XOTC:ECPN El Capitan Precious Metals Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

XOTC:ECPN Fair Value Estimate
Premium
XOTC:ECPN Consider Buying
Premium
XOTC:ECPN Consider Selling
Premium
XOTC:ECPN Fair Value Uncertainty
Premium
XOTC:ECPN Economic Moat
Premium
XOTC:ECPN Stewardship
Premium
 

Table of Contents

 

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

þ   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
For The Quarterly Period Ended June 30, 2012
     
¨   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________

 

Commission file number:  333-56262

 

(Exact name of registrant as specified in its charter)

 

 Nevada

  88-0482413
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

15225 North 49th Street

Scottsdale, AZ

  85254
(Address of principal executive offices)   (Zip Code)

 

 (602) 595-4997

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes ¨ No þ

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 250,403,222 shares of common stock, par value $0.001, of the issuer were issued and outstanding as of August 8, 2012.

EL CAPITAN PRECIOUS METALS, INC.

(An Exploration Stage Company)

 

Table of Contents

 

    Page
     
PART I.  FINANCIAL INFORMATION
       
Item 1. Financial Statements   3
  Consolidated Balance Sheets – June 30, 2012 and September 30, 2011 (Unaudited)   3
  Consolidated Statements of Expenses – Three and nine months ended June 30, 2012 and 2011 and for the period from July 26, 2002 (inception) through June 30, 2012 (Unaudited)   4
  Consolidated Statement of Stockholders’ Equity (Deficit) – September 30, 2010 through June 30, 2012 (Unaudited)   5
  Consolidated Statements of Cash Flows – Nine months ended June 30, 2012 and 2011 and for the period from July 26, 2002 (inception) through June 30, 2012 (Unaudited)   6
  Notes to the Consolidated Financial Statements   8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   12
Item 3. Quantitative and Qualitative Disclosures About Market Risk   15
Item 4. Controls and Procedures   15
       
PART II.  OTHER INFORMATION    
       
Item 1. Legal Proceedings   17
Item 1A. Risk Factors   17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   17
Item 3. Defaults Upon Senior Securities   17
Item 4. Mine Safety Disclosures   17
Item 5. Other Information   17
Item 6. Exhibits   17
       
SIGNATURES   19

2

PART I. FINANCIAL INFORMATION
   
Item 1. Financial Statements

 

 EL CAPITAN PRECIOUS METALS, INC.

(An Exploration Stage Company)

 

CONSOLIDATED BALANCE SHEETS

(Unaudited) 

 

    June 30,     September 30,  
  2012     2011  
             
ASSETS            
             
CURRENT ASSETS:            
Cash   $ 182,748     $ 319,939  
Prepaid expenses     36,293       35,389  
Total Current Assets     219,041       355,328  
                 
Furniture and equipment net of accumulated depreciation of $36,625 and $34,197, respectively     2,539       3,707  
Mineral property     1,879,608       1,879,608  
Deposits     22,440       22,440  
Total Assets   $ 2,123,628     $ 2,261,083  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
CURRENT LIABILITIES:                
Accounts payable   $ 132,865     $ 111,406  
Accrued liabilities     45,700       54,141  
Total Current Liabilities     178,565       165,547  
                 
STOCKHOLDERS’ EQUITY:                
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued and outstanding            
Common stock, $0.001 par value; 300,000,000 shares authorized; 249,931,571 and 245,582,461 issued and outstanding, respectively     249,932       245,582  
Additional paid-in capital     201,273,946       200,010,493  
Deficit accumulated during the exploration stage     (199,578,815 )     (198,160,539 )
Total Stockholders’ Equity     1,945,063       2,095,536  
Total Liabilities and Stockholders’ Equity   $ 2,123,628     $ 2,261,083  

 

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

3

EL CAPITAN PRECIOUS METALS, INC.

(An Exploration Stage Company)

 

CONSOLIDATED STATEMENTS OF EXPENSES

(Unaudited)

 

   

Three Months

Ended June 30,

   

Nine Months

Ended June 30,

   

Period From

July 26, 2002

(Inception)

Through

June 30,

 
    2012     2011     2012     2011     2012  
                               
OPERATING EXPENSES:                              
Professional fees   $ 137,982     $ 34,400     $ 317,133     $ 75,209     $ 3,820,412  
Officer compensation expense                             2,863,833  
Administrative consulting fees     65,000       65,000       205,000       192,500       2,375,766  
Management fees, related party                             320,500  
Legal and accounting fees     35,305       23,876       151,942       201,456       1,853,289  
Exploration expenses     148,275       92,219       501,717       355,669       3,501,183  
Other general and administrative     53,406       376,617       242,653       1,227,631       6,753,123  
Write-off of accounts payable and accrued interest                       (7,000 )     (63,364 )
Loss on impairment of mineral property                             176,567,424  
Loss on asset dispositions                             34,733  
Total Operating Expenses     439,968       592,112       1,418,445       2,045,465       198,026,899  
                                         
LOSS FROM OPERATIONS     (439,968 )     (592,112 )     (1,418,445 )     (2,045,465 )     (198,026,899 )
                                         
OTHER INCOME (EXPENSE):                                        
Interest income     53       671       169       2,023       39,417  
Other income           13,574             11,074     18,632  
Forgiveness of debt                           115,214  
Interest expense:                                        
Related parties                             (68,806 )
Other                             (308,740 )
Loss on extinguishment of liabilities                             (222,748 )
Gain on derivative instrument liability           19,007             7,203       7,203  
Accretion of notes payable discounts                             (1,132,088 )
Total Other Income (Expense)     53       33,252       169      

20,300

      (1,551,916 )
                                         
NET LOSS   $ (439,915 )   $ (558,860 )   $ (1,418,276 )   $ (2,025,165 )   $ (199,578,815 )
                                         
Net loss per common share, basic and diluted   $ (0.00 )   $ (0.00 )   $ (0.01 )   $ (0.01 )        
                                         
Weighted average number of common shares outstanding, basic and diluted     249,121,239       244,580,999       247,444,091       184,602,381          

 

 

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

4

EL CAPITAN PRECIOUS METALS, INC.

(An Exploration Stage Company)

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

September 30, 2010 through June 30, 2012

(Unaudited)

 

  

Common

Stock Shares

 

Common

Stock

Amount

 

Stock

Subscriptions

 

Additional

Paid-in

Capital

 

Deficit

Accumulated

During the

Exploration

Stage

  Total
                               
Balances at September 30, 2010   95,790,069   $95,790   $   $20,461,702   $(19,239,497)  $1,317,995 
                               
Common stock issued for services   183,000    183        175,757        175,940 
Common stock issued for the acquisition of Gold and Minerals Company, Inc.   148,127,043    148,127        177,604,325        177,752,452 
Common stock issued for exercise of warrants   366,667    367        212,300        212,667 
Common stock issued under settlement agreement   332,285    332        328,683        329,015 
Common stock sold in private placement   783,396    783        514,836        515,619 
Costs associated with options               745,213        745,213 
Gold and Minerals Company, Inc. merger rounding shares   1            1        1 
Stock issuance costs for the acquisition               (32,324)       (32,324)
Net loss                   (178,921,042)   (178,921,042)
Balances at September 30, 2011   245,582,461   $245,582   $   $200,010,493   $(198,160,539)  $2,095,536 
                               
Common stock issued for services   420,000    420        112,380        112,800 
Common stock sold in private placement   3,908,915    3,910        1,046,090        1,050,000 
Costs associated with options               105,003        105,003 
Gold and Minerals Company, Inc. merger rounding shares   20,195    20        (20)        
Net loss                   (1,418,276)   (1,418,276)
Balances at June 30, 2012  $249,931,571   $249,932   $   $201,273,946   $(199,578,815)  $1,945,063 

 

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

5

EL CAPITAN PRECIOUS METALS, INC.

(An Exploration Stage Company)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Nine Months Ended

June 30,

   

July 26, 2002 

(Inception)

Through

June 30,

 
    2012     2011     2012  
                   
CASH FLOWS FROM OPERATING ACTIVITIES:                  
Net loss   $ (1,418,276 )   $ (2,025,165 )   $ (199,578,815 )
Adjustments to reconcile net (loss) to net cash (used in) operating activities:                        
Warrant and option expense     105,003       892,085       4,926,794  
Beneficial conversion feature of notes payable                 225,207  
Non-cash expense with affiliate                 7,801  
Stock-based compensation     112,800       111,940       6,717,933  
Non-cash merger related costs           1       1  
Accretion of discounts on notes payable                 1,132,088  
Loss on sale of fixed assets                 34,733  
(Gain) on derivative instruments liability           (7,203     (7,203 )
Loss on impairment of mineral property                 176,567,424  
Write-off accounts payable and accrued interest           (7,000 )     (63,364 )
Forgiveness of debt                 (115,214 )
(Gain) on conversion of debt                 (2,459 )
Provision for uncollectible note receivable                 62,500  
Non-cash litigation settlement           214,642       214,642  
Depreciation     3,028       4,229       82,624  
Changes in operating assets and liabilities:                         
Miscellaneous receivable           (1,583 )     4,863  
Interest receivable                 (13,611 )
Prepaid expenses and other current assets     (904 )     23,636       (34,566 )
Advances on behalf of affiliated company           (28,117 )     (562,990 )
Accounts payable     21,459       (49,224 )     142,285  
Accounts payable - related party                 364  
Accrued liabilities     (8,441 )     (259,303 )     266,006  
Interest payable, other                 49,750  
Net Cash Used in Operating Activities     (1,185,331 )     (1,131,062 )     (9,943,207 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES:                        
Purchase of property interest                 (100,000 )
Purchase of furniture and equipment     (1,860 )     (600 )     (150,600 )
Proceeds from sale of fixed assets                 32,001  
Deposits                 (22,440 )
Issuance of notes receivable                 (249,430 )
Payments received on notes receivable           37,500       129,450  
Cash received in acquisition of Gold and Minerals Company, Inc.           89,902       89,902  
Costs associated with acquisition share issuance           (32,324 )     (32,324 )
Cash paid in connection with acquisition of DML Services, Inc.                 (50,000 )
Net Cash (Used in) Provided by Investing Activities     (1,860 )     94,478       (353,441 )

 (Continued)

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

6

 EL CAPITAN PRECIOUS METALS, INC.

(An Exploration Stage Company)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

 

   

Nine Months Ended

June 30,

   

July 26, 2002

(Inception)

Through

June 30,

 
    2012     2011     2012  
                   
CASH FLOWS FROM FINANCING ACTIVITIES:                  
Proceeds from the sale of common stock     1,050,000       15,619       6,511,591  
Costs associated with the sale of stock                 (19,363 )
Proceeds from notes payable, related parties                 219,900  
Proceeds from warrant exercise           212,667       1,550,742  
Proceeds from notes payable, other                 2,322,300  
Increase in finance contracts                 117,479  
Repayment of notes payable, related parties                 (61,900 )
Payments on finance contracts                 (117,479 )
Repayment of notes payable, other                 (43,874 )
Net Cash Provided by Financing Activities     1,050,000       228,286       10,479,396  
                         
NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS     (137,191     (808,298 )     182,748  
                         
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     319,939       955,023        
                         
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 182,748     $ 146,725     $ 182,748  
                         
SUPPLEMENTAL CASH FLOW INFORMATION:                        
Cash paid for interest   $     $     $ 172,917  
Cash paid for income taxes                  
                         
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                        
Fixed assets disposed for accrued liabilities   $     $     $ 1,991  
Issuance of common stock to Gold and Minerals Company, Inc. in connection with the purchase of interest in El Capitan, Ltd.                 8  
Issuance of common stock to Gold and Minerals Company, Inc. in connection with the purchase of the COD property                 3,600  
Issuance of common stock to Gold and Minerals Company, Inc. in connection with the purchase of the Weaver property                 3,000  
Net non-cash advances from affiliated company                 562,990  
Notes payable and accrued interest converted to equity                 2,495,544  
Accounts payable and accrued liabilities converted to equity                 31,176  
Issuance of common stock to former Company officers under a settlement           329,015       329,015  
Issuance of common stock to Gold and Minerals Company, Inc. stockholders in connection with the merger of Gold and Minerals Company, Inc.           177,752,452       177,752,452  

  

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

7

EL CAPITAN PRECIOUS METALS, INC.

(An Exploration Stage Company) 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – BASIS OF PRESENTATION

 

The accompanying unaudited interim financial statements of El Capitan Precious Metals, Inc. (“El Capitan” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, the financial statements do not include all information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed interim financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the year ending September 30, 2012, or for any subsequent period. These interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended September 30, 2011, included in the Company’s Annual Report on Form 10-K, filed December 29, 2011 and Form 10-K/A filed February 24, 2012. The consolidated balance sheet at September 30, 2011, has been derived from the audited financial statements included in the 2011 Annual Report.

 

Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2011 as reported in the Form 10-K have been omitted. Certain prior year amounts have been reclassified to conform to the current year presentation.

 

Principles of Consolidation

 

With the acquisition of Gold and Minerals Company, Inc. (“Minerals”), the Company also became the 100% owner of EL Capitan, Ltd. (“ECL”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries El Capitan Precious Metals, Inc., a Delaware corporation; Minerals, a Nevada corporation; and ECL, an Arizona corporation. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

New Accounting Pronouncements

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

Management Estimates and Assumptions

 

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

 

NOTE 2 – MINERAL PROPERTY COSTS

 

Mineral property exploration costs are expensed as incurred until such time as economic reserves are quantified. To date El Capitan has not established any proven or probable reserves on its mineral properties. The Company has capitalized $1,879,608 of mineral property acquisition costs reflecting its investment in the El Capitan site as of June 30, 2012.

 

8

NOTE 3 – STOCKHOLDERS’ EQUITY

 

Equity Purchase Agreement

 

On July 11, 2011, the Company entered into an Equity Purchase Agreement (the “Agreement”) with Southridge Partners II, LP (“Southridge”), pursuant to which the Company may from time to time, in its discretion, sell newly-issued shares of its common stock to Southridge for aggregate gross proceeds of up to $5,000,000. Unless terminated earlier, Southridge’s purchase commitment will automatically terminate on the earlier of July 11, 2013 or the date on which aggregate purchases of shares of common stock by Southridge under the Agreement total $5,000,000. El Capitan has no obligation to sell any shares under the Agreement. The Agreement may be terminated by the Company at any time. Southridge will have no obligation to purchase shares under the Agreement to the extent that such purchase would cause Southridge to own more the 9.99% of the El Capitan’s common stock.

 

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

 

As of June 30, 2012, the Company has received aggregate proceeds of $1,550,000 ($1,050,000 during the nine months ended June 30, 2012) under the Agreement and $100,000 subsequent to June 30, 2012. As of August 8, 2012, the Company has remaining options to sell to Southridge $3,350,000 in shares of common stock of the Company under the Agreement.

 

Issuances of Common Stock, Warrants and Options

 

Common Stock

 

During the quarter ended June 30, 2012, the Company recorded a rounding share variance of 20,195 on the conversion of the Gold and Minerals, Inc. stock into the Company’s common stock due to the rounding up provision in the Merger Agreement.

 

During the quarter ended June 30, 2012, El Capitan issued 1,760,712 shares of common stock at prices ranging from $0.252 to $0.17 per share under the terms of Equity Purchase Agreement and received cash proceeds of $350,000.

 

On May 8, 2012, the Company issued 100,000 shares of S-8 common stock pursuant to our 2005 Stock Incentive Plan for outside consulting services valued at $26,000, the value of the closing price of the stock on the date of issuance.

 

On May 3, 2012, the Company issued 120,000 shares of S-8 common stock pursuant to our 2005 Stock Incentive Plan for outside consulting services valued at $28,800, the value of the closing price of the stock on the date of issuance.

 

On April 16, 2012, the Company issued 100,000 shares of S-8 common stock pursuant to our 2005 Stock Incentive Plan for outside consulting services valued at $25,000, the value of the closing price of the stock on the date of issuance.

 

During the quarter ended March 31, 2012, El Capitan issued 873,084 shares of common stock at prices ranging from $0.337 to $0.213 per share under the terms of Equity Purchase Agreement and received cash proceeds of $250,000.

 

On March 6, 2012, the Company issued 100,000 shares of S-8 common stock pursuant to our 2005 Stock Incentive Plan for outside consulting services valued at $33,000, the value of the closing price of the stock on the date of issuance.

 

During the quarter ended December 31, 2011, El Capitan issued 1,275,119 shares of common stock at prices ranging from $0.421 to $0.281 per share under the terms of Equity Purchase Agreement and received cash proceeds of $450,000.

9

Warrants

 

During the nine months ended June 30, 2012, the Company did not issue any warrants.  There were no warrants outstanding as of September 30, 2011 or June 30, 2012.

 

Options

 

On January 31, 2012, pursuant to the 2005 Stock Incentive Plan, the Company granted to the chairman of the board of directors a two-year stock option to purchase 500,000 shares of the Company common stock, which vested immediately, at an exercise price of $0.38 per share. The fair value of the options was determined to be $80,375, using the Black-Scholes option pricing model and was expensed as stock-based compensation during the nine months ended June 30, 2012. The significant assumptions used in the valuation were: the exercise price $0.38, on January 31, 2012, the market value of the Company’s common stock on the date of grant, expected volatility of 111.377%, risk free interest rate of 0.22%, expected term of one year and expected dividend yield of zero.

 

On November 1, 2011, pursuant to the 2005 Stock Incentive Plan, the Company granted to a consultant a two-year stock option to purchase 100,000 shares of the Company common stock, at an exercise price of $0.42 per share. The option became fully vested upon the execution of the engagement agreement between the Company and specified investment banker or one of its affiliates that occurred on January 31, 2012. The fair value of the options was determined to be $24,628, using the Black-Scholes option pricing model, and was expensed as stock-based compensation during the nine months ended June 30, 2012. The significant assumptions used in the valuation were: the exercise price $0.42, on November 1, 2011, the market value of the Company’s common stock, expected volatility of 115.379%, risk free interest rate of 0.23%, expected term of two years and expected dividend yield of zero.

 

The following table sets forth certain terms of the Company’s outstanding options and exercisable options for the nine months ended June 30, 2012:

 

    Options Outstanding     Options Exercisable  
   

Number of 

Shares

   

Weighted Average 

Exercise Price

   

Number of 

Shares

   

Weighted Average 

Exercise Price

 
                             
Balance, September 30, 2011     2,450,000     $ 0.84       2,450,000     $ 0.84  
   Granted     600,000     $ 0.39       600,000     $ 0.39  
   Exercised                    
   Expired/Cancelled                    
Balance, June 30, 2012     3,050,000     $ .0.75       3,050,000     $ 0.75  
                             
Weighted average contractual life in years     1.55             1.55        
                             
Aggregate intrinsic value   $           $        

 

The intrinsic value of each option or warrant share is the difference between the fair market value of the common stock and the exercise price of such option or warrant share to the extent it is “in-the-money.” Aggregate intrinsic value represents the pretax value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the quarter and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the $0.22 closing stock price of the Company’s common stock on June 30, 2012, and there were options in-the-money on the date of measurement. The intrinsic value amounts change based on the market price of the Company’s stock.

 

10

The Company has a 2005 Stock Incentive Plan under which 30,000,000 shares are reserved and registered for stock and option grants. There were 14,999,469 shares available for grant under the Plan at June 30, 2012, excluding the 3,050,000 options outstanding.

 

NOTE 4 – SUBSEQUENT EVENTS

 

Subsequent to June 30, 2012, and through August 8, 2012, El Capitan sold an aggregate of 471,651 shares to Southridge Partners under the Equity Purchase Agreement for aggregate cash proceeds of $100.000. 

 

On July 6, 2012, pursuant to the 2005 Stock Incentive Plan, the Company granted to a consultant a ten-year stock option to purchase 100,000 shares of the Company’s common stock, which vested immediately, at an exercise price of $0.21 per share. The fair value of the options was determined to be $20,287, using the Black-Scholes option pricing model.

 

On July 6, 2012, pursuant to the 2005 Stock Incentive Plan, the Company granted to two directors of the Company each a ten-year stock option to purchase 500,000 shares of the Company’s common stock, which vested immediately, at an exercise price of $0.21 per share. The fair value of the options was determined to be $181,756, using the Black-Scholes option pricing model.

 

On July 6, 2012, pursuant to the 2005 Stock Incentive Plan, the Company granted to a new director of the Company a ten-year stock option to purchase 500,000 shares of the Company’s common stock, which will vest in 12 monthly installments in equal amounts on the last calendar day of each month commencing on July 31, 2012 and ending on June 30, 2013, at an exercise price of $0.21 per share. The fair value of the options was determined to be $90,878, using the Black-Scholes option pricing model and will be expensed over the vesting period.

 

11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following management discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited interim consolidated financial statements and related notes which are included in Item 1 of this Quarterly Report on Form 10-Q, and with our audited financial statements and the “Risk Factors” section included in our Form 10-K for the year ended September 30, 2011, filed with the U.S. Securities and Exchange Commission on December 29, 2011, as amended in our Form 10-K/A filed on February 24, 2012.

 

Cautionary Statement on Forward-Looking Statements

 

This Quarterly Report on Form 10-Q may contain certain “forward-looking” statements as such term is defined by the 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,” “intend,” “could,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the registrant’s control, and actual results may differ materially depending on a variety of important factors, including uncertainty related to acquisitions, governmental regulation, managing and maintaining growth, the operations of the Company and its subsidiaries, volatility of stock price, commercial viability of any mineral deposits and any other factors discussed in this and other registrant filings with the Securities and Exchange Commission.  The Company does not intend or undertake to update the information in this Form 10-Q if any forward-looking statement later turns out to be inaccurate.

 

Company Overview

 

We are an exploration stage company that has owned interests in several properties located in the southwestern United States in the past. We are principally engaged in the exploration of precious metals and other minerals. At this time, we are not engaged in any revenue-producing operations. We are considered an exploration stage company under the SEC criteria since we have not yet demonstrated the existence of proven or probable reserves at our El Capitan property located in the Capitan Mountains, near the city of Capitan, in southwest New Mexico.  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.

 

Financial Condition, Liquidity and Capital Resources

 

Historically we have relied on equity and debt financings to finance our ongoing operations.  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.  As of August 8, 2012, we have sold Southridge shares of common stock for aggregate proceeds of $1,650,000 and have the right, subject to certain conditions, to sell to Southridge $3,350,000 in shares of common stock of the Company under the Agreement.  A further description of the Agreement is set forth in Note 3 of the Notes to Consolidated Financial Statements – “Equity Purchase Agreement.” The Company expects that the proceeds received from the Agreement will permit the Company to continue its business strategy of preparing to present the El Capitan property to sell to or enter into a joint venture with a producing mining company with the assistance of the Company’s investment banker.

 

12

We expect that the Agreement will provide the Company with adequate funding to sustain its planned operations and provide a source of funds for the final phases of our business plan strategy. At this time, the Company plans to utilize the funds to finalize the recovery process demonstration project for the El Capitan deposit, complete any additional exploration and metallurgical efforts that may be required on the El Capitan project (no further exploration plans exist at this time) and pay for necessary corporate personnel and general and administrative operating costs and expenses to be incurred in the marketing of the El Capitan property.

 

As of June 30, 2012, we had cash on hand of $182,748 and an accumulated deficit of $199,578,815. Based upon our budgeted burn rate as of such date, we have operating capital for approximately 1.8 months, excluding any cash 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.

 

RESULTS OF OPERATIONS

 

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

 

Revenues

 

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

 

Expenses and Net Loss

 

Our operating expenses decreased $152,144 from $592,112 for the three months ended June 30, 2011 to $439,968 for the three months ended June 30, 2012. The decrease is mainly attributable to decreases in other general and administrative aggregating $323,211 and was offset mainly by increases in professional fees of $103,582 and exploration costs of $56,056.

 

The decrease in other general and administrative is mainly attributable to non-cash warrant and option costs of $322,440 and stockholder’s meeting expenses of $27,313 incurred in the prior year period of measurement and were offset by increases in the current period of measurement of $8,720 in D&O insurance, $6,777 in web site maintenance, travel and related costs of $4,850 and office related operating costs of $2,665.

 

The increase in professional fees is mainly attributable to increased public relations expenses of $91,603, of which $79,800 was non-cash stock compensation and investment banker expenses of $4,033.

 

The increase in exploration expenses resulted from increased activities on our precious metals recovery project by outside companies and increased time incurred on this project by our outside independent mine consultants.

 

Our net loss for the three months ended June 30, 2012 decreased to $439,915 from a net loss of $558,860 incurred for the comparable three month period ended June 30, 2011. The decrease in net loss of $118,945 for the current period is attributable to the aforementioned net decrease in operating expenses and no current period gain on a derivative instrument liability or other income.

 

Nine Months Ended June 30, 2012 Compared to Nine Months Ended June 30, 2011

 

Revenues

 

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

 

13

Expenses and Net Loss

 

Our operating expenses decreased $627,020 from $2,045,465 for the nine months ended June 30, 2011 to $1,418,445 for the nine months ended June 30, 2012. The decrease is mainly attributable to decreases in legal and accounting aggregating $49,514 and other general and administrative of $984,978. These decreases were offset mainly by increases in professional fees of $241,924, exploration costs of $146,048 and administrative consulting fees of $12,500.

 

The decrease in accounting and legal is a result of the costs related to our merger with Gold and Minerals Company, Inc. that were incurred in the prior year period of measurement.

 

The decrease in other general and administrative is mainly attributable costs incurred in the prior year of settlement costs with two former officers aggregating $214,642 and a decrease in option and warrant related costs of $787,082 and were offset by increased costs of D&O insurance of $21,522 in the current period of measurement.

 

The increase in professional fees is mainly comprised of $108,320 related to investment banker activities, $60,000 to oversight of El Capitan site project and $65,985 related to investor relation activities.

 

The increase in exploration expenses resulted from increased time incurred by our outside mine consultants in preparing documentation for an investment bank presentation, supervising final testing procedures on the extraction process for the El Capitan property ore and costs incurred with outside companies involved in the processing of the chain-of-custody ore to be utilized in our future recovery demonstrations.

 

Our net loss for the nine months ended June 30, 2012 decreased to $1,418,276 from a net loss of $2,025,165 incurred for the comparable nine month period ended June 30, 2011. The decrease in net loss of $606,889 for the current period is attributable to the aforementioned net decrease in operating expenses and no current period gain on a derivative instrument liability or other income.

 

Factors Affecting Future Operating Results

 

We have generated no significant revenues, other than interest income, since inception. As a result, we have only a limited operating history upon which to evaluate our future potential performance. Our potential must be considered by evaluation of all risks and difficulties encountered by exploration companies which have not yet established business operations.

 

The price of gold and other precious metals has experienced an increase in value over the past three years. Any significant drop in the price of gold, other precious metals or iron ore prices may have a materially adverse effect on our ability to market the sale of the El Capitan property site for a competitive price, or the future results of our potential operations unless we are able to offset such a price drop by substantially decreased estimated costs of extraction of production if involved in a joint venture.

 

We currently are continuing to have geological and metallurgical work performed on samples from our site and with our outside independent  quality control person developing the demonstration process for precious metals recovery with chain-of-custody ore from the El Capitan property, which will used by our investment banker in marketing the El Capitan property for sale.

 

Off-Balance Sheet Arrangements

 

During the three months ended June 30, 2012, we did not engage in any off-balance sheet arrangements set forth in Item 303(a)(4) of Regulation S-K.

 

Contractual Obligations

 

As of June 30, 2012, we had no contractual obligations (including long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations and other long-term liabilities reflected on our balance sheet under GAAP) that are expected to have an adverse effect on our liquidity and cash flows in future periods.

 

14

Critical Accounting Policies

 

Our unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and judgments that significantly affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Note 1, “Business, Basis of Presentation and Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended September 30, 2011 (as amended by our Annual Report on Form 10-K/A), describe our significant accounting policies which are reviewed by management on a regular basis.

 

New Accounting Pronouncements

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

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

 

We have no debt outstanding nor do we have any investment in debt instruments other than highly liquid short-term investments. Accordingly, we consider our interest rate risk exposure to be insignificant at this time.

  

Item 4. Controls and Procedures

 

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in its periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

 

As of as of the end of period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act).  The evaluation included certain control areas which are material to the Company and its size as an Exploration Stage Company. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by it in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  In addition, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

15

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or fraud. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, during the quarter ended June 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

16
PART II.   OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any material pending legal proceedings and to our knowledge, no such proceedings by or against the Company have been threatened.

 

Item 1A.   Risk Factors

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in our Annual Report on Form 10-K for the year ended September 30, 2011, filed with the U.S. Securities and Exchange Commission on December 29, 2011, as amended by our Annual Report on Form 10-K/A, filed on February 24, 2012, in addition to the other information included in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management from time to time prior to investing in our common stock.

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.   Defaults Upon Senior Securities

 

None.

 

Item 4.   Mine Safety Disclosures

 

Not applicable.

 

Item 5.   Other Information

 

None.

 

Item 6.   Exhibits

 

(a)    Exhibits

 

Exhibit

Number

  Description
     
2.1   Agreement and Plan of Merger between the Company, Gold and Minerals Company, Inc. and MergerCo, dated June 28, 2010 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 7, 2010).
3.1   Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Form S-4 Registration Statement #333-170281 filed on November 2, 2010).
3.2   Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Form S-4 Registration Statement #333-170281 filed on November 2, 2010).
4.1   Rights Agreement dated August 25, 2011 between the Company and OTR, Inc. (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on August 31, 2011).
 10.1   Equity Purchase Agreement dated July 11, 2011 between the Company and Southridge Partners II, LP (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 12, 2011).
 10.2   2005 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Form S-8 Registration Statement #333-177417 filed on October 20, 2011).

17

Exhibit

Number

  Description
     
31.1*   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*   XBRL Instance Document** 
 101.SCH*   XBRL Extension Schema Document**
 101.CAL*   XBRL Extension Calculation Linkbase Document**
 101.DEF*   XBRL Extension Definition Linkbase Document**
 101.LAB*   XBRL Extension Labels Linkbase Document**
 101.PRE*   XBRL Extension Presentation Linkbase Document**

 __________________

*Filed herewith.

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

18

SIGNATURES

 

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

 

  EL CAPITAN PRECIOUS METALS, INC.  
       
       
Dated:   August 8, 2012 By: /s/  Charles C. Mottley  
   

Charles C. Mottley

Chief Executive Officer, President and Director

(Principal Executive Officer)

 
       

 

Dated:   August 8, 2012 By: /s/  John F. Stapleton  
   

John F. Stapleton

Chief Financial Officer and Director

(Principal Financial Officer)

 
       

 

 

19

XOTC:ECPN Quarterly Report 10-Q Filling

XOTC:ECPN Stock - Get Quarterly Report SEC Filing of XOTC:ECPN stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XOTC:ECPN El Capitan Precious Metals Inc Quarterly Report 10-Q Filing - 6/30/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Popularity |  Our Choices Title |  Date |  Company |  Symbol |  Interest |  Popularity

Previous: XOTC:ECPN El Capitan Precious Metals Inc Quarterly Report 10-Q Filing - 3/31/2012  |  Next: XOTC:ECTH Quarterly Report 10-Q Filing - 3/31/2012