10-K 1 p1211.htm FORM 10-K FOR FISCAL YEAR ENDED SEPTEMBER 30, 2011 p1211.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended September 30, 2011
 
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ____________
 
Commission File Number:   333-56262
 

(Exact name of registrant as specified in its charter)

Nevada
88-0482413
(State or Other Jurisdiction
(I.R.S. Employer
Incorporation or Organization)
Identification No.)

15225 N. 49th Street
 
Scottsdale, AZ
85254
(Address of Principal Executive Offices)
(Zip Code)

Registrant’s telephone number, including area code:   (602) 595-4997
 
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  o   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  o   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  o
 
 
 

 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).     Yes  þ   No  o
 
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  o    Accelerated filer  o    Non-accelerated filer  o     Smaller reporting company  þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o   No  þ
 
The aggregate market value of the issuer’s voting stock held as of March 31, 2011, by non-affiliates of the issuer was approximately $277,493,018 based on the last trading price of the registrant’s common stock of $1.35 as reported on the OTC Bulletin Board.
 
As of December 29, 2011, issuer had 246,857,580 shares of its $.001 par value common stock issued and outstanding.
 
Documents incorporated by reference:  None
 
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PERMITTED THEREBY.
 
 

 
TABLE OF CONTENTS
 
     
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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.
 
 
 
 BUSINESS
 
Business Overview
 
El Capitan Precious Metals, Inc. (“ECPN,” the “Company,” “our” or “we”) is a precious minerals company based in Scottsdale, Arizona. 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. 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 also own 100% of the outstanding common stock of El Capital Precious Metals, Inc., a Delaware corporation.  We continue to perform research and confirmation procedures on the recovery process on for the El Capitan property ore and final 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.  El Capitan Precious Metals, Inc., a Delaware corporation,  is the operating subsidiary of the Company.
 
Previous to January 19, 2011, we owned a 60% interest in ECL.  On January 19, 2011, we acquired the outstanding 40% interest in ECL from Gold and Minerals Company, Inc. (“G&M”) by merging G&M with and into an acquisition subsidiary created by ECPN. In connection with the merger, G&M stockholders received an aggregate of 148,127,043 shares of our common stock. Each share of G&M 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 G&M 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.
 
We are concentrating on the exploration of our El Capitan property. Upon completion of final testing to determine the existence and concentration of commercially extractable precious metals or other minerals at this site, and if the results of such testing are positive and economically feasible, we anticipate formalizing plans for the development of the site by either selling to or entering into a joint venture with a producing mining company.
 
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, 2011 to September 30, 2011 and for the last five calendar years are as follows:
Gold - London Afternoon Fix Prices - US Dollars
               
   
High
   
Low
   
Average
   Period
               
For the nine months ended September 30, 2011
 
$
1,895
   
$
1,319
   
$
1,530
For the year ended December 31, 2010
   
1,421
     
1,058
     
1,225
For the year ended December 31, 2009
   
1,213
     
810
     
972
For the year ended December 31, 2008
   
1,011
     
713
     
872
For the year ended December 31, 2007
   
841
     
608
     
695
For the year ended December 31, 2006
   
725
     
525
     
603
   Data Source: Kitco
                     
 
Silver - London Afternoon Fix Prices - US Dollars
               
   
High
   
Low
   
Average
   Period
               
For the nine months ended September 30, 2011
 
$
43.61
   
$
26.68
   
$
36.21
For the year ended December 31, 2010
   
30.70
     
15.14
     
20.19
For the year ended December 31, 2009
   
19.18
     
10.51
     
14.67
For the year ended December 31, 2008
   
20.92
     
8.88
     
14.99
For the year ended December 31, 2007
   
15.82
     
11.67
     
13.38
For the year ended December 31, 2006
   
14.94
     
8.83
     
11.55
   Data Source: Kitco
                     
 
Should we be successful in our exploration and locate gold or other precious metals, our ability to sell or develop any of our property would be highly dependent upon the price of these precious metals, the market for which can be highly volatile. There is no assurance that should the property be successfully explored, we will generate significant revenue from the sale of any precious metals or sale of a 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.
 
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 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 Earth & Environmental, 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 has provided a hard copy of the draft NEPA scope of work to AMEC and are waiting for the electronic version to make revisions to the text to fit the project. AMEC is also in the process of reviewing the previous NEPA draft document submitted by the former environmental services firm of the Company.
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 has prepared and submitted the New Mexico Mining and Minerals Subpart 4 Exploration permit application. AMEC has responded in writing to administrative comments received on the application, related to fees, additional copies of the application and completion of the public notice. AMEC has begun work on the public notice process and will work with the MMD to get the Directors List and identify all parties that will be required to receive the notice. The text of the notice has been drafted in English and Spanish and AMEC will gain MMD approval of the notice.
 
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.
 
Employees
 
We currently have informal arrangements with three (3) individuals who are officers and/or 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. We have an additional non-employee director that devotes only such time to our business as is necessary to our conduct of administrative operations. Additionally, we use consultants for the testing and exploration and development of property claims. As 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 offices located at 15225 N. 49th Street, Scottsdale, Arizona 85254, and its telephone number is (602) 595-4997.  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.
 
RISK FACTORS
 
Risks Relating to Our Common Stock
 
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.OB.”  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:
 
 
adverse changes in the worldwide prices for gold or silver;
 
disappointing results from our exploration or development efforts;
 
failure to meet operating budget;
 
decline in demand for our common stock;
 
downward revisions in securities analysts’ estimates or changes in general market conditions;
 
technological innovations by competitors or in competing technologies;
 
investor perception of our industry or our prospects; and
 
general economic trends.
 
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 29, 2011, we had issued and outstanding 246,857,580 shares of common stock, and have 2,450,000 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 were not free trading shares. Most of these shares issued have restrictions limiting their transfer during the first 90 days after the Merger, as well each 90 days for first year after the Merger. As these shares become available for free trading, given the historical levels of trading of the Company’s shares, such sale may depress the market price of our common stock.
 
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(e) 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 development and exploration activities or forego business opportunities.
 
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(e) 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 or the development of the El Capitan property through a joint venture with a larger mining company with more significant resources. In either event, 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 sites with which ECPN 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 losses and may have to discontinue operations at one or more of our properties.
 
We have not had revenue-generating operations and may never generate revenues.
 
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 explore our El Capitan property or obtain any additional properties will likely be diminished.
 
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, or enter into a joint venture for the development of, 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 enter into a joint venture agreement on terms acceptable to us.
 
We are concentrating on the exploration of our El Capitan property with a strategic plan to sell or enter into a joint venture with a producing mining company, with respect to the El Capitan property.  There is no guarantee that we will be able to find a potential acquirer or partner 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 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.
 
Two of our directors have significant industry experience. In the event that we lose the services of any of our directors, we will be required to rely upon third party consultants with respect to industry matters, and our ability to achieve our business objectives may be negatively affected, or prove more costly to obtain.  We have not purchased any life insurance on any of our officers or directors.
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:
 
 
economically insufficient mineralized materials;
 
decrease in values due to lower metal prices;
 
fluctuations in production cost that may make mining uneconomical;
 
unanticipated variations in grade and other geologic problems;
 
unusual or unexpected formations;
 
difficult surface or underground conditions;
 
metallurgical and other processing problems;
 
environmental hazards;
 
water conditions; and
 
governmental regulations.
 
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  exploration activities.
 
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 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 its properties.
 
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.
 
We may not be able to obtain an adequate supply of water to complete desired development and mining of our El Capitan property.
 
For successful development, we will need to obtain the rights for a sufficient amount of water to service a mining and processing operation. Our title to the El Capitan property may entitle us to use water and water rights in connection with the property, including among others the right to drill, pump, divert, transport and use water from wells, containment areas and drainages. However there can be no assurance we will be able to obtain access to the amount of water needed to operate a mine at the property.
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. Alternatively, we may elect to sell the El Capitan property if the exploration proves successful. Accordingly, our ability to acquire properties in the future will depend not only on our ability to explore and develop or sell the El Capitan property, but also on our ability to select and acquire suitable properties or prospects for future exploration. We may not be able to compete successfully with our competitors in acquiring such properties or prospects.
 
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.
 
UNRESOLVED STAFF COMMENTS
 
None.
 
PROPERTIES
 
El Capitan Property
 
The El Capitan property originally consisted of approximately 200 acres of mineral lands bounded by the Lincoln National Forest in Lincoln County, New Mexico. The 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.
 
The El Capitan property is owned by El Capitan, Ltd., an Arizona corporation (“ECL”) and subsidiary of the Company. The property consists of four (4) patented and nine (9) 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. During October and November 2005, we staked and claimed on property surrounding the El Capitan site located in Lincoln County, New Mexico. This increased the total claimed area to approximately 10,000 acres in November 2005. The additional staking and claiming around the original site was done upon recommendations from our consulting geologist to ensure protection of ECL’s interests. In August 2006, we reduced the number of claims to approximately 7,400 acres and in August 2009, we reduced the number of claims to approximately 3,000 acres based upon continuing geological work and recommendations by our consulting geologist.  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 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). 
 
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.
  
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; to establish commercial viability, we continue to complete significant additional exploration and testing, including potentially more extensive drilling in the future, obtain positive engineering results and work towards completing an economic feasibility study on the property. As of our current fiscal year ended 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.
 
Over the years, samples taken on the 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 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 which would “... 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 continued to retain the services of Dr. Smith to manage the exploration of the 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 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 comparable to the to the test procedures used in December 2008, which represented recoverable values using standard extraction techniques and the values obtained were similar to the December 2008 values reported by the Canadian firm that performed the tests. It was determined that the low assay results reported in February 2009 came from an entirely different assay procedure and therefore was 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 their 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 them.
 
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.” This process was used by an independent certified analytical laboratory to produce a certified report on metal recovered from samples that came from 3,000 tons of El Capitan head ore.
 
On November 3, 2010, we engaged another qualified consulting company to initially analyze ten core samples from the El Capitan site, 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. Preliminary review of the data supports El Capitan’s expectations of commercially recoverable precious metals. 
 
The consultant companys data has been submitted to a qualified metallurgical engineer, and a qualified chemist, who were recommended as a third party resource by our consultant geologist Clyde Smith, Ph. D. Additional work by the consultant company is on hold as we are currently concentrating on the recovery process involving silver–lead inquarting and a carbon pre-roast process of the El Capitan ore.
 
Upon determination of the final recovery process best suited for the El Capitan ore, the cost of precious metal recovery will be determined 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 recovery results attained in 2011, it is necessary to complete a revised update of our 43-101. This document is based on Canadian National Instrument 43-101 guidelines, the standard for presentation of a mining property. The 43-101 describes the geology, drilling locations, drilling samples, measured resource and the metallurgical value and make-up of the ore.  It is the central document for the Company’s presentation of the property to the market for sale.  The previous 43-101 was completed in April 2007 and requires significant updating to bring it current. The update will include a site visit by a qualified metallurgical engineer, a review of the permits of the El Capitan site, a complete metallurgical initiative to assess the ore content at the El Capitan site, and multiple independent verifications of all the metallurgical work conducted for the site for accuracy and repeatability. The Company’s prior results are being replicated with “Chain-of-Custody” ore under the direction of qualified metallurgical engineer and chemist.
 
The Company, supplied with an economically feasible recovery model for the precious metals for the El Capitan property ore, and the updated 43-101 will deliver the reports to an investment banking firm to sell the El Capitan property to a major mining company or enter into a profitable joint venture agreement.
 
From time to time, we have entered into agreements with various contractors to complete exploration projects on the El Capitan property. Each of the respective contractors utilizes their own equipment to complete such exploration and testing or other contracted services.
 
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 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 plan to explore the property to determine the feasibility of recovering gold and silver from the tailings of the COD site.  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 project 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.  In July 2009 U.S. Canadian purchased Noble Technologies Corp., a private Nevada corporation. In October 2009 U.S. Canadian amended its Articles of incorporation and changed its name to Noble Consolidated Industries Corp. (“Noble”). Currently 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.
Executive Offices
 
Our executive offices are located at 15225 N. 49th Street, Scottsdale, Arizona 85254. The premises are contributed free of charge by Mr. Stephen J. Antol, an officer of the Company. We believe that the office is adequate to meet our current operational requirements. Other than our property as described above, we do not own any real property.
 
LEGAL PROCEEDINGS
 
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.
 
(REMOVED AND RESERVED)
 
 
 
MARKET FOR REGISTRANTS 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.OB” 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, 2011 and 2010, 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, 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  
                 
September 30, 2010
  $ 0.60     $ 0.35  
June 30, 2010
  $ 0.76     $ 0.25  
March 31, 2010
  $ 0.35     $ 0.09  
December 31, 2009
  $ 0.10     $ 0.07  
 
Holders
 
As of December 29, 2011, we had approximately 1,645 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 29, 2011, we had approximately 7,063 beneficial holders of our common stock, based on information received from our transfer agent and NOBO report of shareholders holding our stock in brokerage accounts.
 
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. 
Recent Sales of Unregistered Securities
 
On July 11, 2011, we 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.  The Company has no obligation to sell any shares under the Agreement.  A full description of the Agreement is set forth in the Company’s Report on Form 8-K filed with the SEC on July 12, 2011.  Concurrently with the execution of the Agreement, the Company issued 80,000 restricted shares of its common stock to Southridge as consideration for entry into the Agreement.  The shares were issued to Southridge pursuant to the exemptions from registration of Rule 506 of Regulation D on the basis of certain representations by Southridge that it qualified as an “accredited investor,” as defined under Rule 501 of Regulation D.
 
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.
 
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, 2011, 2010, 2009, 2008 and 2007. 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 31,
 
   
2011
   
2010
   
2009
   
2008
   
2007
 
Operating Data
                             
Operating revenues
   
     
     
     
     
 
Operating expenses
 
$
 178,949,160
   
1,279,249
   
$
953,699
   
2,501,610
   
$
4,188,702
 
Loss from operations
   
(178,949,160
)
   
(1,279,249
)
   
(953,699
)
   
(2,501,610
)
   
(4,188,702
)
Other income (expense)
   
28,118
     
2,720
     
198
     
114,127
     
(249,073
)
Net loss
   
(178,921,042
)
   
(1,276,529
)
   
(953,501
)
   
(2,387,483
)
   
(4,437,775
)
Basic & diluted loss per share
   
(0.89
)
   
(0.01
)
   
(0.01
)
   
(0.03
)
   
(0.06
)
Weighted average shares outstanding
   
199,934,079
     
90,972,066
     
88,004,276
     
82,234,030
     
78,234,483
 
                                         
Balance Sheet Data
                                       
Cash and cash equivalents
 
$
319,939
   
$
955,023
   
$
2,348
   
$
32,456
   
$
90,329
 
Total current assets
   
355,328
     
996,926
     
28,537
     
124,941
     
216,225
 
Property and equipment, net
   
3,707
     
2,950
     
8,677
     
18,556
     
75,714
 
Land and mineral rights
   
1,879,608
     
788,808
     
788,808
     
788,808
     
788,808
 
Total assets
   
2,261,083
     
1,811,124
     
848,462
     
959,943
     
1,111,855
 
                                         
Current liabilities
   
165,547
     
493,129
     
605,290
     
190,611
     
465,113
 
Long-term obligations
   
     
     
     
     
 
Total stockholders’ equity
   
2,095,536
     
1,317,995
     
243,172
     
769,332
     
646,742
 
Total liabilities and stockholders’ equity     2,261,083       1,811,124      
848,462
     
959,943
     
1,111,855
 
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.
 
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 are concentrating on the exploration of our El Capitan property. After completing further testing to determine the existence and concentration of commercially extractable precious metals or other minerals at this property site, and if the results of such testing are positive, we anticipate formalizing plans for the development of the asset by either selling or entering into a joint venture with a producing 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, 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 $812,154 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 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 in Item 4 of this Annual Report. The increased exploration costs are due to significant increased research activity on a 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 current 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 propery in the current fiscal year, as detailed above.
 
Results of Operations - Fiscal year ended September 30, 2010 compared to fiscal year ended September 30, 2009.
 
We have not yet realized any revenue from operations to date.  We realized a net increase in operating expenses of $325,550 from $953,699 for the year ended September 30, 2009 to $1,279,249 for the year ended September 30, 2010. The increase was comprised mainly of increases in professional fees of $114,035, exploration expenses of $110,112, reduction in a gain on asset dispositions of $19,626, and administrative consulting fees of $420,621 net of prior year officer compensation expense of $315,000. These increases were mainly offset by decreases in legal and accounting fees of $30,067, non-cash warrant and option expenses of $249,759 and recognition of a write-off of accounts payable and accrued interest of $56,364. The current period administrative consulting fees consist 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 exploration expenses related to increased research activity on recovery processes for precious metals on our El Capitan ore. The Company did not issue any new stock options or warrants during the fiscal year ended September 30, 2010.
 
Our net loss increased for the fiscal year ended September 30, 2010 by $323,028, from $953,501 for the fiscal year ended September 30, 2009, to $1,276,529 for the fiscal year ended September 30, 2010. The increase in the net loss is mainly attributable to the net increase in operating expenses in the current fiscal year, as detailed above.
 
Liquidity and Capital Resources
 
To fund our operational expenses in the fiscal years ended September 30, 2010 and 2009, we relied on proceeds from the exercise of warrants aggregating $36,250 during 2009, cost reimbursements on the El Capitan project from G&M aggregating $77,487 during 2009 and 2010, and the private placement of common stock in fiscal year 2010 described below.
During the fiscal year ended September 30, 2009, the Company modified the terms of 725,000 warrants previously granted. The exercise price of the warrants was reduced from $0.50 to $0.05. The modifications resulted in an additional warrant expense of $15,457 for the fiscal year ended September 30, 2009.
 
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. As of December 29, 2011, we have placed 4,300,000 shares of the private placement and received cash proceeds net of wire fees aggregating $1,504,986. The working capital funds have been 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 year ended September 30, 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.
 
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 an Equity Purchase Agreement (the “Agreement”), with Southridge Partners II, LP (“Southridge’). The term of the Agreement is two years, and can be terminated by the Company at any time.  The Agreement permits the Company to 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.  As of September 30, 2011, we have sold Southridge shares of stock for aggregate proceeds of $500,000 and had a remaining option to sell to Southridge $4,500,000 in shares of common stock of the Company under the Agreement. Subsequent to September 30, 2011, and prior to the filing of this Report, we sold additional shares to Southridge under the Agreement for cash proceeds of $450,000. The Company expects that the proceeds received from the Agreement will permit the Company to continue its development of the El Capitan property for sale to a producing mining company.
  
As of September 30, 2011, we had cash on hand of $319,939 and an accumulated deficit of $198,160,539. Based upon our budgeted burn rate we currently have operating capital for 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. 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.
 
The price of gold and silver has experienced an increase in value over the past four 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 or iron ore prices may have a materially adverse affect on the future results of potential operations. The costs associated with the recovering precious metals may also cause a material adverse effect on the financial success of the Company and our ability to market the sale El Capitan property.
Off-Balance Sheet Arrangements
 
During the year ended September 30, 2011, 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, 2011, describes our significant accounting policies which are reviewed by management on a regular basis.
 
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.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
(An Exploration Stage Company)
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
Page
 
       
   27  
       
 
29
 
       
 
30
 
       
 
31
 
       
 
32
 
       
 
36
 
       
 
38
 
 
 
 
MALONE HEADER
 
 
 
 
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, 2011 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.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment: the control procedures to ensure the valuation of the Company’s mineral property is properly stated has not been designed and implemented.
 
This material weakness was considered in determining the nature, timing, extent of audit tests applied in our audit of the consolidated financial statements as of and for the years ended September 30, 2011 and 2010 and for the period from July 26, 2002 (inception of exploration stage) to September 30, 2011 of the Company and this report does not affect our report on such financial statements.
 
In our opinion, because of the effect of the material weakness identified above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of September 30, 2011, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We do not express an opinion or any other form of assurance on management's statements regarding measures subsequently implemented by the Company with the intention of addressing the material weakness.
 
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, 2011 and 2010, and the related consolidated statements of expenses, stockholders’ equity (deficit), and cash flows for the years ended September 30, 2011, 2010 and 2009 and for the period from July 26, 2002 (inception of exploration stage) to September 30, 2011 and our report dated December 29, 2011 expressed an unqualified opinion on those consolidated financial statements.
 
/s/  MaloneBailey, LLP
 
www.malonebailey.com
Houston, Texas
December 29, 2011
MALONE FOOTER
 
 
 
 
MALONE HEADER
 
 
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) (collectively, the “Company”) as of September 30, 2011 and 2010, and the related consolidated statements of expenses, stockholders’ equity (deficit), and cash flows for the years ended September 30, 2011, 2010 and 2009 and for the period from July 26, 2002 (inception of exploration stage) to September 30, 2011. The consolidated financial statements for the period from July 26, 2002 (inception of exploration stage) 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 (inception of exploration stage) 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 (inception of exploration stage) through September 30, 2011, 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, 2011 and 2010 and the results of its operations and cash flows for the years ended September 30, 2011, 2010 and 2009 and for the period from July 26, 2002 (inception of exploration stage) through September 30, 2011, 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, 2011, 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 29, 2011 expressed an adverse opinion on the Company's internal control over financial reporting because of the following material weakness: the control procedures to ensure the valuation of the Company’s mineral property is properly stated has not been designed and implemented.
 
/s/  MaloneBailey, LLP
 
www.malonebailey.com
Houston, Texas
December 29, 2011
MALONE FOOTER
 
(An Exploration Stage Company)
 
CONSOLIDATED BALANCE SHEETS
 
   
September 30,
 
   
2011
   
2010
 
             
ASSETS
           
             
CURRENT ASSETS :
           
Cash
 
$
319,939
   
$
955,023
 
Prepaid expenses and other current assets
   
35,389
     
41,903
 
Total Current Assets
   
355,328
     
996,926
 
                 
Furniture and equipment net of accumulated depreciation of $34,197 and $29,222, respectively
   
3,707
     
2,950
 
Mineral property
   
1,879,608
     
 
Investment in El Capitan, Ltd.
   
     
788,808
 
Deposits
   
22,440
     
22,440
 
Total Assets
 
$
2,261,083
   
$
1,811,124
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
 
$
111,406
   
$
121,956
 
Accrued liabilities
   
54,141
     
343,056
 
Due to affiliated company
   
     
28,117
 
Total Current Liabilities
   
165,547
     
493,129
 
                 
STOCKHOLDERS’ EQUITY :
               
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued and outstanding
   
     
 
Common stock, $0.001 par value; 300,000,000 shares authorized; 245,582,461 and 95,790,069 issued and outstanding, respectively
   
245,582
     
95,790
 
Additional paid-in capital
   
200,010,493
     
20,461,702
 
Deficit accumulated during the exploration stage
   
(198,160,539
)
   
(19,239,497
)
Total Stockholders’ Equity
   
2,095,536
     
1,317,995
 
Total Liabilities and Stockholders’ Equity
 
$
2,261,083
   
$
1,811,124
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
(An Exploration Stage Company)
 
CONSOLIDATED STATEMENTS OF EXPENSES

                     
July 26, 2002
 
                     
(Inception)
 
                     
Through
 
   
Years Ended September 30,
   
September 30,
 
   
2011
   
2010
   
2009
   
2011
 
                     
(Unaudited)
 
OPERATING EXPENSES:
                       
Professional fees
 
$
88,252
   
$
164,282
   
$
50,247
   
$
3,503,279
 
Officer compensation expense
   
     
     
315,000
     
2,863,833
 
Administrative consulting fees
   
260,000
     
781,256
     
45,635
     
2,170,766
 
Management fees, related party
   
     
     
     
320,500
 
Legal and accounting fees
   
340,960
     
110,332
     
140,399
     
1,701,347
 
Exploration expenses
   
509,104
     
195,775
     
85,663
     
2,999,466
 
Warrant, option and stock compensation expenses
   
812,154
     
     
249,759
     
4,888,732
 
Other general and administrative
   
378,266
     
83,968
     
86,622
     
1,621,738
 
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
   
     
     
(19,626
)
   
34,733
 
Total Operating Expenses
   
178,949,160
     
1,279,249
     
953,699
     
196,608,454
 
                                 
LOSS FROM OPERATIONS
   
(178,949,160
)
   
(1,279,249
)
   
(953,699
)
   
(196,608,454
)
                                 
OTHER INCOME (EXPENSE):
                               
Interest income
   
2,283
     
715
     
35
     
39,248
 
Other income
   
18,632
     
     
     
18,632
 
Forgiveness of debt
   
     
     
1,639
     
115,214
 
Interest expense:
                               
Related parties
   
     
     
     
(68,806
)
Other
   
     
(454
)
   
(1,476
)
   
(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)
   
28,118
     
2,720
     
198
     
(1,552,085
)
                                 
LOSS BEFORE PROVISION FOR INCOME TAXES
   
(178,921,042
)
   
(1,276,529
)
   
(953,501
)
   
(198,160,539
)
                                 
PROVISION FOR INCOME TAXES
   
     
     
     
 
                                 
NET LOSS
 
$
(178,921,042
)
 
$
(1,276,529
)
 
$
(953,501
)
 
$
(198,160,539
)
                                 
Net Loss per common share, basic and diluted
 
$
(0.89
)
 
$
(0.01
)
 
$
(0.01
)
       
                                 
Weighted average common shares outstanding, basic and diluted
   
199,934,079
     
90,972,066
     
88,004,276
         

The accompanying notes are an integral part of these consolidated financial statements.
 
(An Exploration Stage Company)
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) through September 30, 2011

   
Common
Stock Shares
   
Common
Stock
Amount
   
Stock
Subscriptions
   
Additional
Paid-in
Capital
   
Deficit
Accumulated
During the
Exploration
Stage
   
Total
 
                                                 
Initial Issuance of Common Stock
   
3,315,000
   
$
3,315
     
   
$
(3,306
)
 
$
   
$
9
 
Net loss
   
     
     
     
     
(21,577
)
   
(21,577
)
Balances at September 30, 2002 (Unaudited)
   
3,315,000
   
$
3,315
   
$
   
$
(3,306
)
 
$
(21,577
)
 
$
(21,568
)
                                                 
Issuance of common stock to Gold and Minerals Company, Inc. in connection with purchase of interests in assets of El Capitan, Ltd. in November 2002
   
35,685,000
     
35,685
     
     
(35,663
)
   
     
22
 
Acquisition of DML Services on March 17, 2003
   
6,720,000
     
6,720
     
     
(56,720
)
   
     
(50,000
)
Common stock issued for interest expense related to a note payable
   
525,000
     
525
     
     
16,975
     
     
17,500
 
Common stock and warrants issued for services
   
150,000
     
150
     
     
188,850
     
     
189,000
 
Common stock issued for compensation
   
2,114,280
     
2,115
     
     
847,885
     
     
850,000
 
Issuance of common stock to Gold and Minerals Company, Inc. in connection with purchase of COD property in August 2003
   
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
)
                                                 
Costs associated with warrants and options issued
   
     
     
     
108,000
     
     
108,000
 
Common stock issued for compensation
   
3,650,164
     
3,650
     
     
516,350
     
     
520,000
 
Common stock issued for services and expenses
   
2,082,234
     
2,083
     
     
393,682
     
     
395,765
 
Common stock issued for notes payable
   
1,827,938
     
1,827
     
     
381,173
     
     
383,000
 
Beneficial conversion of notes payable
   
     
     
     
75,000
     
     
75,000
 
Common stock issued for acquisition of Weaver property interest in July 2004
   
3,000,000
     
3,000
     
     
(3,000
)
   
     
 
Stock subscriptions
   
     
     
50,000
     
     
     
50,000
 
Net loss
   
     
     
     
     
(1,314,320
)
   
(1,314,320
)
Balances at September 30, 2004 (Unaudited)
   
62,669,616
   
$
62,670
   
$
50,000
   
$
2,425,626
   
$
(2,897,566
)
 
$
(359,270
)
(Continued)
The accompanying notes are an integral part of these consolidated financial statements.
 
(An Exploration Stage Company)
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) through September 30, 2011
(Continued)

   
Common
Stock Shares
   
Common
Stock
Amount
   
Stock
Subscriptions
   
Additional
Paid-in
Capital
   
Deficit
Accumulated
During the
Exploration
Stage
   
Total
 
                                                 
Subscribed stock issued
   
200,000
     
200
     
(50,000
)
   
49,800
     
     
 
Common stock issued for services
   
2,290,557
     
2,290
     
     
1,254,245
     
     
1,256,535
 
Common stock sold in private placement
   
3,865,000
     
3,865
     
     
1,785,272
     
     
1,789,137
 
Common stock issued for notes payable
   
383,576
     
384
     
     
153,042
     
     
153,426
 
Beneficial conversion of notes payable
   
     
     
     
21,635
     
     
21,635
 
Costs associated with warrants and options issued
   
     
     
     
149,004
     
     
149,004
 
Discounts on issuance of notes payable
   
     
     
     
113,448
     
     
113,448
 
Net loss
   
     
     
     
     
(3,244,841
)
   
(3,244,841
)
Balances at September 30, 2005 (Unaudited)
   
69,408,749
   
$
69,409
   
$
   
$
5,952,072
   
$
(6,142,407
)
 
$
(120,926
)
                                                 
Common stock issued for services
   
310,000
     
310
     
     
274,690
     
     
275,000
 
Common stock sold in private placement
   
2,189,697
     
2,190
     
     
1,158,775
     
     
1,160,965
 
Common stock issued for notes payable
   
2,124,726
     
2,125
     
     
1,147,875
     
     
1,150,000
 
Beneficial conversion of notes payable
   
     
     
     
128,572
     
     
128,572
 
Discounts on issuance of convertible notes payable
   
     
     
     
1,018,640
     
     
1,018,640
 
Costs associated with warrants and options issued
   
     
     
     
163,750
     
     
163,750
 
Common stock issued for exercise of options and warrants
   
498,825
     
499
     
     
256,251
     
     
256,750
 
Common stock issued for compensation
   
364,912
     
364
     
     
286,772
     
     
287,136
 
Provision for deferred income tax related to a timing difference on debt discount
   
     
     
     
(80,322
)
   
     
(80,322
)
Net loss
   
     
     
     
     
(4,041,802
)
   
(4,041,802
)
Balances at September 30, 2006 (Unaudited)
   
74,896,909
   
$
74,897
   
$
   
$
10,307,075
   
$
(10,184,209
)
 
$
197,763
 
(Continued)
The accompanying notes are an integral part of these consolidated financial statements.
 
33

 
(An Exploration Stage Company)
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) through September 30, 2011
(Continued)

   
Common
Stock Shares
   
Common
Stock
Amount
   
Stock
Subscriptions
   
Additional
Paid-in
Capital
   
Deficit
Accumulated
During the
Exploration
Stage
   
Total
 
                                                 
Common stock issued for notes payable
   
1,500,000
     
1,500
     
     
748,500
     
     
750,000
 
Common stock sold in private placement
   
50,000
     
50
     
     
24,950
     
     
25,000
 
Common stock issued for exercise of options and warrants
   
2,258,000
     
2,258
     
     
1,121,742
     
     
1,124,000
 
Common stock issued for compensation
   
966,994
     
968
     
     
604,583
     
     
605,551
 
Reverse provision for deferred income tax related to a timing difference on debt discount
   
     
     
     
80,322
     
     
80,322
 
Common stock issued for services
   
80,216
     
81
     
     
52,325
     
     
52,406
 
Costs associated with warrants and options issued
   
     
     
     
2,249,475
     
     
2,249,475
 
Net loss
   
     
     
     
     
(4,437,775
)
   
(4,437,775
)
Balances at September 30, 2007
   
79,752,119
   
$
79,754
   
$
   
$
15,188,972
   
$
(14,621,984
)
 
$
646,742
 
                                                 
Common stock sold in private placement
   
300,000
     
300
     
     
149,700
     
     
150,000
 
Common stock issued for exercise of cashless warrants
   
12,000
     
12
     
     
(12
)
   
     
 
Common stock issued for exercise of options and warrants
   
1,257,500
     
1,257
     
     
176,568
     
     
177,825
 
Common stock issued for compensation
   
1,637,356
     
1,637
     
     
358,774
     
     
360,411
 
Common stock issued for services
   
3,213,150
     
3,212
     
     
662,035
     
     
665,247
 
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 services
   
1,127,744
     
1,127
     
     
95,205
     
     
96,332
 
Common stock issued for exercise of options and warrants
   
725,000
     
725
     
     
35,525
     
     
36,250
 
Common stock issued for compensation
   
562,500
     
563
     
     
44,437
     
     
45,000
 
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.
 
34

 
(An Exploration Stage Company)
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 26, 2002 (Inception) through September 30, 2011
(Continued)

   
Common
Stock Shares
   
Common
Stock
Amount
   
Stock
Subscriptions
   
Additional
Paid-in
Capital
   
Deficit
Accumulated
During the
Exploration
Stage
   
Total
 
                                                 
Common stock issued for services
   
525,000
     
525
     
     
180,975
     
     
181,500
 
Conversion of accounts payable and accrued liabilities to equity
   
346,399
     
347
     
     
30,829
     
     
31,176
 
Common stock issued for compensation
   
2,075,927
     
2,076
     
     
647,234
     
     
649,310
 
Common stock sold in private placement
   
4,255,374
     
4,255
     
     
1,485,111
     
     
1,489,366
 
Net loss
   
     
     
     
     
(1,276,529
)
   
(1,276,529
)
Balances at September 30, 2010
   
95,790,069
   
$
95,790
   
$
   
$
20,461,702
   
$
(19,239,497
)
 
$
1,317,995
 
                                                 
Common stock sold in private placement
   
783,396
     
783
     
     
514,836
     
     
515,619
 
Common stock issued for exercise of warrants
   
366,667
     
367
     
     
212,300
     
     
212,667
 
Common stock issued for the acquisition of Gold and Minerals Company, Inc.
   
148,127,043
     
148,127
     
     
177,604,325
     
     
177,752,452
 
Stock issuance costs for the acquisition
   
     
     
     
(32,324
)
   
     
(32,324
)
Common stock issued for services
   
183,000
     
183
     
     
175,757
     
     
175,940
 
Costs associated with options
   
     
     
     
745,213
     
     
745,213
 
Common stock issued under settlement agreement
   
332,285
     
332
     
     
328,683
     
     
329,015
 
Merger rounding share issued
   
1
     
     
     
1
     
     
1
 
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
 
 
The accompanying notes are an integral part of these consolidated financial statements.
(An Exploration Stage Company)
 
CONSOLIDATED STATEMENTS OF CASH FLOWS

                     
July 26, 2002
 
                     
(Inception)
 
                     
Through
 
   
Years Ended September 30,
   
September 30,
 
   
2011
   
2010
   
2009
   
2011
 
                     
(Unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Net loss
 
$
(178,921,042
)
 
$
(1,276,529
)
 
$
(953,501
)
 
$
(198,160,539
)
Adjustments to reconcile net loss to net cash used in operating activities:
                               
Warrant and option expense
   
745,213
     
     
249,759
     
4,821,791
 
Beneficial conversion feature of notes payable
   
     
     
     
225,207
 
Non-cash expense with affiliate
   
     
     
     
7,801
 
Stock-based compensation
   
175,940
     
830,810
     
141,332
     
6,605,133
 
Non-cash merger related costs
   
1
     
     
     
1
 
Accretion of discounts on notes payable
   
     
     
     
1,132,088
 
(Gain) loss on sale of fixed assets
   
     
     
(19,627
)
   
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
   
     
     
(1,639
)
   
(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
   
4,975
     
5,727
     
7,515
     
79,596
 
Net changes in operating assets and liabilities:
                               
Miscellaneous receivable
   
     
     
2,472
     
4,863
 
Interest receivable
   
     
     
     
(13,611
)
Prepaid expenses and other current assets
   
10,714
     
(15,714
)
   
14,454
     
(33,662
)
Advances on behalf of affiliated company
   
(28,117
)
   
(18,944
)
   
96,431
     
(562,990
)
Accounts payable
   
(16,653
)
   
(1,285
)
   
75,995
     
120,826
 
Accounts payable - related party
   
     
     
     
364
 
Accrued liabilities
   
(221,762
)
   
5,980
     
314,702
     
274,447
 
Interest payable, other
   
     
     
     
49,750
 
Net Cash Used in Operating Activities
   
(1,482,868
)
   
(528,778
)
   
(72,107
)
   
(8,757,876
)
                                 
CASH FLOWS FROM INVESTING ACTIVITIES: