract with ECPN. Effective July 1, 2010, the Board of Directors authorized monthly compensation of $6,667 per month for Mr. Antol’s services as Chief Financial Officer and Principal Accounting Officer. Effective February 10, 2012, Mr. Antol resigned as Chief Financial Officer and Principal Accounting Officer of the Company due to health reasons and remained as Controller for the Company at the same rate of compensation.
|
(5)
|
Mr. Stapleton was appointed to the Board of Directors and as ECPN’s Chairman of the Board on April 21, 2009. On February 14, 2012, the Board of Directors of the Company appointed Mr. Stapleton as Chief Financial Officer and Principal Accounting Officer of ECPN. Mr. Stapleton currently has no employment contract with the Company.
|
Grants of Plan-Based Awards
There were no equity awards granted
under our Plan to any named executive officer during the year ended September 30, 2012 as compensation for services provided
as executive officers. Equity awards granted as compensation for director services are discussed below under “Director Compensation.”
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding
each unexercised options held by each of the Company’s named executive officers as of September 30, 2012:
Name
|
|
Number of Securities Underlying Unexercised Options Exercisable
|
|
Number of Securities Underlying Unexercised Options Unexercisable
|
|
Option Exercise Price
|
|
Option Expiration Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles C. Mottley
|
|
|
300,000
|
|
|
|
—
|
|
|
$
|
0.56
|
|
|
7/21/15
|
|
|
|
500,000
|
|
|
|
—
|
|
|
$
|
1.02
|
|
|
2/7/13
|
|
|
|
500,000
|
|
|
|
—
|
|
|
$
|
0.21
|
|
|
7/6/22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Stapleton
|
|
|
500,000
|
|
|
|
—
|
|
|
$
|
1.02
|
|
|
2/7/13
|
|
|
|
500,000
|
|
|
|
—
|
|
|
$
|
0.38
|
|
|
1/31/14
|
|
|
|
500,000
|
|
|
|
—
|
|
|
$
|
0.21
|
|
|
7/6/22
|
_______________
(1)
|
All options granted are pursuant to the Company’s 2005 Stock Incentive Plan, as amended.
|
Severance and Change of Control Arrangements
The Company has no severance or change of control
agreements in place with its executive officers. The Company’s Board of Directors, or a committee thereof, serving as plan
administrator of its 2005 Stock Incentive Plan, has the authority to provide for accelerated vesting of the options granted to
its named executive officers and any other person in connection with changes of control of the Company, including: (a) the sale,
lease, exchange or other transfer of substantially all of its assets to a non-affiliate; (b) its liquidation or dissolution; (c)
subject to certain limitations, if any person becomes the beneficial owner of in excess of 20% of the combined voting power of
the Company’s outstanding securities having the right to vote at elections of directors; (d) subject to certain limitations,
a merger or consolidation whereby the Company’s stockholders immediately prior to effective date of such merger or consolidation
have beneficial ownership, immediately following the effective date of such merger or consolidation, of securities of the surviving
corporation representing less than 80% of the combined voting power of the surviving corporation’s then outstanding securities
ordinarily having the right to vote at elections of directors; or (e) if after the date our securities are first sold in a registered
public offering, its then existing directors cease to constitute at least a majority of the board. This description constitutes
only a summary of the relevant terms to the Company’s 2005 Stock Incentive Plan.
Director Compensation
On July 21, 2005, based upon recommendations
from the Company’s compensation committee, the Board of Directors approved the compensation plan for the Board of Directors.
The non-employee directors will be compensated with an annual retainer of $5,000, plus an additional $1,000 for each Board meeting
attended by each such director in person plus $500 per month for all Board meetings attended by such director by telephone. In
addition, non-employee directors serving as chairman of the audit and compensation committee shall receive an additional annual
retainer of $4,000. Mr. Stapleton and Mr. Richau have agreed to defer Board member cash compensation until such time as the Company
is in a stronger financial position and these expenses have not been incurred.
The following table shows the compensation earned by each of the Company’s directors for
the year ended September 30, 2012:
Name
|
|
Fees Earned or
Paid
in Cash
|
|
Stock Awards
|
|
Option Awards
(2)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles C. Mottley (1)(3)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
90,878
|
|
|
$
|
90,878
|
|
John F. Stapleton (1)(4)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
171,252
|
|
|
$
|
171,252
|
|
Arly Richau (1)(5)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,287
|
|
|
$
|
20,287
|
|
_____________
(1)
|
Mr. Mottley and Mr. Stapleton were appointed to the Board of Directors and as Chairman of the Board on April 21, 2009
and Mr. Richau was appointed to the Board of Directors on July 6, 2012. Mr. Stapleton and Mr. Richau have agreed to
defer Board member cash compensation until such time as the Company is in a stronger financial position.
|
(2)
|
The amounts shown have been calculated in accordance with ASC Topic 718. Pursuant to SEC rules, the amounts shown
exclude the impact of estimated forfeitures related to service-based vesting conditions. For a discussion of the assumptions
relating to our valuations of the option awards, see Note 1 to the financial statements included in this Annual Report on
Form 10-K. These amounts reflect our accounting expense for these stock options and do not correspond to the actual value
that may be recognized by the director.
|
(3)
|
During fiscal 2012, Mr. Mottley was awarded an option to purchase 500,000 shares of our common stock at $0.21 per share,
which had a grant date fair value (computed in accordance with FASB A
SC Topic 718) of $90,878.
As of September 30, 2012, Mr. Mottley held options to purchase 1,300,000 shares at a weighted average exercise price of $0.60
per share, all of which were fully vested.
|
(4)
|
During fiscal 2012, Mr. Stapleton was awarded (i) an option to purchase 500,000 shares of our common stock at $0.38 per
share, which had a grant date fair value (computed in accordance with FASB A
SC Topic 718) of
$80,374, and (ii) an option to purchase 500,000 shares of our common stock at $0.21 per share, which had a grant date fair
value (computed in accordance with FASB ASC Topic 718) of $90,978. As of September 30, 2012, Mr. Stapleton held options to
purchase 1,500,000 shares at a weighted average exercise price of $0.54 per share, all of which were fully vested.
|
(5)
|
During fiscal 2012, Mr. Richau was awarded an option to purchase 500,000 shares of our common stock at $0.21 per share,
which had a grant date fair value (computed in accordance with FASB A
SC Topic 718) of $90,878.
As of September 30, 2012, this option, which was the only option award then held by Mr. Richau, was vested with respect to
125,000 shares.
|
Compensation Committee
The Compensation Committee of the Company consists
of a minimum of one director. Members of the Committee are appointed by the Board of Directors and may be removed by the Board
of Directors in its discretion. All members of the Compensation Committee are required to be independent directors, and shall
satisfy the Company’s independence guidelines for members of the Compensation Committee. Mr. Arly Richau serves as the only
current member of the Compensation Committee.
The purpose of the Committee is to carry out the Board of Directors’ overall responsibility relating to executive compensation.
We have posted our Compensation Committee Charter
on our website at
www.elcapitanpmi.com
.
Compensation Committee Interlocks and Insider Participation
Directors serving on the Compensation Committee
during all or part of fiscal 2012 included John F. Stapleton and James Ricketts. Mr. Ricketts resigned as a director on June 22,
2012. There are no relationships among these individuals, the members of the Board of Directors or executive officers of ours that
require disclosure under Item 407(e)(4) of Regulation S-K promulgated under the Securities Exchange Act of 1934.
Compensation Committee Report
The compensation committee has reviewed
and discussed with management the Compensation Discussion and Analysis portion contained in this Annual Report on Form
10-K. Based on this review and discussion, the compensation committee has recommended to the board of directors, and
the board has agreed, that the section entitled “Compensation Discussion and Analysis” as it appears above
be included in this report.
|
COMPENSATION COMMITTEE:
Arly Richau
|
This report is not “soliciting material,”
is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference in any of our filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether before or after the date
hereof and irrespective of any general incorporation language in any such filing.
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The following table sets forth, as of December
10, 2012, certain information regarding beneficial ownership of our common stock according to the information supplied to us,
that were beneficially owned by (i) each person who is currently a director, (ii) each executive officer, (iii) all current directors
and executive officers as a group and (iv) each person who, to our knowledge, is the beneficial owner of more than 5% of the outstanding
common stock. Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect
to all shares beneficially owned, subject to community property laws where applicable.
Name and Address
of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
|
|
Percent of
Class (1)
|
|
|
|
|
|
Charles C. Mottley
8390 Via de Ventura, Suite F-110
Scottsdale, Arizona 85258,
|
|
17,241,985 (2)
|
|
6.8%
|
|
|
|
|
|
John F. Stapleton
8390 Via de Ventura, Suite F-110
Scottsdale, Arizona 85258,
|
|
5,995,980 (3)
|
|
2.4%
|
|
|
|
|
|
Arly Richau
8390 Via de Ventura, Suite F-110
Scottsdale, Arizona 85258,
|
|
1,051,431 (4)
|
|
0.4%
|
|
|
|
|
|
All Officers and Directors as a Group (3 Persons)
|
|
24,289,396
|
|
9.6%
|
______________
(1)
|
Applicable percentage of ownership is based on 252,868,775 shares of common stock
outstanding as of December 10 , 2012, together with securities exercisable or convertible into shares of common stock within
sixty (60) days of December 14, 2012, for each stockholder. Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to
options or warrants exercisable or convertible into shares of common stock that are currently exercisable or exercisable within
sixty (60) days of December 14, 2012, are deemed to be beneficially owned by the person holding such options or warrants for
the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
|
(2)
|
Mr. Mottley is President, Chief Executive Officer and a Director of the Company. Includes (i) vested options
to purchase 300,000 shares of common stock at an exercise price of $0.56 per share, (ii) vested options to purchase 500,000
shares of common stock at an exercise price of $1.02 per share, (iii) vested options to purchase 500,000 shares of common
stock at an exercise price of $0.21 per share, and (iv) 10,000 shares of common stock held by spouse. Also includes 3,270,000
shares that have been pledged to a third party as security for a loan. On January 20, 2012, Mr. Mottley filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code in the Unites States Bankruptcy Court in and for the District
of Arizona (Case No. 10-01419 GBN). All shares held by Mr. Mottley are subject to potential disposition in the bankruptcy
proceeding.
|
(3)
|
Mr. Stapleton is the Chairman of the Board of the Company. Includes (i) vested options to purchase 500,000 shares of common
stock at an exercise price of $1.02 per share, (ii) vested options to purchase 500,000 shares of common stock at an exercise
price of $0.38 per share, and (iii) vested options to purchase 500,000 shares of common stock at an exercise price of $0.21
per share.
|
(4)
|
Mr. Richau is Secretary and a Director of the Company. Includes vested options to purchase 125,000 shares of
common stock at an exercise price of $0.21 per share.
|
2005 Stock Incentive Plan Information
The following table sets forth, as of September
30, 2012, (i) the number of securities to be issued upon the exercise of outstanding options, warrants and rights issued under
our equity compensation plans, (ii) the weighted-average exercise price of such options, warrants and rights, and (iii) the number
of securities remaining available for future issuance under our equity compensation plans (excluding those securities set forth
in Item (i)).
Plan Category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
|
|
|
Weighted
average price of outstanding options, warrants and rights
(b)
|
|
|
Number
of securities remaining available for future issuance under equity compensation plans (excluding (a))
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Equity compensation plans not approved by security holders
|
|
|
4,650,000
|
|
|
$
|
0.57
|
|
|
|
13,384,469
|
(1)
|
Total
|
|
|
4,650,000
|
|
|
$
|
0.57
|
|
|
|
13,384,469
|
|
______________
(1)
|
The Company has registered 261,444 shares on Form S-8 on June 14, 2004, outside of the 2005 Stock Incentive Plan. Shares have been and may be issued from time to time to certain employees and consultants as compensation for services rendered to the Company and may be issued outside or as part of the Plan. In the event of an issuance of common stock in lieu of compensation, the number of shares to be issued and the price of the stock at issuance will be determined by the Board of Directors.
|
All outstanding options identified above are
governed by the terms of the Company’s 2005 Stock Incentive Plan (the “2005 Plan”). The 2005 Plan
authorizes the granting of stock-based awards to purchase up to 30,000,000 shares of our common stock. Under the 2005 Plan,
our Board of Directors or a committee of two or more non-employee directors designated by our Board administers the 2005 Plan.
As such, the Board or compensation committee, as applicable, has the power to grant awards, to determine when and to whom awards
will be granted, the form of each award, the amount of each award, and any other terms or conditions of each award consistent
with the terms of the 2005 Plan. Awards may be made to employees, directors and consultants of the Company and our subsidiaries.
The types of awards that may be granted under the 2005 Plan include incentive and non-statutory stock options, stock appreciation
rights, stock awards, restricted stock, and performance shares. Each award agreement will specify the number and type of award,
together with any other terms and conditions as determined by the Board of Directors or committee in its sole discretion.
In the
event of a sale or merger of the company, the Board of Directors or applicable committee may take any action with respect to outstanding
awards that it deems equitable, including providing for the assumption or substitution of outstanding awards, or the acceleration
or termination of unvested awards. The Board of Directors may amend or discontinue the 2005 Plan at any time.
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
|
Certain Relationships
Since January 2012, the Management Resource
Initiatives, Inc. has been managing and overseeing the process of marketing and selling the Company and performing other services
aimed at furthering the Company's strategic goals pursuant to an unwritten consulting arrangement. Under this arrangement, the Company
pays Management Resource Initiatives a monthly consulting fee of $10,000. The Company made aggregate payments of $90,000 to Management
Resource Initiatives during fiscal 2012. Management Resource Initiatives is a corporation that is wholly-owned by John F. Stapleton.
Director Independence
Although the Company is not listed on a national
securities exchange, in determining whether the members of our Board and its committees are independent, the Company has elected
to use the definition of “independence” set forth by the NASDAQ Exchange and the standards for independence established
by the NASDAQ. After review of relevant transactions or relationships between each director, or any of his family members, and
the Company, its senior management and its independent registered public accounting firm, the Board has determined that Arly Richau
is an independent director within the meaning of the applicable listing standard of the NASDAQ. John F. Stapleton and Charles C.
Mottley are not independent directors under the NASDAQ definition based in part on their positions as executive officers and employees
of the Company.
The director independence rules of NASDAQ require
listed companies to have an audit committee of at least three members, each of whom (in addition to satisfying other conditions)
is an independent director. The Company’s audit committee is comprised of John F. Stapleton and Arly Richau and, therefore,
would not meet this NASDAQ requirement.
The director independence rules of the
NASDAQ require that the compensation of the chief executive officer and other officers of a listed company be determined, or
recommended to the Board for determination, either by a compensation committee comprised of independent directors or by a
majority of the independent directors on its Board of Directors. The Company’s compensation committee is comprised of
Arly Richau and, therefore, would meet this NASDAQ requirement.
The director independence rules of the NASDAQ
require that Board of Director nominations must be either selected, or recommended for the Board's selection, by either a nominating
committee comprised solely of independent directors or by a majority of the independent directors. The Company’s Board of
Directors as a whole serves as the nominating committee and, therefore, would not meet this NASDAQ requirement.
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
The following table summarizes the aggregate
fees billed to the Company by MaloneBailey, LLP in relation to the audits and quarterly reviews of the Company for the fiscal years
ended September 30, 2012 and 2011:
|
|
Year Ended
September 30, 2012
|
|
Year Ended
September 30, 2011
|
|
|
|
|
|
|
|
|
|
Audit Fees (1)
|
|
$
|
61,000
|
|
|
$
|
89,000
|
|
Audit-Related Fees (2)
|
|
$
|
—
|
|
|
$
|
—
|
|
Tax Fees (3)
|
|
$
|
—
|
|
|
$
|
—
|
|
_______________
|
(1)
|
Audit Fees
. Audit fees include fees for professional services performed
for the audit of our annual consolidated financial statements, review of quarterly consolidated financial statements
included in our SEC filings, and assistance and issuance of consents associated with other SEC filings.
|
(2)
|
Audit-Related Fees
. Audit-related fees are fees for assurance and related services
that are reasonably related to the audit. This category includes fees related to assistance consulting on financial accounting/reporting
standards.
|
(3)
|
Tax Fees
. Tax fees primarily include professional services
performed with respect to preparation of our federal and state tax returns for our consolidated subsidiaries.
|
The audit committee of the Board of Directors
has reviewed the services provided by MaloneBailey, LLP during the fiscal year ended September 30, 2012 and the amounts billed
for such services, and after consideration, has determined that the receipt of these fees by MaloneBailey, LLP is compatible with
the provision of independent audit services. The audit committee has discussed these services and fees with MaloneBailey, LLP and
Company management to determine that they are appropriate under the rules and regulations concerning auditor independence promulgated
by the U.S. Securities and Exchange Commission to implement the Sarbanes-Oxley Act of 2002, as well as under guidelines of the
American Institute of Certified Public Accountants.
Pre-Approval Policy
The audit committee charter provides that all
audit and non-audit accounting services that are permitted to be performed by the Company’s independent registered public
accounting firm under applicable rules and regulations must be pre-approved by the audit committee or by designated independent
members of the audit committee, other than with respect to de minimis exceptions permitted under Section 202 of the Sarbanes-Oxley
Act of 2002. All services performed by MaloneBailey during the fiscal years ending September 30, 2012 and 2011 have
been pre-approved in accordance with the charter.
Prior to or as soon as practicable following
the beginning of each fiscal year, a description of audit, audit-related, tax, and other services expected to be performed by
the independent registered public accounting firm in the following fiscal year will be presented to the audit committee for approval.
Following such approval, any requests for audit, audit-related, tax, and other services not presented and pre-approved must be
submitted to the audit committee for specific pre-approval and cannot commence until such approval has been granted. Normally,
pre-approval is provided at regularly scheduled meetings. However, the authority to grant specific pre-approval between meetings,
as necessary, may be delegated to one or more members of the audit committee who are independent directors. In the event such
authority is so delegated, the full audit committee must be updated at the next regularly scheduled meeting with respect to any
services that were granted specific pre-approval by delegation. During the fiscal year ending September 30, 2012, the audit committee
has functioned in conformance with these procedures.
PART IV
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
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)
.
|
4.1
|
|
Rights Agreement between the Company and OTR, Inc.
(incorporated by reference to Exhibit
4.1 to the Company’s Form 8-K filed on January 4, 2006)
.
|
10.1
|
|
Equity Purchase Agreement dated July 11, 2011 between El Capitan Precious Metals, Inc. and
Southridge Partners II, LP.
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed July 12, 2011).
|
10.2
|
|
2005 Stock Incentive Plan, as amended
(incorporated by reference to Exhibit 10.1 to the
Company’s Form S-8 Registration Statement #333-177417 filed on October 20, 2011)
.
|
10.3*
|
|
Form of Stock Option Agreement (Director)
|
21.1*
|
|
Subsidiaries of El Capitan Precious Metals, Inc.
|
23.1*
|
|
Consent of Clyde L. Smith, Ph.D.
|
23.2*
|
|
Consent of MaloneBailey, LLP
|
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.
|
Financial Statement Schedules
None.
SIGNATURES
In accordance
with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
EL CAPITAN PRECIOUS METALS, INC.
|
|
|
|
|
|
|
Date: December 14, 2012
|
By:
|
/s/ Charles C. Mottley
|
|
Charles C. Mottley
|
|
Chief Executive Officer
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
/s/ Charles C. Mottley
|
|
Chief Executive Officer, Director
|
|
December 14, 2012
|
Charles C. Mottley
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
John F. Stapleton
|
|
Chairman of the Board, Director, Chief
|
|
December 14, 2012
|
John F. Stapleton
|
|
Financial Officer (Principal Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Arly Richau
|
|
Secretary, Director
|
|
December 14, 2012
|
Arly Richau
|
|
|
|
|
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