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Table of Contents
Index to Financial Statements |
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, 2015
| ¨ | 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.) |
| 8390 Via de Ventura, Suite F-110 | |
| Scottsdale. Arizona | 85258 |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (928) 515-1942
Securities registered pursuant to Section 12(b) of the Exchange Act: None .
Securities registered under Section 12(g) of the Exchange Act: None .
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “ large accelerated filer,” “ accelerated filer” and “ smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ 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 ¨ No þ
The aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant as of March 31, 2015 (the last business day of the registrant’s most recently completed second fiscal quarter), was approximately $19,365,767 based on the last trading price of the registrant’s common stock of $0.075 as reported on the OTC Bulletin Board on such date.
As of January 11, 2016, the registrant had 307,681,187 shares of its $.001 par value common stock issued and outstanding.
Documents incorporated by reference: None.
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EL CAPITAN PRECIOUS METALS, INC.
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING EXPLORATION STAGE STATUS
We are considered an “exploration stage” company under the U.S. Securities and Exchange Commission (“SEC”) Industry Guide 7, Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations (“Industry Guide 7”), because we do not have reserves as defined under Industry Guide 7. Reserves are defined in Guide 7 as that part of a mineral deposit which can be economically and legally extracted or produced at the time of the reserve determination. The establishment of reserves under Guide 7 requires, among other things, certain spacing of exploratory drill holes to establish the required continuity of mineralization and the completion of a detailed cost or feasibility study.
Because we have no reserves as defined in Industry Guide 7, we have not exited the exploration stage and continue to report our financial information as an exploration stage entity as required under Generally Accepted Accounting Principles (“GAAP”). Although for purposes of FASB Accounting Standards Codification Topic 915, Development Stage Entities, we have exited the development stage and no longer report inception to date results of operations, cash flows and other financial information, we will remain an exploration stage company under Industry Guide 7 until such time as we demonstrate reserves in accordance with the criteria in Industry Guide 7.
Because we have no reserves, we have and will continue to expense all mine construction costs, even though these expenditures are expected to have a future economic benefit in excess of one year. We also expense our reclamation and remediation costs at the time the obligation is incurred. Companies that have reserves and have exited the exploration stage typically capitalize these costs, and subsequently amortize them on a units-of-production basis as reserves are mined, with the resulting depletion charge allocated to inventory, and then to cost of sales as the inventory is sold. As a result of these and other differences, our financial statements will not be comparable to the financial statements of mining companies that have established reserves and have exited the exploration stage.
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SEC INDUSTRY GUIDE 7 DEFINITIONS
The following definitions are taken from the mining industry guide entitled “Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations” contained in the Securities Act Industry Guides published by the United States Securities and Exchange Commission, as amended.
| Exploration State | The term “exploration state” (or “exploration stage”) includes all issuers engaged in the search for mineral deposits (reserves) which are not in either the development or production stage. | |
| Development Stage | The term “development stage” includes all issuers engaged in the preparation of an established commercially mineable deposit (reserves) for its extraction which are not in the production stage. This stage occurs after completion of a feasibility study. | |
| Mineralized Material | The term “mineralized material” refers to material that is not included in the reserve as it does not meet all of the criteria for adequate demonstration for economic or legal extraction. | |
| Probable (Indicated) Reserve | The term “probable reserve” or “indicated reserve” refers to reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. | |
| Production Stage | The term “production stage” includes all issuers engaged in the exploitation of a mineral deposit (reserve). | |
| Proven (Measured) Reserve | The term “proven reserve” or “measured reserve” refers to reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established. | |
| Reserve | The term “reserve” refers to that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves must be supported by a feasibility study done to bankable standards that demonstrates the economic extraction. (“Bankable standards” implies that the confidence attached to the costs and achievements developed in the study is sufficient for the project to be eligible for external debt financing.) A reserve includes adjustments to the in-situ tons and grade to include diluting materials and allowances for losses that might occur when the material is mined. |
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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This report may contain certain “forward-looking” statements as such term is defined by the Securities and Exchange Commission in its rules, regulations and releases, which represent the registrant’s expectations or beliefs, including but not limited to, statements concerning the registrant’s operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the registrant’s control, and actual results may differ materially depending on a variety of important factors, including uncertainty related to acquisitions, governmental regulation, managing and maintaining growth, the operations of the company and its subsidiaries, volatility of stock price, commercial viability of any mineral deposits and any other factors discussed in this and other registrant filings with the Securities and Exchange Commission.
These risks and uncertainties and other factors include, but are not limited to those set forth under Item 1A. Risk Factors of this Annual Report on Form 10-K. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements. All subsequent written and oral forward-looking statements attributable to us 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.
This annual report contains forward-looking statements, including statements regarding, among other things:
| • | our ability to continue as a going concern; |
| • | we will require additional financing in the future to start production at the El Capitan Property and to bring it into sustained commercial production; |
| • | our anticipated needs for working capital; |
| • | our ability to secure financing; |
| • | our dependence on our El Capitan Property for our future operating revenue, which property currently has no proven or probable reserves; |
| • | our mineralized material calculations at the El Capitan Property are only estimates and are based principally on historic data; |
| • | actual capital costs, operating costs, production and economic returns may differ significantly from those that we have anticipated; |
| • | exposure to all of the risks associated with starting and establishing new mining operations, if the development of our mineral project is found to be economically feasible; |
| • | title to some of our mineral properties may be uncertain or defective; |
| • | land reclamation and mine closure may be burdensome and costly; |
| • | significant risk and hazards associated with mining operations; |
| • | the requirements that we obtain, maintain and renew environmental, construction and mining permits, which is often a costly and time-consuming process and may be opposed by local environmental group; |
| • | our exposure to material costs, liabilities and obligations as a result of environmental laws and regulations (including changes thereto) and permits; |
| • | changes in the price of silver and gold; |
| • | extensive regulation by the U.S. government as well as state and local governments; |
| • | our projected sales and profitability; |
| • | anticipated trends in our industry; |
| • | unfavorable weather conditions; |
| • | the lack of commercial acceptance of our product or by-products; |
| • | problems regarding availability of materials and equipment; and |
| • | failure of equipment to process or operate in accordance with specifications, including expected throughput, which could prevent the production of commercially viable output. |
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These statements may be found under “ Item 1. Business ,” and “ Item 7. Management’s Discussion and Analysis or Plan of Operations , ” as well as in this annual report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “ Item 1A. Risk Factors ” and matters described in this annual report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this annual report will in fact occur. We caution you not to place undue reliance on these forward-looking statements. In addition to the information expressly required to be included in this annual report, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.
These risks and uncertainties and other factors include, but are not limited to, those set forth under “ Item1A.Risk Factors ”. 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 required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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PART I
| ITEM 1. | BUSINESS |
El Capitan Precious Metals, Inc., a Nevada corporation, is based in Scottsdale, Arizona. Together with its consolidated subsidiaries (collectively referred to as the “Company,” “our” or “we”), the Company is an exploration stage company as defined by the Securities and Exchange Commission’s (“SEC”) Industry Guide 7, as the Company has no established reserves as required under the Industry Guide 7. 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 (the “El Capitan Property”). Our ultimate objective is to market and sell the El Capitan Property to a major mining company or enter into a joint venture arrangement with a major mining company to conduct mining operations. We have completed research and confirmation procedures on the recovery process for the El Capitan Property mineralized material and our evaluation as to the economic and legal feasibility of the property. We have not yet demonstrated the existence of proven or probable reserves at the El Capitan Property. To date, we have not had any material revenue producing operations. There is no assurance that a commercially viable mineral deposit exists on our property.
We have completed testing and enhancement of our recovery process and have determined the existence and concentration of potentially commercially extractable precious metals or other minerals at the El Capitan Property. Based upon testing results on our mineralized material obtained during fiscal years 2013 and 2014, we determined to put the El Capitan Property into production to assist us in marketing the El Capitan Property for potential sale to a major mining company and to create potential cash flow for the Company through the sale of mineralized material at the El Capitan Property and, separately, iron extracted from such mineralized material.
“Mineralized material” as used in this Annual Report on Form 10-K, although permissible under the Securities and Exchange Commission’s (“SEC’s”) Industry Guide 7, does not indicate “reserves” by SEC standards. We cannot be certain that any part of the El Capitan Property will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves.” Investors are cautioned not to assume that all or any part of the mineralized material will ever be confirmed or converted into reserves or that mineralized material can be economically or legally extracted.
Business Operations
We are considered an exploration stage company and have not established any “reserves” with respect to our exploration projects, and will remain an exploration stage company until the Company has reserves as defined in SEC Industry Guide 7. The Company may never meet the reserve requirements or enter into development with respect to any of our properties.
In March 2014, we announced that the Company reached an agreement with Logistica US Terminals LLC (“Logistica”), a Texas-based limited liability company and member of LIT Group network. The contract, which is the first of several contracts with high-profile mining industry companies, supports the Company’s mineral exploration plans and represents a tactical initiative to support the marketing and potential sale of the El Capitan Property. Under the terms of a Master Service Agreement, Logistica has agreed to finance and operate the extraction of iron from mineralized materials at the El Capitan Property mine and provide the Company with a turnkey solution that also includes shipment of the iron to ports where buyers will take delivery. We are currently in the process of modifying the agreements with Logistica to encompass our concentrated mineralized material.
We also announced in March 2014 that we reached an agreement with GlencoreXstrata for the purchase of iron extracted from the mineralized materials at the El Capitan Property mine. Under the terms of the agreement, GlencoreXstrata has committed to ongoing purchases of iron from the El Capitan Property mine. GlencoreXstrata will issue a Letter of Credit to guarantee payment on the sale of the iron.
For additional information regarding the Glencore Purchase Contract and our agreements with Logistica, see “ Note 8 – Commitments and Contingencies” of the Notes to Consolidated Financial Statements .
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In late April 2014, we announced the purchase of a heavy metals separation system from AuraSource, Inc (OTCBB and OCTQB: ARAO). This state-of-the-art technology will separate hematite and magnetite from other mineral elements in the El Capitan mineral deposits. The AuraSource process leaves a concentrate for additional processing that will further be used by the Company to extract the precious metals. The iron extracted from the mineralized material will be delivered at the El Capitan Property site pursuant to the Company’s current iron ore contract. Upon final operational approval to be received from the applicable governmental agencies, deliveries will commence, weather permitting, in the first quarter of 2016.
The Company has methods for both the separation of the iron and the separation and recovery of the precious metals that have repeatedly yielded consistent and commercially viable economic value results. Yet another significant aspect of these breakthrough technologies for separation and recovery is that they are environmentally friendly and do not rely on the use of caustic chemicals.
In September 2014, we announced the Company reached an agreement for the sale of precious-metals-rich tailings from the El Capitan Property mine to a Hong Kong-based trading company. To date, however, this agreement has not been finalized due to a disagreement regarding which party would serve the importer of the minimized materials. Also contributing to the delay on recognizing revenue from this contract are disputes involving unionized dock workers that hindered trade at international seaports on the West coast of the United States during the first and second quarters of 2015, and the subsequent downturn of the China economy later in 2015.
Our Company and its Subsidiaries
The Company is an exploration stage company that owns 100% of the outstanding common stock of El Capitan Precious Metals, Inc., a Delaware corporation (“El Capitan Delaware”). Prior to January 19, 2011, El Capitan Delaware owned a 40% interest in El Capitan, Ltd., an Arizona corporation (“ECL”). On January 19, 2011, we acquired the remaining 60% interest in ECL from Gold and Minerals Company, Inc. (“G&M”) by merging an acquisition subsidiary created by the Company with and into G&M. In connection with the merger, each share of G&M common and preferred stock outstanding was exchanged for approximately 1.414156 shares of the Company’s common stock, resulting in the issuance of an aggregate of 148,127,043 shares of the Company’s common stock to former G&M stockholders. Upon closing of the merger, G&M became a wholly-owned subsidiary of the Company and our consolidated Company acquired 100% of ECL. As a result, we now own 100% of the El Capitan Property site.
Price of Precious Metals
Gold and silver 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, 2015 to September 30, 2015 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, 2015 | $ | 1,296 | $ | 1,080 | $ | 1,179 | ||||||
| For the year ended December 31, 2014 | 1,385 | 1,192 | 1,266 | |||||||||
| For the year ended December 31, 2013 | 1,694 | 1,192 | 1,411 | |||||||||
| For the year ended December 31, 2012 | 1,750 | 1,540 | 1,669 | |||||||||
| For the year ended December 31, 2011 | 1,895 | 1,319 | 1,572 | |||||||||
| For the year ended December 31, 2010 | 1,421 | 1,058 | 1,225 | |||||||||
| Data Source: Kitco | ||||||||||||
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Our ability to sell the El Capitan Property will be highly dependent upon the price of these precious metals, the market for which can be highly volatile. There is no assurance that we will be able to recover precious metals from the El Capitan Property or that we will generate significant revenue from the sale of the El Capitan Property.
Competition
The mining industry has historically been highly competitive. It is dominated by multi-billion dollar, multi-national companies that possess resources significantly greater than ours. Additionally, due to our limited resources, we do not intend to develop any of our properties on our own, but rather to only perform exploration on our properties with the anticipation of selling or developing through a 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, and we have no current plans to do so.
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 governmental regulations requires us to obtain multiple permits for each mining property. Although the requirements may differ slightly in each of the respective states in which we may hold claims or may hold claims in the future, the process of securing such permits generally require the filing of a “Notice of Intent to Locate Mining Claims” and the payment of a fee of $25 to the Bureau of Land Management (“BLM”) office in the state in which the claim is located. Subsequently, we are required to file and record a New Location Notice for each such claim within 90 days of locating the claim, the fee for which is approximately $165. On an annual basis, we are required to pay a maintenance fee of $155 per claim.
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.
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In connection with the original plan of operation on the El Capitan Property that we filed with the BLM, we were required to pay a reclamation bond of $15,000. Upon payment we were issued a notice to proceed from the BLM. This allowed us to proceed with our original plan of operation on up to five (5) acres. The permit was received by the Company 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 2015, we amended the permit to allow operations on forty acres (40) of property at a time. The amended permit was issued in March 25, 2015, and we were required to increase our reclamation bond to $74,499.
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, Company 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, as amended. In conjunction with the USFS filing, the Company submitted an Exploration Permit with the New Mexico Mining and Minerals Division (“MMD”). 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 Company claims in Lincoln County, New Mexico. The action signaled the initiation of the Federal Environmental Assessment (“EA”) permitting process. It was originally anticipated that the receipt of these two permits would occur in the second or third quarter of 2009. Subsequently in late 2008, this process was put on hold due to a lack of working capital and a potential conflict of interest with the USFS by the environmental services firm we were utilizing for the permitting process.
In December 2009, we hired a new experienced environmental services firm, AMEC Environment & Infrastructure, Inc. (“AMEC”), to manage and oversee our continued permitting process. AMEC has drafted a replacement Plan of Operations (“PoO”) and submitted it to the USFS. The USFS has provided technical comments on the PoO and AMEC has responded to their comments and submitted a revised PoO for approval. AMEC has met with representatives of the USFS at the project site to review the proposed exploration locations and general discussion of the project. Subsequent to the meeting, the USFS agreed to work with AMEC to develop the third part of the National Environmental Policy Act (“NEPA”) scope of work. The USFS provided a draft NEPA scope of work template to AMEC in electronic format. AMEC revised the draft template and submitted it to the USFS for review and approval.
AMEC has also prepared the Stormwater Pollution Prevention Plan (“SWPPP”) that will be sent to the agencies upon permit approval. Informational copies of the SWPPP will be provided to the MMD and the USFS. The SWPPP is an EPA required document for construction projects that disturb more than one (1) acre of land. Prior to field activities, coverage under the New Mexico Construction General Permit (“CGP”) will be obtained by filing a Notice of Intent (“NOI”) with EPA Region 6. Coverage under the CGP is required prior to field work. A copy of the SWPPP must be maintained at the project site during all construction activities. New Mexico does not have primacy over the SWPPP requirements. EPA Region 6 is the primary agency.
AMEC prepared and submitted a revised New Mexico Mining and Minerals Subpart 4 Exploration permit application. The revised application was submitted on September 16, 2011 and MMD issued administrative completeness determination on October 4, 2012. The Agency comment period closed on December 31, 2012. MMD requested a site visit as part of the Agency review process, and the site visit was conducted on December 5, 2012. A second site visit was requested by MMD to view locations that were not accessible. Revisions to the boring locations were made, based on the field visit, and revised boring location figures were submitted to the MMD on April 26, 2013. To date a second site visit has not been conducted related to the drill hole sites.
A PoO was submitted to the USFS in 2011. Comments were received from the USFS and incorporated into a revised document which was resubmitted to the USFS. In addition, at the request of the USFS, a NEPA scope of work (“SOW”) was prepared and submitted to the USFS in 2012. Comments were received from the USFS and incorporated into a revised NEPA SOW. This activity has been on hold since April 2013. In February through April 2013, the existing mine permit (L1005 ME) for the El Capitan Property mine site and a cursory review of water rights issues were evaluated.
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In May 2014, and in conjunction with requesting modifications to our mining permit, we submitted a revised PoO, as well as the required reclamation plan for the site. The modified permit approval process required we increase the amount of our reclamation bond to $74,495. We posted the increased bond in January 2015 and received the modified mining permit on March 25, 2015.
In June 2014 we applied for an Air Quality Permit for our operation, which is tied to the generation of dust from the mining and crushing process. This permit is in the final stages approval and the permit fees have been paid. This permit was issued by the New Mexico Environment Department Air Quality Bureau in November 2014.
Employees
We currently have informal arrangements with three individuals, two of whom are officers and directors of the Company, who serve as support staff for the functioning of all the corporate activities. There are no written agreements with these individuals. Additionally, we use consultants for the testing and exploration of property claims. If administrative requirements expand, we anticipate that we may hire additional employees, and utilize a combination of employees and consultants as necessary to conduct of these activities.
Available Information
The Company is a Nevada corporation with its principal executive office located at 8390 Via de Ventura, Suite F-110, Scottsdale, Arizona 85258, and its administrative office located at 5871 Honeysuckle Road, Prescott, Arizona 86305. The Company’s telephone number is (928) 515-1942. The Company’s website address is www.elcapitanpmi.com. Our website contains links to download free of charge our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Unless expressly noted, none of the information on our website is part of this Annual Report.
| ITEM 1A. | RISK FACTORS |
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 OTCQB Marketplace operated by the OTC Markets Group, Inc., or “OTCQB,” under the ticker symbol “ECPN.” Not being listed for trading on an established securities exchange 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 the Company. 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 OTCQB 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.
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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.
Our 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.
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 with Southridge Partners II, LP (“Southridge”) (discussed below and in “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” ), 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. We have no current committed sources of additional capital. We do not know whether additional financing will be available on terms favorable or acceptable to us when needed, if at all. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience dilution. In addition, we may grant future investors rights superior to those of our existing stockholders. If we raise additional funds by incurring debt, we could incur significant interest expense and become subject to covenants in the related transaction documentation that could affect the manner in which we conduct our business. If adequate additional capital is not available when required, we may be forced to reduce or eliminate our marketing efforts for the sale of the El Capitan Property.
Our management concluded that our internal control over financial reporting was not effective as of September 30, 2015. Compliance with public company regulatory requirements, including those relating to our internal control over financial reporting, have and will likely continue to result in significant expenses and, if we are unable to maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.
As a public reporting company, we are subject to the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, as well as to the information and reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and other federal securities laws. As a result, we incur significant legal, accounting, and other expenses, including costs associated with our public company reporting requirements and corporate governance requirements. As an example of public reporting company requirements, we evaluate the effectiveness of disclosure controls and procedures and of our internal control over financing reporting in order to allow management to report on such controls.
Management conducted an evaluation of the effectiveness, as of September 30, 2015, of our internal control over financial reporting and concluded that we did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of generally accepted accounting principles commensurate with the complexity of our equity and equity instruments issued with debt transactions. As a result, there is a lack of monitoring of the accounting and reporting process for these types of transactions. To address these types of transactions and concur on their accounting treatment, we intend to have an independent qualified professional review the transaction treatment prior to recording on the books of the Company.
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In the event we cannot remediate this material weakness, or if significant deficiencies or other material weaknesses are identified in our internal control over financial reporting that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements and the trading price of our common stock and ability to obtain any necessary equity or debt financing could suffer. This would likely have an adverse effect on the trading price of our common stock and our ability to secure any necessary additional equity or debt financing.
Risks Relating to the Equity Purchase Agreement
In connection with the Equity Purchase Agreement with Southridge, further described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” below, 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 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 (5) 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. However, because the Company’s public float was less than $75 million upon the December 29, 2014 filing of its Annual Report on Form 10-K, the Company is no longer eligible to utilize Form S-3 registration statements on a primary basis. As a result, the Company will be required to amend the structure of the Equity Purchase Agreement in order to continue to obtain financing from Southridge.
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. In addition, because the Company’s public float was less than $75 million upon the filing of this Annual Report on Form 10-K, the Company is not currently eligible to utilize Form S-3 registration statements for the primary offering of securities. As a result, the Company will be required to amend the structure of the Equity Purchase Agreement in order to continue to obtain financing from Southridge. We cannot predict with certainty if, or on what timeframe, we will be able to do so.
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.
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Risks Relating to Our Business
The volatility of precious metal prices may negatively affect our potential earnings.
We anticipate that a significant portion of our future revenues will come from the sale of our El Capitan Property. Our earnings will be directly affected by the prices of precious metals believed to be located on such property. Demand for precious metals can be influenced by economic conditions, including worldwide production, attractiveness as an investment vehicle, the relative strength of the U.S. dollar and local investment currencies, interest rates, exchange rates, inflation and political stability. The aggregate effect of these factors is not within our control and is impossible to predict with accuracy. The price of precious metals has on occasion been subject to very rapid short-term changes due to speculative activities. Downward fluctuations in precious metal prices may adversely affect the value of any discoveries made at the site with which our Company is involved. If the market prices for these precious metals falls below the mining and development costs we incur to produce such precious metals, we will experience the inability to sell our El Capitan Property.
We have not had revenue-generating operations and may never generate revenues.
With the exception of immaterial revenue from the sale of two dore’ bars, we have not yet had revenue-generating operations, and it is possible that we will not find marketable amounts of minerals on our El Capitan Property or that the property will ever be sold. Should we fail to obtain working capital through other avenues, our ability to continue to market our El Capitan Property could be curtailed.
Until we confirm recoverable precious metals on our El Capitan Property, we may not have any potential of generating any revenue.
Our ability to sell the El Capitan Property depends on the success of our exploration programs and the development of a cost-effective process for recovering precious metals and iron extracted from the mineralized materials at the El Capitan Property. We have not established proven or probable mineral deposits at our El Capitan Property. Even if exploration leads to a valuable deposit, it might take several years for us to enter into an agreement for sale or joint venture development of the property. During that time, depending on economic conditions and the underlying market values of the precious metals that may be recovered, it might become financially or economically unfeasible to extract the minerals at the property.
We may not be able to sell the El Capitan Property or on terms acceptable to us.
We are concentrating our efforts on developing a strategic plan to sell the El Capitan Property or potentially enter into a joint venture with a major mining company to operate the mining operation. There is no guarantee that we will be able to find a potential acquirer or joint venture 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 has transitioned from an exploration stage to operations stage during the latter part of our current fiscal year. 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. 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 be unable to sell or enter into a joint venture with respect to the development of the El Capitan Property, and the business of the Company may fail as a result.
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Uncertainty of mineralization estimates may diminish our ability to properly value our property.
We rely on estimates of the content of mineral deposits on our properties, which estimates are inherently imprecise and depend to some extent on statistical inferences drawn from both limited drilling on our properties and the placement of drill holes that may not be spaced close enough to one another to enable us to establish probable or proven results. These estimates may prove unreliable. Additionally, we have previously relied upon various certified independent laboratories to assay our samples, which may produce results that are not as consistent as a larger commercial laboratory might produce. Reliance upon erroneous estimates may have an adverse effect upon the financial success of the Company.
Any loss of the industry experience of members of our Board and/or our officers may affect our ability to achieve our business objectives.
The skills of the Company’s directors span mining, business and legal expertise. The Company relies on contractors and consultants for certain industry matters. All of these relationships and the background of the directors would be difficult to replace. Fulfilling the Company’s objectives might be negatively impacted or prove more costly to obtain if we were to lose the services of these directors, contractors or consultants. The Company does not own life insurance on any of our officers, directors, contractors or consultants.
The nature of mineral exploration is inherently risky, and we may not ever discover marketable amounts of precious minerals.
Exploration for minerals is highly speculative and involves greater risk than many other businesses. Most exploration programs fail to result in the discovery of economically feasible mineralization. Our exploration and mining efforts are subject to the operating hazards and risks common to the industry, such as:
| • | 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 conditions; | |
| • | metallurgical and other processing problems; | |
| • | environmental hazards; | |
| • | water conditions; and | |
| • | government 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 our El Capitan Property are likely not to be recovered, a write-down of our investment would be necessary. All of these factors may result in unrecoverable losses or cause us to incur potential liabilities, which could have a material adverse effect on our financial position.
The effect of these factors cannot be accurately predicted, and the combination of any of these factors may prevent us from selling or otherwise developing the El Capitan Property and receiving an adequate return on our invested capital.
Extensive government regulation and environmental risks may require us to discontinue or delay our marketing activities for the sale of El Capitan Property.
Our business is subject to extensive federal, state and local laws and regulations governing exploration, development, production, labor standards, occupational health, waste disposal, 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.
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Any failure to obtain government approvals and permits may require us to discontinue future exploration on our El Capitan Property.
We are required to seek and maintain federal and state government 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 $155 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 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 has been increased to $74,499 with the approval of our modified mining permit in December 2014 and subsequently issued on March 25, 2015.
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.
As of filing this Annual Report on Form 10-K report, we were issued all our required permits.
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. We have no intention to expand our mineral properties interest outside of the El Capitan Property.
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 BLM and pay an annual holding fee of $140 per claim. If we fail to make the annual holding payment or make the required filings, our mining claims would become invalid. In accordance with the mining industry practice, generally a company will not obtain title opinions until it is determined to sell a property. Also no title insurance is available for mining. Accordingly, it is possible that title to some of our claims may be defective and in that event we would not have good and valid title to the El Capitan Property, and we would be forced to curtail or cease our exploratory programs on the property site.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 2. | PROPERTIES |
El Capitan Property
Our primary asset is the 100% equity interest in El Capitan, Ltd., an Arizona corporation (“ECL”), which holds a 100% interest in the El Capitan property located near Capitan, New Mexico (the “El Capitan Property”).
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Below is a map setting forth the location of the El Capitan Property.
![[MAP SETTING FORTH THE LOCATION OF THE EL CAPITAN PROPERTY]](https://content.edgar-online.com/edgar_conv_img/2016/01/11/0001076542-16-000203_MAP1.JPG)
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Location and Access to Deposits
![[MAP SHOWING LOCATION AND ACCESS TO DEPOSITS]](https://content.edgar-online.com/edgar_conv_img/2016/01/11/0001076542-16-000203_MAP2.JPG)
The El Capitan Property is situated in the Capitan Mountains, near the city of Capitan, in southwest New Mexico. The main site can be reached by going north from Capitan on State Road 246 for 5.5 miles, turning right onto an improved private road and proceeding for about 0.7 miles.
Description of Interests
The El Capitan Property originally consisted of four (4) patented and nine (9) BLM lode claims; and mineral deposits are covered by these claims. The lode claims, known as Mineral Survey Numbers 1440, 1441, 1442 and 1443, were each located in 1902 and patented in 1911. On January 1, 2006, ECL finalized the purchase of the four (4) patented mining claims on the property, which constitute approximately 77.5 acres in the aggregate. These claims are bounded by the Lincoln National Forest in Lincoln County, New Mexico.
Based upon recommendations from our consulting geologist, we have staked and claimed property surrounding the El Capitan Property site located in Lincoln County, New Mexico, increasing the acreage of our total BLM claimed area. We continue to maintain BLM load claims covering the approximately 240 acres that support the Company’s mineral exploration operating plans.
The Company has power supplied to a mobile home on the patented land by Otero County Electric Co-op, Inc.
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Currently the Company transports water to the El Capitan Property in a Company-owned water truck. The Company plans to have a water well permitted and drilled on a turn-key basis and has received initial bids on this project. The well will be situated on our patented property.
Mineral Title
As of September 30, 2015, the Company’s holdings at the El Capitan Property consist of four (4) patented mining claims, covering approximately 77.5 acres (the “Patented Claims”), and twelve (12) lode claims with the BLM, covering approximately 240 acres (the “BLM Claims”). The Patented Claims and BLM Claims are held in the name of ECL. The BLM Claims are Federal unpatented mining claims for locatable minerals and are located on public land and held pursuant to the General Mining Law of 1872, as amended. The Company fully owns the mining rights and believes the claims are in good standing in accordance with the mining laws of the United States.
To maintain our claims in good standing, for its Patented Claims the Company must pay annual property taxes to Lincoln County, and for its BLM Claims, the Company must pay annual assessment fees to the BLM and record the payment of rental fees with Lincoln County. The current year annual assessment and recording costs for our BLM Claims total approximately $2,000. The Company has paid the required assessment fees for the 2014 and 2015 assessment years (September 1, 2014 through August 31, 2016).
The Company has no underlying agreements or royalty agreements on any of its claims.
The map set forth below shows the location of our claims on the El Capitan Property as of September 30, 2015:
![[MAP SHOWING THE LOCATION OF CLAIMS ON THE EL CAPITAN PROPERTY]](https://content.edgar-online.com/edgar_conv_img/2016/01/11/0001076542-16-000203_MAP3.JPG)
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Permits
Pursuant to the New Mexico Mining Act, the MMD issued Permit No. L1005ME to ECL. The permit is a “minimal impact existing mining operation.” In 2015, the Company was issued a modified permit that increased the portion of the El Capitan Property on which we could conduct exploration activities from five acres to 40 acres The modified permit approval process required we increase the amount of our reclamation bond to $74,495.
The New Mexico Environmental Department issued our Air Quality Permit, NSR permit No. 5951 in November 2014.
Previous Operations
To our knowledge, prior to its acquisition by ECL, the property was last active in 1988. The property was previously drilled with a total of apporximately 160 short core holes by the U,S, Bureau of Mines in 1944 and 1948. The results of this drilling showed that our patented claims contain a combined indicated and inferred resource of approximately 2.5 million short tons of potential iron ore containing an average 53.38% magnetite. This equates to a resource of approximately 1.34 million short tons of contained magnetite in the deposit. Reported analytical results on drill core show that magnetite in the deposit has an average of 66.82 % TFe (percent total iron). From 1961 to 1988, to our knowledge, an estimated 250,000 tons of iron 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 2005 and 2006. Additionally, there was geologic mapping of the property at a scale of 1:3,600 by Kelley in 1952.
There were no significant surface disturbances or contamination issues found on the surface or underground water due to the historical mining activities referred to above and no remediation has been required to be performed by the Company. However, the Company was required to provide, and has provided, a $15,000 financial assurance in connection with the issuance of our Permit No. L1005ME by the MMD.
Geology
The main El Capitan Property deposit is exposed in an open-pit and outcrops within a nearly circular 1,300 foot diameter area, with smaller bodies stretching eastward for a distance of up to 7,000 feet. The El Capitan Property includes two magnetite-dominant bodies. The upper magnetite zone lies below a limestone cap that is a few tens of feet thick, and that is bleached and fractured with hematite-calcite fracture filling. Hematite is an iron oxide mineral, and calcite is a calcium carbonate mineral. Below the limestone cap, there is a mineral deposit which consists mainly of calc-silicate minerals, or minerals which have various ratios of calcium, silicon and oxygen. Beneath the calc-silicate deposit is granite rock. The El Capitan Property has an abundance of hematite, which occurs with calcite in later stage fracture fillings, breccias (rock composed of sharp-angled fragments), and stockworks (multi-directional fractured rock containing veinlets of hydrothermally introduced materials).
Potential mineralization has been defined as two separate types: (i) magnetite iron, and (ii) hematite-calcite mineralized skarn and limestone, which may contain precious metals. By using core holes located at strategic points throughout the property, we have been able to develop subsurface information and define the mineralization. To date, there have been no proven commercial precious metals reserves on the El Capitan Property site. To establish “reserves” (as defined under Industry Guide 7 issued by the SEC), we will be required to establish that the property is commercially viable. As of September 30, 2015, we have not completed a feasibility study on the property, and thus cannot identify the economic significance of the property, if any, at this time.
Exploration
Historical
After a preliminary sampling and assay program in early 2005, the Company implemented three stages of diamond drilling and rotary drilling, totaling 45 holes between April 2005 and September 2006.
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Stage 1 of the drilling program was completed between April and May 2005, and consisted of 1,391 feet drilled in 12 vertical core holes, with depths ranging from 38 to 142 feet. Between June and August 2005, we completed Stage 2 drilling, which consisted of both drilling in areas adjacent to some of the Stage 1 drilling holes and drilling in new target areas to the southwest of the main deposit site. Stage 2 drilling consisted of 1,204 feet of combined core and rotary footage in 10 vertical holes, ranging from 24.5 to 344.5 feet in depth. The Stage 3 drilling program began in February 2006 and was completed in May 2006. The program consisted of 23 vertical reverse drill holes totaling 9,685 feet and varying depths from 270 to 710 feet. Drill cuttings were sent to AuRIC and fusion assays of these holes were completed. The samples were collected and controlled under “Chain-of-Custody” by our outside quality control person.
Because caustic fusion is not a precious metal industry accepted assay technique, we retained M.H.S. Research of Lakewood, Colorado (“M.H.S.”) in August 2006 to research and develop a modified fire assay technique that we believe is more appropriate for the material from the El Capitan Property. Preliminary results to date by M.H.S. indicated values that meet or exceed the values obtained by AuRic. The principal of M.H.S. is Michael Thomas who had over thirty years of experience in geology and mining related area including extensive laboratory work in fire assaying, mineral processing and precious metals recovery. He also was an adjunct professor in the Mining Engineering Department at the Colorado School of Mines providing part-time instruction in mineral processing and fire assays.
We also retained the services of Dr. Clyde Smith to manage the exploration of the property. Dr. Smith is a Consulting Geologist who has over 30 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.
After several months of investigation into the composite sample from the El Capitan Property, M.H.S. results have shown the ability to readily produce ‘metal-in-hand’ using a minor modification of standard fire assay procedures. Mr. Thomas began testing various fire assay fluxes to improve the effectiveness and repeatability of the fire assay procedure on the specific rock matrix of this material. M.H.S. worked in these areas and performed multiple replicate tests on chain of custody composite material in order to establish a benchmark head grade for the composite sample. There can be no assurance that any mineral grade or recovery determined in a small scale laboratory test can or will be duplicated in larger tests under on-site conditions or during mineral exploration.
The Company has entered into agreements with various contractors (as referenced above) for exploration of the El Capitan Property. Each of the respective contractors utilizes its own equipment to complete such exploration and testing.
The Company has worked with third parties to analyze samples from the El Capitan Property to create an economically feasible recovery model for the El Capitan Property mineralized material. We have successfully utilized a repeatable concentration and recovery procedure, which is a modified fire assay technique, to allow evaluation of the mineralized material. Results using this procedure have been positive and show potential economically feasible mineralized material. The Company has not filed any geological reports on SEDAR for review by Canadian authorities and does not intend to do so.
The Company and Gold and Minerals Company, Inc. (“G&M”), a wholly owned subsidiary of the Company, have incurred a total of $10,907,023 in exploration and mine development costs associated with the El Capitan Property. G&M incurred $5,275,916 in exploration costs from January 1, 1994 through January 19, 2011, at which time it was merged into the Company, and the Company has incurred $5,631,107 in exploration costs from its inception on July 26, 2002 through September 30, 2014. The foregoing exploration and mine development costs include costs associated with drilling, assaying, filing fees, extraction process development, consultant, geological, metallurgical, chemist, environmental and legal fees, and other miscellaneous property exploration costs have been expensed as required under the SEC Industry Guide 7.
Current
In 2014, we utilized and verified the three recovery processes on the El Capitan Property mineralized material: cyanide leaching utilizing various pre-step ore processing, silver – lead inquarting, and the fine grind and magnetic separation method. The final verification process is to ensure that value of the El Capitan Property mineralized materials is sufficient so that the costs of the recovery process are not prohibitive in comparison to the price of the precious metals recoverable at the El Capitan Property.
Based upon the test results that utilized the fine-grinding and separation method, we moved forward with our strategic plan for a limited-scale continued mineral exploration at the El Capitan Property site in New Mexico in support of the sale of that property. The chain-of-custody samples were finely milled and magnetically separated using specific gravity concentrating methodology from extraction testing represents the complete methodology - from samples to final mineralized materials without the use of cyanide.
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In March 2014, we announced that the Company reached an agreement with Logistica US Terminals LLC (“Logistica”), a Texas-based limited liability company and member of LIT Group network. The contract, which is the first of several contracts with high-profile mining industry companies, supports the Company’s mineral exploration plans and represents a tactical initiative to support the marketing and potential sale of the El Capitan Property. Under the terms of a Master Service Agreement, Logistica has agreed to finance and operate the extraction of iron from mineralized materials at the El Capitan Property mine and provide the Company with a turnkey solution that also includes shipment of the iron to ports where buyers will take delivery. We are currently in the process of modifying the agreements with Logistica to encompass our concentrated mineralized material. In March 2014, we also announced that we reached an agreement with GlencoreXstrata for the purchase of iron from the El Capitan Property mine. Under the terms of the agreement, GlencoreXstrata committed to ongoing purchases of iron from the El Capitan Property. GlencoreXstrata will issue a Letter of Credit to guarantee payment on iron sales.
In late April 2014, we announced the purchase of a heavy metals separation system from AuraSource, Inc. that uses state-of-the-art technology to separate hematite and magnetite from other elements in the El Capitan Property mineralized deposits. The AuraSource system leaves a rich concentrate of mineralized material that we will use to extract precious metals. We have successfully completed the assembly and testing of the AuraSource heavy metals separation system at the El Capitan Property. When the mineral exploration commences, the iron extracted from the mineralized material will be transported to a port for sale pursuant to the Company’s agreements with GlencoreXstrata and Logistica or other points of delivery.
In May 2014, we announced recovery results of .40 of gold equivalent per ton of El Capitan Property samples. The precious metals processing was completed in China as part of testing related to the calibration and tuning of the heavy metals separation device that will be used on site at the El Capitan Property in New Mexico. After the separation of the hematite and magnetite from the El Capitan Property mineralized materials, an independent lab processed the precious metals that yielded the .40 of gold equivalent per ton of samples. Parameters used to calculate the economic value were 0.20, 3.2 and 0.25 ounces of gold, silver and palladium per ton, respectively, of mineralized material at the current market price.
The Company currently has methods for both the separation of the iron and the separation and recovery of mineralized material that have repeatedly yielded consistent and commercially viable economic value results. Yet another significant aspect of these breakthrough technologies for separation and recovery is that they are environmentally friendly and do not rely on the use of caustic chemicals.
We have a 5-acre minimal impact mining permit that can be used on our patented land and has been modified to encompass allowing exploration on 40 acres at a time on our patented land. The modified permit was issued on March 25, 2015. The Company’s Clean Air Permit was also issued in late November 2014.
In September 2014, we announced that we had reached an agreement for the sale of mineralized tailings from the El Capitan Property to a Hong Kong-based trading company. To date, however, this agreement has not been finalized due to a disagreement regarding which party would serve the importer of the minimized materials. Also contributing to the delay on recognizing revenue from this contract are disputes involving unionized dock workers that hindered trade at international seaports on the West coast of the United States during the first and second quarters of 2015, and the subsequent downturn of the China economy later in 2015.
At September 30, 2015, the El Capitan Property has been prepared for mineral exploration with issuance of the modified minimal impact mining permit and other required permits on our patented land. Leased fencing encompasses the mineral exploration area and other criteria that the MMD has required and inspected. Mineral exploration will be conducted on open pit basis and no tunneling will be involved. We are waiting for final approvals from the Mine Safety and Health Administration (“MSHA”) and the MMD on the El Capitan Property site which are anticipated to be received in January 2016.
We engage third party consultants and companies to provide mineral exploration and analysis of samples. As part of its selection process, we take into account the quality assurance practices of such consultants and companies prior to engagement. Consequently, the Company has not created an independent quality assurance program.
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Description of Equipment
We have purchased heavy metals separation system from AuraSource, Inc that uses state-of-the-art technology to separate hematite and magnetite from other elements in the mineralized materials collected at the El Capitan Property. The AuraSource process separates the head ore into three products: iron ore, precious metals and middlings, which is mostly a waste product. The system does not use any water or toxic chemicals and utilizes complete green industrial extraction of precious metals. At full capacity, the machine can process 400 tons of mineralized material per hour. The Company built various protective coverings for the AuraSource machine and for storage of small tools and other related enhancements relative to our project.
The Company has purchased a water truck to transport water to the El Capitan Property pending the drilling on-site. We also have a mobile home situated on our patented land. The Company currently has no other material equipment or buildings on site.
From time to time, we have entered into agreements with various personnel and companies to conduct exploration projects on the El Capitan Property. Each of the respective companies utilizes its own equipment to perform contracted work at the El Capitan Property. Currently our contract miner has various types of equipment located on the El Capitan Property site, which has been rented to perform mining activities.
Other Properties
As previously reported, the Company has a 20% joint venture interest in the COD Property, an underground property located in the Cerbat mountains in Mohave County, Arizona, approximately 11 miles north, northwest of Kingman, Arizona. The Company entered into a joint venture agreement related to this property in May 2004. Based upon the events and financial condition of the 80% joint venture partner, we have determined that this joint venture is not viable and, as a result, the Company does not consider the COD Property to be a material property of the Company at this time.
Executive Offices and Administrative Offices
The executive office is at 8390 Via de Ventura, Suite F-110, Scottsdale, Arizona 85258 and the administrative office is at 5871 Honeysuckle Road, Prescott. Arizona 86305. The administrative office premises are contributed free of charge by Mr. Stephen J. Antol, Controller for the Company. We believe that the offices are adequate to meet our current operational requirements. Other than our property as described above, we do not own any real property.
| ITEM 3. | 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.
| ITEM 4. | MINE SAFETY DISCLOSURES |
None.
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PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our common stock trades on the OTCQB Marketplace operated by the OTC Markets Group, Inc., or “OTCQB,” under the ticker symbol “ECPN.” The following table sets forth the range of high and low closing bid quotes of our common stock per quarter as reported by the OTCQB for the past two fiscal years ended September 30, 2015 and 2014, 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, 2015 | $ | 0.10 | $ | 0.06 | |||
| June 30, 2015 | $ | 0.16 | $ | 0.06 | |||
| March 31, 2015 | $ | 0.13 | $ | 0.08 | |||
| December 31, 2014 | $ | 0.18 | $ | 0.09 | |||
| September 30, 2014 | $ | 0.23 | $ | 0.16 | |||
| June 30, 2014 | $ | 0.24 | $ | 0.15 | |||
| March 31, 2014 | $ | 0.39 | $ | 0.14 | |||
| December 31, 2013 | $ | 0.41 | $ | 0.06 | |||
Holders
As of January 11, 2016, we had approximately 1,049 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 January 11, 2016, we had approximately 8,300 beneficial holders of our common stock.
Dividends
To date, the Company has not declared or paid 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
Previously, on October 17, 2014, we entered into a private Note and Warrant Purchase Agreement with an accredited investor pursuant to which the Company borrowed $500,000 against delivery of a promissory note in such amount and issued a warrant to purchase 882,352 shares of our common stock pursuant to the Note and Warrant Purchase Agreement. The promissory note was initially due on July 17, 2015. On August 24, 2015, the note was mutually extended from July 17, 2015 to January 17, 2016. In consideration of the extension and the investor’s forfeiture of the previously issued warrant, the Company issued a new common stock purchase warrant to purchase 4,714,286 shares (subject to adjustment) of the Company’s common stock at an exercise price of $0.07 per share. However, if the loan should be paid in full prior to the extended maturity date, the shares issuable upon exercise of the new common stock purchase warrant will be reduced pro rata based on portion of the extension period during which the principal balance was outstanding. The issuance of the new warrant was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof because such issuance did not involve a public offering.
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On August 31, 2015, the Company entered into an agreement with a third party financing source pursuant to which the lender has committed to loan the Company $100,000 for working capital. As an incentive for the financing, the Company issued 2,000,000 of restricted common stock. The investor decided not to accept the shares and they were returned to the Company’s transfer agent and returned to the treasury. The agreement had an annual interest rate of 2% and was due on November 15, 2015. The agreement provided for payment of one-half (1/2) of the gross revenues that the Company may receive from its mining activities towards the repayment of principal and accrued interest. The note, including accrued interest was satisfied in full in December 2015 in exchange for 3,500,000 restricted shares of the Company’s common stock. The issuance of shares was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a) (2) thereof because such issuance did not involve a public offering.
On December 2, 2015, the Company entered into a Securities Purchase Agreement for two $114,400 convertible notes with an accredited investor for an aggregate principal amount of $228,800 with an annual interest rate of 9%. Each note contains an original issue discount of $10,400 and related legal and due diligence costs of $12,000. The net proceeds from each note to be received by the Company will be $92,000. The maturity date on the first note is December 2, 2017. The Company may prepay in full the unpaid principal and interest on the note, upon notice, any time prior to May 29, 2016. Any prepayment is at140% face amount outstanding and accrued interest. The redemption must be closed and paid for within three business days of the Company sending the redemption demand. The note may not be prepaid after the May 29, 2016. The note is convertible into shares of the Company’s common stock at any time beginning on May 30, 2016. The conversion price is equal to 55% of the lowest trading price of the Company’s common stock as reported on the QTCQB for the ten prior trading days (and may include the day of the Notice of Conversion under certain circumstances). The Company agreed to reserve an initial 5,033,000 shares of common stock for conversions under the note. The Company also agreed to adjust the share reserve to ensure that it equals at least four times the total number of common stock that is issuable upon conversion of the note from time to time. The issuance of the notes was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof because such issuance did not involve a public offering.
| ITEM 6. | SELECTED FINANCIAL DATA |
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview of Business
The Company is an exploration stage company as defined by the Securities and Exchange Commission’s (“SEC”) Industry Guide 7 as the Company has no established reserves as required under the Industry Guide 7.We have 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 on the El Capitan property located near Capitan, New Mexico (the “El Capitan Property”). We have not engaged in any revenue-producing operations. We have accomplished significant steps in our strategic business plan in our fiscal year 2015 and expect to begin expanded mineral exploration activity in January 2016. 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.
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, 2015 compared to fiscal year ended September 30, 2014.
We are an exploration stage company and have not yet realized any material revenue from operations through our fiscal year 2015. We realized a net decrease in operating expenses of $514,192, from $2,778,221 for the fiscal year ended September 30, 2014 to $2,264,029 for the fiscal year ended September 30, 2015. The decrease is comprised mainly of decreases in professional fees of $139,572 and exploration costs of $788,455. These decreases were offset by increases in legal and accounting of $169,641 and other general and administrative expenses of $190,942.
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The decrease in professional fees in the current year is mainly attributable to decreases in stock compensation for investor relations of $113,594, public relations of $6,418 and administrative consulting of $12,000. The decrease in exploration costs is mainly attributable to a decrease of $800,000 in stock non-cash costs related to the equipment purchase and a decrease of $100,000 in mineralized material processing costs. The increase in legal and accounting expenses occurred due to increased legal fees related to the negotiation and preparation of contracts and agreements as we transition into an operating entity. The increase in other general and administrative expenses were attributable to increased costs associated with options of $89,694, non-cash financing costs of $67,550 and depreciation of $58,367.
Our net loss decreased by $10,570 from $2,854,043 for the fiscal year ended September 30, 2014 to $2,843,473 for the current fiscal year ended September 30, 2015. The decrease in net loss is mainly attributable to the net decrease in operating expenses detailed above and an increase in non-cash debt discounts aggregating $286,687.
Liquidity and Capital Resources
As of September 30, 2015, we had cash on hand of $71,393 and a working capital deficit of $2,081,996. Based upon our budgeted burn rate, we currently have operating capital for approximately two months. The Company has historically relied on equity or debt financings to finance its ongoing operations and currently has no source of revenue to cover its costs. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. To continue as a going concern, the Company is dependent on achievement of cash flow and profits from entering the production stage of operations or obtaining short-term operational strategic financing alternatives or equity infusion. The Company does not have adequate liquidity to fund its current operations, meet its obligations and continue as a going concern.
During the fiscal year 2014, we entered into agreements with Logistica U.S. Terminals, LLC (“Logistica”) and Glencore AG (“Glencore”) to govern the extraction and sale to Glencore of iron from mineralized material at the El Capitan Property. However, there is no assurance that we will generate revenue under this contract based upon the current market price for iron ore, or at all. For a summary of our agreements with Logistica and Glencore, see “Note 8 – Commitments and Contingencies” of the Notes to Consolidated Financial Statements. We are currently in the process of modifying the agreements with Logistica to encompass our concentrated mineralized material.
Separately, in September 2014, we announced that we had reached a prospective agreement for the sale of mineralized tailings from the El Capitan Property to a Hong Kong-based trading company. Under the contemplated agreement, the Hong Kong based trading company would provide a letter of credit in favor of the Company on which we would be able to drawn down to cover various upfront contract costs and to cover final settlement of the shipments to China when the mineralized material arrives at the Chinese port. Finalizing the prospective contract and arranging for the letter of credit required to accommodate its terms and conditions have taken longer to complete than we anticipated due to a disagreement regarding which party would serve the importer of the minimized materials. Also contributing to the delay on recognizing revenue from this contract are disputes involving unionized dock workers that hindered trade at international seaports on the West coast of the United States during the first and second quarters of 2015, and the subsequent downturn of the China economy later in 2015.
We currently expect to enter into a new contract and commence shipment of precious metals thereunder in April or May 2016 and we expect to realize revenues in our fiscal year 2016. Currently we have a signed purchase order for iron ore and will commence delivery at the El Capitan Property site as soon as weather permits in early 2016. However, there is no assurance that we will finalize the contract on our current timeline and commence shipments in our estimated timeframe.
Currently we anticipate funding our future operations from a revolving credit line associated with the Logistica agreements, sales of iron extracted from mineralized material at the El Capitan Property, and sales of mineralized materials under our new prospective contract for the purchase of mineralized material. However, unless and until we commence sales and shipments under the aforementioned contracts, and/or enter similar agreements for the purchase of mineralized material, and produce sufficient cash flow from future revenues, we will continue to rely on equity and/or debt financing to fund our operations. Our current financing arrangements are summarized below.
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On July 30, 2014, we entered into an Equity Purchase Agreement (the “2014 Agreement”) with Southridge Partners, 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 $1,900,000. Unless terminated earlier, Southridge’s purchase commitment will automatically terminate on the earlier of July 30, 2016, or the date on which aggregate purchases by Southridge under the 2014 Agreement total $1,900,000. The Company has no obligation to sell any shares under the 2014 Agreement. We entered into the 2014 Agreement upon the expiration of a similar Equity Purchase Agreement that we previously entered into with Southridge in 2011. The offering of shares under the 2014 Agreement has been made pursuant to a registration statement on Form S-3 (Registration Statement No. 333-193208) previously filed by the Company with the Securities and Exchange Commission, and prospectus supplements thereto. For a summary of the 2014 Agreement, see “Note 11 – Stockholders’ Equity – Equity Purchase Agreement” of the Notes to Consolidated Financial Statements. Because our public float was less than $75 million upon the December 29, 2014 filing of our Annual Report on Form 10-K, we are no longer eligible to utilize Form S-3 registration statements for the primary offering of securities. As a result, we will be required to amend the structure of the 2014 Agreement in order to continue to obtain financing from Southridge. We cannot predict with certainty if, or on what timeframe, we will be able to do so.
On October 17, 2014, we entered into a private Note and Warrant Purchase Agreement with an accredited investor pursuant to which the Company borrowed $500,000 against delivery of a promissory note in such amount and issued warrants to purchase 882,352 shares of our common stock pursuant to the Note and Warrant Purchase Agreement. The promissory note carries an interest rate of 8% per annum, was initially due on July 17, 2015 and is secured by a first priority security interest in all right, title and interest of the Company in and to the net proceeds received by the Company from its sale of tailings separated from iron recovered by the Company at the El Capitan Property. On August 24,, 2015, the note was mutually extended from July 17, 2015 to January 17, 2016. In consideration of the extension the Company amended the common stock purchase warrant to purchase 4,714,286 shares (subject to adjustment) of the Company’s common stock at an exercise price of $0.07 per share. The warrant dated October 17, 2014 was cancelled. The amended agreement provides that if the loan should be paid in full prior to the extended maturity date, the amended common stock purchase warrants will be reduced to an amount equal to the percentage of days the principal balance was outstanding during the extension period to the total days in the extension period times 4,714,286.
On February 4, 2015, the Company issued unsecured promissory notes in the aggregate principal amount of $63,000. Outstanding amounts under these notes accrue interest at 18% per year, with all principal and accrued interest being due and payable on February 4, 2016. The Company’s obligations under both notes were personally guaranteed by the Company’s director and Chief Executive Officer. As additional consideration for the loan, the Company issued a total of 400,000 shares of restricted common stock of the Company to the lenders.
On April 16, 2015, the Company entered into an agreement with a third party financing source pursuant to which the lender committed to loan the Company a total of $200,000 in installments. Installments on this loan have been advanced as follows:
| Installment Date | Amount | |||
| April 17, 2015 | $ | 50,000 | ||
| May 15, 2015 | $ | 50,000 | ||
| June 16, 2015 | $ | 25,000 | ||
| July 20, 2015 | $ | 25,000 | ||
| August 18, 2015 | $ | 25,000 | ||
| September 18, 2015 | $ | 25,000 |
The loan accrues interest at 10% per year, with all principal and accrued interest being due and payable on April 17, 2016. To secure the loan, the Company has granted the lender a security interest in the AuraSource heavy metals separation system located on the El Capitan Property. As additional consideration for the loan, the Company issued 3,000,000 shares of restricted common stock of the Company to the note holder.
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On August 31, 2015, the Company entered into an agreement with a third party financing source pursuant to which the lender committed to loan the Company $100,000 for working capital. As an incentive for the financing, the Company issued 2,000,000 of restricted common stock. The investor decided not to accept the shares because of income tax implications and they were returned to the Company’s transfer agent and returned to the treasury. The agreement had an annual interest rate of 2% and was due November 15, 2015. The agreement provided for payment of one-half (1/2) of the gross revenues that the Company may receive from its mining activities towards the principal and accrued interest. The note, including accrued interest, was satisfied in its entirety in December 2015 in exchange for 3,500,000 restricted shares of the Company’s common stock.
On December 2, 2015, the Company entered into a Securities Purchase Agreement for two $114,400 convertible notes with an accredited investor for an aggregate principal amount of $228,800 with an annual interest rate of 9%. Each note contains an original issue discount of $10,400 and related legal and due diligence costs of $12,000. The net proceeds from each note to be received by the Company will be $92,000. The maturity date on the first note is December 2, 2017. The Company may prepay in full the unpaid principal and interest on the note, upon notice, any time prior to May 29, 2016. Any prepayment is at140% face amount outstanding and accrued interest. The redemption must be closed and paid for within three business days of the Company sending the redemption demand. The note may not be prepaid after the May 29, 2016. The note is convertible into shares of the Company’s common stock at any time beginning on May 30, 2016. The conversion price is equal to 55% of the lowest trading price of the Company’s common stock as reported on the QTCQB for the ten prior trading days (and may include the day of the Notice of Conversion under certain circumstances). The Company agreed to reserve an initial 5,033,000 shares of common stock for conversions under the note. The Company also agreed to adjust the share reserve to ensure that it equals at least four times the total number of common stock that is issuable upon conversion of the note from time to time.
Our only committed sources of financing are pursuant to the 2014 Agreement with Southridge (which, as set forth above, we cannot currently utilize) and the aforementioned April 16, 2015 agreement. To the extent that we are required to raise additional capital, we do not know whether it 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 exploration activities and our marketing efforts for the sale of the El Capitan Property, or suspend our operations entirely.
Factors Affecting Future Mineral Exploration 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 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 and anticipated results and situations of entering active exploration activities.
The price of gold and silver has experienced an increases and decreases in value over the past five years. A historical chart of their respective prices is contained in Item 1 , the “ Business ” portion of this Annual Report. Beginning in April 2013, the price of gold and silver has experienced a downward swing. A significant permanent drop in the price of gold, silver or other precious metals may have a materially adverse effect on the future results of potential exploration activities and the opportunity to market the sale of the El Capitan Property and the potential future revenue derived from the sale of concentrates. The El Capitan Property is an open pit mine with lower production costs and a material increase in costs associated with the recovery of precious metals may also cause a material adverse effect on the financial success of the Company and our ability to market the sale of the El Capitan Property.
Time delays in obtaining the necessary approvals from the various governmental agencies, both federal and state, may also cause delays, all of which are not under our control, in achieving our strategic business plan and current plan of operation.
Off-Balance Sheet Arrangements
During the fiscal year ended September 30, 2015, we did not engage in any off-balance sheet arrangements as set forth in Item 303(a)(4) of the Regulation S-K.
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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 fiscal year ended September 30, 2015, describes our significant accounting policies which are reviewed by management on a regular basis.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS |
Our exposure to market risks is limited to changes in interest rates. We do not use derivative financial instruments as part of an overall strategy to manage market risk. Accordingly, we consider our interest rate risk exposure to be insignificant at this time.
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| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
EL CAPITAN PRECIOUS METALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
El Capitan Precious Metals, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of El Capitan Precious Metals, Inc. and its subsidiaries (collectively, the “Company”) as of September 30, 2015 and 2014, and the related consolidated statements of expenses, stockholder’s equity, and cash flows for each of the years then ended. 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 misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 El Capitan Precious Metals, Inc. and its subsidiaries as of September 30, 2015 and 2014, and the results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has no source of revenue to cover its costs, incurred a net loss for the year ended September 30, 2015 and has a working capital deficit as of September 30, 2015. The Company requires additional funds to meet its obligations and the costs of its operations. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
January 11, 2016
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EL CAPITAN PRECIOUS METALS, INC.
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
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EL CAPITAN PRECIOUS METALS, INC.
CONSOLIDATED STATEMENTS OF EXPENSES
| Years Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| OPERATING EXPENSES: | ||||||||
| Professional fees | $ | 208,720 | $ | 348,292 | ||||
| Administrative consulting fees | 260,000 | 260,000 | ||||||
| Legal and accounting fees | 341,667 | 172,026 | ||||||
| Exploration costs | 624,950 | 1,413,405 | ||||||
| Other general and administrative | 828,692 | 637,750 | ||||||
| Gain on settlement of accounts payable | — | (53,252 | ) | |||||
| Total Operating Expenses | 2,264,029 | 2,778,221 | ||||||
| LOSS FROM OPERATIONS | (2,264,029 | ) | (2,778,221 | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest income | 23 | 93 | ||||||
| Interest expense | (355,243 | ) | (75,915 | ) | ||||
| Interest expense - related party | (3,521 | ) | — | |||||
| Loss on debt extinguishment | (220,703 | ) | — | |||||
| Total Other Income (Expense) | (579,444 | ) | (75,822 | ) | ||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | (2,843,473 | ) | (2,854,043 | ) | ||||
| PROVISION FOR INCOME TAXES | — | — | ||||||
| NET LOSS | $ | (2,843,473 | ) | $ | (2,854,043 | ) | ||
| Basic and Diluted Per Share Data: | ||||||||
| Net Loss Per Share - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted Average Common Shares Outstanding: | ||||||||
| Basic and diluted | 280,599,695 | 271,783,390 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
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EL CAPITAN PRECIOUS METALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| Additional | ||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid-In | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balances at September 30, 2013 | 262,604,345 | 262,604 | — | — | 203,879,146 | (201,821,355 | ) | 2,320,395 | ||||||||||||||||||||
| Common stock issued for services | 4,350,000 | 4,350 | — | — | 845,275 | — | 849,625 | |||||||||||||||||||||
| Common stock issued with note payable | 2,500,000 | 2,500 | — | — | 219,722 | — | 222,222 | |||||||||||||||||||||
| Options expense | — | — | — | — | 509,604 | — | 509,604 | |||||||||||||||||||||
| Options exercised | 100,000 | 100 | — | — | 21,400 | — | 21,500 | |||||||||||||||||||||
| Reversal of deferred costs | — | — | — | — | (20,476 | ) | — | (20,476 | ) | |||||||||||||||||||
| Sale of preferred stock | — | — | 51 | — | 51 | — | 51 | |||||||||||||||||||||
| Sales of common stock | 8,499,532 | 8,500 | — | — | 956,500 | — | 965,000 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (2,854,043 | ) | (2,854,043 | ) | |||||||||||||||||||
| Balances at September 30, 2014 | 278,053,877 | $ | 278,054 | 51 | $ | — | $ | 206,411,222 | $ | (204,675,398 | ) | $ | 2,013,878 | |||||||||||||||
| Common stock issued for services | 2,500,000 | 2,500 | — | — | 235,050 | — | 237,550 | |||||||||||||||||||||
| Options expense | — | — | — | — | 525,703 | — | 525,703 | |||||||||||||||||||||
| Sales of common stock for cash | 594,318 | 594 | — | — | 49,406 | — | 50,000 | |||||||||||||||||||||
| Common stock issued with notes payable | 3,400,000 | 3,400 | — | — | 116,159 | — | 119,559 | |||||||||||||||||||||
| Stock issued for related party payables | 849,805 | 850 | — | — | 52,684 | — | 53,534 | |||||||||||||||||||||
| Warrants issued with debt extinguishment | — | — | — | — | 220,703 | — | 220,703 | |||||||||||||||||||||
| Warrants issued with notes payable | — | — | — | — | 73,053 | — | 73,053 | |||||||||||||||||||||
| Warrants issued as deferred financing cost | — | — | — | — | 17,111 | — | 17,111 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (2,843,473 | ) | (2,843,473 | ) | |||||||||||||||||||
| Balances at September 30, 2015 | 285,398,000 | $ | 285,398 | 51 | $ | — | $ | 207,701,091 | $ | (207,518,871 | ) | $ | 467,618 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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EL CAPITAN PRECIOUS METALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (2,843,473 | ) | $ | (2,854,043 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Warrant and option expense | 525,703 | 509,604 | ||||||
| Stock-based compensation | 237,550 | 849,625 | ||||||
| Amortization of debt discounts | 269,576 | 63,663 | ||||||
| Amortization of deferred financing cost | 17,111 | — | ||||||
| Depreciation | 60,453 | 2,087 | ||||||
| Loss on debt extinguishment | 220,703 | — | ||||||
| Gain on settlement of accounts payable | — | (53,252 | ) | |||||
| Net change in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 37,432 | (20,509 | ) | |||||
| Deferred costs | — | 100,000 | ||||||
| Inventory | (52,279 | ) | — | |||||
| Accounts payable | 172,788 | 70,955 | ||||||
| Accrued compensation - related parties | 228,975 | — | ||||||
| Accrued liabilities | 405,127 | 9,900 | ||||||
| Interest payable | 38,323 | 118,814 | ||||||
| Net Cash Used in Operating Activities | (682,011 | ) | (1,222,956 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | (80,954 | ) | (168,723 | ) | ||||
| Restricted cash | (59,499 | ) | — | |||||
| Net Cash Used in Investing Activities | (140,453 | ) | (168,723 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of common stock | 50,000 | 965,000 | ||||||
| Proceeds from option exercise | — | 21,500 | ||||||
| Proceeds from notes payable | 583,000 | 250,000 | ||||||
| Proceeds from note payable – related party | 30,000 | — | ||||||
| Increase in finance contracts | 39,960 | 17,439 | ||||||
| Payments on finance contracts | (27,616 | ) | (17,439 | |||||
| Net Cash Provided by Financing Activities | 675,344 | 1,236,500 | ||||||
| NET (DECREASE) IN CASH | (147,120 | ) | (155,179 | ) | ||||
| CASH, BEGINNING OF YEAR | 218,513 | 373,692 | ||||||
| CASH, END OF YEAR | $ | 71,393 | $ | 218,513 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | 33,435 | $ | — | ||||
| Cash paid for income taxes | — | — | ||||||
(Continued)
The accompanying notes are an integral part of the consolidated financial statements.
| 36 |
EL CAPITAN PRECIOUS METALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
| Years Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Debt issued for equipment purchase | $ | — | $ | 400,000 | ||||
| Common stock issued with note payable | 119,559 | 222,222 | ||||||
| Reversal of common stock granted for deferred costs | — | 20,476 | ||||||
| Warrants issued for deferred financing costs | 17,111 | — | ||||||
| Warrants issued with notes payable | 73,053 | — | ||||||
| Common stock issued for related party payables | 53,534 | — | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| 37 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business, Operations and Organization
On July 26, 2002, El Capitan Precious Metals, Inc. was incorporated as a Delaware corporation to engage in the business of acquiring properties containing precious metals, principally gold, silver, and platinum (“El Capitan Delaware”). On March 18, 2003, El Capitan Delaware entered into a share exchange agreement with DML Services, Inc. (“DML”), a Nevada corporation, and became the wholly owned subsidiary of DML. On April 11, 2003, DML changed its name to El Capitan Precious Metals, Inc. The results of El Capitan Precious Metals, Inc., a Nevada corporation (formerly DML Services, Inc.), and its wholly owned Delaware subsidiary of the same name (collectively the “Company”) are presented on a consolidated basis.
The transaction was recorded as a reverse acquisition based on factors demonstrating that El Capitan Delaware constituted the accounting acquirer. The shareholders of El Capitan Delaware received 85% of the post-acquisition outstanding common stock of DML. In addition, post-acquisition management personnel and the sole board member of El Capitan Delaware consisted of individuals previously holding positions with El Capitan Delaware. The historical stockholders’ equity of El Capitan Delaware prior to the exchange was retroactively restated (a recapitalization) for the equivalent number of shares received in the exchange after giving effect to any differences in the par value of the DML and El Capitan Delaware common stock, with an offset to additional paid-in capital. The restated consolidated deficit accumulated during the development stage of the accounting acquirer (El Capitan Delaware) has been carried forward after the exchange.
The Company owns 100% of the outstanding common stock of El Capitan Delaware. Prior to January 19, 2011, El Capitan Delaware owned a 40% interest in El Capitan, Ltd., an Arizona corporation (“ECL”). On January 19, 2011, we acquired the remaining 60% interest in ECL from Gold and Minerals Company, Inc. (“G&M”) by merging an acquisition subsidiary created by the Company with and into G&M. In connection with the merger, each share of G&M common and preferred stock outstanding was exchanged for approximately 1.414156 shares of the Company’s common stock, resulting in the issuance of an aggregate of 148,127,043 shares of the Company’s common stock to former G&M stockholders. Upon closing of the merger, G&M became a wholly-owned subsidiary of the Company and our consolidated Company acquired 100% of ECL. As a result, we now own 100% of the El Capitan Property site (described below).
El Capitan Precious Metals, Inc., a Nevada corporation, together with its consolidated subsidiaries are collectively hereinafter referred to as the “Company,” “our” or “we.”
The Company is an exploration stage company as defined by the Securities and Exchange Commission’s (“SEC”) Industry Guide 7 as the Company has no established reserves as required under the Industry Guide 7. We are principally engaged in the exploration of precious metals and other minerals on the El Capitan property located near Capitan, New Mexico (the “El Capitan Property”). The Company is in mineral exploration state activities and has obtained permitting with the State of New Mexico Minerals and Mining Division to expand the Company’s mineral exploration activities and the process of entering into the production stage of operations.
The Company has completed certain acquisitions and transactions prior to fiscal 2015, but has not had any material revenue producing operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries El Capitan Precious Metals, Inc., a Delaware corporation; Gold and Minerals Company, Inc., a Nevada corporation; and El Capitan, Ltd., an Arizona corporation. All significant inter-company accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
| 38 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation and Going Concern
The Company's consolidated financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP"), and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company currently has no source of revenue to cover its costs. The Company has incurred a loss of $2,843,473 for the fiscal year ended September 30, 2015 and has a working capital deficit of $2,081,996 as of September 30, 2015. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
To continue as a going concern, the Company is dependent on achievement of cash flow and profits from entering the production stage of operations. The Company does not have adequate liquidity to fund its current operations, meet its obligations and continue as a going concern. The Company secured working capital loans in the amounts of $200,000 in April 2015 and $100,000 in August 2015 to assist bridging into mining operations. The Company is also pursuing other short-term operational strategic financing alternatives or equity infusion.
The Company’s consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
Fair Value of Financial Instruments
The fair values of the Company’s financial instruments, which include cash, investments, accounts payable, accrued expenses and notes payable, approximate their carrying amounts because of the short maturities of these instruments or because of restrictions.
Management Estimates and Assumptions
The preparation of the Company’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.
Cash and Cash Equivalents
The Company considers those short-term, highly liquid investments with maturities of three months or less as cash and cash equivalents. At times, cash in banks may be in excess of the FDIC limits. The Company has no cash equivalents.
Inventory
Inventories include mineralized material stockpile, concentrate and iron ore inventories, as described below. Inventories are carried at the lower of average cost or net realizable value, in the case of mineralized material stockpile and concentrate inventories and minimal cost is attributable to the iron ore inventories. The net realizable value of mineralized material stockpile inventories represents the estimated future sales price of the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product to sale. Concentrate inventories are carried at the lower of full cost of production or net realizable value based on current metals prices. Write-downs of inventory will be reported as a component of production costs applicable to sales.
| 39 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mineralized Material Stockpile Inventories
Mineralized material stockpile inventories represent mineralized materials that have been mined and are available for further processing. Costs are allocated to mineralized material stockpile inventories based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the mineralized material.
Concentrates
Concentrates inventory include metal concentrates located either at the Company’s El Capitan Property mine site or in transit to a customer’s port. Inventories consist of mineralized material that contains gold and silver mineralization.
Iron Ore
The high grade iron ore material is inventoried until the market prices are reestablished at a higher market demand and are valued at five percent of the market price. Any proceeds from the sale of iron ore will offset the cost of mining the mineralized ore.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, with any resultant gain or loss being recognized as a component of operating income or expense. Depreciation is computed over the estimated useful lives of the assets using the straight-line method. Maintenance and repairs are charged to operations as incurred.
Restricted Cash
Restricted cash consists of two certificates of deposits in favor of the New Mexico Minerals and Mining Division for a total of $74,497. The amount was increased $59,495 during the fiscal year ended September 30, 2015 with the issuance of the Company’s expanded mining permit and is posted as a financial assurance for required reclamation work to be completed on mined acreage.
Exploration Property Costs
Exploration property costs are expensed as incurred until such time as economic reserves are quantified. To date the Company has not established any proven or probable reserves on the El Capitan Property. The Company has capitalized $1,864,608 of exploration property acquisition costs reflecting its investment in the El Capitan Property.
Net Income (Loss) Per Share
The Company calculates net income (loss) per share as required by Accounting Standards Codification subtopic 260-10, Earnings per Share (ASC 260-10”). Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation. For the years ended September 30, 2015 and 2014, the impact of outstanding stock equivalents has not been included as they would be anti-dilutive. 10,387,500 and 7,900,000 options and 4,861,344 and 0 warrants were excluded during the years ended September 30, 2015 and 2014, respectively.
| 40 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
FASB ASC 718 requires companies to measure all stock compensation awards using a fair value method and recognize the related compensation cost in its financial statements. Beginning with the Company’s quarterly period that began on October 1, 2006, the Company adopted the provisions of FASB ASC 718 and expenses the fair value of employee stock options and similar awards in the financial statements. The Company accounts for share based payments in accordance with ASC 718, Compensation - Stock Compensation , which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. In accordance with ASC 718-10-30-9, Measurement Objective – Fair Value at Grant Date , the Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share-based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders. The simplified method is used to determine compensation expense since historical option exercise experience is limited relative to the number of options issued. The compensation cost is recognized ratably using the straight-line method over the expected vesting period.
The Company accounts for stock-based compensation to other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments and is recognized as expense over the service period.
The Company recognized stock-based administrative compensation aggregating $525,703 and $509,604 for common stock options issued to administrative personnel and consultants during the years ended September 30, 2015 and 2014, respectively. Also during the years ended September 30, 2015 and 2014, the Company paid stock-based compensation consisting of common stock issued to non-employees aggregating $237,550 and $849,625, respectively.
Impairment of Long-Lived Assets
The Company reviews and evaluates long-lived assets for impairment when events or changes in circumstances indicate the related carrying amounts may not be recoverable. The assets are subject to impairment consideration under ASC 360-10-35-17, Measurement of an Impairment Loss, if events or circumstances indicate that their carrying amount might not be recoverable. As of September 30, 2015, precious metals recovery process for precious metals is on target with the Company’s updated report from our independent geologist in January 2012 and no events or circumstances have happened to indicate the related carrying values of the properties may not be recoverable. When the Company determines that an impairment analysis should be done, the analysis will be performed using the rules of ASC 930-360-35, Asset Impairment , and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Lived Assets .
An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. When impairment is identified, the carrying amount of the asset is reduced to its estimated fair value. Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell at the date management commits to a plan of disposal. There were no impairments to long-lived assets for the Company’s fiscal years ended September 30, 2015 or 2014.
Income Taxes
The Company computes deferred income taxes under the asset and liability method prescribed by FASB ASC 740. Under this method, deferred tax assets and liabilities are recognized for temporary differences between the financial statement amounts and the tax basis of certain assets and liabilities by applying statutory rates in effect when the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized.
| 41 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
When revenue is generated from operations, it will be recognized in accordance with FASB ASC 605. In general, the Company will recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Revenue generated and costs incurred under this agreement will be reported on a net basis in accordance with FASB ASC 605-45. There was no revenue generated for the Company’s fiscal years ended September 30, 2015 or 2014.
Gain on Settlement of Accounts Payable
During the fiscal year ended September 30, 2014, the Company recorded a gain on settlement of accounts payable of $53,252.
Comprehensive Income (Loss)
FASC Topic No. 220, “ Comprehensive Income,” establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. As at September 30, 2015 and 2014, the Company had no material items of other comprehensive income.
Recently Issued Accounting Pronouncements
Other than as set forth below, 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.
In May 2014, the FASB issued ASC updated No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). Under the amendments in this update, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update are effective for fiscal years and interim periods within those years beginning after December 15, 2016. Early adoption is not permitted. The new standard is required to be applied either retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of applying the update recognized at the date of initial application. The Company has not yet selected a transition method, and has not determined the impact, if any, that the new standard will have on its consolidated financial statements.
In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period , which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2015. The guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and should not be reflected in the estimate of the grant-date fair value of the award. This standard is not expected to have an effect on the Company’s reported financial position or results of operations.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern , which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2016. This update contains amendments that clarify the principles for management’s assessment of an entity’s ability to continue as a going concern. This standard is not expected to have an effect on the Company’s reported financial position or results of operations.
| 42 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 2015, the FASB issued ASU No. 2015-03 “ Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” ASU No. 2015-03 provides that an entity: (1) present debt issuance costs in the balance sheet as a direct deduction from the carrying value of the associated debt liability rather than as an asset; and (2) report amortization of debt issuance costs as interest expense. ASU No. 2015-03 will become effective for the Company in the first quarter of fiscal 2017. The Company does not expect the adoption of this update will have a material impact on its consolidated financial statements.
In July 2015, the FASB has issued Accounting Standards Update (ASU) No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory .” Topic 330, “ Inventory ,” currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments in this Update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU 2015-11 is not expected to have a material impact on the Company’s consolidated financial statements.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC during the current reporting period did not, or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
NOTE 2 – RELATED PARTY TRANSACTIONS
Consulting Agreements
Effective May 1, 2009, the Company has informal arrangements with two individuals, one of whom is an officer and is also director of the Company, pursuant to which such individuals serve as support staff for the functioning of the home office and all related corporate activities and projects. Effective June 1, 2010, the Company amended the aggregate monthly payments with these two individuals under the arrangements to $16,667. Effective August 1, 2013, the monthly compensation was increased to $21,667. There are no written agreements with these individuals. Total administrative consulting fees expensed under these informal agreements for the fiscal years ended September 30, 2015 and 2014 was $260,000. Accrued and unpaid compensation under these arrangements of $93,975 was recorded in accrued compensation – related parties at September 30, 2015.
In January 2012, the Company retained Management Resource Initiatives, Inc. (“MRI”), a company controlled by the Chief Financial Officer and a Director of the Company, for services with a monthly consulting fee of $10,000, which monthly fee was increased to $15,000 effective August 1, 2013. Total consulting fees expensed to MRI for the fiscal years ended September 30, 2015 and 2014 was $180,000. MRI had accrued and unpaid compensation of $135,000 recorded in accrued compensation – related parties at September 30, 2015.
On February 4, 2015, the Company signed a note payable to MRI for $30,000 at 18% interest per annum and due February 4, 2016. The note provides an incentive for the issuance of 200,000 shares of restricted common stock of the Company for the loan. See Note 6 .
In September 2015, the Company issued 849,805 common shares to the controller of the Company as payment of accrued compensation of $53,534. The fair value of the stock was $53,534.
| 43 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – INVENTORY
The following table provides the components of inventory as of September 30, 2015 and 2014:
| September 30, | ||||||||
| 2015 | 2014 | |||||||
| Mineralized material stockpile | $ | 52,279 | $ | — | ||||
NOTE 4 – PROPERTY AND EQUIPMENT
Major classes of property and equipment together with their estimated useful lives, consisted of the following at September 30, 2015 and 2014:
| Useful | September 30, | |||||||||||
| Lives | 2015 | 2014 | ||||||||||
| Computers and office equipment | 3 years | $ | 8,486 | $ | 7,389 | |||||||
| Automotive equipment | 5 years | 15,042 | 15,042 | |||||||||
| Mine equipment | 3-10 years | 532,493 | 500,000 | |||||||||
| Equipment structures and other | 7-10 years | 79,289 | 31,925 | |||||||||
| Permits | 15 years | 16,227 | 16,227 | |||||||||
| 651,537 | 570,583 | |||||||||||
| Less: accumulated depreciation | (63,470 | ) | (3,017 | ) | ||||||||
| Net property and equipment | $ | 588,067 | $ | 567,566 | ||||||||
Depreciation expense during the fiscal years ended September 30, 2015 and 2014 totaled $60,453 and $2,087, respectively.
NOTE 5 – ACCRUED LIABILITIES
Accrued liabilities consisted of the following at September 30, 2015 and 2014:
| September 30, | ||||||||
| 2015 | 2014 | |||||||
| Compensation and consulting | $ | 62,000 | $ | — | ||||
| Mining costs | 203,626 | 100,000 | ||||||
| Accounting and legal | 277,000 | 37,500 | ||||||
| Interest | 50,138 | 11,814 | ||||||
| $ | 592,764 | $ | 149,314 | |||||
| 44 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – NOTES PAYABLE
Under an agreement with Logistica U.S. Terminals, LLC (“Logistica”) dated February 28, 2014, Logistica agreed to remit a $400,000 payment on the Company’s behalf that represented the remaining balance of the Company’s purchase price for a heavy ore trailing separation line to be used for processing of mineralized material at the El Capitan Property mine site. The Company previously remitted $100,000 toward the purchase of such equipment. In consideration for Logistica remitting such payment, the Company agreed to deliver a $400,000 promissory note to Logistica and issued 2,500,000 shares of common stock to a designee of Logistica under the Company’s 2005 Stock Incentive Plan. The promissory note accrues interest at 4.5%, with principal and accrued interest payments to be made out of the Company’s proceeds from sale of iron extracted from mineralized material as part of the Company’s exploration activities. The relative fair value of the common stock was determined to be $222,222 and was recorded as a discount to the promissory note that was amortized to interest expense over the expected life of the note through August 31, 2015. During the fiscal years ended September 30, 2015 and 2014, amortization expense of $158,559 and $63,663 was recognized, respectively. The outstanding balance under this note payable was $400,000 and the unamortized discount on the note payable was $0 as of September 30, 2015. Accrued interest on the note at September 30, 2015 was $28,553.
On September 8, 2014, the Company received an advance of $250,000 under a $500,000 Note and Warrant Purchase Agreement entered into on October 17, 2014 (the “2014 Note”). The 2014 Note is secured by the net proceeds received by the Company from its sale of tailings separated from iron recovered by the Company at the El Capitan Property, carries an interest rate of 8% per annum, and matured on July 17, 2015. The remaining $250,000 was advanced to the Company on October 17, 2014. On October 17, 2014, the Company also issued warrants to purchase an aggregate of 882,352 shares of common stock in connection with the 2014 Note of which 735,294 were issued to the lender and 147,058 were issued to a third party at a purchase price equal to $0.17 per share. The relative fair value of the 735,294 warrants was determined to be $73,053 and was recorded as a discount to the promissory note and amortized to interest expense over the life of the note through July 17, 2015. During the fiscal year ended September 30, 2015, amortization expense of $73,053 was recognized. The unamortized discount on the 2014 Note is $0 as of September 30, 2015. The fair value of the 147,058 warrants was determined to be $17,111 and was recorded as deferred financing costs and amortized to interest expense over the life of the note through July 17, 2015. During the fiscal year ended September 30, 2015, amortized expense of $17,111 was recognized and the unamortized deferred financing costs balance was $0 as of September 30, 2015.
On August 24, 2015, the 2014 Note was mutually extended to a new Maturity Date from July 17, 2015 to January 17, 2016 (the “Amended 2014 Note”). In consideration of the extension the Company amended the common stock purchase warrant to purchase 4,714,286 shares (subject to adjustment) at an exercise price of $0.07 per share. The warrant dated October 17, 2014 was cancelled. The amended agreement provides that if the loan should be paid in full prior to the amended Maturity Date, the amended common stock purchase warrants will be reduced to an amount equal to the percentage of days the principle balance was outstanding during the extension period to the total days in the extension period times 4,714,286. The Company evaluated the modification under ASC 470-50 and determined that it was a substantial modification that qualified as an extinguishment of debt. The fair value of the 4,714,286 amended warrants was determined to be $220,703 and was expensed as a loss on debt extinguishment in the year ended September 30, 2015. The outstanding balance under the Amended 2014 Note is $500,000. Accrued interest on Amended 2014 Note at September 30, 2015 was $8,219.
On November 20, 2014, the Company entered into an agreement to finance a portion of its insurance premiums in the amount of $22,968 at an interest rate of 9.0% with equal payments of $2,393 including interest, due monthly beginning December 21, 2014 and continuing through September 21, 2015. As of September 30, 2015, the outstanding balance under this note payable was $0.
On February 4, 2015, the Company signed two notes with different investors for $63,000 at 18% interest per annum and due February 4, 2016. Each note provides an incentive for the issuance of 200,000 shares of restricted common stock of the Company for the loan. One maker of the loans is affiliated with the Company and provided $30,000. See Note 2 . Accrued interest on the notes at September 30, 2015 was $7,394. The relative fair value of the common stock was determined to be $21,211 and was recorded as discounts to the promissory notes that are being amortized to interest expense over the life of the notes. During the fiscal year ended September 30, 2015, amortization expense of $12,235 was recognized. The outstanding balance under these notes payable was $63,000 and the unamortized discounts on the notes payable was $8,976 as of September 30, 2015.
| 45 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 16, 2015, the Company entered into an agreement with a third party financing source pursuant to which the lender has committed to loan the Company a total of $200,000 in installments. Installments on this loan have been advanced as follows:
| Installment Date | Amount | |||
| April 17, 2015 | $ | 50,000 | ||
| May 15, 2015 | $ | 50,000 | ||
| June 16, 2015 | $ | 25,000 | ||
| July 20, 2015 | $ | 25,000 | ||
| August 18, 2015 | $ | 25,000 | ||
| September 18, 2015 | $ | 25,000 |
The loan accrues interest at 10% per year, with all principal and accrued interest being due and payable on April 17, 2016. To secure the loan, the Company has granted the lender a security interest in the AuraSource Heavy Metals Separation System located on the El Capitan Property. As additional consideration for the loan, the Company issued 3,000,000 shares of restricted common stock of the Company to the note holder. The relative fair value of the common stock was determined to be $98,349 and is recorded as discounts to the promissory note tranches as of the date received and are being amortized to interest expense over the life of the note tranches. During the fiscal year ended September 30, 2015, amortization expense of $25,729 was recognized. The outstanding balance under these notes payable was $200,000 and the allocated unamortized discounts on the notes payable was $72,619 as of September 30, 2015. Accrued interest on these notes at September 30, 2015 was $5,801.
On July 14, 2015, the Company entered into an agreement to finance a portion of its insurance premiums in the amount of $15,116 at an interest rate of 8.76% with equal payments of $1,573 including interest, due monthly beginning July 14, 2015 and continuing through April 14, 2016. In August 2015, an increase in premium of $1,876 occurred due an increase in coverage and the remaining payments increased to $1,815. As of September 30, 2015, the outstanding balance under this note payable was $12,344.
On August 31, 2015, the Company entered into an agreement with a third party financing source pursuant to which the lender has committed to loan the Company $100,000 for working capital. As an incentive for the financing, the Company issued 2,000,000 shares of restricted common stock of the Company. The investor decided not to accept the shares and they were returned to the Company’s transfer agent and returned to the treasury. The agreement has an annual interest rate of 2% and is due November 15, 2015. The agreement provides payment of one-half (1/2) of the gross revenues which the Company may receive from its mining activities towards the principal and accrued interest. The note and accrued interest was paid off in December 2015 in exchange for 3,500,000 restricted shares of the Company’s common stock.
The components of the notes payable, including the note payable to related party, at September 30, 2015 are as follows:
| Principal | Unamortized | ||||||||||
| Amount | Discount | Net | |||||||||
| Notes payable | 1,2 45,344 | (77,157 | ) | 1,1 68,187 | |||||||
| Notes payable – related party | 30,000 | (4,438 | ) | 25,562 | |||||||
| $ | 1,275,344 | $ | (81,595 | ) | $ | 1,193,749 | |||||
The components of the notes payable at September 30, 2014 are as follows:
| Principal | Unamortized | ||||||||||
| Amount | Discount | Net | |||||||||
| Notes payable | $ | 650,000 | $ | (158,559 | ) | $ | 491,441 | ||||
| 46 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – FAIR VALUE MEASUREMENTS
U.S. accounting standards require disclosure of a fair-value hierarchy of inputs the Company uses to value an asset or a liability. In September 2006, the FASB issued new accounting guidance, which establishes a framework for measuring fair value under generally accepted accounting principles (“GAAP”) and expands disclosures about fair value measurements. The Company previously partially adopted this guidance for all instruments recorded at fair value on a recurring basis. In the second quarter of fiscal 2010, the Company adopted the remaining provisions of the guidance for all non-financial assets and liabilities that are not re-measured at fair value on a recurring basis. The adoption of these provisions did not have an impact on the Company’s consolidated financial statements.
Fair value standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, the standards establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires that the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the fair-value hierarchy are described as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on September 30, 2015 and 2014:
| September 30, 2015: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets | ||||||||||||||||
| Exploration property | $ | — | $ | — | $ | 1,864,608 | $ | 1,864,608 | ||||||||
| Liabilities | ||||||||||||||||
| None | $ | — | $ | — | $ | — | $ | — | ||||||||
| September 30, 2014: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets | ||||||||||||||||
| Exploration property | $ | — | $ | — | $ | 1,864,608 | $ | 1,864,608 | ||||||||
| Liabilities | ||||||||||||||||
| None | $ | — | $ | — | $ | — | $ | — | ||||||||
The exploration property associated with the El Capitan Property, which the Company is intending to continue to market for sale to a major mining company, is classified as Level 3. The fair value of the exploration property is determined based upon the cost basis the of the Company’s investment in the exploration property under U.S. GAAP. There was no change in the carrying valuation of the exploration property during the years ended September 30, 2015 or 2014.
| 47 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Related Party
In January 2012, the Company retained Management Resource Initiatives, Inc. (“MRI”) for managing and overseeing the process of marketing and selling the El Capitan Property and performing other services aimed at furthering the Company's strategic goals pursuant to an unwritten consulting arrangement. Under this arrangement, the Company pays MRI a current monthly consulting fee of $15,000. The Company made or accrued aggregate payments of $180,000 to MRI during the fiscal year ended September 30, 2015 and 2014, respectively. MRI is a related party because it is a corporation that is wholly-owned by John F. Stapleton who is the Company’s Chief Financial Officer and a Director. MRI had accrued and unpaid compensation of $135,000 recorded in accrued compensation – related parties at September 30, 2015.
Purchase Contract with Glencore AG
On March 10, 2014, the Company entered into a life-of-mine off take agreement with Glencore AG (“Glencore”) for the sale of iron extracted from mineralized material at the El Capitan Property (such agreement is referred to herein as the “Glencore Purchase Contract”). Under the terms of the Glencore Purchase Contract, the Company agreed to sell to Glencore, and Glencore agreed to purchase from the Company, iron that meets the applicable specifications from the El Capitan Property mine. Payment for the iron is to be made pursuant an irrevocable letter of credit in favor of the Company. The purchase price is based on an index price less an applicable discount. Either party may terminate the Glencore Purchase Contract following a breach by the other party that remains uncured for a specified period after receipt of written notice. Because of current market iron ore prices, the contract has not been implemented or terminated.
Agreements with Logistica U.S. Terminals, LLC
In anticipation of, and in conjunction with, the Glencore Purchase Contract, the Company entered into a Master Services Agreement (the “Master Agreement”) and corresponding Iron Ore Processing Agreement (the “Processing Agreement”) with Logistica U.S. Terminals, LLC (“Logistica”), each effective as of February 28, 2014. Pursuant to these agreements, Logistica agreed to, among other things, provide the logistics required for the Company to fulfill its obligations under the Glencore Purchase Contract, to assist the Company in financing the costs of processing and delivering iron under the Glencore Purchase Contract, and to provide and/or manage the processing that iron. Because of current market iron ore prices, the contract has not been implemented and has not been terminated.
The contracts with Logistica are currently in process of being modified and amended to encompass the handling and processing of our concentrates and replace the current contract with Logistica and other salient provisions therein.
Master Agreement with Logistica
Under the Master Agreement, the Company agreed that Logistica will be the exclusive logistics agent for the purpose of moving iron extracted from mineralized material at the El Capitan Property from the El Capitan Property to Glencore’s designated exporting port or final destination. Logistics services include operational supplement chain management and supervision of all logistics providers and operations from the El Capitan Property mine to the vessel loading port. Logistics services do not include obtaining and maintaining operating, environmental and mining permits, and land and mineral rights, which are the responsibility of the Company. Also under the Master Agreement, Logistica is required to use its best efforts to establish an operating credit line capable of funding all processing and delivery costs and, upon opening and funding such a credit line, will disburse as needed all operating costs contemplated under the Glencore Purchase Contract. The Company is required to reimburse Logistica for all such amounts, without interest, out of payments received from Glencore in respect of the purchase of the iron.
| 48 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In consideration for Logistica’s funding and logistic services, the Company will pay Logistica a percentage of the Company’s profits from the sale of iron under the Glencore Purchase Contract. If any sale of iron under the Glencore Purchase Contract results in a loss instead of a profit, as a result of a decrease in index pricing of iron or otherwise, then the Company is required to make up the shortfall out of profits from any precious metals processing and refining business, to the extent of available profits there from, or otherwise. If iron index prices drop below the price in place at inception of the Glencore Purchase Contract by more than 5%, then the Company will be required to provide Logistica with a greater percentage of profits commensurate with and equivalent to Logistica’s loss of profit share due to the reduction in iron index prices. At inception of the Glencore Purchase Contract, the Platts 62% FE CFR China iron index price was $121.24. In the event of a future sale of the El Capitan Property, the Company must either ensure that its agreements with Logistica are assumed by the purchaser or pay Logistica a termination fee.
Either party may terminate the Master Agreement following a breach by the other party that remains uncured for 60 days after receipt of written notice. The Master Agreement will otherwise continue indefinitely.
Because of current market iron ore prices, the contract has not been implemented and has not been terminated.
The contracts with Logistica are currently in process of being modified and amended to encompass the handling and processing of our concentrates and replace the current contract with Logistica and other salient provisions therein.
Processing Agreement with Logistica
Under the Processing Agreement, Logistica has agreed to deliver iron processing equipment to the El Capitan Property and to use it best efforts to process, to contract specification, stock pile and load for delivery iron that the Company has contracted to sell to Glencore under the Glencore Purchase Contract. In order to do so, Logistica will act as the Company’s turn-key contractor for all of the Company’s iron processing and delivery activities at the El Capitan Property. In consideration for such services, the Company will pay Logistica a set price per metric ton of iron that is processed in accordance with the Glencore Purchase Contract specifications and purchased by Glencore. As additional compensation for entering into the Processing Agreement, the Company issued 4,000,000 shares of common stock to a designee of Logistica under the Company’s 2005 Stock Incentive Plan valued at $800,000. The shares vested immediately upon grant and the $800,000 was expensed in full during the fiscal year ended September 30, 2014.
Either party may terminate the Processing Agreement following a breach by the other party that remains uncured for 60 days after receipt of written notice. The Processing Agreement will otherwise continue indefinitely.
Because of the drop in the market iron ore prices under the contract price, the contract has not been implemented during the current fiscal year and has not been terminated as of September 30, 2015.
The contracts with Logistica are currently in process of being modified and amended to encompass the handling and processing of our concentrates and replace the current contract with Logistica and other salient provisions therein.
NOTE 9 – INCOME TAXES
The Company has incurred no income taxes during the period from July 26, 2002 (inception) through September 30, 2015. The calculated tax deferred benefit at September 30, 2015 and 2014 is based on the current Federal statutory income tax rate of 35% applied to the loss before provision for income taxes. The tax years open for Internal Revenue Service review are fiscal years ended September 30, 2012 to 2015.
| 49 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table accounts for the differences between the actual income tax benefit and amounts computed for the years ended September 30, 2015 and 2014:
| Years Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| Tax benefit at the federal statutory rate | $ | 632,495 | $ | 797,304 | ||||
| State tax benefit | 125,957 | 158,777 | ||||||
| Cumulative effect of Federal tax rate change | — | — | ||||||
| Expiration of state operating losses | (82,972 | ) | (28,216 | ) | ||||
| Increase in valuation allowance | (675,480 | ) | (927,865 | ) | ||||
| Income tax expense | $ | — | $ | — | ||||
The components of the deferred tax asset and deferred tax liability at September 30, 2015 and 2014 are as follows:
| September 30, | ||||||||
| 2015 | 2014 | |||||||
| Deferred tax assets | $ | 8,651,232 | $ | 7,975,752 | ||||
| Valuation allowance | (8,651,232 | ) | (7,975,752 | ) | ||||
| Net deferred tax asset after valuation allowance | $ | — | $ | — | ||||
A valuation allowance has been provided to reduce the net deferred tax asset, as management determined that it is more likely than not that the deferred tax assets will not be realized.
At September 30, 2015, the Company has net operating loss carry forwards for financial statement purposes for Federal income tax approximating $22,925,000. These losses expire in varying amounts between September 30, 2022 and September 30, 2035.
At September 30, 2015, the Company has net operating loss carry forwards for financial statement purposes for State income tax approximating $9,000,574. These losses expire in varying amounts between September 30, 2016 and September 30, 2020.
NOTE 10 – 2005 STOCK INCENTIVE PLAN
On June 2, 2005, the Board of Directors adopted the Company’s 2005 Stock Incentive Plan (the “2005 Plan”) and reserved 8,000,000 shares for issuance under the 2005 Plan out of the authorized and unissued shares of par value $0.001 common stock of the Company. On July 8, 2005, the Board of Directors authorized the Company to take the steps necessary to register the 2005 Plan shares under a registration statement on Form S-8. On July 19, 2005, the Form S-8 was filed with the SEC for 5,000,000 shares. On October 18, 2007, a Form S-8 was filed with the SEC for registering the remaining 3,000,000 shares. On July 30, 2008, the Board of Directors increased the number of shares of the Company’s common stock authorized for issuance under the 2005 Plan to 16,000,000 shares. On August 21, 2009, a Form S-8 was filed with the SEC to register the remaining 8,000,000 shares authorized under the 2005 Plan. On July 7, 2011, the Board of Directors increased the number of shares of the Company’s common stock authorized for issuance under the 2005 Plan to 30,000,000 shares. On October 20, 2011, a Form S-8 was filed with the SEC to register the 14,000,000 share increase authorized under the 2005 Plan. The 2005 Plan expired in our fiscal year 2015. See Note 12 .
| 50 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – STOCKHOLDERS’ EQUITY
Authorized Common Shares
At the Company’s annual meeting of stockholders held September 25, 2014, the Company’s stockholders approved an amendment (the “Amendment”) to the Company’s Articles of Incorporation to increase the number of authorized shares of the Company’s common stock from 300,000,000 to 400,000,000 shares. The change in the authorized number of shares of common stock was effected pursuant to an Certificate of Amendment (the “Certificate of Amendment”) filed with the Secretary of State of the State of Nevada on October 1, 2014 and was effective as of such date.
Series B Preferred Stock
Pursuant to resolutions adopted by the Board, on August 1, 2014, the Company filed a Certificate of Designation (the “Certificate of Designation”) with the Nevada Secretary of State creating a series of Preferred Stock by and designating fifty-one (51) shares of previously undesignated preferred stock as Series B Convertible Preferred Stock (the “Series B Preferred Stock”).
Liquidation . The Series B Preferred Stock, with respect to rights on liquidation, dissolution and winding-up of the Corporation, ranks on parity with each other class or series of capital stock of the Company the terms of which do not expressly provide that such class or series shall rank senior or junior to the Series B Preferred Stock. Except for distributions in the event of a liquidation, dissolution or winding-up of the Company (whether voluntary or involuntary), or a merger or consolidation by the Corporation with another corporation or other entity (in each case, other than where the Company is the surviving entity) (a “Liquidation”), holders of Series B Preferred Stock are not be entitled to receive dividends on the Series B Preferred Stock. In the event of a Liquidation, the holders of Series B Preferred Stock are be entitled to receive out of the assets of the Company, an amount equal to the $1.00 per share of Series B Preferred Stock (subject to adjustment), after any distribution or payment with respect to such Liquidation is made to the holders of any senior securities and prior to any distribution or payment with respect to such Liquidation shall be made to the holders of any junior securities.
Voting Rights . Solely with respect to matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent and relate to Company capitalization (including, without limitation, increasing and/or decreasing the number of authorized shares of common stock and/or preferred stock, and implementing forward and/or reverse stock splits) and changes in the Company’s name, the holders of the outstanding shares of Series B Preferred Stock vote together with the holders of common stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Company’s articles of incorporation or bylaws. The holders of the outstanding shares of Series B Preferred Stock do not otherwise have the right to vote on matters brought before the Company’s stockholders. In matters on which holders of shares of Series B Preferred Stock are entitled to vote, each share of the Series B Preferred Stock has voting rights equal to (x) (i) 0.019607 multiplied by the total of (A) the issued and outstanding shares of Common Stock eligible to vote at the time of the respective vote, plus (B) the number of votes which all other series or classes of securities other than this Series B Preferred Stock are entitled to cast together with the holders of the Company’s common stock at the time of the relevant vote (the amount determined by this clause (i), the “Numerator”), divided by (ii) 0.49, minus (y) the Numerator.
Conversion . Shares of Series B Preferred Stock may, at the option of the holder, be converted into one share of common stock (subject to adjustment, the “Conversion Ratio”). In the event of any Transfer (as defined in the Certificate of Designation) of any share of Series B Preferred Stock, such share will automatically convert into common stock based upon the Conversion Ratio applicable at the time of such Transfer. If, at any time while any shares of Series B Preferred Stock remain outstanding, the Company effectuates a stock split or reverse stock split of its common stock or issues a dividend on its common stock consisting of shares of common stock, the Conversion Ratio and any other amounts calculated as contemplated by the Certificate of Designation shall be equitably adjusted to reflect such action.
| 51 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity Purchase Agreement
On July 11, 2011, the Company entered into an Equity Purchase Agreement (the “2011 Agreement”) with Southridge Partners II, LP (“Southridge”). Under the 2011 Agreement, we had the right, but not an obligation, to sell newly-issued shares of our common stock to Southridge. Southridge had no obligation to purchase shares under the 2011 Agreement to the extent that such purchase would cause Southridge to own more than 9.99% of the Company’s common stock. The original term of the 2011 Agreement was two years, subject to the Company’s right to terminate at any time. The purchase commitment of Southridge under the 2011 Agreement was scheduled to expire on the earlier of July 11, 2013, or the date on which aggregate purchases by Southridge under the 2011 Agreement totaled $5,000,000. On April 3, 2013, we entered into an amendment (the “Amendment”) to the 2011 Agreement pursuant to which the parties agreed to extend the purchase commitment of Southridge under the 2011 Agreement for an additional year, expiring July 11, 2014. The maximum amount of the aggregate purchase commitment of Southridge under the 2011 Agreement remained unchanged at $5,000,000. On July 11, 2014, the 2011 Agreement expired.
For each share of the Company’s common stock purchased under the 2011 Agreement, Southridge paid 94.0% of the Market Price, which is defined as the average of the two lowest closing bid prices on the Over-the-Counter Bulletin Board, as reported by Bloomberg Finance L.P., during the five trading days following the date on which the Company notified Southridge of a pending sale (the “Valuation Period”). After the expiration of the Valuation Period, Southridge purchased the applicable number of shares subject to customary closing conditions.
The offering of shares under the 2011 Agreement were made pursuant to a registration statement on Form S-3 (Registration Statement No. 333-175038) previously filed by the Company with the Securities and Exchange Commission, and prospectus supplements thereto. The S-3 registration statement utilized a “shelf” registration process. Under this shelf registration process, from time to time, the Company sold any combination of the securities described in a prospectus supplement in one or more offerings, up to a total dollar amount of $5,000,000.
On July 30, 2014, we entered into a new Equity Purchase Agreement (the “2014 Agreement”) with Southridge, pursuant to which the Company may from time to time, in its discretion, sell newly-issued shares of its common stock to Southridge for aggregate gross proceeds of up to $1,900,000. Southridge will have no obligation to purchase shares under the 2014 Agreement to the extent that such purchase would cause Southridge to own more than 9.99% of the Company’s common stock. Unless terminated earlier, the purchase commitment of Southridge will automatically terminate on the earlier of July 30, 2016, or the date on which aggregate purchases by Southridge under the 2014 Agreement total $1,900,000. The Company has no obligation to sell any shares under the 2014 Agreement.
As provided in the 2014 Agreement, the Company may require Southridge to purchase shares of our common stock from time to time by delivering a put notice to Southridge specifying the total purchase price for the shares to be purchased (the “Investment Amount”). The Company may determine the Investment Amount, provided that such amount may not be more than the lesser of (a) $500,000, or (b) 250% of the average daily trading dollar volume of the Company’s common stock for the 20 trading days preceding the date on which the Company delivers the applicable put notice. For this purpose, the trading dollar volume for each day is determined by multiplying the closing bid price of the Company’s common stock on the Over-the-Counter Bulletin Board (or such other principal market on which the Company’s stock trades) on such date by the trading volume of the Company’s common stock on the Over-the-Counter Bulletin Board (or such other principal market on which the Company’s stock trades) on such date. The number of shares issuable in connection with each put notice will be computed by dividing the applicable Investment Amount by the purchase price for such common stock.
For each share of our common stock purchased under the 2014 Agreement, Southridge will pay a purchase price equal to 94.0% of the Market Price, which is defined as the average of the two lowest closing bid prices on the Over-the-Counter Bulletin Board, as reported by Bloomberg Finance L.P., during the five trading days following delivery of the put notice (the “Valuation Period”). After the expiration of the Valuation Period, Southridge will purchase the applicable number of shares subject to customary closing conditions.
The 2014 Agreement contains covenants, representations and warranties of the Company and Southridge that are typical for transactions of this type. In addition, the Company and Southridge have granted each other customary indemnification rights in connection with the 2014 Agreement. The 2014 Agreement may be terminated by the Company at any time.
| 52 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The offering of shares under the 2014 Agreement has been made pursuant to a registration statement on Form S-3 (Registration Statement No. 333-193208) previously filed by the Company with the Securities and Exchange Commission, and prospectus supplements thereto. The benefits and representations and warranties set forth in the 2014 Agreement are not intended to and do not constitute continuing representations and warranties of the Company or any other party to persons not a party thereto, including without limitation, any future or other investor.
As of September 30, 2015, we have sold shares of common stock to Southridge under the 2011 and 2014 Agreements for aggregate proceeds of $4,300,000, and have the right, subject to certain conditions, to sell to Southridge $1,600,000 of newly-issued shares of the Company common stock pursuant to the 2014 Agreement, subject to the satisfaction of applicable closing conditions. However, because the Company’s public float was less than $75 million upon the December 29, 2014 filing of its Annual Report on Form 10-K, the Company is no longer eligible to utilize Form S-3 registration statements on a primary basis. As a result, the Company will be required to amend the structure of the 2014 Agreement in order to continue to obtain financing from Southridge.
Preferred Stock Issuances
On August 1, 2014, the Company issued fifty-one (51) shares of Series B Preferred Stock to John F. Stapleton (the “Series B Stockholder”) for a purchase price equal to $1.00 per share. The offer and sale of such shares were not registered under the Securities Act of 1933, as amended (the “Securities Act”) at the time of sale, and therefore may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. For this issuance, the Company relied on the exemption from federal registration under Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder, based on the Company’s belief that the offer and sale of the shares has not and will not involve a public offering as the Series B Stockholder is an “accredited investor” as defined under Section 501 promulgated under the Securities Act and no general solicitation has been involved in the offering.
As a result of the voting rights of the Series B Preferred Stock, the Series B Stockholder holds in the aggregate approximately 51% of the total voting power of all issued and outstanding voting capital of the Company solely with respect to matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent and relate to the Company’s capitalization (including, without limitation, increasing and/or decreasing the number of authorized shares of common stock and/or preferred stock, and implementing forward and/or reverse stock splits) and changes in the Company’s name. The Series B Stockholder does not otherwise have the right under the Certificate of Designation to vote on matters brought before the Company’s stockholders. The Company’s Board of Directors believes that the issuance of the Series B Preferred Stock to the Series B Stockholder will facilitate the Company’s ability to manage its affairs with respect to the limited matters on which the Series B Stockholder is entitled to vote.
During the fiscal year ended September 30, 2015, the Company did not issue any shares of preferred stock.
Common Stock Issuances
During the fiscal year ended September 30, 2015, the Company:
| (i) | Issued 400,000 shares of restricted common stock, as provided for in two loan agreements entered into in February 2015. The relative fair value of the stock was determined to be $21,211 and was accounted for as a discount to the loans and will be amortized over the life of the loans; |
| (ii) | Issued 3,000,000 shares of restricted common stock, as provided for in a working capital loan entered into in April 2015. The relative fair value of the stock was determined to be $98,349 and was accounted for as a discount to the loans and will be amortized over the life of the loans; |
| (iii) | Issued 500,000 shares of restricted common stock to a creditor for carrying a significant balance. The market value of the shares issued was $67,550 and was classified as non-cash financing costs in the fiscal year ended September 30, 2015; |
| 53 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (iv) | Issued 2,000,000 shares of S-8 common stock as consideration for a commitment consulting fee to a six month mining agreement. The market value of the shares issued was $170,000; |
| (v) | Issued 849,805 shares of restricted common stock in connection with a conversion accrued compensation valued at $53,534; and |
| (vi) | Issued 594,318 shares of common stock under the 2014 Agreement with Southridge for cash proceeds of $50,000. |
During the fiscal year ended September 30, 2014, the Company:
| (i) | Issued 6,544,987 shares of common stock under the 2011 and 2014 Agreements with Southridge and received cash proceeds of $750,000; |
| (ii) | Issued 350,000 shares of common stock for non-employee consulting services valued at $49,625; |
| (iii) | Issued 100,000 shares of common stock upon the exercise of non-statutory stock options and the Company received cash proceeds of $21,500; |
| (iv) | Issued 1,954,545 shares of common stock to four accredited investors and the Company received cash proceeds of $215,000; |
| (v) | issued 2,500,000 shares of common stock in connection with financing the acquisition of heavy mining equipment valued at $222,222; and |
| (vi) | Issued 4,000,000 shares of common stock under the processing agreement valued at $800,000 which is included as stock issued for services in the statements of stockholders’ equity. See Note 6 . |
Warrants
During the fiscal year ended September 30, 2015, the Company:
| (i) | Issued to an investor 735,294 three-year fully vested warrants at an exercise price of $0.17 per share as related to the $500,000 2014 Note. The relative fair value of the warrants was determined to be $73,053 using the Black-Scholes option pricing model and was recorded as a discount to the 2014 Note and is being amortized to interest expense over the expected life of the note through July 17, 2015. During the fiscal year ended September 30, 2015, amortization expense of $73,053 was recognized and the unamortized discount was $0 as of September 30, 2015. |
| (ii) | Issued 147,058 three-year fully vested warrants at an exercise price of $0.17 per share as placement fees related to the $500,000 2014 Note. The fair value of the warrants was determined to be $17,111 using the Black-Scholes option pricing model and was recorded as deferred financing costs to be amortized over the expected life of the note through July 17, 2015. During the fiscal year ended September 30, 2015, amortization expense of $17,111 was recognized and the unamortized deferred financing costs balance was $0 as of September 30, 2015. |
| (iii) | Issued to an investor 4,714,286 three-year fully vested warrants at an exercise price of $0.07 per share as related to the amended $500,000 2014 Note on August 18, 2015. The prior issued warrants aggregating 735,294 were cancelled under the terms of the amendment. The relative fair value of the amended warrants was determined to be $220,703 using the Black-Scholes option pricing model and was recorded as loss on debt extinguishment. |
During the fiscal ended September 30, 2014, the Company did not issue any warrants and as of September 30, 2014, there were no warrants outstanding.
| 54 |
EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options
Aggregate options expense recognized was $525,703 and $509,604 for the fiscal years ended September 30, 2015 and 2014, respectively related to the option grants described below. As of September 30, 2015 there was no unamortized option expense.
During the fiscal year ended September 30, 2015, the Company:
| (i) | Granted, pursuant to the 2005 Stock Incentive Plan, (a) to two directors of the Company each a ten-year stock option to purchase 500,000 shares of the Company’s common stock, (b) to two directors of the Company each a ten-year stock option to purchase 250,000 shares of the Company’s common stock, and (c) to the controller a ten-year stock option to purchase 250,000 shares of the Company’s common stock, all of which vested immediately, at an exercise price of $0.15 per share. The fair value of the options was determined to be $218,471 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the fiscal year ended September 30, 2015. |
| (ii) | Granted to a consultant a ten-year stock option to purchase an aggregate of 500,000 shares of the Company’s common stock at an exercise price of $0.15 per share with the options vesting on the date of grant. The fair value of the options was determined to be $73,158 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the fiscal year ended September 30, 2015. |
| (iii) | Granted to a consultant a ten-year stock option to purchase an aggregate of 1,500,000 shares of the Company’s common stock at an exercise price of $0.15 per share with the options vesting equally over a nine-month period from the date of the grant. The fair value of the options was determined to be $219,473 using the Black-Scholes option pricing model and $219,473 was expensed as warrant and option costs during the fiscal year ended September 30, 2015. |
During the fiscal year ended September 30, 2014, the Company:
| (i) | Granted, pursuant to the 2005 Stock Incentive Plan, to each of two new directors of the Company five-year options to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.3452 per share which will vest in equal monthly installments over two years, commencing on April 17, 2014. The fair value of the options was determined to be $233,638 using the Black-Scholes option pricing model and will be expensed as warrant and option costs over the vesting period. One of the new directors left the board without notice and without any options vesting. During the fiscal years ended September 30, 2015 and 2014, $14,601 and $38,940, respectively, was expensed as warrant and option costs. |
| (ii) | Granted, pursuant to the 2005 Stock Incentive Plan, to each of two existing directors of the Company a five-year stock option to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.31 per share, all of which vested immediately. The fair value of the options was determined to be $209,896 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the fiscal year ended September 30, 2014. |
| (iii) | Granted, pursuant to the 2005 Stock Incentive Plan, to a consultant five-year stock options to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $0.31 per share with the options vesting on the date of grant. The fair value of the options was determined to be $26,505 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the fiscal year ended September 30, 2014. |
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EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (iv) | Amended the expiration date of an aggregate of 500,000 outstanding common stock options. The options were originally scheduled to expire on January 31, 2014. The expiration date of the 500,000 options was extended to January 31, 2019. The incremental increase in the fair value of the options was determined to be $27,718 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the fiscal year ended September 30, 2014. |
| (v) | Granted, pursuant to the 2005 Stock Incentive Plan, to each of three directors of the Company a five-year stock option to purchase 500,000 of the Company’s common stock at an exercise price of $0.16 per share, all of which vested immediately. The fair value of the options was determined to be $159,456 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the during the fiscal year ended September 30, 2014. |
| (vi) | Granted, pursuant to the 2005 Stock Incentive Plan, to a consultant five-year stock options to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $0.14 per share with the options vesting on the date of grant. The fair value of the options was determined to be $12,423 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the fiscal year ended September 30, 2014. |
| (vii) | Granted, pursuant to the 2005 Stock Incentive Plan, to a consultant five-year stock options to purchase an aggregate of 300,000 shares of the Company’s common stock at an exercise price of $0.13 per share with the options vesting on the date of grant. The fair value of the options was determined to be $34,666 using the Black-Scholes option pricing model and was expensed as warrant and option costs during the fiscal year ended September 30, 2014. |
The Company utilizes the Black-Scholes option pricing model to estimate the fair value of its option awards and warrants. The following table summarizes the significant assumptions used in the model during the years ended September 30, 2015 and 2014:
| Year Ended September 30, 2015: | |||
| Exercise prices | $0.07 - $0.17 | ||
| Expected volatilities | 115.01% - 139.28% | ||
| Risk free interest rates | 0.79% - 2.36% | ||
| Expected terms | 3.0 - 10.0 years | ||
| Expected dividends | — | ||
| Year Ended September 30, 2014: | |||
| Exercise prices | $0.14 - $0.38 | ||
| Expected volatilities | 120.72% - 140.83% | ||
| Risk free interest rates | 0.51% - 1.55% | ||
| Expected terms | 2.5 - 5.0 years | ||
| Expected dividends | — |
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EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock option activity, both within and outside the 2005 Stock Incentive Plan and warrant activity, for the fiscal years ended September 30, 2015 and 2014, are as follows:
| Stock Options | Stock Warrants | ||||||||||||||
| Weighted | Weighted | ||||||||||||||
| Average | Exercise | ||||||||||||||
| Shares | Price | Shares | Price | ||||||||||||
| Outstanding at September 30, 2013 | 6,100,000 | $ | 0.42 | — | $ | — | |||||||||
| Granted | 4,000,000 | 0.24 | — | — | |||||||||||
| Canceled | (2,100,000 | ) | 0.23 | — | — | ||||||||||
| Expired | — | — | — | — | |||||||||||
| Exercised | (100,000 | ) | .22 | — | — | ||||||||||
| Outstanding at September 30, 2014 | 7,900,000 | $ | 0.38 | — | $ | — | |||||||||
| Granted | 3,750,000 | 0.15 | 5,596,638 | 0.09 | |||||||||||
| Canceled | (312,500 | ) | 0.35 | (735,294 | ) | 0.17 | |||||||||
| Expired | (950,000 | ) | 0.56 | — | — | ||||||||||
| Exercised | — | — | — | — | |||||||||||
| Outstanding at September 30, 2015 | 10,387,500 | $ | 0.3 | 4,861,344 | $ | 0.07 | |||||||||
| Exercisable at September 30, 2015 | 10,387,500 | $ | 0.3 | 4,861,344 | $ | 0.07 | |||||||||
The range of exercise prices and remaining weighted average life of the options outstanding at September 30, 2015 were $0.13 to $1.02 and 5.55 years, respectively. The aggregate intrinsic value of the outstanding options at September 30, 2015 was $0.
The range of exercise prices and remaining weighted average life of the warrants outstanding at September 30, 2015 were $0.07 to $0.17and 2.77 years, respectively. The aggregate intrinsic value of the outstanding warrants at September 30, 2015 was $0.
During the fiscal year 2015 our 2005 Plan expired. See Note 12 .
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EL CAPITAN PRECIOUS METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SUBSEQUENT EVENTS
Our 2005 Stock Incentive Plan expired during our fiscal year ended September 30, 2015. On October 8, 2015, the Board of Directors of the Company approved the El Capitan Precious Metals, Inc. 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan enables the Board of Directors to grant to employees, directors, and consultants of the Company and its subsidiaries a variety of forms of equity-based compensation, including grants of options to purchase shares of common stock, shares of restricted common stock, restricted stock units, stock appreciation rights, other stock-based awards and performance-based awards. The maximum number of shares of common stock of the Company that may be issued or awarded under the 2015 Plan is 15,000,000 shares. On October 14, 2015, the Company filed Form S-8 Registration Statement No. 333-207399 with the SEC registering the 15,000,000 shares of common stock authorized for issuance pursuant to the 2015 Plan. On December 15, 2015, the Board of Directors of the Company adopted Amendment No. 1 to the Company’s 2015 Equity Incentive Plan (the “2015 Plan”) pursuant to which the number of shares of common stock issuable under the 2015 Plan was increased from 15,000,000 to 23,000,000.
Effective November 23, 2015, the Board elected Dr. Clyde L. Smith to serve as a director of the Company, filling an existing vacancy on the Board. Upon his election to the Board, the Company granted Dr. Smith an option to purchase up to 250,000 shares of the Company’s common stock with an exercise price equal to $0.05 per share, the closing price of the Company’s common stock on the grant date. The option was vested in its entirety upon grant and has a ten year term.
On December 2, 2015 (the “Effective Date”), the Company entered into a Securities Purchase Agreement (the “SPA”) for two $114,400 Convertible Notes with an accredited investor for an aggregate principal amount of $228,800 with an annual interest rate of 9%. Each Note contains an Original Issuance Discount (“OID”) of $10,400 and related legal and due diligence costs of $12,000. The net proceeds to be received by the Company will be $92,000. The Maturity Date on the first Note is December 2, 2017. The Company may prepay in full the unpaid principal and interest on the Note, upon notice, any time prior to 180 days after the Effective Date. Any prepayment is at140% face amount outstanding and accrued interest. The redemption must be must be closed and paid for within three business days of the Company sending the redemption demand. The Note may not be prepaid after the 180 th day. The Note is convertible into shares of our Common Stock at any time beginning on the date which is 181 day following the Effective Date. The conversion price is equal to 55% of the lowest trading price of our Common Stock as reported on the QTCQB for the ten prior trading days and may include the include the day of the Notice of Conversion under certain circumstances. We agreed to reserve an initial 5,033,000 shares of Common Stock for conversions under the Note (the "Share Reserve"). We also agreed to adjust the Share Reserve to ensure that it always equals at least four times the total number of Common Stock that is actually issuable if the entire Note would be converted. The Note has an embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging . Pursuant to ASC 815, “ Derivatives and Hedging ”, the Company will recognize the fair value of the embedded conversion features as a derivative liability when the Note becomes convertible on May 29, 2016.
Effective December 4, 2015, the Board elected Timothy J. Gay to serve as a director of the Company, filling an existing vacancy on the Board. Upon his election to the Board, the Company granted Mr. Gay a ten year option to purchase up to 250,000 shares of the Company’s common stock with an exercise price equal to $0.062 per share, the closing price of the Company’s common stock on the grant date. The option was vested in its entirety upon grant and has a ten year term.
Subsequent to our year end the Company issued 22,283,187 shares of Common Stock as follows:
| Accrued compensation | 1,663,186 | |||
| Accrued liability for legal services | 2,147,273 | |||
| Compensation for mining services | 11,200,000 | |||
| Notes payable conversion | 7,272,728 | |||
| 22,283,187 |
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| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
There have been no changes in our accountants during the last two fiscal years, and we have not had any material disagreements with our existing accountants during that time.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2015, our disclosure controls and procedures were not effective due to a material weakness identified which is described below.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness, as of September 30, 2015, of our internal control over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2015. This was due to the following material weaknesses:
| • | We did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of generally accepted accounting principles commensurate with the complexity of our equity and equity instruments issued with debt transactions. As a result, there is a lack of monitoring of the accounting and reporting process for these types of transactions. |
To address these types of transactions and concur on their treatment, we will have an independent qualified professional review the transaction treatment prior to recording on the books of the Company .
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Changes in Internal Control Over Financial Reporting
During the fiscal quarter ended September 30, 2015, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
The Company’s independent registered public accounting firm is not required to issue, and has not issued, an attestation report on the Company’s internal control over financial reporting as of September 30, 2015.
| ITEM 9B. | OTHER INFORMATION |
None.
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PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Identification of Directors and Executive Officers
The following table sets forth the name, age, position and office term of each executive officer and directors of the Company as of January 11, 2016.
| Name | Age | Position | Director Since | |||||
| Charles C. Mottley | 80 | President, Chief Executive Officer, Director | April 21, 2009 | |||||
| John F. Stapleton | 72 | Chief Financial Officer, Director, Chairman of the Board, Secretary | April 21, 2009 | |||||
| Clyde L. Smith | 78 | Director | November 23, 2015 | |||||
| Timothy J. Gay | 71 | Director | December 4, 2015 | |||||
Charles C. Mottley – Mr. Mottley was Chairman of the Board of Gold and Minerals Company, Inc. from February 2009 until the merger into the Company in 2011; and was on the Board of Trustees at Hampden-Sydney College from 2007 to May 2011. Mr. Mottley was President and a Director of the Company from July 2002 to April 2007, when he resigned as President, but continued to serve as a Director until September 2007. He also provided consulting services to our Company from June 2007 to June 2008. On April 21, 2009, Mr. Mottley was reappointed as a Director of the Company and on April 30, 2009, Mr. Mottley was reappointed as President and as Chief Executive Officer. Mr. Mottley also served as Chairman and Chief Executive Officer of Gold and Minerals Company, Inc., from 1978 until July 2005, at which time he resigned those positions. He was on the Board of the National Mining Association from 2005 to 2007 and has been employed in the mining industry in various capacities from equipment sales and services to active mining operations for over 36 years. Mr. Mottley is the author of five books and is the founder of the Fatherhood Foundation in Scottsdale, Arizona. Mr. Mottley received a Bachelor of Arts Degree from Hampden-Sydney College in 1958. On January 20, 2012, Mr. Mottley filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in the Unites States Bankruptcy Court in and for the District of Arizona (Case No. 10-01419 GBN). A plan of reorganization was approved by the Court in June 2013, and has not been discharged.
John F. Stapleton – Mr. Stapleton has been a Company director and Chairman of the Company’s Board of Directors since April 2009, and has served as Chief Financial Officer since February 2012. Mr. Stapleton has extensive experience with early-stage development companies and contributes a unique set of skills needed to achieve a focused strategy, early-stage funding, basic infrastructure and business model, all of which are central to creating a solid business platform to launch and scale a successful venture. Mr. Stapleton has a history of founding and supporting more than 25 emerging technology companies. As a senior officer and investor, Mr. Stapleton has been instrumental in the development and financing of several companies. Mr. Stapleton is the sole owner of Management Resource Initiatives, Inc., a corporation that, since January 2012, has been managing and overseeing the process of operating and marketing the El Capitan Property and performing other services aimed at furthering the Company's strategic goals.
Clyde L. Smith, PhD – A scientist with strong ties to academic research applied to ore-deposit exploration, Dr. Smith’s background includes eight years as an Industrial Associate to Stanford University School of Earth Sciences, work as an explorationist, and executive positions for the Toronto Stock Exchange- and Vancouver Stock Exchange-listed public companies with broad experience in prospect-generator business model, joint ventures, and exploration alliances with major companies such as Rio Tinto, Teck, and Mount Isa Mines. Dr. Smith’s recent project work has included work as Chief Geologist for Alexander Mining, a Singapore-based entity for which he wrote the NI 43-101 report and secured $5 million financing through UOB Bank, Singapore. He also planned and directed grassroots orogenic gold exploration and drilling on a large exploration license in Papua New Guinea, where he employed an ex-Chief Geochemist of Barrick Gold Corporation and an ex-Chief Geophysicist of Newmont Mining Corporation
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Timothy J. Gay, CPA, CVA – Mr. Gay has been involved for thirty-five years in management advisory with public companies for SEC-related services and specializes in mergers and acquisitions, bankruptcy reorganizations, expert testimony, and business valuations. He founded, organized, and continues to facilitate the M&A Roundtable and has extensive experience in providing guidance and services for financial institutions related to mergers, acquisitions, and financing alternatives. In addition, Mr. Gay has served on the boards and loan committees of financial institutions. As founder of Tim Gay & Associates, Mr. Gay organized the investment banking firms Cornelius & Gay and Cornelius, Gay & Korte (CG&K). He resigned his positions with CG&K in 2005 when he formed the Sierra Consulting Group, LLC. He has been appointed as an Examiner by the U.S. Department of Justice and as a Chapter 7 and Chapter 11 Trustee by the U.S. Bankruptcy Court and currently serves as a Principal of Semple, Marchal & Cooper, LLC, where he performs concurring partner reviews on SEC engagements. Mr. Gay also serves on various boards of non-profit organizations.
Audit Committee; Financial Expert
The Company has a standing audit committee comprised of one director, John F. Stapleton. As set forth in the Company’s written audit committee charter, the audit committee assists the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing, and reporting practices of the Company, and such other duties as directed by the Board. The committee’s role includes a particular focus on the qualitative aspects of financial reporting to shareholders, on the Company’s processes to manage business and financial risk, and for compliance with significant applicable legal, ethical, and regulatory requirements. The committee is directly responsible for the appointment, compensation, and oversight of the public accounting firm engaged to prepare and issue an audit report on the financial statements of the Company. We have posted our audit committee charter on our website at www.elcapitanpmi.com.
Mr. Stapleton is not an “audit committee financial expert” as defined by the rules promulgated by the SEC. However, Mr. Stapleton has financial management experience and is able to read and understand fundamental financial statements, including our consolidated balance sheet, consolidated statement of expenses and consolidated statement of cash flows, and is generally knowledgeable in financial and auditing matters. Given the Company’s current lack of capital to engage an “expert,” and the knowledge of the current member of the audit committee, the Company has determined that its current member of the audit committee sufficiently operates and functions without an “audit committee financial expert.”
Code of Ethics for Senior Financial Management
We have adopted a Code of Ethics that applies to our principal executive, financial and accounting officers (or persons performing similar functions). A copy of the Code of Ethics is filed as Exhibit 14.1 to this report.
Nominating Committee
There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires officers, directors and persons who beneficially own more than 10% of any class of equity securities registered pursuant to Section 12 of the Exchange Act to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. The Company does not have a class of equity securities registered pursuant to Section 12 of the Exchange Act.
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| ITEM 11. | EXECUTIVE COMPENSATION |
This section contains a discussion of the material elements of compensation awarded to, earned by or paid to (i) all individuals serving as our principal executive officer during fiscal 2015, regardless of compensation level, and (ii) our two most highly compensated other executive officers who were serving as executive officers at the end of fiscal 2015 (or such lesser number then serving as an executive officers) and who received in excess of $100,000 in total compensation during such fiscal year. These individuals are referred to in this report as the “named executive officers.” The named executive officers were the only individuals who served as executive officers of the Company during fiscal 2015.
The Company’s current executive officers include Charles C. Mottley, President and Chief Executive Officer, and John F. Stapleton, Chief Financial Officer. Messrs. Mottley and Stapleton also serve as members of the Company’s Board of Directors. The Board believes that equity incentive compensation in the form of stock option grants aligns the interests of the Company’s executive officers with that of the Company’s stockholders, namely to maximize stockholder equity returns. In light of the Company’s current plan to market the El Capitan Property for sale to a major mining company, the Board believes that stock options provide a meaningful incentive for management to execute on this strategic goal.
During fiscal 2014 and 2015, Mr. Mottley was entitled to receive a salary of $15,000 per month for his service as President and Chief Executive Officer. Due to limited cash availability, Mr. Mottley had accrued unpaid compensation of $97,975, which is recorded in accrued compensation - related parties at September 30, 2015. In addition, the Company granted 500,000 options to purchase shares of the Company’s common stock to Mr. Mottley on each of March 14, 2014 and November 3, 2014, as compensation for his services as a director. See “Director Compensation” below.
Mr. Stapleton does not receive a salary for his service as Chief Financial Officer. The Company granted 500,000 options to purchase shares of the Company’s common stock to Mr. Stapleton on each of March 14, 2014 and November 3, 2014, as compensation for his services as a director. See “Director Compensation” below.
In January 2012, the Company retained Management Resource Initiatives, Inc. (“MRI”) for managing and overseeing the process of marketing and selling the El Capitan Property and performing other services aimed at furthering the Company's strategic goals pursuant to an unwritten consulting arrangement. Under this arrangement, the Company pays MRI a current monthly consulting fee of $15,000. The Company made or accrued aggregate consulting payments of $180,000 to MRI during each of the fiscal years ended September 30, 2015 and 2014. MRI is a corporation that is wholly-owned by John F. Stapleton. MRI had accrued and unpaid compensation of $135,000 recorded in accrued compensation - related parties at September 30, 2015. Amounts paid or accrued to MRI are not reflected as employment compensation in the table below.
Neither Messrs. Mottley nor Stapleton is subject to a written employment agreement.
Summary Compensation Table
The following table sets forth the compensation awarded to, earned by or paid to each named executive officer during each of the fiscal years ended September 30, 2015 and 2014.
| Name and Principal Position | Fiscal Year | Salary |
Total
Compensation |
|||||||||||
| Charles C. Mottley | 2015 | $ | 180,000 | $ | 180,000 | |||||||||
| President, Chief Executive Officer, | 2014 | $ | 180,000 | $ | 180,000 | |||||||||
| Director | ||||||||||||||
| John F. Stapleton (1) | 2015 | $ | — | $ | — | |||||||||
| Director, Chairman of the Board | 2014 | $ | — | $ | — | |||||||||
| Chief Financial Officer | ||||||||||||||
| ________________ | |
| (1) | Mr. Stapleton has served as Chairman of the Board since April 21, 2009 and as Chief Financial Officer since February 14, 2012. Mr. Stapleton currently has no employment contract with the Company and receives no compensation for his services as an officer. |
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Grants of Plan-Based Awards
There was no equity awards granted under our 2005 Stock Incentive Plan to any named executive officer during the fiscal year ended September 30, 2015 as compensation for services provided as executive officers. Equity awards granted as compensation for director services are discussed below under “Director Compensation.”
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding each unexercised options held by each of the Company’s named executive officers as of September 30, 2015:
| Name | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price | Option Expiration Date | ||||||||||
| Charles C. Mottley | 500,000 | — | $ | 1.02 | 2/7/18 | |||||||||
| 500,000 | — | $ | 0.21 | 7/6/22 | ||||||||||
| 500,000 | — | $ | 0.215 | 1/15/18 | ||||||||||
| 500,000 | — | $ | 0.16 | 12/12/18 | ||||||||||
| 500,000 | — | $ | 0.31 | 3/14/19 | ||||||||||
| 500,000 | — | $ | 0.15 | 11/3/24 | ||||||||||
| John F. Stapleton | 500,000 | — | $ | 1.02 | 2/7/18 | |||||||||
| 500,000 | — | $ | 0.38 | 1/31/19 | ||||||||||
| 500,000 | — | $ | 0.21 | 7/6/22 | ||||||||||
| 500,000 | — | $ | 0.215 | 1/15/18 | ||||||||||
| 500,000 | — | $ | 0.16 | 12/12/18 | ||||||||||
| 500,000 | — | $ | 0.31 | 3/14/19 | ||||||||||
| 500,000 | — | $ | 0.15 | 11/3/24 | ||||||||||
| ____________ | |
| (1) | All option grants reflected in the table above were granted under to the Company’s 2005 Stock Incentive Plan, as amended. |
Our 2005 Stock Incentive Plan expired during our fiscal year ended September 30, 2015. On October 8, 2015, the Board of Directors of the Company approved the El Capitan Precious Metals, Inc. 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan enables the Board of Directors to grant to employees, directors, and consultants of the Company and its subsidiaries a variety of forms of equity-based compensation, including grants of options to purchase shares of common stock, shares of restricted common stock, restricted stock units, stock appreciation rights, other stock-based awards and performance-based awards. The maximum number of shares of common stock of the Company that may be issued or awarded under the 2015 Plan is 15,000,000 shares. On October 14, 2015, the Company filed Form S-8 Registration Statement No. 333-207399 with the SEC registering the 15,000,000 shares of common stock authorized for issuance pursuant to the 2015 Plan. On December 15, 2015, the Board of Directors of the Company adopted Amendment No. 1 to the Company’s 2015 Plan pursuant to which the number of shares of common stock issuable under the 2015 Plan was increased from 15,000,000 to 23,000,000.
Severance and Change of Control Arrangements
The Company has no severance or change of control agreements in place with its executive officers. The Company’s Board of Directors, or a committee thereof, serving as plan administrator of its 2005 Stock Incentive Plan and 2015 Equity Incentive Plan, has the authority to provide for accelerated vesting of the options granted to its named executive officers and any other person in the event of an acquisition of the Company through the sale of substantially all of the Company's assets or through a merger, exchange, reorganization or liquidation of the Company or a similar event as determined by the Committee. This description constitutes only a summary of the relevant terms of the Company’s 2005 Stock Incentive Plan and 2015 Equity Incentive Plan.
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Director Compensation
On July 21, 2005, based upon recommendations from the Company’s compensation committee, the Board of Directors approved a cash compensation plan for the Board of Directors pursuant to which non-employee directors are entitled to receive an annual retainer of $5,000, plus an additional $1,000 for each Board meeting attended by each such director in person and $500 for all Board meetings attended by such director remotely. In addition, non-employee directors serving as chairman of the audit and compensation committee shall receive an additional annual retainer of $4,000. Because Messrs. Mottley and Stapleton were employees of the Company throughout fiscal 2015, neither was eligible to receive cash director compensation. Mr. Tony J. Burger, who became a Director on March 17, 2014, and resigned as a Director on December 24, 2014, and Mr. Bradley C. Holt, who became a Director on September 25, 2014, and resigned as a Director on February 17, 2015, each agreed to forego his receipt of Board member cash compensation, and these expenses have not been incurred. The Board also approves grants of stock incentive awards to all directors from time to time, which are reflected in the table below, including the footnotes thereto.
The following table shows the compensation earned by each of the Company’s Directors for the fiscal year ended September 30, 2015:
| Name |
Fees
Earned or
Paid in Cash |
Stock Awards | Option Awards (2) | Total | ||||||||||||
| Charles C. Mottley (1)(3) | $ | — | $ | — | $ | 62,420 | $ | 62,420 | ||||||||
| John F. Stapleton (1)(4) | $ | — | $ | — | $ | 62,420 | $ | 62,420 | ||||||||
| Bradley C. Holt (1)(5) | $ | — | $ | — | $ | 31,210 | $ | 31,210 | ||||||||
| Tony J. Burger (1)(6) | $ | — | $ | — | $ | 45,813 | $ | 45,813 | ||||||||
| ___________ | |
| (1) | Mr. Mottley and Mr. Stapleton were appointed to the Board of Directors and Mr. Stapleton as Chairman of the Board on April 21, 2009; Mr. Burger was appointed to the Board of Directors on March 17, 2014 and Mr. Holt was elected to the Board of Directors on September 25, 2014. Mr. Burger resigned from the Board of Directors on December 24, 2014 and Mr. Holt resigned from the Board of Directors on February 17, 2015. |
| (2) | Amounts shown reflect the grant date fair value, computed in accordance with FASB ASC 718, for stock based incentives granted during the fiscal 2014. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For a discussion of the assumptions relating to our valuations of the option awards, see Note 1 to the financial statements included in this Annual Report on Form 10-K. These amounts reflect our accounting expense for these stock options and do not correspond to the actual value that may be recognized by the director. |
| (3) | During fiscal 2015, Mr. Mottley was awarded (i) an option to purchase 500,000 shares of our common stock at $0.15 per share, which had a grant date fair value of $62,420. At September 30, 2015, Mr. Mottley held options to purchase 3,000,000 shares at a weighted average exercise price of approximately $0.34 per share, all of which were fully vested. |
| (4) | During fiscal 2015, Mr. Stapleton was awarded (i) an option to purchase 500,000 shares of our common stock at $0.15 per share, which had a grant date fair value of $62,420. At September 30, 2015, Mr. Stapleton held options to purchase 3,500,000 shares at a weighted average exercise price of approximately $0.35 per share, all of which were fully vested. |
| (5) | During fiscal 2014, Mr. Holt was awarded an option to purchase 250,000 shares of our common stock at $0.15 per share, which had a grant date fair value of $31,210. At September 30, 2015, Mr. Holt held options to purchase 550,000 shares at a weighted average exercise price of approximately $0.14 per share, all of which were fully vested. |
| (6) | During fiscal 2015, Mr. Burger was awarded an option to purchase 250,000 shares of our common stock at $0.15per share, which had a grant date fair value of $31,210. Mr. Burger also had 62,500 options vest from an award in fiscal 2014 at $0.3452. Mr. Burger held options to purchase 437,500 shares at a weighted average exercise price of approximately $0.23 per share, all of which were fully vested. |
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Compensation Committee
The Compensation Committee of the Company contemplates a minimum of one director. The purpose of the Committee is to carry out the Board of Directors’ overall responsibility relating to executive compensation. Members of the Committee are appointed by the Board of Directors and may be removed by the Board of Directors in its discretion. Members of the Compensation Committee are required to be independent directors, and shall satisfy the Company’s independence guidelines for members of the Compensation Committee. Until his resignation as a Director on December 24, 2014, Mr. Tony J. Burger served as the only member of the Compensation Committee. Due to Mr. Burger’s resignation, the Board as a whole has assumed the responsibilities of the Compensation Committee until such time as a new independent director or directors are appointed to the Compensation Committee. We have posted our Compensation Committee Charter on our website at www.elcapitanpmi.com .
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth, as of January 11, 2016, certain information regarding beneficial ownership of our capital stock according to the information supplied to us, that were beneficially owned by (i) each person known by the Company to be the beneficial owner of more than 5% of each class of the Company’s outstanding voting stock, (ii) each director, (iii) each named executive officer identified in the Summary Compensation Table, and (iv) all named executive officers and directors as a group. Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable.
| Amount and Nature of Beneficial Ownership | |||||||||
| Common Stock |
Series B Convertible Preferred Stock (1) |
||||||||
| Name and Address of Beneficial Owner | Shares | % of Class (2) | Shares | % of Class (2) | |||||
|
Charles C. Mottley
8390 Via de Ventura, Suite F-110 Scottsdale, Arizona 85258 |
14,528,200 | (3) | 4.68% | — | — | ||||
|
John F. Stapleton
8390 Via de Ventura, Suite F-110 Scottsdale, Arizona 85258 |
8,195,980 | (4) | 2.63% | 51 | 100.0% | ||||
|
Clyde L. Smith
8390 Via de Ventura, Suite F-110 Scottsdale, Arizona 85258 |
250,000 | (5) | * | — | — | ||||
|
Timothy J. Gay
8390 Via de Ventura, Suite F-110 Scottsdale, Arizona 85258 |
304,990 | (6) | * | — | — | ||||
| All officers and directors as a group (4 persons) | 23,279,080 | 7.40% | 51 | 100.0% | |||||
______________
| * | Less than 1% |
| (1) | Each share of Series B Convertible Preferred Stock entitles the holder thereof to 6,278,938 votes solely in respect of matters that relate to Company capitalization (including, without limitation, increasing and/or decreasing the number of authorized shares of common stock and/or preferred stock, and implementing forward and/or reverse stock splits) and changes in the Company’s name. Holders of Series B Convertible Preferred Stock do not otherwise have the right to vote such shares on matters brought before the Company’s stockholders. |
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| (2) | Applicable percentage of ownership is based on 307,681,187 shares of common stock and 51 shares of Series B Convertible Preferred Stock outstanding as of January 11, 2016, together with securities exercisable or convertible into shares of common stock within sixty (60) days of January 11, 2016, for each stockholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants exercisable or convertible into shares of common stock that are currently exercisable or exercisable within sixty (60) days of January 11, 2016, are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. |
| (3) | Mr. Mottley is President, Chief Executive Officer and a Director of the Company. Includes (i) 3,000,000 shares issuable upon the exercise of outstanding stock options that are currently exercisable or will become exercisable within sixty (60) days following January 11, 2016; and (ii) 10,000 shares of common stock held by Mr. Mottley’s spouse. |
| (4) | Mr. Stapleton is the Chairman of the Board, Chief Financial Officer and Secretary of the Company. Includes (i) 3,500,000 shares issuable upon the exercise of outstanding stock options that are currently exercisable or will become exercisable within sixty (60) days following January 11, 2016, and (ii) 51 shares of common stock that are issuable upon conversion of Series B Convertible Preferred Stock held by Mr. Stapleton. |
| (5) | Mr. Smith is a Director of the Company as of November 23, 2015. Includes 250,000 shares issuable upon the exercise of outstanding stock options that are currently exercisable or will become exercisable within sixty (60) days following January 11, 2016. |
| (6) | Mr. Gay is a Director of the Company as of December 4, 2015. Includes 250,000 shares issuable upon the exercise of outstanding stock options that are currently exercisable or will become exercisable within sixty (60) days following January 11, 2016. |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth, as of September 30, 2015, (i) the number of securities to be issued upon the exercise of outstanding options, warrants and rights issued under our equity compensation plans, (ii) the weighted-average exercise price of such options, warrants and rights, and (iii) the number of securities remaining available for future issuance under our equity compensation plans (excluding those securities set forth in Item (i)).
| Plan Category |
Number
of securities to be issued upon exercise of outstanding options, warrants and rights
(a)(1) |
Weighted
average price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity compensation plans (excluding (a))
|
|||||||||
| Equity compensation plans approved by security holders | 8,387,500 | $ | 0.311 | — | ||||||||
| Equity compensation plans not approved by security holders | 6,861,344 | $ | 0.0955 | — | ||||||||
| Total | 15,248,844 | $ | 0.2143 | — | ||||||||
___________
| (1) | All outstanding options identified above are governed by the terms of the Company’s 2005 Stock Incentive Plan (the “2005 Plan”). The 2005 Plan authorizes the granting of stock-based awards to purchase up to 30,000,000 shares of our common stock. Under the 2005 Plan, our Board of Directors or a committee of two or more non-employee directors designated by our Board administers the 2005 Plan. As such, the Board or compensation committee, as applicable, has the power to grant awards, to determine when and to whom awards will be granted, the form of each award, the amount of each award, and any other terms or conditions of each award consistent with the terms of the 2005 Plan. Awards may be made to employees, directors and consultants of the Company and our subsidiaries. The types of awards that may be granted under the 2005 Plan include incentive and non-statutory stock options, stock appreciation rights, stock awards, restricted stock, and performance shares. Each award agreement will specify the number and type of award, together with any other terms and conditions as determined by the Board of Directors or committee in its sole discretion. In the event of an acquisition of the Company through the sale of substantially all of the Company's assets or through a merger, exchange, reorganization or liquidation of the Company or a similar event, the Board of Directors or applicable committee may take any action with respect to outstanding awards that it deems equitable, including providing for the assumption or substitution of outstanding awards, or the acceleration or termination of unvested awards. The Board of Directors may amend or discontinue the 2005 Plan at any time. The 2005 Plan expired during our 2015 fiscal year. |
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The 2005 Plan expired during the fiscal year ended September 30, 2015. On October 8, 2015, the Board of Directors of the Company approved the El Capitan Precious Metals, Inc. 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan enables the Board of Directors to grant to employees, directors, and consultants of the Company and its subsidiaries a variety of forms of equity-based compensation, including grants of options to purchase shares of common stock, shares of restricted common stock, restricted stock units, stock appreciation rights, other stock-based awards and performance-based awards. The maximum number of shares of common stock that may be issued or awarded under the 2015 Plan is 15,000,000 shares.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Certain Relationships
Since January 2012, Management Resource Initiatives, Inc. (“MRI”) has been managing and overseeing the process of marketing and selling the El Capitan Property and performing other services aimed at furthering the Company's strategic goals pursuant to an unwritten consulting arrangement. Under this arrangement, the Company paid MRI a monthly consulting fee of $10,000 through July 2013. Effective August 1, 2013, the monthly consulting fee was increased to $15,000. The Company made aggregate payments of $180,000 to MRI during fiscal 2014 and aggregate payments of $45,000 during fiscal year 2015. Accrued and unpaid fees of $135,000 are recorded in accrued compensation - related parties at September 30, 2015. MRI is a corporation that is wholly-owned by John F. Stapleton, the Chief Financial Officer and a Director of the Company.
On August 1, 2014, Company issued fifty-one (51) shares of Series B Preferred Stock to John F. Stapleton for a purchase price equal to $1.00 per share. As a result of the voting rights of the Series B Preferred Stock, Mr. Stapleton holds in the aggregate approximately 51% of the total voting power of all issued and outstanding voting capital of the Company solely with respect to matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent and relate to Company capitalization (including, without limitation, increasing and/or decreasing the number of authorized shares of common stock and/or preferred stock, and implementing forward and/or reverse stock splits) and changes in the Company’s name. Mr. Stapleton does not otherwise have the right under the Certificate of Designation to vote the Series B Preferred Stock on matters brought before the Company’s stockholders. The Company’s Board of Directors believes that the issuance of the Series B Preferred Stock to Mr. Stapleton facilitates the Company’s ability to manage its affairs with respect to the limited matters on which the Series B Stockholder is entitled to vote.
On February 4, 2015, the Company signed a $30,000 promissory note payable to MRI, which accrues interest at 18% per annum and becomes due and payable on February 4, 2016. As an inducement for the loan represented by the note, the Company issued 200,000 shares of restricted common stock of the Company to MRI.
Director Independence
Although the Company is not listed on a national securities exchange, in determining whether the members of our Board and its committees are independent, the Company has elected to use the definition of “independence” set forth by the NASDAQ Stock Market (“NASDAQ”) and the standards for independence established by NASDAQ. After review of relevant transactions or relationships between each director, or any of his family members, and the Company, its senior management and its independent registered public accounting firm, the Board has determined that John F. Stapleton and, Charles C. Mottley are not independent directors under the NASDAQ standard based in part on their positions as executive officers and employees of the Company.
The director independence rules of NASDAQ require listed companies to have an audit committee of at least three members, each of whom (in addition to satisfying other conditions) is an independent director. The Company’s audit committee is comprised of John F. Stapleton and, therefore, would not meet this NASDAQ requirement.
The director independence rules of NASDAQ require that the compensation of the chief executive officer and other officers of a listed company be determined, or recommended to the Board for determination, either by a compensation committee comprised of independent directors or by a majority of the independent directors on its Board of Directors. Until his resignation as a Director on December 24, 2014, Mr. Tony J. Burger served as the only member of the compensation committee. Due to Mr. Burger’s resignation, the Board as a whole has assumed the responsibilities of the Compensation Committee until such time as a new independent director or directors are appointed to the Compensation Committee. Until such appointment(s), the Company’s compensation committee does not meet this NASDAQ requirement.
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The director independence rules of the NASDAQ require that Board of Director nominations must be either selected, or recommended for the Board's selection, by either a nominating committee comprised solely of independent directors or by a majority of the independent directors. The Company’s Board of Directors as a whole serves as the nominating committee and, therefore, would not meet this NASDAQ requirement.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The following table summarizes the aggregate fees billed to the Company by MaloneBailey, LLP in relation to the audits and quarterly reviews of the Company for the fiscal years ended September 30, 2015 and 2014:
|
Year Ended
September 30, 2015 |
Year Ended
September 30, 2014 |
|||||||
| Audit Fees (1) | $ | 52 ,000 | $ | 52,000 | ||||
| Audit-Related Fees (2) | $ | — | $ | — | ||||
| Tax Fees (3) | $ | — | $ | — | ||||
| All Other Fees (4) | $ | — | $ | — | ||||
| _______________ | |
| (1) | Audit Fees. Audit fees include fees for professional services performed for the audit of our annual consolidated financial statements, review of quarterly consolidated financial statements included in our SEC filings, and assistance and issuance of consents associated with other SEC filings. |
| (2) | Audit-Related Fees. Audit-related fees are fees for assurance and related services that are reasonably related to the audit. This category includes fees related to assistance consulting on financial accounting/reporting standards. |
| (3) | Tax Fees. Tax fees primarily include professional services performed with respect to preparation of our federal and state tax returns for our consolidated subsidiaries. |
| (4) | All Other Fees. All other fees include products and services provided, other than the services reported comprising Audit Fees, Audit Related Fees and Tax Fees. |
The audit committee of the Board of Directors has reviewed the services provided by MaloneBailey, LLP during the fiscal year ended September 30, 2015 and the amounts billed for such services, and after consideration, has determined that the receipt of these fees by MaloneBailey, LLP is compatible with the provision of independent audit services. The audit committee has discussed these services and fees with MaloneBailey, LLP and Company management to determine that they are appropriate under the rules and regulations concerning auditor independence promulgated by the U.S. Securities and Exchange Commission to implement the Sarbanes-Oxley Act of 2002, as well as under guidelines of the American Institute of Certified Public Accountants.
Pre-Approval Policy
The audit committee charter provides that all audit and non-audit accounting services that are permitted to be performed by the Company’s independent registered public accounting firm under applicable rules and regulations must be pre-approved by the audit committee or by designated independent members of the audit committee, other than with respect to de minimis exceptions permitted under Section 202 of the Sarbanes-Oxley Act of 2002. All services performed by MaloneBailey during the fiscal years ending September 30, 2015 and 2014 have been pre-approved in accordance with the charter.
Prior to or as soon as practicable following the beginning of each fiscal year, a description of audit, audit-related, tax, and other services expected to be performed by the independent registered public accounting firm in the following fiscal year will be presented to the audit committee for approval. Following such approval, any requests for audit, audit-related, tax, and other services not presented and pre-approved must be submitted to the audit committee for specific pre-approval and cannot commence until such approval has been granted. Normally, pre-approval is provided at regularly scheduled meetings. However, the authority to grant specific pre-approval between meetings, as necessary, may be delegated to one or more members of the audit committee who are independent directors. In the event such authority is so delegated, the full audit committee must be updated at the next regularly scheduled meeting with respect to any services that were granted specific pre-approval by delegation. During the fiscal year ending September 30, 2015, the audit committee has functioned in conformance with these procedures.
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PART IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
|
Exhibit Number |
Description | |
| 2.1 | Agreement and Plan of Merger between the Company, Gold and Minerals Company, Inc. and MergerCo, dated June 28, 2010 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 7, 2010) . | |
| 3.1 | Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Form S-4 Registration Statement #333-170281 filed on November 2, 2010) . | |
| 3.2 | Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed October 1, 2014). | |
| 3.3 | Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 31, 2011). | |
| 3.4 | Certificate of Designation of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 1, 2014). | |
| 3.5 | 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 30, 2014 by and between El Capitan Precious Metals, Inc. and Southridge Partners II, LP (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 30, 2014) . | |
| 10.2 | 2005 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Form S-8 Registration Statement #333-177417 filed on October 20, 2011) . | |
| 10.3 | Form of Stock Option Agreement (Director) (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K filed December 14, 2012) . | |
| 10.4 | El Capitan Precious Metals, Inc. 2015 Equity Incentive Plan (incorporated by reference to the registrant’s Current Report on Form 8-K filed on October 14, 2015) | |
| 10.5 | Agreement dated March 10, 2014 between the Company and Glencore AG (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q filed on July 22, 2014) .+ | |
| 10.6 | Master Services Agreement dated February 28, 2014 by and between the Company and Logistica, U.S. Terminals, LLC, including the Iron Ore Processing Agreement attached as Appendix A thereto (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 14, 2014) . + | |
| 10.7a | Note and Warrant Purchase Agreement dated October 17, 2014, between the Company and Connelly Land LLC, including the 8% Secured Promissory Note, Common Stock Purchase Warrant and Security Agreement attached as Exhibits A, B and C thereto (incorporated by referenced to Exhibit 10.8 to the Company’s Annual Report on Form 10-K filed on December 29, 2014) . | |
| 10.7b * | Amended Note dated as of August 24, 2015 and Warrant Purchase Agreement between the Company and Connelly Land LLC | |
| 10.8 * | Promissory Note dated February 4, 2015 between the Company and George Nesemeier and Robert J. Runck | |
| 10.9 * | Promissory Note dated February 4, 2015 between the Company and Management Resource Initiative, Inc. | |
| 10.10 * | Agreement dated April 16, 2015 between the Company and S&L Energy, LLC | |
| 10.11 * | Agreement dated August 31, 2015 between the Company and Charles L. Wickham, Jr. | |
| 10.12 * | Securities Purchase Agreement dated December 2, 2015 between the Company and Union Capital, LLC, including front-end and back-end Notes attached as Exhibits A and B, and Collateralized Secured Promissory Note | |
| 14.1 * | Code of Ethics for Senior Financial Management | |
| 21.1 | Subsidiaries of El Capitan Precious Metals, Inc. (incorporated by referenced to Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed on December 29, 2014) . | |
| 23.1 * | Consent of Clyde L. Smith, Ph.D. | |
| 23.2 * | Consent of MaloneBailey, LLP |
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|
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. |
| + |
Confidential treatment has been granted as to certain portions of this exhibit pursuant to Rule 406 of the Securities Act of 1933, as amended, or Rule 24b-2 of the Securities Exchange Act of 1934, as amended. |
Financial Statement Schedules
None.
| 71 |
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| EL CAPITAN PRECIOUS METALS, INC. | ||
| Date: January 11, 2016 | By: | /s/ Charles C. Mottley |
| Charles C. Mottley | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: January 11, 2016 | By: | /s/ John F. Stapleton |
| John F. Stapleton | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name | Title | Date | ||
| /s/ Charles C. Mottley | Chief Executive Officer, Director | January 11, 2016 | ||
| Charles C. Mottley | (Principal Executive Officer) | |||
| /s/ John F. Stapleton | Chairman of the Board, Director, Chief | January 11, 2016 | ||
| John F. Stapleton | Financial Officer (Principal Financial | |||
| Officer), Secretary | ||||
| /s/ Clyde L. Smith | Director | January 11, 2016 | ||
| Clyde L. Smith | ||||
| /s/ Timothy J. Gay | Director | January 11, 2016 | ||
| Timothy J. Gay | ||||
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The registrant has not sent to its security holders any annual report covering the registrant’s fiscal year ended September 30, 2015.
| 72 |