El Capitan Precious Metals Inc.

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EXPLORATION STAGE
CODE : ECPN.OB
ISIN : US2828121069
OTC BB
US$ 0.160
10/21 08:32 -
0%
OTC BB (ECPN.OB)
0.160+0.00%
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Year l/h YTD var. 52 week l/h 52 week var. 1 month var.
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Shares OustandingShares Fully Diluted
419,510,635-
Mkt Cap OustandingMkt Cap Fully Diluted
67,121,702-
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Explores for Gold - Platinum - Silver
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Last updated on : 10/29/2010

 

El Capitan Precious Metals files sec form 10-k annual report

 

 

 

 

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Financial Statements of the Company and notes thereto included elsewhere in the Annual Report. See "Item 8. Financial Statements" below.

Readers are cautioned that the following discussion contains certain forward-looking statements that involve risks, uncertainties and assumptions and should be read in conjunction with the "Cautionary Statement on Forward-Looking Statements" appearing at Page 4 of this Annual Report.

Overview of Business

We are an exploration stage company that has owned interests in several properties located in the southwestern United States in the past. We are principally engaged in the exploration of precious metals and other minerals. At this time, we are not engaged in any revenue producing operations.

We are concentrating on the exploration of the 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 to or joint venturing 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, 2010 compared to fiscal year ended September 30, 2009.

We have not yet realized any revenue from operations, nor do we expect to realize potential revenues in our fiscal year 2011, if ever. 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 is 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 relates 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 current fiscal year ended September 30, 2010. The decrease 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

On May 19, 2010, the Board of Directors authorized a private placement of 3.2 Million shares of restricted Rule 144 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 November 11, 2010, 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 will be utilized for payments for the continued implementation of our business strategies, necessary corporate personnel, and related general and administrative expenses.


Table of Contents
Index to Financial Statements

To fund 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 above-referenced private placement of common stock in fiscal year 2010 of $1,489,366.

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.

As of September 30, 2010, we had cash on hand aggregating $955,023 and an accumulated deficit of $19,239,497. Based upon our budgeted burn rate including litigation costs against the two former officers of the Company, the completed private placement proceeds should provide adequate working capital for approximately 12 to 14 months. We continually evaluate business opportunities such as joint venture processing agreements with the objective of creating cash flow to sustain the Company and provide a source of funds for growth and continued exploration of the El Capitan deposit. If management's plans are not successful, operations and liquidity may be adversely impacted. Historically have relied on equity and debt financings to finance our ongoing operations. We are dependent on obtaining additional financing or equity placements to continue our exploration, metallurgical and recovery program efforts on the El Capitan project. At this time we have no current plans or arrangements for additional capital requirements, and there is no assurance that such funding will be available when needed, or if available, that its terms will be favorable or acceptable to us. We anticipate that we will seek the additional financing scenarios during the third calendar quarter of 2011. In the event that we are unable to obtain additional working capital, we may be forced to reduce our operating expenditures or to cease development and operations altogether.

Factors Affecting Future Operating Results

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

The price of gold has experienced an increase in value over the past three years. Any significant drop in the price of gold, other precious metals or iron ore prices may have a materially adverse affect on the future results of potential operations. Unless we are able to offset such a price drop by substantially decreasing precious metals recovery costs, it may affect our ability to market the sale El Capitan property.

Off-Balance Sheet Arrangements

During the year ended September 30, 2010, we did not engage in any off balance sheet arrangements as defined in Item 303(c) of the SEC's Regulation S-B.

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, 2010, describes our significant accounting policies which are reviewed by management on a regular basis.


Table of Contents
Index to Financial Statements

New Accounting Pronouncements

In April 2010, the FASB issued Accounting Standards Update 2010-13, "Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades," or ASU 2010-13. ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company does not expect the adoption of this ASU to have a material impact on the Company's consolidated financial statements.

In January 2010, the ASC guidance for fair value measurements and disclosure was updated to require additional disclosures related to: i) transfers in and out of level 1 and 2 fair value measurements and ii) enhanced detail in the level 3 reconciliation. The guidance was amended to provide clarity about: i) the level of disaggregation required for assets and liabilities and ii) the disclosures required for inputs and valuation techniques used to measure fair value for both recurring and nonrecurring measurements that fall in either level 2 or level 3. The updated guidance was effective for the Company's interim reporting beginning February 1, 2010, with the exception of the level 3 disaggregation, which is effective for the Company's fiscal year beginning October 1, 2011. The Company has determined the adoption of this disclosure does not have a material impact on its financial statements.

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

 

 

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