U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended June 30, 2017
 
 
 
 
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.)
 
5871 Honeysuckle Road
 
Prescott, Arizona
86305
(Address of Principal Executive Offices)
(Zip Code)

(928) 515-1942
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   þ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer   
Accelerated filer   
 
 
Non-accelerated filer  
Smaller reporting company    
 
 
(Do not check if smaller reporting company)
Emerging growth company    
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes   No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 419,510,635 s hares of common stock par value $0.001, of the issuer were issued and outstanding as of August 14, 2017. 
 

 
1

 
EL CAPITAN PRECIOUS METALS, INC.
 
Table of Contents


 
 
Page
 
 
 
 
3
 
4
 
5
 
 
 
PART I.  FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
6
 
 
6
 
 
7
 
 
8
 
 
10
Item 2.
 
30
Item 3.
 
37
Item 4.
 
38
 
 
 
 
PART II.  OTHER INFORMATION
 
 
 
 
 
 
Item 1.
 
39
Item 1A.
 
39
Item 2.
 
39
Item 3.
 
39
Item 4.
 
39
Item 5.
 
39
Item 6.
 
40
 
 
 
 
 
41
 
 
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 Industry 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 Industry 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 are 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.
 
 
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.
 
 
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
 
 
This Quarterly Report on Form 10-Q may contain certain “forward-looking” statements as such term is defined by the Securities and Exchange Commission in its rules, regulations and releases, which represent the registrant’s expectations or beliefs, including but not limited to, statements concerning the registrant’s operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the registrant’s control, and actual results may differ materially depending on a variety of important factors, including uncertainty related to acquisitions, governmental regulation, managing and maintaining growth, the operations of the Company and its subsidiaries, volatility of stock price, commercial viability of any mineral deposits and any other factors identified in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016, filed with the U.S. Securities and Exchange Commission on January 13, 2017, or discussed herein or in the Company’s other filings with the Securities and Exchange Commission.  The Company does not intend or undertake to update the information in this Form 10-Q if any forward-looking statement later turns out to be inaccurate. 
 
 
PART I.
FINANCIAL INFORMATION
 
 
Item 1.
Financial Statements
 
 EL CAPITAN PRECIOUS METALS, INC.
 
CONSOLIDATED BALANCE SHEETS
(Unaudited) 
 
 
 
 
June 30,
   
September30,
 
 
 
2017
   
2016
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
56,825
   
$
296,619
 
Advances to vendor
   
502,714
     
 
Prepaid expense and other current assets
   
107,184
     
135,196
 
Inventory
   
255,040
     
252,466
 
Total Current Assets
   
921,763
     
684,281
 
 
               
Property and equipment, net of accumulated depreciation of $191,827 and $128,748,
respectively
   
565,269
     
577,883
 
Exploration property
   
1,864,608
     
1,864,608
 
Restricted cash
   
79,859
     
74,504
 
Deposits
   
22,440
     
22,440
 
Total Assets
 
$
3,453,939
   
$
3,223,716
 
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
CURRENT LIABILITIES:
               
Accounts payable
 
$
287,757
   
$
224,079
 
Current portion of  long-term debt
   
8,398
     
 
Notes payable, net of unamortized discounts of $0 and $1,769, respectively
   
465,617
     
857,219
 
Convertible note payable, net of unamortized discounts of $55,118 and $0
   
54,882
     
 
Note payable, related party
   
30,000
     
30,000
 
Accrued compensation - related parties
   
46,576
     
500,000
 
Accrued liabilities
   
218,047
     
407,332
 
Derivative instruments liability
   
243,562
     
 
Total Current Liabilities
   
1,354,839
     
2,018,630
 
 
               
LONG-TERM LIABILITIES
               
    Note payable
   
15,005
     
 
            Total Liabilities
   
1,369,844
     
2,018,630
 
                 
STOCKHOLDERS’ EQUITY:
               
Preferred stock, $0.001 par value; 5,000,000 shares authorized; 51 and 51 shares
issued and outstanding, respectively
   
     
 
Common stock, $0.001 par value; 500,000,000 shares authorized; 413,437,622 and
366,254,777 shares issued and outstanding, respectively
   
413,438
     
366,255
 
Additional paid-in capital
   
215,849,503
     
212,865,439
 
Accumulated deficit
   
(214,178,846
)
   
(212,026,608
)
Total Stockholders’ Equity
   
2,084,095
     
1,205,086
 
Total Liabilities and Stockholders’ Equity
 
$
3,453,939
   
$
3,223,716
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 

EL CAPITAN PRECIOUS METALS, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
 
 
Three Months Ended
June 30,
   
Nine Months Ended
June 30,
 
 
 
2017
   
2016
   
2017
   
2016
 
 
                       
REVENUES
 
$
3,637
   
$
   
$
3,637
   
$
2,950
 
 
                               
COSTS ASSOCIATED WITH REVENUES
   
1,557
     
     
1,557
     
(3,300
)
Gross Income/(Loss)
   
2,080
     
     
2,080
     
(350
)
 
                               
OPERATING EXPENSES:
                               
Mine, exploration costs and pilot plant
   
361,825
     
214,207
     
858,654
     
398,412
 
Professional fees
   
(3,634
)
   
54,730
     
10,377
     
157,491
 
Administrative consulting fees
   
65,000
     
65,000
     
195,000
     
195,000
 
Legal and accounting fees
   
23,303
     
28,741
     
92,652
     
173,101
 
Other general and administrative
   
25,031
     
30,101
     
89,307
     
117,004
 
Total Operating Expenses
   
471,525
     
392,779
     
1,245,990
     
1,041,008
 
 
                               
LOSS FROM OPERATIONS
   
(469,445
)
   
(392,779
)
   
(1,243,910
)
   
(1,041,358
)
 
                               
OTHER INCOME (EXPENSE):
                               
Interest income
   
3
     
4
     
19
     
10
 
(Loss) gain on derivative instruments
   
68,090
     
(82,256
)
   
(155,233
)
   
72,467
 
(Loss) gain on debt extinguishment
   
     
20,648
     
(660,376
)
   
(80,396
)
Interest expense – related party
   
(1,346
)
   
(1,347
)
   
(4,039
)
   
(8,492
)
Interest expense
   
(55,464
)
   
(87,356
)
   
(88,699
)
   
(214,929
)
Total Other Income (Expense)
   
11,283
     
(150,307
)
   
(908,328
)
   
(231,340
)
 
                               
LOSS BEFORE PROVISION FOR INCOME
TAXES
   
(458,162
)
   
(543,086
)
   
(2,152,238
)
   
(1,272,698
)
 
                               
PROVISION FOR INCOME TAXES
   
     
     
     
 
 
                               
NET LOSS
 
$
(458,162
)
 
$
(543,086
)
 
$
(2,152,238
)
 
$
(1,272,698
)
 
                               
Basic and Diluted Per Share Data:
                               
Net Loss Per Share - basic and diluted
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.01
)
 
$
(0.00
)
 
                               
Weighted Average Common Shares Outstanding:
                               
Basic and diluted
   
408,721,034
     
318,584,126
     
391,281,229
     
307,973,106
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 

EL CAPITAN PRECIOUS METALS, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) 
 

 
 
Nine Months Ended
June 30,
 
 
 
2017
   
2016
 
 
           
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
 
$
(2,152,238
)
 
$
(1,272,698
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Warrant and option expense
   
     
22,367
 
Stock-based compensation
   
318,703
     
305,703
 
Amortization of debt discounts
   
56,651
     
152,027
 
Depreciation
   
64,939
     
49,432
 
Loss on debt extinguishment
   
660,376
     
80,396
 
Loss (gain) on derivative instruments
   
155,233
     
(72,467
)
Net change in operating assets and liabilities:
               
Prepaid expenses and other current assets
   
75,513
     
77,963
 
Inventory
   
1,210
     
(240,962
)
Accounts payable
   
63,678
     
68,110
 
Accrued compensation – related parties
   
46,576
     
332,186
 
Accrued liabilities
   
41,827
     
160,716
 
Net Cash Used in Operating Activities
   
(667,532
)
   
(337,227
)
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of furniture and equipment
   
(17,739
)
   
(2,385
)
Advance to vendor for pilot plant equipment purchases
   
(113,116
)
   
 
Restricted cash
   
(5,355
)
   
(4
)
Net Cash Used in Investing Activities
   
(136,210
)
   
(2,389
)
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from the sale of common stock
   
657,488
     
45,995
 
Proceeds from convertible notes payable, net of original issue discounts
   
100,000
     
321,800
 
Payments on notes payable
   
(150,000
)
   
 
Payments on finance contracts
   
(43,540
)
   
(37,147
)
Net Cash Provided by Financing Activities
   
563,948
     
330,648
 
 
               
NET DECREASE IN CASH AND CASH EQUIVALENTS
   
(239,794
)
   
(8,968
)
 
               
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
296,619
     
71,393
 
 
               
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
56,825
   
$
62,425
 
(Continued) 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
 
 
 
 
Nine Months Ended
June 30,
 
 
 
2017
   
2016
 
 
           
SUPPLEMENTAL CASH FLOW INFORMATION:
           
Cash paid for interest
 
$
8,043
   
$
31,503
 
Cash paid for income taxes
   
     
 
 
               
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
               
Common stock and warrants issued on settlement of debt and accrued interest
 
$
256,028
   
$
307,982
 
Common stock issued for third party payables
   
236,755
     
290,106
 
Common stock issued with debt
           
4,858
 
Common stock issued for inventory
   
3,784
     
664,262
 
Common stock issued for related party payables
   
500,000
     
151,161
 
Common stock issued for prepayment of services and costs incurred
   
     
46,535
 
Common stock issued for fixed assets
   
8,515
     
 
Common stock issued to vendor for pilot plant equipment purchases
   
389,598
     
 
Debt discount from derivative liabilities
   
88,329
     
92,000
 
Reclassification of warrants from equity to derivative liabilities
   
     
212,323
 
Reclassification of accrued interest to principal outstanding
   
     
5,940
 
Convertible debt issued for deferred stock issuance costs
   
     
25,000
 
Purchase of fixed assets through financing contract
   
26,071
     
 
Purchase of insurance through financing contract
   
47,501
     
32,773
 
Debt discount from financing costs
   
11,671
     
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 – BASIS OF PRESENTATION
 
Business, Operations and Organization
 
The accompanying unaudited interim financial statements of El Capitan Precious Metals, Inc. (“El Capitan” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, the financial statements do not include all information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete annual financial statements. In the opinion of management, the accompanying unaudited interim financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the fiscal year ending September 30, 2017, or for any subsequent period. These interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the fiscal year ended September 30, 2016, included in the Company’s Annual Report on Form 10-K, filed with the SEC on January 13, 2017 (the “2016 Form 10-K”). The consolidated balance sheet at September 30, 2016, has been derived from the audited financial statements included in the 2016 Form 10-K.
 
Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2016 as reported in the 2016 Form 10-K have been omitted.
 
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 are presented on a consolidated basis.

El Capitan Precious Metals, Inc., a Nevada corporation, is based in Prescott, 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 commenced planned mineral exploration activity in the quarter ended December 2015 under our modified mining permit. However, we have not yet demonstrated the existence of proven or probable reserves at the 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 property are expensed as incurred. 

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.
 

EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 – BASIS OF PRESENTATION (Continued)
 
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.
 
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 a minimum source of revenue to cover its costs. The Company has incurred a loss for the year ended September 30, 2016 and for the nine months ended June 30, 2017 and the Company has a working capital deficit as of June 30, 2017. 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 future 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 currently has an “equity line” financing arrangement under a Purchase Agreement with L2 Capital, LLC.  In the past the Company has secured working capital loans to assist in financing its activities for the near term. The Company may also pursue other financing alternatives from time to time, including short-term operational strategic financing or equity financing, to fund its activities until it can achieve cash flow and profits from its operations. 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 unaudited 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.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 – BASIS OF PRESENTATION (Continued)
 
Advances to Vendor
 
The Company has made advances to the operator of a pilot plant which has been established to house equipment obtained from China that processes concentrates recovered at the El Capitan Property. The pilot plant, including the equipment, is owned by the operator of the pilot plant and not by the Company. The advances made by the Company are for site improvements, equipment and ancillary equipment required to attain the through put goal of management. The pilot plant is currently operational and generating concentrated product that is being shipped out to a refiner for smelting, precious metals recovery and sale.
 
The arrangements for repayment are included in the operating agreement with the operator. From proceeds of precious metal concentrates sales, all operating expenses incurred by each party for the period are reimbursed to the parties to the Agreement. The remaining profit for the period is divided equally and the plant operator must reimburse the Company out of its profits for any advances made by the Company for equipment purchases and related modifications to equipment or the site.

Inventory
 
Inventories include mineralized material stockpile, concentrate, iron ore inventories and road base, 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.
 
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. Inventories consist of mineralized material that contains mainly gold, platinum and silver mineralization.
 
Iron Ore
 
Iron ore material is inventoried until the market prices are reestablished at a higher market demand and are valued at approximately $20 a ton. 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. 
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 – BASIS OF PRESENTATION (Continued)
 
Restricted Cash
 
Restricted cash consists of two certificates of deposits in favor of the New Mexico Minerals and Mining Division for a total of $79,859. The amount is posted as a financial assurance for required reclamation work to be completed on mined and disturbed 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.
 
Derivative Financial Instruments
 
The Company does not use derivative instruments to hedge exposures to cash flow or market risks. The Company reviews the terms of convertible debt, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. The Company may also issue options or warrants to non-employees in connection with consulting or other services.
 
Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value of the financial instrument reported as charges or credits to income.  To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received, an immediate charge to income is recognized as a one day derivative loss, in order to initially record the derivative instrument liabilities at their fair value.

The discount from the face value of the convertible debt or equity instruments resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.

When required to arrive at the fair value of derivatives associated with the Note and warrants, a Monte Carlo model was utilized that values the Note and warrants based on average discounted cash flow factoring in the various potential outcomes by a Chartered Financial Analyst (“CFA”). In determining the fair value of the derivatives the CFA assumed that the Company’s business would be conducted as a going concern.
 
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 – BASIS OF PRESENTATION (Continued)
 
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.
 
During the nine months ended June 30, 2017 and 2016, the Company recognized aggregate stock-based administrative compensation of $0 and $328,070, respectively, in connection with the issuance of common stock options and common stock to administrative personnel, directors and consultants.

During the nine months ended June 30, 2017 and 2016, the Company recognized compensation of $318,703 and $0, respectively, in connection with the issuance of common stock to our mine contractor. These costs incurred were attributable to the pilot plant operation and Mine Safety and Health Administration (“MSHA”) mine regulation consulting.

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 nominal revenue generated for the Company’s quarter ended June 30, 2017 and none for June 30, 2016.
 
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.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 – BASIS OF PRESENTATION (Continued)

Recently Issued Accounting Pronouncements (Continued)

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10).” The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect to early adopt this guidance and does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.
 
In March 2016, the FASB issued ASU No. 2016-09, “ Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 amends several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted any interim or annual period. If early adopted, an entity must adopt all of the amendments in the same period. The Company is currently evaluating the potential impact of the adoption of ASU 2016-09 on the Company's consolidated financial statements.

In August, 2016, the FASB issued ASU No. 2016-15, “ Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (a consensus of the Emerging Issues Task Force). Effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.

In May 2017 the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). This new accounting guidance provides information about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for financial statements issued for annual reporting periods beginning after December 15, 2017 and interim periods within those years. Earlier application is permitted. We do not expect that the adoption of this new guidance will have a material impact on our consolidated financial statements as we historically have not made changes to the terms or conditions of an outstanding share-based payment award.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 – BASIS OF PRESENTATION (Continued)

Recently Issued Accounting Pronouncements (Continued)

In July 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-11, “ Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ” Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity , because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. ASU 2017-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company has adopted the ASU beginning with these condensed consolidated financial statements. As a result, the conversion features of certain of its convertible notes payable and equity instruments that contain “down round” provisions will not be bifurcated and will not be recorded as a derivative liability.

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 commenced informal arrangements with an individual, who is currently an officer, pursuant to which such individual serves as support staff for the functioning of the home office and all related corporate activities and projects. The aggregate monthly payments under the informal arrangements are $6,667. There is no written agreement with this individual. At June 30, 2017 and September 30, 2016, this individual had accrued and unpaid compensation and expenses of $15,967 and $40,000, respectively, recorded in accrued compensation – related parties. During the nine months ended June 30, 2017, the Company issued 487,806 shares of restricted common stock and 487,806 shares of S-8 common stock to this individual for payment of accrued compensation of $40,000. The fair value of the stock was $86,732 and the Company recorded a loss on extinguishment of debt of $46,732.
 
During the nine months ended June 30, 2017, the Company issued 1,768,293 shares of restricted common stock and 1,768,293 shares of S-8 common stock to a former officer and currently a director of the Company as payment of accrued compensation of $145,000. The fair value of the stock was $199,110 and the Company recorded a loss on extinguishment of debt of $54,110.
 
In January 2012, the Company retained the consulting services of Management Resource Initiatives, Inc. (“MRI”), a company controlled by John F. Stapleton who served as the Chief Financial Officer and a director of the Company at that time and who currently serves as President and Chief Executive Officer and a director of the Company. The current monthly consulting fee for such services is $15,000. Total consulting fees expensed to MRI for the nine months ended June 30, 2017 and 2016 was $135,000 and $45,000, respectively. At June 30, 2017 and September 30, 2016, MRI had accrued and unpaid compensation of $30,000 and $315,000, respectively, recorded in accrued compensation – related parties. During the nine months ended June 30, 2017, the Company issued 3,841,463 shares of restricted common stock and 3,841,463 shares of S-8 common stock to the individual controlling MRI as payment of accrued compensation of $315,000. The fair value of the stock was $599,268 and the Company recorded a loss on extinguishment of debt of $284,268. At June 30, 2017, MRI had accrued and unpaid compensation of $30,000 recorded in accrued compensation – related parties.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 2 – RELATED PARTY TRANSACTIONS (Continued)
 
Consulting Agreements (Continued)
 
Total administrative consulting fees expensed under these informal arrangements for both the nine months ended June 30, 2017 and 2016 was $195,000, respectively.

On February 4, 2015, the Company signed a $30,000 promissory note payable to MRI, at 18% interest per annum, 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. The Company approved amending the note to extend the maturity date from February 4, 2016 to February 4, 2017 under the original terms of the Agreement. On March 29, 2017, the Company extended the note for six months to August 4, 2017, and agreed to grant 200,000 shares to MRI as compensation for the extension; however such shares have not been issued as of the date of this report.  See Note 5 – Notes Payable, February 4, 2015 Unsecured Promissory Notes.

NOTE 3 – INVENTORY
 
The following table provides the components of inventory as of June 30, 2017 and September 30, 2016:

 
 
June 30,
   
September 30,
 
 
 
2017
   
2016
 
 
           
Mineralized material stockpile
 
$
87,840
   
$
87,840
 
Concentrate
   
149,312
     
146,738
 
Iron ore
   
17,888
     
17,888
 
     Total
 
$
255,040
   
$
252,466
 

NOTE 4 – ACCRUED LIABILITIES
 
Accrued liabilities consisted of the following as of June 30, 2017 and September 30, 2016:
 
    June 30,     September 30,  
    2017     2016  
                 
Mining costs
 
$
27,948
   
$
60,613
 
Professional and consulting fees
   
12,000
     
 
Accounting and legal
   
94,388
     
285,025
 
Interest
   
83,711
     
61,694
 
 
 
$
218,047
   
$
407,332
 

During the nine months ended June 30, 2017, the Company issued 2,744,513 shares of restricted common stock and 3,000,000 shares of S-8 common stock as payment of accrued legal fees of $236,755. The fair value of the stock was $485,554 and the Company recorded a loss on extinguishment of debt of $248,799.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 5 – NOTES PAYABLE
 
Agreements with Logistica U.S. Terminals, LLC
 
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. As of June 30, 2017, the outstanding balance under this note payable was $400,000 and accrued interest on the note was $60,066. 
 
On January 5, 2016, we entered into our current agreement with Logistica U.S. Terminals, LLC (“Logistica”). Under the agreement we will provide to Logistica concentrated ore to their specifications at the mine site. Logistica will transport, process, and refine the precious metals concentrates to sell to precious metals buyers. The terms of the agreement provide for the recovery of hard costs related to the concentrates by both parties prior to the distribution of profits. The agreement also provided for the issuance of 10,000,000 shares of our restricted common stock and the elimination of a $100,000 accrued liability to Logistica for prior services rendered. When certain terms and conditions are met, the Agreement calls for Logistica to arrange for a letter of credit for working capital for the mining, processing and sale activities under the Agreement. The shares were issued in August 2016. The agreement superseded previous agreements between the Company and Logistica.
 
October 17, 2014 Note and Warrant Purchase Agreement
 
On October 17, 2014, we entered into a private Note and Warrant Purchase Agreement with an accredited investor pursuant to which we borrowed $500,000 against delivery of a promissory note (the “2014 Note”) in such amount and issued warrants to purchase 882,352 shares of our common stock. The 2014 Note carries an interest rate of 8% per annum, was initially due on July 17, 2015 and was 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 maturity date of the 2014 Note was mutually extended to January 17, 2016. In consideration of the extension, the Company issued a common stock purchase warrant to purchase 4,714,286 shares (subject to adjustment) of our common stock at an exercise price of $0.07 per share. The warrant previously issued on October 17, 2014 for 882,352 shares was cancelled. On January 19, 2016, the maturity date of the 2014 Note was further extended to September 19, 2016. The 2014 Note was in default. In consideration of the extension, we issued to the investor a fully vested three year common stock purchase warrant to purchase 471,429 shares (subject to adjustment) of common stock of the Company at an exercise price of $0.051 per share, the closing price on the date of the agreed extension agreement. The fair value of the warrants was determined to be $16,775 using Black-Scholes option price model and was expensed during the three months ended March 31, 2016. The 2014 Note was delinquent and principal payments of $100,000 were made on the 2014 Note. During the six months ended March 31, 2017, the outstanding principal balance of the amended 2014 Note was reduced $150,000 and related accrued interest payments of $6,115 have been made.  On March 29, 2017, the Company authorized outstanding principal and accrued interest under the 2014 Note as of March 29, 2017 to be converted into common stock at the conversion price of $0.08126 per share. The parties entered into an agreement of exchange dated March 30, 2017. The outstanding principal balance and accrued interest under the 2014 Note at the time of conversion were $250,000 and $6,027, respectively. The principal and accrued interest was converted into 3,150,719 shares of common stock at a fair market value of $266,236 and the Company recorded a loss on extinguishment of debt of $10,209. In connection with the conversion of the note payable on March 30, 2017, the Company issued a fully vested three year warrant to purchase 250,000 shares of common stock of the Company at an exercise price of $0.08126 per share. The fair value of the warrants was determined to be $16,258 using the Black-Scholes option pricing model and was expensed to the loss on conversion during the nine months ended June 30, 2017.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 5 – NOTES PAYABLE (Continued)

February 4, 2015 Unsecured Promissory Notes
 
On February 4, 2015, we issued unsecured promissory notes in the aggregate principal amount of $63,000, of which a $30,000 note was issued to MRI, a company controlled by John F. Stapleton, who served as the Chief Financial Officer and a director of the Company at that time and who currently serves as President and Chief Executive Officer and a director of the Company. 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. As additional consideration for the loans, we issued 200,000 shares of our restricted common stock for each note for a total of 400,000 shares to the lenders. The relative fair value of the common stock was determined to be $21,211 and was recorded as discounts to the promissory notes and was amortized to interest expense over the life of the notes. On February 4, 2016, one of the promissory notes was amended to extend the maturity date from February 4, 2016 to February 4, 2017 and reduce the interest rate to 10% per year. The Company also agreed to capitalize the $5,940 of accrued interest on the note at February 4, 2016 and add it to principal. In consideration of the amendment, the Company agreed to issue 150,000 shares of restricted common stock of the Company to the noteholders, the issuance of which was approved by the Board of Directors on April 22, 2016. MRI, the holder of the other note, agreed to extend its maturity date to February 4, 2017 at the same rate of interest and in consideration for the issuance of 200,000 shares of our restricted common stock; however, these shares have not been issued as of the date of this report.    On March 29, 2017, both noteholders agreed to extend the maturity date of the notes for six months, to August 4, 2017.  Our obligations under both notes are personally guaranteed by a Company’s director and who was the Chief Executive Officer at the time the notes were issued.
 
As of June 30, 2017, the aggregate outstanding balance under these notes was $68,940, the aggregate accrued interest was $18,437 and the unamortized discount on the notes payable was $0. During the nine months ended June 30, 2017 and 2016, amortization expense of $1,769 and $10,844, respectively, was recognized.

Financing of Insurance Premiums and Vehicle
 
On August 15, 2016, we entered into an agreement to finance a portion of our liability insurance premiums in the amount of $28,384 at an interest rate of 7.25% with equal payments of $2,934, including interest, due monthly beginning July 14, 2016 and continuing through April 14, 2017. As of June 30, 2017, the outstanding balance under this note payable was $0.

On November 14, 2016, we entered into an agreement to finance director and officer insurance premiums in the amount of $25,224 at an interest rate of 5% with equal payments of $2,581, including interest, due monthly beginning December 21, 2016 and continuing through September 21, 2017. As of June 30, 2017, the outstanding balance under this note payable was $7,742.

On February 23, 2017, we entered into an agreement to finance a Ford 450 truck for transporting mineralized ore in the amount of $26,071 at an interest rate of 4.99% and 36 monthly payments of $781, due monthly beginning March 25, 2017, and continuing through February 25, 2020. As of June 30, 2017, the outstanding balance under this note payable was $23,403. The Chief Financial Officer co-signed on behalf of the Company on the finance contract.

On June 13, 2017, we entered into an agreement to finance our liability insurance premiums in the amount of $22,277, with a down payment of $3,342 and $18,935 financed at an interest rate of 4.0% with equal payments of $1,928, including interest, due monthly beginning July 14, 2017 and continuing through April 14, 2018. As of June 30, 2017, the outstanding balance under this note payable was $18,935.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 5 – NOTES PAYABLE (Continued)

Convertible Note and Warrant Financing Transaction
 
On February 21, 2017, we entered into a Securities Purchase Agreement (the “Investor Agreement”) pursuant to which the Company issued a convertible note (the “Note”) to an accredited investor in the aggregate principal amount of $550,000, or such lesser amounts based on actual advances thereunder. In order to reflect an agreed upon original issue discount, the outstanding principal amount of the Note attributable to each advance is 110% of the amount of the corresponding advance ( i.e. , a $100,000 advance results in outstanding principal attributable to the advance of $110,000). Upon issuance of the Note, the investor made a $100,000 initial advance. The Company recognized a debt discount from deferred financing costs of $11,671 at the inception of the note. The Company and the investor must mutually agree upon any future advances under the Note. Amounts advanced under the Note will accrue interest at 7% per annum. Except to the extent converted into common stock of the Company, as discussed below, outstanding principal and interest will become due and payable on August 21, 2017. Amounts outstanding under the Note are convertible at the election of the investor into common stock of the Company at a conversion price equal to $0.0913 (the volume weighted average price of the Company’s common stock on the day prior to the issuance date). The Note provides for various events of default upon which amounts outstanding under the Note will immediately increase by 140% and the conversion price will be permanently redefined to equal 60% of the average of the three lowest traded prices during the 14 consecutive trading days preceding the conversion date. As additional consideration for the initial advance, the Company issued the investor a three year warrant to purchase up to 602,406 shares of the Company’s common stock at an exercise price equal to $0.3652 per share (which price is subject to anti-dilution adjustment in the event the Company issues additional convertible securities with lower conversion prices). In conjunction with any future advances under the Note, the Company will issue additional three year warrants to purchase a number of shares equal to 50% of the conversion shares issuable upon conversion of the amount advanced. As of June 30, 2017, the conversion and warrant price were reset to $0.08126 and the number of warrants increased to 2,707,343.

As set forth in the Statement of Financial Accounting Standard No. 820-10-35-37, as further described in Note 6 below, a fair value hierarchy was developed to rank the reliability of inputs that reflect assumptions used as a basis for determining fair value. ASC 820 emphasizes that valuation techniques (income, market, and cost) used to measure the fair value of an asset or liability should maximize the use of observable inputs, that is, inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. The ASC 820 accounting standard requires companies use actual market data, when available or models, when unavailable. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available, except when it might not represent fair value at the measurement date. When using models, ASC 820 provides guidance on appropriate valuation techniques and addresses the inherent valuation issue of risk. A fair value measurement should include an adjustment for risk if market participants would include one in pricing the related asset or liability, even if the adjustment is difficult to determine.

The Note and warrants were analyzed in accordance with ASC 815. The objective of ASC 815 is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception under Paragraph 11(a) of ASC 815 which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815 also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability.

To arrive at the fair value of derivatives associated with the Note and warrants, a Monte Carlo model was utilized that values the Note and warrants based on average discounted cash flow of 500,000 iterations factoring in the various potential outcomes by a Chartered Financial Analyst (“CFA”). In determining the fair value of the derivatives the CFA assumed that the Company’s business would be conducted as a going concern.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 5 – NOTES PAYABLE (Continued)

Convertible Note and Warrant Financing Transaction (Continued)

The fair value of the embedded derivatives on the note payable at inception was $71,635 and the derivative associated with the warrants at inception was $256,028. Derivatives aggregating at inception of $88,329 were allocated to loan discount and $239,334 was expensed as a one day derivative loss. At June 30, 2017, the fair value of the embedded derivative on the note was $3,279 and the derivative on the warrants was $240,283. During the nine months ended June 30, 2017, a net gain of $84,101 was recognized on the change in the fair value of the derivatives and loan discounts expensed to interest was $54,882.
 
The Investor Agreement contains covenants, representations and warranties of the Company and the investor that are typical for transactions of this type.
 
The foregoing description of the terms of the Investor Agreement, Note and the warrants does not purport to be complete and is subject to and qualified in its entirety by reference to the agreements and instruments themselves. The benefits and representations and warranties set forth in such agreements and instruments 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.

As of June 30, 2017, the aggregate outstanding principal balance under the Note was $110,000, accrued interest was $2,742 and the unamortized discount on the note payable was $55,118. See   Note 10- Subsequent Events, Note Amendment and Funding.

The components of the Company’s notes payable, including the note payable to related party, at June 30, 2017 are as follows: 
 
 
 
Principal
   
Unamortized
       
 
 
Amount
   
Discount
   
Net
 
                   
Notes payable
 
$
489,020
   
$
   
$
489,020
 
Convertible note payable
   
110,000
     
(55,118
)
   
54,882
 
Notes payable – related party
   
30,000
     
     
30,000
 
 
 
$
629,020
   
$
(55,118
)
 
$
573,902
 
 
The components of the notes payable at September 30, 2016 are as follows:
 
 
 
Principal
   
Unamortized
       
 
 
Amount
   
Discount
   
Net
 
                   
Notes payable
 
$
858,988
   
$
(1,769
)
 
$
857,219
 
Notes payable – related party
   
30,000
     
     
30,000
 
 
 
$
888,988
   
$
(1,769
)
 
$
887,219
 
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 6 – FAIR VALUE MEASUREMENTS

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
 
Level 1
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3
Pricing inputs that are generally observable inputs and not corroborated by market data.
 
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
 
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
 
The carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable approximate their fair values because of the short maturity of these instruments.
 
Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
 
The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on June 30, 2017 and September 30, 2016
 
June 30, 2017:
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
               
Assets
               
Exploration property
 
$
   
$
   
$
1,864,608
   
$
1,864,608
 
Liabilities
                               
Derivative instruments liability
 
$
   
$
   
$
243,562
   
$
243,562
 
 
September 30, 2016:
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
               
Assets
               
Exploration property
 
$
   
$
   
$
1,864,608
   
$
1,864,608
 
Liabilities
                               
None
 
$
   
$
   
$
   
$
 
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 6 – FAIR VALUE MEASUREMENTS (Continued)

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 nine months ended June 30, 2017.

Complex derivative instrument liabilities utilize a Monte Carlo model to estimate their fair value. As set forth above, pursuant to Paragraph 820-10-35-37 , a fair value hierarchy was developed to rank the reliability of inputs that reflect assumptions used as a basis for determining fair value. The ASC 820 accounting standard requires companies use actual market data, when available or models, when unavailable. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available, except when it might not represent fair value at the measurement date. When using models, ASC 820 provides guidance on appropriate valuation techniques and addresses the inherent valuation issue of risk. A two-step approach is used in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions. Fair value relied on a “value in use” or “going concern” premise. To properly apply this fair value standard, we gave consideration to the holder’s intentions regarding whether or not the securities purchased were to be held, sold, or abandoned. Our analysis also reflects assumptions that would be made by market participants if these market participants were to buy or sell each identified asset on an individual basis. The Monte Carlo model that values the Note and warrants based on average discounted cash flow of 500,000 iterations factoring in the various potential outcomes. The derivative instrument liabilities on the convertible note and warrants at June 30, 2017 were $3,279 and $240,283, respectively.

NOTE 7 – COMMITMENTS AND CONTINGENCIES
 
Related Party
 
In January 2012, the Company retained the consulting services of Management Resource Initiatives, Inc. (“MRI”), a company controlled by John F. Stapleton who served as the Chief Financial Officer and a director of the Company at that time and who currently serves as President and Chief Executive Officer and a director of the Company. The current monthly consulting fee for such services is $15,000. Total consulting fees expensed to MRI for the nine months ended June 30, 2017 and 2016 was $135,000 and $45,000, respectively. At June 30, 2017 and September 30, 2016, MRI had accrued and unpaid compensation of $30,000 and $315,000, respectively, recorded in accrued compensation – related parties. During the nine months ended June 30, 2017, the Company issued 3,841,463 shares of restricted common stock and 3,841,463 shares of S-8 common stock to the individual controlling MRI as payment of accrued compensation of $315,000. The fair value of the stock was $599,268 and the Company recorded a loss on extinguishment of debt of $284,268. At June 30, 2017, MRI had accrued and unpaid compensation of $30,000 recorded in accrued compensation – related parties.
 
On January 18, 2016, the Board of Directors of the Company appointed Stephan J. Antol as the Company’s Chief Financial Officer, replacing Mr. Stapleton in such capacity. Mr. Stapleton continued to serve as a director of the Company and as Chairman of the Board. Effective August 4, 2016, the Board of Directors of the Company appointed Mr. Stapleton to replace Charles C. Mottley as President and Chief Executive Officer of the Company. The change in senior management was proposed by Mr. Mottley, who continues to serve as a member of the Company’s Board of Directors and as President Emeritus. At June 30, 2017, Mr. Antol had accrued and unpaid compensation and expenses of $16,576 recorded in accrued compensation – related parties.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 7 – COMMITMENTS AND CONTINGENCIES (Continued)
 
Related Party (Continued)

On February 4, 2015, the Company signed a $30,000 promissory note payable to MRI, at 18% interest per annum, 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. The Company approved amending the note to extend the maturity date from February 4, 2016 to February 4, 2017 under the original terms of the Agreement. On March 29, 2017, the Company extended the note for six months to August 4, 2017, and agreed to grant 200,000 shares to MRI as compensation for the extension; however such shares have not been issued as of the date of this report.  See Note 5 – Notes Payable, February 4, 2015 Unsecured Promissory Notes.

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
 
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 had 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. As of June 30, 2017, the outstanding balance under this note payable was $400,000 and accrued interest on the note was $60,066. 
 
On January 5, 2016, we entered into our current agreement with Logistica. Under the agreement we will provide to Logistica concentrated ore to their specifications at the mine site. Logistica will transport, process, and refine the precious metals concentrates to sell to precious metals buyers. The terms of the new agreement provide for the recovery of hard costs related to the concentrates by both parties prior to the distribution of profits. The agreement also provides for the issuance of 10,000,000 shares of our restricted common stock and the elimination of a $100,000 accrued liability to Logistica for prior services rendered. When certain terms and conditions are met, the agreement calls for Logistica to arrange for a letter of credit to provide working capital for the mining, processing and sale activities under the agreement. The shares were issued in August 2016. The new agreement supersedes the previous agreements with Logistica.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 8 – 2015 EQUITY INCENTIVE PLAN
 
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. At the time it was adopted, the maximum number of shares of common stock of the Company that could be issued or awarded under the 2015 Plan was 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 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. On January 14, 2016, the Company filed Form S-8 Registration Statement No. 333-208991 with the SEC registering the additional 8,000,000 shares of common stock authorized for issuance pursuant to the 2015 Plan. Effective April 22, 2016, the Board of Directors of the Company adopted Amendment No. 2 to the 2015 Plan pursuant to which the number of shares of the common stock issuable under the 2015 Plan was increased from 23,000,000 to 28,000,000. On April 27, 2016, the Company filed Form S-8 Registration Statement No. 333-210942 with the SEC registering the additional 5,000,000 shares of common stock authorized for issuance pursuant to the 2015 Plan. Effective August 4, 2016, the Board of Directors of the Company adopted Amendment No. 3 to the 2015 Plan pursuant to which the number of shares of the common stock issuable under the 2015 Plan was increased from 28,000,000 to 50,000,000. On August 8, 2016, the Company filed Form S-8 Registration Statement No. 333- 212972 with the SEC registering the additional 22,000,000 shares of common stock authorized for issuance pursuant to the 2015 Plan. Effective October 31, 2016, the Board of Directors of the Company adopted Amendment No. 4 to the Company’s 2015 Plan pursuant to which the number of shares of the common stock issuable under the 2015 Plan was increased from 50,000,000 to 75,000,000. On November 4, 2016, the Company filed Form S-8 Registration Statement No. 333- 214442 with the SEC registering the additional 25,000,000 shares of common stock authorized for issuance pursuant to the 2015 Plan.
 
NOTE 9 – STOCKHOLDERS’ EQUITY
 
Authorized Common Shares
 
At the Company’s annual meeting of stockholders held September 28, 2016, 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 400,000,000 to 500,000,000 shares. The change in the authorized number of shares of common stock was effected pursuant to a Certificate of Amendment filed with the Secretary of State of the State of Nevada on October 4, 2016 and was effective as of such date. 

Preferred Stock Issuances
 
During the nine months ended June 30, 2017, the Company did not issue any shares of preferred stock.

Equity Purchase Agreement 

Termination of River North Purchase Agreement; Entry into L2 Purchase Agreement
 
The Company and River North Equity, LLC (“River North”) were parties to an Equity Purchase Agreement dated March 16, 2016, as amended by Amendment No. 1 dated December 9, 2016 (as so amended, the “River North Purchase Agreement”). Under the River North Purchase Agreement, the Company had the right from time to time, in its discretion, to sell shares of its common stock to River North for aggregate gross proceeds of up to $5,000,000.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 9 – STOCKHOLDERS’ EQUITY (Continued)
 
Equity Purchase Agreement (Continued)

Termination of River North Purchase Agreement; Entry into L2 Purchase Agreement (Continued)

On February 21, 2017, the Company and River North terminated the River North Purchase Agreement and a related registration rights agreement and the Company entered into a new Equity Purchase Agreement (the “L2 Purchase Agreement”) with L2 Capital, LLC (“L2 Capital”), an affiliate of River North. Under the L2 Purchase Agreement, the Company may from time to time, in its discretion, sell shares of its common stock to L2 Capital for aggregate gross proceeds of up to $5,000,000. Unless terminated earlier, L2 Capital’s purchase commitment will automatically terminate on the earlier of the date on which L2 Capital shall have purchased Company shares pursuant to the Purchase Agreement for an aggregate purchase price of $5,000,000, or February 21, 2020. The Company has no obligation to sell any shares under the L2 Purchase Agreement.

As provided in the L2 Purchase Agreement, the Company may require L2 Capital to purchase shares of common stock from time to time by delivering a put notice to L2 Capital specifying the total number of shares to be purchased (such number of shares multiplied by the purchase price described below, the “Investment Amount”); provided there must be a minimum of 10 trading days between delivery of each put notice. The Company may determine the Investment Amount, provided that such amount may not be more than the average daily trading volume in dollar amount for the Company’s common stock during the 10 trading days preceding the date on which the Company delivers the applicable put notice. Additionally, such amount may not be lower than $5,000 or higher than $150,000. L2 Capital will have no obligation to purchase shares under the L2 Purchase Agreement to the extent that such purchase would cause L2 Capital to own more than 9.99% of the Company’s common stock.
 
For each share of the Company’s common stock purchased under the L2 Purchase Agreement, L2 Capital will pay a purchase price equal to 85% of the Market Price, which is defined as the average of the two lowest closing bid prices on the OTCQB Marketplace, as reported by Bloomberg Finance L.P., during the five consecutive Trading Days including and immediately prior to the settlement date of the sale, which in most circumstances will be the trading day immediately following the “Put Date,” or the date that a put notice is delivered to L2 Capital (the “Pricing Period”). The purchase price will be adjusted as follows: (i) an additional 10% discount to the Market Price will be applied if either (A) the Closing Price of the Common Stock on the Put Date is less than $0.10 per share, or (B) the average daily trading volume in dollar amount for the Common Stock during the 10 trading days including and immediately preceding the Put Date is less than $50,000; (ii) an additional 5% discount to the Market Price will be applied if the Company is not deposit/withdrawal at custodian (“DWAC”) eligible; and (iii) an additional 10% discount to the Marker Price will be applied if the Company is under DTC “chill” status. L2 Capital’s obligation to purchase shares on any settlement date is subject to customary closing conditions, including without limitation a requirement that a registration statement remain effective registering the resale by L2 Capital of the shares to be issued. The L2 Purchase Agreement is not transferable and any benefits attached thereto may not be assigned.
 
The L2 Purchase Agreement contains covenants, representations and warranties of the Company and L2 Capital that are typical for transactions of this type. In addition, the Company and L2 Capital have granted each other customary indemnification rights in connection with the L2 Purchase Agreement. The L2 Purchase Agreement may be terminated by the Company at any time.
 
In connection with the L2 Purchase Agreement, the Company also entered into Registration Rights Agreement with L2 Capital requiring the Company to prepare and file, within 45 days, a registration statement registering the resale by L2 Capital of shares to be issued under the L2 Purchase Agreement, to use commercially reasonable efforts to cause such registration statement to become effective, and to keep such registration statement effective until (i) three months after the last closing of a sale of shares under the L2 Purchase Agreement, (ii) the date when L2 Capital may sell all the shares under Rule 144 without volume limitations, or (iii) the date L2 Capital no longer owns any of the shares. The registration statement was filed on February 28, 2017 and declared effective on March 10, 2017.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 9 – STOCKHOLDERS’ EQUITY (Continued)
 
Equity Purchase Agreement (Continued)

Termination of River North Purchase Agreement; Entry into L2 Purchase Agreement (Continued)

The foregoing description of the terms of the Termination with River North and the L2 Purchase Agreement and corresponding Registration Rights Agreement does not purport to be complete and is subject to and qualified in its entirety by reference to the agreements themselves, copies of which are filed as Exhibits 10.4, 10.5 and 10.6, respectively, to our Current Report on Form 8-K filed with the SEC on February 23, 2017, and the terms of which are incorporated herein by reference. The benefits and representations and warranties set forth in such documents (if any) 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.
 
Likelihood of Accessing the Full Amount of the Equity Line
 
Our arrangement with L2 Capital is sometimes referred to herein as the “Equity Line.”  Notwithstanding that the Equity Line is in an amount of $5,000,000, we anticipate that the actual likelihood that we will be able access the full $5,000,000 may be low due to several factors, including that our ability to access the Equity Line is impacted by our average daily trading volume, the average computed sale price of the shares for each put, which may limit the maximum dollar amount of each put we deliver to L2 Capital. Our use of the Equity Line will continue to be limited and restricted if our share trading volume or market price of our stock continue at their current levels or decrease further in the future from the volume and stock prices reported over the past year.
 
Further, our ability to issue shares in excess of the 25,000,000 shares covered by the registration statement will be subject to our filing a subsequent registration statement with the SEC and the SEC declaring it effective.

Common Stock Issuances

During the nine months ended June 30, 2017, the Company:
 
(i)
Issued 6,097,562 shares of restricted common stock and 6,097,562 shares of S-8 common stock for accrued compensation payable to three officers valued at $885,110 on the date of issuances and recorded a loss on debt extinguishment of $385,110;
 
(ii)
Issued 3,000,000 shares of S-8 common stock and 2,774,513 shares of restricted common stock for accrued legal services at a market value of $485,554 and recorded a loss on debt extinguishment of $248,799;
 
(iii)
Issued 10,500,000 shares of S-8 common stock to our contract miners at a market value of $702,600, including payment of $3,784 for inventory, payment of $8,515 for lab equipment and an advance of $389,598 for pilot plant equipment costs and $300,703 for pilot plant operating costs and MSHA consulting;
 
(iv)
Issued 7,684,671 shares of common stock under the 2016 Purchase Agreement with River North for aggregate cash proceeds of $344,575;

(v)
Issued 7,677,818 shares of common stock under the 2017 Purchase Agreement with L2 Capital for aggregate cash proceeds of $312,913;

(vi)
Issued 200,000 shares of S-8 common stock to a mine consultant at a market value of $18,000; and

(vii)
Issued 3,150,719 shares of common stock for the conversion of a note payable and accrued interest at a market value of $266,236 and recorded an on debt extinguishment of $10,209.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 9 – STOCKHOLDERS’ EQUITY (Continued)
 
Options
 
During the nine months ended June 30, 2017, the Company did not grant any options. 
 
Warrants
 
During nine months ended June 30, 2017, the following transactions occurred with respect to warrants of the Company:

(i)
In connection with the conversion of a note payable on March 30, 2017, the Company issued a fully vested three year warrant to purchase 250,000 shares of common stock of the Company at an exercise price of $0.08126 per share. The fair value of the warrants was determined to be $16,258 using the Black-Scholes option pricing model and was expensed to the loss on conversion during the nine months ended June 30, 2017.

(ii)
Pursuant to the February 21, 2017 Securities Purchase Agreement with an accredited investor, the Company issued to the investor a three year warrant to purchase up to 602,406 shares of the Company’s common stock at an exercise price equal to $0.3652 per share (which price is subject to anti-dilution adjustment in the event the Company issues additional convertible securities with lower conversion prices). As of June 30, 2017, the warrant price was reset to $0.08126 and the number of warrants increased to 2,707,343.

Stock option activity, both within and outside the 2015 Plan, and warrant activity for the nine months ended June 30, 2017, are as follows:

   
Stock Options
   
Stock Warrants
 
 
       
Weighted
         
Weighted
 
 
       
Average
         
Exercise
 
 
 
Shares
   
Price
   
Shares
   
Price
 
 
                       
Outstanding at September 30, 2016
   
11,137,500
   
$
0.265
     
5,332,773
   
$
0.071
 
Granted
   
             
3,559,749
     
.129
 
Canceled
   
             
(602,406
)
   
.365
 
Expired
   
             
         
Exercised
   
             
         
 
                               
Outstanding at June 30, 2017
   
11,137,500
     
0.265
     
8,290,116
     
0.075
 
 
                               
Exercisable at June 30, 2017
   
11,137,500
     
0.265
     
8,290,116
     
0.075
 
 
The range of exercise prices and remaining weighted average life of the options outstanding at June 30, 2017 were $0.042 to $1.02 and 4.12 years, respectively. The aggregate intrinsic value of the outstanding options at June 30, 2017 was $6,250.
 
The range of exercise prices and remaining weighted average life of the warrants outstanding at June 30, 2017 were $0.051 to $0.17 and 1.69 years, respectively. The aggregate intrinsic value of the outstanding warrants at June 30, 2017 was $3,536.
 
The Company maintains its 2015 Equity Incentive Plan, as amended (the “2015 Plan”), pursuant to which the Company has reserved and registered 75,000,000 shares for stock and option grants. As of June 30, 2017, there were 11,738,999 shares available for grant under the 2015 Plan, excluding the 11,137,500 options outstanding.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
NOTE 10 – SUBSEQUENT EVENTS
 
Subsequent Issuances of Common Stock
 
Subsequent to June 30, 2017 , the Company issued 3,690,469 shares of common stock under the L2 Purchase Agreement with L2 Capital for aggregate cash proceeds of $154,536.

Board Approval of Stock Issuances Subsequent to June 30, 2017

On July 13, 2017, the Board authorized the issuance of 1,382,544 S-8 common shares to our corporate attorney to retire our current obligations for services aggregating $80,188.  The shares were issued at the closing market price on July 13, 2017 at $0.058.

Note Amendment, Funding and Conversion

On July 24, 2017, the Company amended the maturity date of the $100,000 initial advance under Investor Agreement and the corresponding Note dated February 24, 2017. The maturity date for first advance was extended to November 15, 2017 and the conversion price of each advance under the Note was changed to equal the lesser of (a) the volume weighted average price of the Company’s common stock on the trading day prior to such advance or (b) 75% of the average of the two lowest daily trades in the five day period prior to the noteholder’s delivery of a conversion notice. All other terms and conditions of the Note remain in full force and effect.

On July 28, 2017, the Company received a second $100,000 advance under the Investor Agreement and the corresponding Note, resulting in additional outstanding principal of $110,000 after taking into account the original issue discount.  The second advance is subject to the terms and conditions the Promissory and interest and principle are due January 28, 2018. Outstanding amounts under this advance are convertible at the election of the noteholder at a conversion price of the lower of $0.0617 or 75% of the average of the two lowest daily trades in the five-day period prior to the noteholder’s delivery of a conversion notice.  The Company also issued a three year warrant to purchase up to  891,410 shares of the Company’s common stock at a per share exercise price  of $0.2468. The warrant provides for cashless exercise at the election of the holder i f, on the date on which the warrant is exercised, the warrant is in-the-money and a registration statement registering the issuance of the underlying warrant shares is not effective. As part of the second advance, the Company initially reserved 7,000,000 shares of common stock for issuance upon possible conversion of the advance and exercise of the warrant.

On July 27, 2017, the noteholder converted a total of $13,556 in interest and principal under the first Note advance into 300,000 shares of common stock at an approximate per share conversion price of $0.0452.
  
On August 1, 2017, a noteholder was issued 200,000 shares of restricted common stock for a note extension at the market value of $12.000.
  
On August 9, 2017, the noteholder converted a total of $16,875 of principal under the first Note advance into 500,000 shares of common stock at an approximate per share conversion price of $0.03375.
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following management discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited interim consolidated financial statements and related notes which are included in Item 1 of this Quarterly Report on Form 10-Q, and with our audited financial statements and the “Risk Factors” section included in our Form 10-K for the fiscal year ended September 30, 2016, filed with the U.S. Securities and Exchange Commission (“SEC”) on January 13, 2017.
 
Overview of Business
 
The Company is an exploration stage company as defined by the SEC’s Industry Guide 7 as the Company has no established reserves as required under 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”). We recorded nominal revenues in the fiscal year ended September 30, 2016 consisting of revenue for test loads of iron ore to a construction contractor. 
 
We commenced planned mineral exploration activity in the quarter ended December 2015 under our modified mining permit. However, we have not yet demonstrated the existence of proven or probable reserves at the 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 property are expensed as incurred. 

In February 2017, with the assistance of our Mine Safety and Health Administration (“ MSHA”) consultant and legal consultants, we signed an agreement with the United States Forest Service that provides agreed upon terms and conditions for the use of the road to our mine site. A copy of the agreement is posted on the Company web site.

The quarter ended March 31, 2017, marked the beginning of operations at a pilot plant established in Phoenix, Arizona by a Company vendor to house equipment obtained from China that processes concentrates recovered at the El Capitan Property. Although the pilot plant, including the equipment, are owned by its operator and not by the Company, its establishment brought the Company a significant step closer to recognizing revenue from the sale of concentrates. Significant effort was exerted during this quarter by our contract miner and his team in preparing the pilot plant site for the arrival of the approximately 21 ton machine from China. Upon its arrival, the machine was setup and on site enhancements were made to meet US safety standards and operational proficiencies for maximum through put and operational product results. Initially the pilot plant started producing test samples for shipments to various refiners. As modifications were required by a refiner, adjustments were made and new processed samples were shipped to the refiner. The process was time consuming in that once a refiner receives the sample, it is put into their system for processing and we have no control over the timeline and when we may get the results and comments back on the sample.

Continuing through the quarter ended June 30, 2017, sample product was shipped to various refiners for processing and precious metal extraction. During the current quarter ending September 30, 2017, the Company signed a one year contract with a refiner for the extraction of precious metals from the Company’s concentrates and signed an agreement with PF Bullion for the purchase of the precious metals. Currently the refiner is receiving the product in metal form and extracting the precious metals from it. The contract miner is melting the concentrate ore into metal bars for delivery to the refiner.

In the quarter ended June 30, 2017, the Company recognized its first precious metals sale revenue from the sale of a small sample test bar processed by the refiner. Although nominal, represented the first sale of precious metals extracted from mineralized ore recovered at the El Capitan property.  The sale, before cost deductions, was $3,637 and initial setup and processing charges amounted to $1,557.  Precious metals recovered from the 4.18 lb bar were as follows:

 
Gold
2.53 oz.
 
Silver
0.54 oz.
 
Platinum
0.88 oz.

The Company expects to proceed with larger product shipments to the refiner for precious metals extraction.
 
 
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 a minimum source of revenue to cover its costs. The Company has incurred a loss for the nine months ended June 30, 2017 and has a working capital deficit as of June 30, 2017. 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 entering the production stage of operations and generating cash flow and future profits to cover operating costs. The Company does not have adequate liquidity to fund its current operations, meet its obligations and continue as a going concern. The Company currently has an equity line of credit in place that it expects to utilize to finance its activities in the near term and, in the past, has secured working capital loans for such purpose. The Company may also pursue other financing alternatives from time to time, including short-term operational strategic financing or equity financing, to fund its activities until it can achieve cash flow and profits from its operations. 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.
 
Results of Operations

Exploration Stage

We are an exploration stage company and have not yet realized any material revenue from operations through our fiscal quarter ended June 30, 2017. The Company realized revenue from precious metal sales from a test bar in the quarter ended June 30, 2017 aggregating $3,637.

Results of Operations for the Three Months Ended June 30, 2017 and 2016

The Company realized revenue from precious metal sales from a test bar in the quarter ended June 30, 2017 aggregating $3,637. The Company did not realize revenues during the prior year three month comparative period.
 
We realized a net increase in operating expenses of $78,746, from $392,779 for the three months ended June 30, 2016 to $471,525 for the three months ended June 30, 2017. The increase is comprised mainly of increases in mine, exploration and pilot plant costs of $147,618, offset by decreases in professional fees of $68,872.
 
The increase in mine, exploration and pilot plant costs is due to activity associated at the pilot plant operations and costs incurred for refining of test samples of $63,949, and in the three month period ended June 30, 2016, $84,259 production costs were allocated ore inventory. The decrease in professional fees is a result of MRI quarterly fees of $45,000 fees allocated to Administrative consulting fees in the current period of measurement as Mr. Stapleton became CEO of the Company and the prior CEO retired.

Other income (expense) increased $161,590 from $(150,307) for the three months ended June 30, 2016, to $11,283 for the three months ended June 30, 2017. The decreased loss is attributable to an increase gain on derivative instruments of $150,346 and decreased interest expense of $31,893. These increases were offset by a decrease gain on debt extinguishment of $20,648

Our net loss decreased by $84,924 from $543,086 for the three months ended June 30, 2016 to $458,162 for the three months ended June 30, 2017. The decrease in net loss is mainly attributable to the net increase in other income and expense of $161,590, a decrease in professional fee and administration consulting of $45,000 due to a retirement and offset by the increase in mine, exploration and pilot plant costs of $147,618.

Results of Operations for the Nine Months Ended June 30, 2017 and 2016

The Company realized revenue from precious metal sales from a test bar in the nine months ended June 30, 2017 aggregating $3,637, compared to revenues of $2,950 from the sale of iron ore during nine months ended June 30, 2016.

We realized a net increase in operating expenses of $204,982, from $1,041,008 for the nine months ended June 30, 2016 to $1,245,990 for the nine months ended June 30, 2017. The increase is comprised mainly of increases in mine, exploration and pilot plant costs of $460,242 offset by decreases in professional fees of $147,114 and legal and accounting fees of $80,449.
 
 
The increase of $460,242 in mine, exploration and pilot plant costs was due to activity associated at the pilot plant start-up to conform the plant site to requirements under the controlling regulations, both local and federal, and operational costs with the commencement of production activities.  Included in the costs incurred for the nine months ended June 30, 2017, are associated increased legal costs of $36,462, MSHA consulting fees of $42,230, consulting fees of $148,750, refining charges of $63,949, rental equipment of 47,394, travel and lodging of $52,000 and concentration subcontracted of $112,821.

Other expense increased $676,988 from $231,340 for the nine months ended June 30, 2016, to ($908,328) for the nine months ended June 30, 2017. The increased loss of $676,988 is attributable to an increase on loss on debt extinguishment of $579,980 and a decrease in the gain on derivative instruments of $227,700 in the current period of measurement. Both of these increases in other expense are non-cash items and total $807,680. These non-cash increases were offset by a decrease in interest expense of $130,683 in the current period of measurement.

Our net loss increased by $879,540 from $1,272,698 for the nine months ended June 30, 2016 to $2,152,238 for the nine months ended June 30, 2017. The increase in net loss is mainly attributable to the net increase in other income and expense of $676,988 and the increase in mine, exploration and pilot plant costs of $460,242 and offset by decreases in professional fees of $147,114 and legal and accounting of $80,449.

Liquidity and Capital Resources
 
As of June 30, 2017, we had cash on hand of $56,825 and a working capital deficit of $433,076, of which $243,562 is a non-cash derivative instruments liability. The Company has historically relied on equity or debt financings to finance its ongoing operations. Our current financing arrangements are summarized below under the caption  “Recent Financing Activities.”  Our only current committed source of future financing is pursuant to the Equity Purchase Agreement (the “L2 Purchase Agreement”) with L2 Capital, LLC (“L2 Capital”), which is described below. Under the L2 Purchase Agreement, we may from time to time, in our discretion, sell shares of our common stock to L2 Capital for aggregate gross proceeds of up to $5,000,000.  This arrangement is also sometimes referred to herein as the “Equity Line.”  Unless terminated earlier, L2 Capital purchase commitment will automatically expire on February 21, 2020. As of June 30, 2017, approximately $4.69 million remained available to us under the Equity Line. Subsequent to June 30, 2017 , we received additional proceeds of approximately $155,000 under the Equity Line.

On February 21, 2017, we entered into a Securities Purchase Agreement (the “Investor Agreement”) pursuant to which the Company issued a convertible note (the “Note”) to an accredited investor in the aggregate principal amount of $550,000, or such lesser amounts based on actual advances thereunder. In order to reflect an agreed upon original issue discount, the outstanding principal amount of the Note attributable to each advance is 110% of the amount of the corresponding advance ( i.e. , a $100,000 advance results in outstanding principal attributable to the advance of $110,000). On February 21, 2017, we received an initial $100,000 advance and on July 28, 2017, we received a second $100,000 advance under the Investor Agreement. See Note10 Subsequent Events, Note Amendment, Funding and Conversion.

Until we can generate revenue and cash flow from the sale of concentrates and precious metals, we intend to rely on the sale of stock under the Equity Line to fund our ongoing operations and the Investor Agreement.  However, our ability to obtain proceeds from the Equity Line is subject to the various conditions and restrictions set forth in the L2 Purchase Agreement, which are described below.  Due to these restrictions and conditions, we may not be able to obtain proceeds from the Equity Line at such times and in such amounts as needed to fund our ongoing operations. Additional advances under the Investor Agreement must be approved by the accredited investor. If 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 additional interest expense and become subject to covenants in the related transaction documentation that could affect the manner in which we conduct our business. Currently the Company is negotiating short term financing facilities to bridge operations until such time as the Company can generate revenue from its mineral exploration and mining activities.

If adequate additional capital is not available when required, we may be forced to reduce or eliminate our pilot plant activities and our marketing efforts for the sale of the El Capitan Property, or suspend our operations entirely.
 
 
Recent Financing Activities

October 17, 2014 Note and Warrant Purchase Agreement
 
On October 17, 2014, we entered into a private Note and Warrant Purchase Agreement with an accredited investor pursuant to which we borrowed $500,000 against delivery of a promissory note (the “2014 Note”) in such amount and issued warrants to purchase 882,352 shares of our common stock. The 2014 Note carries an interest rate of 8% per annum, was initially due on July 17, 2015 and was 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 maturity date of the 2014 Note was mutually extended to January 17, 2016. In consideration of the extension, the Company issued a common stock purchase warrant to purchase 4,714,286 shares (subject to adjustment) of our common stock at an exercise price of $0.07 per share. The warrant previously issued on October 17, 2014 for 882,352 shares was cancelled. On January 19, 2016, the maturity date of the 2014 Note was further extended to September 19, 2016. The 2014 Note was in default. In consideration of the extension, we issued to the investor a fully vested three year common stock purchase warrant to purchase 471,429 shares (subject to adjustment) of common stock of the Company at an exercise price of $0.051 per share, the closing price on the date of the agreed extension agreement. The fair value of the warrants was determined to be $16,775 using Black-Scholes option price model and was expensed during the three months ended March 31, 2016. The 2014 Note was delinquent and principal payments of $100,000 were made on the 2014 Note. During the six months ended March 31, 2017, the outstanding principal balance of the amended 2014 Note was reduced $150,000 and related accrued interest payments of $6,115 have been made.  On March 29, 2017, the Company authorized outstanding principal and accrued interest under the 2014 Note as of March 29, 2017 to be converted into common stock at the conversion price of $0.08126 per share. The parties entered into an agreement of exchange dated March 30, 2017. The outstanding principal balance and accrued interest under the 2014 Note at the time of conversion were $250,000 and $6,027, respectively. The principal and accrued interest was converted into 3,150,719 shares of common stock at a fair market value of $266,236 and the Company recorded a loss on extinguishment of debt of $10,209. In connection with the conversion of the note payable on March 30, 2017, the Company issued a fully vested three year warrant to purchase 250,000 shares of common stock of the Company at an exercise price of $0.08126 per share. The fair value of the warrants was determined to be $16,258 using the Black-Scholes option pricing model and was expensed to the loss on conversion during the nine months ended June 30, 2017.
 
February 4, 2015 Unsecured Promissory Notes
 
On February 4, 2015, we issued unsecured promissory notes in the aggregate principal amount of $63,000, of which a $30,000 note was issued to MRI, a company controlled by John F. Stapleton, who served as the Chief Financial Officer and a director of the Company at that time and who currently serves as President and Chief Executive Officer and a director of the Company. 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. As additional consideration for the loans, we issued 200,000 shares of our restricted common stock for each note for a total of 400,000 shares to the lenders. The relative fair value of the common stock was determined to be $21,211 and was recorded as discounts to the promissory notes and was amortized to interest expense over the life of the notes. On February 4, 2016, one of the promissory notes was amended to extend the maturity date from February 4, 2016 to February 4, 2017 and reduce the interest rate to 10% per year. The Company also agreed to capitalize the $5,940 of accrued interest on the note at February 4, 2016 and add it to principal. In consideration of the amendment, the Company agreed to issue 150,000 shares of restricted common stock of the Company to the noteholders, the issuance of which was approved by the Board of Directors on April 22, 2016. MRI, the holder of the other note, agreed to extend its maturity date to February 4, 2017 at the same rate of interest and in consideration for the issuance of 200,000 shares of our restricted common stock; however, these shares have not been issued as of the date of this report.    On March 29, 2017, both noteholders agreed to extend the maturity date of the notes for six months, to August 4, 2017.  Our obligations under both notes are personally guaranteed by a Company’s director and who was the Chief Executive Officer at the time the notes were issued.
 
As of June 30, 2017, the aggregate outstanding balance under these notes was $68,940, the aggregate accrued interest was $18,437 and the unamortized discount on the notes payable was $0. During the nine months ended June 30, 2017 and 2016, amortization expense of $1,769 and $10,844, respectively, was recognized.

Financing of Insurance Premiums and Vehicle
 
On August 15, 2016, we entered into an agreement to finance a portion of our liability insurance premiums in the amount of $28,384 at an interest rate of 7.25% with equal payments of $2,934, including interest, due monthly beginning July 14, 2016 and continuing through April 14, 2017. As of June 30, 2017, the outstanding balance under this note payable was $0.
 
 
On November 14, 2016, we entered into an agreement to finance director and officer insurance premiums in the amount of $25,224 at an interest rate of 5% with equal payments of $2,581, including interest, due monthly beginning December 21, 2016 and continuing through September 21, 2017. As of June 30, 2017, the outstanding balance under this note payable was $7,742.

On February 23, 2017, we entered into an agreement to finance a Ford 450 truck for transporting mineralized ore in the amount of $26,071 at an interest rate of 4.99% and 36 monthly payments of $781, due monthly beginning March 25, 2017, and continuing through February 25, 2020. As of June 30, 2017, the outstanding balance under this note payable was $23,403. The Chief Financial Officer co-signed on behalf of the Company on the finance contract.

On June 13, 2017, we entered into an agreement to finance our liability insurance premiums in the amount of $18,935 at an interest rate of 4.0% with equal payments of $1,928, including interest, due monthly beginning July 14, 2017 and continuing through April 14, 2018. As of June 30, 2017, the outstanding balance under this note payable was $18,935.

Convertible Note and Warrant Financing Transaction
 
On February 21, 2017, we entered into a Securities Purchase Agreement (the “Investor Agreement”) pursuant to which the Company issued a convertible note (the “Note”) to an accredited investor in the aggregate principal amount of $550,000, or such lesser amounts based on actual advances thereunder. In order to reflect an agreed upon original issue discount, the outstanding principal amount of the Note attributable to each advance is 110% of the amount of the corresponding advance ( i.e. , a $100,000 advance results in outstanding principal attributable to the advance of $110,000). Upon issuance of the Note, the investor made a $100,000 initial advance. The Company recognized a debt discount from deferred financing costs of $11,671 at the inception of the note. The Company and the investor must mutually agree upon any future advances under the Note. Amounts advanced under the Note will accrue interest at 7% per annum. Except to the extent converted into common stock of the Company, as discussed below, outstanding principal and interest will become due and payable on August 21, 2017. Amounts outstanding under the Note are convertible at the election of the investor into common stock of the Company at a conversion price equal to $0.0913 (the volume weighted average price of the Company’s common stock on the day prior to the issuance date). The Note provides for various events of default upon which amounts outstanding under the Note will immediately increase by 140% and the conversion price will be permanently redefined to equal 60% of the average of the three lowest traded prices during the 14 consecutive trading days preceding the conversion date. As additional consideration for the initial advance, the Company issued the investor a three year warrant to purchase up to 602,406 shares of the Company’s common stock at an exercise price equal to $0.3652 per share (which price is subject to anti-dilution adjustment in the event the Company issues additional convertible securities with lower conversion prices). In conjunction with any future advances under the Note, the Company will issue additional three year warrants to purchase a number of shares equal to 50% of the conversion shares issuable upon conversion of the amount advanced. As of June 30, 2017, the conversion and warrant price were reset to $0.08126 and the number of warrants increased to 2,707,343.

As set forth in the Statement of Financial Accounting Standard No. 820-10-35-37, as further described in Note 6 below, a fair value hierarchy was developed to rank the reliability of inputs that reflect assumptions used as a basis for determining fair value. ASC 820 emphasizes that valuation techniques (income, market, and cost) used to measure the fair value of an asset or liability should maximize the use of observable inputs, that is, inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. The ASC 820 accounting standard requires companies use actual market data, when available or models, when unavailable. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available, except when it might not represent fair value at the measurement date. When using models, ASC 820 provides guidance on appropriate valuation techniques and addresses the inherent valuation issue of risk. A fair value measurement should include an adjustment for risk if market participants would include one in pricing the related asset or liability, even if the adjustment is difficult to determine.

The Note and warrants were analyzed in accordance with ASC 815. The objective of ASC 815 is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception under Paragraph 11(a) of ASC 815 which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815 also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability.

To arrive at the fair value of derivatives associated with the Note and warrants, a Monte Carlo model was utilized that values the Note and warrants based on average discounted cash flow of 500,000 iterations factoring in the various potential outcomes by a Chartered Financial Analyst (“CFA”). In determining the fair value of the derivatives the CFA assumed that the Company’s business would be conducted as a going concern.
 
 
The fair value of the embedded derivatives on the note payable at inception was $71,635 and the derivative associated with the warrants at inception was $256,028. Derivatives aggregating at inception of $88,329 were allocated to loan discount and $239,334 was expensed as a one day derivative loss. At June 30, 2017, the fair value of the embedded derivative on the note was $3,279 and the derivative on the warrants was $240,283. During the nine months ended June 30, 2017, a net gain of $84,101 was recognized on the change in the fair value of the derivatives and loan discounts expensed to interest was $54,882.
 
The Investor Agreement contains covenants, representations and warranties of the Company and the investor that are typical for transactions of this type.
 
The foregoing description of the terms of the Investor Agreement, Note and the warrants does not purport to be complete and is subject to and qualified in its entirety by reference to the agreements and instruments themselves. The benefits and representations and warranties set forth in such agreements and instruments 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.

As of June 30, 2017, the aggregate outstanding principal balance under the Note was $110,000, accrued interest was $2,742 and the unamortized discount on the note payable was $55,118.

On July 24, 2017, the Company amended the maturity date of the $100,000 initial advance under Investor Agreement and the corresponding Note dated February 24, 2017. The maturity date was extended to November 15, 2017 and the conversion price of each advance under the Note was changed to equal the lesser of (a) the volume weighted average price of the Company’s common stock on the trading day prior to such advance or (b) 75% of the average of the two lowest daily trades in the five day period prior to the noteholder’s delivery of a conversion notice. All other terms and conditions of the Note remain in full force and effect.

On July 28, 2017, the Company received a second $100,000 advance under the Investor Agreement and the corresponding Note, resulting in additional outstanding principal of $110,000 after taking into account the original issue discount.  The second advance is subject to the terms and conditions the Promissory and interest and principle are due January 28, 2018. Outstanding amounts under this advance are convertible at the election of the noteholder at a conversion price of $0.0617.  The Company also issued a three year warrant to purchase up to  891,410 shares of the Company’s common stock at a per share exercise price  of $0.2468. The warrant provides for cashless exercise at the election of the holder i f, on the date on which the warrant is exercised, the warrant is in-the-money and a registration statement registering the issuance of the underlying warrant shares is not effective. As part of the second advance, the Company initially reserved 7,000,000 shares of common stock for issuance upon possible conversion of the advance and exercise of the warrant.

On July 27, 2017, the noteholder converted a total of $13,556 in interest and principal under the first Note advance into 300,000 shares of common stock at an approximate per share conversion price of $0.0452.

See   Note 10- Subsequent Events, Note Amendment and Funding.

Termination of River North Purchase Agreement; Entry into L2 Purchase Agreement
 
The Company and River North Equity, LLC (“River North”) have been parties to an Equity Purchase Agreement dated March 16, 2016, as amended by Amendment No. 1 dated December 9, 2016 (as so amended, the “River North Purchase Agreement”). Under the River North Purchase Agreement, the Company had the right from time to time, in its discretion, to sell shares of its common stock to River North for aggregate gross proceeds of up to $5,000,000.

On February 21, 2017, the Company and River North terminated the River North Purchase Agreement and a related registration rights agreement and the Company entered into a new Equity Purchase Agreement (the “L2 Purchase Agreement”) with L2 Capital, LLC (”L2 Capital”), an affiliate of River North. Under the L2 Purchase Agreement, the Company may from time to time, in its discretion, sell shares of its common stock to L2 Capital for aggregate gross proceeds of up to $5,000,000. Unless terminated earlier, L2 Capital’s purchase commitment will automatically terminate on the earlier of the date on which L2 Capital shall have purchased Company shares pursuant to the Purchase Agreement for an aggregate purchase price of $5,000,000, or February 21, 2020. The Company has no obligation to sell any shares under the L2 Purchase Agreement.
 
 
As provided in the L2 Purchase Agreement, the Company may require L2 Capital to purchase shares of common stock from time to time by delivering a put notice to L2 Capital specifying the total number of shares to be purchased (such number of shares multiplied by the purchase price described below, the “Investment Amount”); provided there must be a minimum of 10 trading days between delivery of each put notice. The Company may determine the Investment Amount, provided that such amount may not be more than the average daily trading volume in dollar amount for the Company’s common stock during the 10 trading days preceding the date on which the Company delivers the applicable put notice. Additionally, such amount may not be lower than $5,000 or higher than $150,000. L2 Capital will have no obligation to purchase shares under the L2 Purchase Agreement to the extent that such purchase would cause L2 Capital to own more than 9.99% of the Company’s common stock.
 
For each share of the Company’s common stock purchased under the L2 Purchase Agreement, L2 Capital will pay a purchase price equal to 85% of the Market Price, which is defined as the average of the two lowest closing bid prices on the OTCQB Marketplace, as reported by Bloomberg Finance L.P., during the five consecutive Trading Days including and immediately prior to the settlement date of the sale, which in most circumstances will be the trading day immediately following the “Put Date,” or the date that a put notice is delivered to L2 Capital (the “Pricing Period”). The purchase price will be adjusted as follows: (i) an additional 10% discount to the Market Price will be applied if either (A) the Closing Price of the Common Stock on the Put Date is less than $0.10 per share, or (B) the average daily trading volume in dollar amount for the Common Stock during the 10 trading days including and immediately preceding the Put Date is less than $50,000; (ii) an additional 5% discount to the Market Price will be applied if the Company is not deposit/withdrawal at custodian (“DWAC”) eligible; and (iii) an additional 10% discount to the Marker Price will be applied if the Company is under DTC “chill” status. L2 Capital’s obligation to purchase shares on any settlement date is subject to customary closing conditions, including without limitation a requirement that a registration statement remain effective registering the resale by L2 Capital of the shares to be issued. The L2 Purchase Agreement is not transferable and any benefits attached thereto may not be assigned.
 
The L2 Purchase Agreement contains covenants, representations and warranties of the Company and L2 Capital that are typical for transactions of this type. In addition, the Company and L2 Capital have granted each other customary indemnification rights in connection with the L2 Purchase Agreement. The L2 Purchase Agreement may be terminated by the Company at any time.
 
In connection with the L2 Purchase Agreement, the Company also entered into Registration Rights Agreement with L2 Capital requiring the Company to prepare and file, within 45 days, a registration statement registering the resale by L2 Capital of shares to be issued under the L2 Purchase Agreement, to use commercially reasonable efforts to cause such registration statement to become effective, and to keep such registration statement effective until (i) three months after the last closing of a sale of shares under the L2 Purchase Agreement, (ii) the date when L2 Capital may sell all the shares under Rule 144 without volume limitations, or (iii) the date L2 Capital no longer owns any of the shares. The registration statement was filed on February 28, 2017 and declared effective on March 10, 2017.
 
The foregoing description of the terms of the Termination with River North and the L2 Purchase Agreement and corresponding Registration Rights Agreement does not purport to be complete and is subject to and qualified in its entirety by reference to the agreements themselves, copies of which are filed as Exhibits 10.4, 10.5 and 10.6, respectively, to our Current Report on Form 8-K filed with the SEC on February 23, 2017, and the terms of which are incorporated herein by reference. The benefits and representations and warranties set forth in such documents (if any) 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.

Likelihood of Accessing the Full Amount of the Equity Line
 
Notwithstanding that the Equity Line is in an amount of $5,000,000, we anticipate that the actual likelihood that we will be able access the full $5,000,000 may be low due to several factors, including that our ability to access the Equity Line is impacted by our average daily trading volume, the average computed sale price of the shares for each put, which may limit the maximum dollar amount of each put we deliver to L2 Capital. Our use of the Equity Line will continue to be limited and restricted if our share trading volume or market price of our stock continue at their current levels or decrease further in the future from the volume and stock prices reported over the past year.
 
Further, our ability to issue shares in excess of the 25,000,000 shares covered by the registration statement will be subject to our filing a subsequent registration statement with the SEC and the SEC declaring it effective.
 
 
Factors Affecting Future Mineral Exploration Results
 
We have generated no material revenues since inception, other than interest income, revenue from the sale precious metals in the quarter ended June 30, 2017, and loads of iron ore to a contractor. 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 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 our Annual Report on Form 10-K for the fiscal year ended September 30, 2016, filed with the U.S. Securities and Exchange Commission on January 13, 2017.  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.
 
We incurred significant delays in our mine operational activities in 2016 in reference to the mine road to our mine site. In February 2017, with the assistance of our Mine Safety and Health Administration (“ MSHA”) consultant and legal consultants, we signed an agreement with the United States Forest Service that provides agreed upon terms and conditions for the use of the road to our mine site. A copy of the agreement is posted on the Company web site.

Future time delays in obtaining any 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 three months ended June 30, 2017, we did not engage in any off-balance sheet arrangements set forth in Item 303(a)(4) of Regulation S-K.

Contractual Obligations
 
As of June 30, 2017, we had no contractual obligations (including long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations and other long-term liabilities reflected on our balance sheet under GAAP) that are expected to have an adverse effect on our liquidity and cash flows in future periods.
 
Critical Accounting Policies
 
Our unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and judgments that significantly affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Note 1 -   Business, Basis of Presentation and Significant Accounting Policies   in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2016, filed with the U.S. Securities and Exchange Commission on January 13, 2017, describes our significant accounting policies which are reviewed by management on a regular basis.
 
New Accounting Pronouncements
 
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item. 
 
 
Item 4.
Controls and Procedures
 
Disclosure Controls and Procedures
 
The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in its periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
 
As of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by it in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  In addition, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
 
Changes in Internal Control over Financial Reporting
 
There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, during the quarter ended June 30, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
PART II.
OTHER INFORMATION
 
Item 1.
Legal Proceedings
 
We are not a party to any material pending legal proceedings and to our knowledge, no such proceedings by or against the Company have been threatened.
 
Item 1A.
Risk Factors
 
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2016, filed with the U.S. Securities and Exchange Commission on January 13, 2017, in addition to the other information included in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management from time to time prior to investing in our common stock.
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
During the three months ended June 30, 2017, we issued a total of 6,992,422 shares of common stock to L2 Capital under the L2 Capital Purchase Agreement for aggregate proceeds of $273,331. The issuances of shares were 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 3.
Defaults Upon Senior Securities
 
None.
 
Item 4.
Mine Safety Disclosures
 
During our current fiscal operating year ending September 30, 2016, the Company received various minor violations from MSHA. The proposed assessments are currently being contested by the Company and we were waiting for the requested hearing before the independent Federal Mine Safety and Health Review Commission for final resolve. The proposed assessments aggregate $1,864.  On July 3, 2017, we received a letter from the Federal Mine Safety and Health Review Commission that the Citations were vacated and dismissed.

Item 5.
Other Information
 
None.
 
 
Item 6.
Exhibits
 
(a)
Exhibits
 
Exhibit No.
 
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 Amendment to Articles of Incorporation   (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed October 4, 2016).
3.4
 
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).
3.5
 
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).
3.6
 
Restated Bylaws   (incorporated by reference to Exhibit 3.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed with the SEC on August 15, 2016).
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(a)
   
10.1(b)
   
31.1*
   
31.2*
   
32.1*
   
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.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.
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
EL CAPITAN PRECIOUS METALS, INC.
 
 
 
 
 
 
 
 
 
Dated: August 14, 2017
By:
/s/  John F. Stapleton
 
 
 
John F. Stapleton
Chief Executive Officer, President and Director
(Principal Executive Officer)
 
 
 
 
 
 
Dated: August 14, 2017
By:
/s/  Stephen J. Antol
 
 
 
Stephen J. Antol
Chief Financial Officer
(Principal Financial Officer)
 
 
 
41
Exhibit 10.1(a)
 
 
AMENDMENT TO  THE  SECURITIES  PURCHASE  AGREEMENT  AND  $550,000  PROMISSORY  NOTE  DATED          February  21,  2017 The  parties  agree  that  the  Securities  Purchase  Agreement  and  $550,000  Promissory  Note  by  and  between El  Capitan  Precious  Metals,  Inc.  ("Company")  and  Lucas  Hoppel  ("Holder")  is  hereby  amended  as follows: Maturity  Date:    The  Maturity  Date  shall  for  the  first  tranche  of  $100,000  shall  be  extended  to  November 15th,  2017. Conversion  Price:  The  Conversion  Price  shall  permanently  be  changed  to  equal  the  lesser  of  (a)  the  VWAP of  the  Common  Stock  on  the  trading  day  prior  to  the  any  Advance  or  (b)  75%  of  the  average  of  the  two lowest  daily  trades  in  the  five  trading  days  prior  to  the  conversion  notice. ALL  OTHER  TERMS  AND  CONDITIONS  OF  THE  $550,000  PROMISSORY  NOTE  REMAIN  IN FULL  FORCE  AND  EFFECT. Please  indicate  acceptance  and  approval  of  this  amendment  dated  July  24th,  2017  by  signing  below: John  F.  Stapleton El  Capital  Precious  Metals,  Inc. Chief  Executive  Officer
 

Exhibit 10.1(b)
 
NEITHER THIS SECURITY NOR THE SECURITIES AS TO WHICH THIS SECURITY MAY BE EXERCISED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
 

COMMON STOCK PURCHASE WARRANT

EL CAPITAN PRECIOUS METALS, INC.

Warrant Shares: 891,410
Issuance Date:  July 28, 2017 (“ Issuance Date ”)

This COMMON STOCK PURCHASE WARRANT (the “ Warrant ”) certifies that, for value received (in connection with making an advance to the Company (as defined herein) under the convertible note dated February 21, 2017 in the original principal amount of $550,000.00 (the “ Note ”)), Lucas Hoppel (including any permitted and registered assigns, the “ Holder ”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date of issuance hereof (the “ Issuance Date ”), to purchase from El Capitan Precious Metals, Inc., a Nevada corporation (the “ Company ”), 891,410 shares of Common Stock (as defined below) (the “ Warrant Shares ”) at the Exercise Price (as defined below) per share then in effect, subject to adjustment from time to time pursuant to the terms and conditions of this Warrant).

Capitalized terms used in this Warrant shall have the meanings set forth in the Note unless otherwise defined in the body of this Warrant or in Section 13 below.  For purposes of this Warrant, the term “ Exercise   Price ” shall mean $0.2468, which represents four (4) multiplied by the VWAP of the Common Stock on the Trading Day immediately preceding the Issuance Date, subject to adjustment as provided herein (including but not limited to cashless exercise, if applicable), and the term “ Exercise Period ” shall mean the period commencing on the Issuance Date and ending on 5:00 p.m. eastern standard time on the three-year anniversary thereof.

1.
EXERCISE OF WARRANT .

(a)           Mechanics of Exercise .  Subject to the terms and conditions hereof, the rights represented by this Warrant may be exercised in whole or in part at any time or times during the Exercise Period by delivery of a written notice, in the form attached hereto as Exhibit A (the “ Exercise Notice ”), of the Holder’s election to exercise this Warrant.  The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder.  Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased.  On or before the third Trading Day (the “ Warrant Share Delivery Date ”) following the date on which the Company shall have received the Exercise Notice, and upon receipt by the Company of payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which all or a portion of this Warrant is being exercised (the “ Aggregate Exercise Price ” and together with the Exercise Notice, the “ Exercise   Delivery Documents ”) in cash or by wire transfer of immediately available funds (or, if applicable, by cashless exercise, in which case there shall be no Aggregate Exercise Price provided), the Company shall (or direct its transfer agent to) issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise.  Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares.  If this Warrant is submitted in connection with any exercise and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three Business Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 6) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.
 


If the Company fails to cause its transfer agent to transmit to the Holder the respective Warrant Shares by the respective Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise in Holder’s sole discretion, or the Holder may declare such failure to be an event of default under the Note, in which case the Company shall be liable to the Holder for all damages caused by such failure to deliver the respective shares of Common Stock.

If, on the date on which this Warrant is exercised, a registration statement registering the issuance of the Warrant Shares issuable upon such exercise under the Securities Act of 1933, as amended (the “ Securities Act ”) is not effective, and the Market Price of one share of Common Stock is greater than the Exercise Price, the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise, , in which event the Company shall issue to Holder a number of Warrant Shares computed using the following formula:

X = Y (A-B)
A
Where
X =
the number of Warrant Shares to be issued to Holder.
 
Y =
the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation).
 
A =
the Market Price (at the date of such calculation).
 
B =
Exercise Price (as adjusted to the date of such calculation).
 
(b)            No Fractional Shares .  No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto.  All Warrant Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share.  If, after aggregation, the exercise would result in the issuance of a fractional share, the number of Warrant Shares to be issued shall be rounded up to the next whole share.
 
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(c)            Holder’s Exercise Limitations .  The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, to the extent that after giving effect to issuance of Warrant Shares upon exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation, as defined below.  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, non-exercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or non-converted portion of any other securities of the Company (including without limitation any other  Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this paragraph (d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith.   To the extent that the limitation contained in this paragraph applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.

For purposes of this paragraph, in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the request of a Holder, the Company shall within two Trading Days confirm to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  The “ Beneficial Ownership   Limitation ” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant.  The limitations contained in this paragraph shall apply to a successor Holder of this Warrant.  The Company covenants that this Warrant is outstanding, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full exercise of this Warrant.  The Company is required at  all times to have authorized and reserved three times the number of shares that is actually issuable upon full exercise of the Warrant (based on the Exercise Price in effect at that time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Company’s obligations hereunder.

2.              ADJUSTMENTS .  The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:

(a)             Distribution of Assets .  If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Warrant, then, in each such case:

(i)            any Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction (i) the numerator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (ii) the denominator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and
 
3


(ii)           the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i); provided, however, that in the event that the Distribution is of shares of common stock of a company (other than the Company) whose common stock is traded on a national securities exchange or a national automated quotation system (“ Other Shares of Common Stock ”), then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i) and the number of Warrant Shares calculated in accordance with the first part of this clause (ii).

(b)             Anti-Dilution Adjustments to Exercise Price .  If the Company, at any time from and after the Issuance Date, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of, sell or issue (or announce any offer, sale, grant or any option to purchase or other disposition of) any Common Stock or Common Stock Equivalents entitling any person, firm, association or entity to acquire shares of Common Stock at an effective price per share less than the then-current Exercise Price, as adjusted hereunder (any such issuance being referred to as a “ Dilutive Issuance ,” subject, however, to the proviso contained in the further definition of the term “Dilutive Issuance” contained in Section 13 below), then (a) the Exercise Price shall be adjusted to match the lowest price per share at which such Common Stock was issued or may be acquired pursuant to such Common Stock Equivalents in the Dilutive Issuance, and (b) the number of Warrant Shares issuable upon the exercise of this Warrant shall be increased to an amount equal to the number of Warrant Shares Holder could purchase hereunder for the aggregate Exercise Price, as reduced pursuant to this Section 2(b), equal to the aggregate Exercise Price payable immediately prior to such reduction in Exercise Price.  Additionally, following the occurrence of a Dilutive Issuance, all references in this Warrant to “Warrant Shares” shall be a reference to the Warrant Shares as increased pursuant to this Section 2(b), and all references in this Warrant to “Exercise Price” shall be a reference to the Exercise Price as reduced pursuant to this Section 2(b), as the same may occur from time to time hereunder.

(c)             Split, Subdivision, Reverse Split or Combination of Shares .  If the Company at any time while this Warrant, or any portion thereof, remains outstanding and unexpired shall issue additional shares of its Common Stock as a dividend with respect to any shares of its Common Stock, or split, subdivide, reverse split or combine the securities as to which purchase rights under this Warrant exist, into a different number of securities of the same class (each such event shall be referred to herein as a “Triggering Event”),, the Exercise Price per share for such securities shall be proportionately decreased in the case of a stock dividend, split or subdivision or proportionately increased in the case of a combination or reverse split and the number of shares which the Holder hereof shall be entitled to receive upon exercise shall be correspondingly appropriately adjusted, provided, however, that any Dilutive Issuance involving a variable rate formula shall not be subject to any such adjustment contained in this paragraph.
 
4


any such adjustment contained in this paragraph.

3.              FUNDAMENTAL TRANSACTIONS .  If, at any time while this Warrant is outstanding, (i) the Company effects any merger of the Company with or into another entity and the Company is not the surviving entity (such surviving entity, the “ Successor Entity ”), (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or by another individual or entity, and approved by the Company) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares of Common Stock for other securities, cash or property and the holders of at least 50% of the Common Stock accept such offer, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock) (in any such case, a “ Fundamental   Transaction ”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive the number of shares of Common Stock of the Successor Entity or of the Company and any additional consideration (the “ Alternate Consideration ”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (disregarding any limitation on exercise contained herein solely for the purpose of such determination).  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any Successor Entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration.

4.              NON-CIRCUMVENTION .  The Company covenants and agrees that it will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder.  Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, for so long as this Warrant is outstanding, have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant (without regard to any limitations on exercise).

5.              WARRANT HOLDER NOT DEEMED A STOCKHOLDER .  Except as otherwise specifically provided herein, this Warrant, in and of itself, shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.

6.              REISSUANCE .

(a)             Lost, Stolen or Mutilated Warrant .  If this Warrant is lost, stolen, mutilated or destroyed, the Company will, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
 
5


(b)             Issuance of New Warrants .  Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant shall be of like tenor with this Warrant, and shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date.

7.              TRANSFER .

(a)             Notice of Transfer .  The Holder agrees to give written notice to the Company before transferring this Warrant or transferring any Warrant Shares of such Holder’s intention to do so, describing briefly the manner of any proposed transfer.  Promptly upon receiving such written notice, the Company shall present copies thereof to the Company’s counsel.  If the proposed transfer may be effected without registration or qualification (under any federal or state securities laws), the Company, as promptly as practicable, shall notify the Holder thereof, whereupon the Holder shall be entitled to transfer this Warrant or to dispose of Warrant Shares received upon the previous exercise of this Warrant, all in accordance with the terms of the notice delivered by the Holder to the Company; provided, however, that an appropriate legend may be endorsed on this Warrant or the certificates for such Warrant Shares respecting restrictions upon transfer thereof necessary or advisable in the opinion of counsel and satisfactory to the Company to prevent further transfers which would be in violation of Section 5 of the Securities Act and applicable state securities laws; and provided further that the prospective transferee or purchaser shall execute the Assignment of Warrant attached hereto as Exhibit B and such other documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company for the transfer or disposition of the Warrant or Warrant Shares.

(b)             If the proposed transfer or disposition of this Warrant or such Warrant Shares described in the written notice given pursuant to this Section 7 may not be effected without registration or qualification of this Warrant or such Warrant Shares, the Holder will limit its activities in respect to such transfer or disposition as are permitted by law.

8.              NOTICES .  Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with the notice provisions contained in the Note.  The Company shall provide the Holder with prompt written notice (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, the calculation of such adjustment and (ii) at least 20 days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any stock or other securities directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock or other property, pro rata to the holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

9.              AMENDMENT AND WAIVER .  The terms of this Warrant may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.

10.            GOVERNING LAW .  This Warrant and all rights, obligations and liabilities hereunder shall be governed by, and construed in accordance with, the internal laws of the State of Nevada, without giving effect to the conflicts-of-law principles thereof.  Any action brought by either party against the other concerning the transactions contemplated by this Warrant shall be brought only in the state and/or federal courts located in San Diego, California.
 
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11.            ACCEPTANCE .  Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.

12.            CERTAIN DEFINITIONS .  For purposes of this Warrant, the following terms shall have the following meanings:

(a)             Nasdaq ” means www.Nasdaq.com.

(b)            Closing Sale Price ” means, for any security as of any date, (i) the last closing trade price for such security on the Principal Market, as reported by Nasdaq, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00 p.m., New York time, as reported by Nasdaq, or (ii) if the foregoing does not apply, the last trade price of such security in the over-the-counter market for such security as reported by Nasdaq, or (iii) if no last trade price is reported for such security by Nasdaq, the average of the bid and ask prices of any market makers for such security as reported by the OTC Markets.  If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

(c)             Common Stock ” means the Company’s common stock, and any other class of securities into which such securities may hereafter be reclassified or changed.

(d)            Common Stock Equivalents ” means any securities of the Company that would entitle the holder thereof to acquire at any time Common Stock, including without limitation any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

(e)             Dilutive Issuance ” is any issuance of Common Stock or Common Stock Equivalents described in Section 2(b) above; provided , however , that a Dilutive Issuance shall not include any Exempt Issuance.

(f)             Exempt Issuance ” means the issuance of (i) securities of the Company to officers, directors, employees of or consultants to the Company pursuant to compensatory arrangements (whether or not pursuant to a plan), (ii) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, (iii) shares of Common Stock issued in connection with regularly scheduled dividend payments on any preferred stock of the Company, (iv) shares of Common Stock issued pursuant to any leasing arrangement, real property leasing arrangement, or financing from a national bank approved by the Board of Directors of the Company; (v) any issuance under the equity line arrangements governed by that certain Equity Purchase Agreement dated March 16, 2016 between the Company and River North Equity, LLC, as amended, or any replacement equity line arrangement with an affiliate of River North Equity, LLC; and (vi) securities of the Company pursuant to any subsequent financing transaction or arrangement between the Company and the Holder that is unrelated to future issuances contemplated by the Note, this Warrant and the corresponding Securities Purchase Agreement between the Company and the Holder. The issuance of a warrant in connection with an Additional Advance under the Note is not an Exempt Issuance.

(g)            Principal Market ” means the primary national securities exchange on which the Common Stock is then traded.

(h)            Market Price ” means the highest traded price of the Common Stock during the fifteen (15) Trading Days prior to the date of the respective Exercise Notice.
 
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(i)              Trading Day ” means (i) any day on which the Common Stock is listed or quoted and traded on its Principal Market, (ii) if the Common Stock is not then listed or quoted and traded on any national securities exchange, then a day on which trading occurs on any over-the-counter markets, or (iii) if trading does not occur on the over-the-counter markets, any Business Day.

[signature page to follow]
          
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 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the
 
Issuance Date set forth above.

 
EL CAPITAN PRECIOUS METALS, INC.
   
   
 
Name: John Stapleton
 
Title: Chief Executive Officer
 
9

 
EXHIBIT A

EXERCISE NOTICE

(To be executed by the registered holder to exercise this Common Stock Purchase Warrant)


T HE U NDERSIGNED holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of El Capitan Precious Metals, Inc., a Nevada corporation (the “Company”), evidenced by the attached copy of the Common Stock Purchase Warrant (the “Warrant”).  Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.
Form of Exercise Price .  The Holder intends that payment of the Exercise Price shall be made as (check one):
 
  a cash exercise with respect to _________________ Warrant Shares; or
  by cashless exercise pursuant to the Warrant (if applicable).
 

2.
Payment of Exercise Price .  If cash exercise is selected above, the holder shall pay the applicable Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.
 
3.
Delivery of Warrant Shares .  The Company shall deliver to the holder __________________ Warrant Shares in accordance with the terms of the Warrant.
 



Date:
   
 


     
 
(Print Name of Registered Holder) 
     
     
 
By: 
 
 
Name: 
 
 
Title: 
 
 
 

 
EXHIBIT B

ASSIGNMENT OF WARRANT

(To be signed only upon authorized transfer of the Warrant)


 F OR V ALUE R ECEIVED , the undersigned hereby sells, assigns, and transfers unto ____________________ the right to purchase _______________ shares of common stock of El Capitan Precious Metals, Inc., to which the within Common Stock Purchase Warrant relates and appoints ____________________, as attorney-in-fact, to transfer said right on the books of El Capitan Precious Metals, Inc. with full power of substitution and resubstitution in the premises.  By accepting such transfer, the transferee has agreed to be bound in all respects by the terms and conditions of the within Warrant.
 


Date:
   

   
 
(Signature) *
   
   
 
(Name)
   
   
 
(Address)
   
   
 
(Social Security or Tax Identification No.)



* The signature on this Assignment of Warrant must correspond to the name as written upon the face of the Common Stock Purchase Warrant in every particular without alteration or enlargement or any change whatsoever.  When signing on behalf of a corporation, partnership, trust or other entity, please indicate your position(s) and title(s) with such entity.
 

 

EXHIBIT 31.1
 
RULE 13a-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER
 
I, John F. Stapleton, certify that:
 
1. 
I have reviewed this Quarterly Report on Form 10-Q of El Capitan Precious Metals, Inc.;
  
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: August 14, 2017
 
 
 
 
 
 
 
/s/ John F. Stapleton
 
 
John F. Stapleton
 
 
Chief Executive Officer, President and Director

 
 

EXHIBIT 31.2
 
RULE 13a-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER
 
I, Stephen J. Antol, certify that: 
 
1. 
I have reviewed this Quarterly Report on Form 10-Q of El Capitan Precious Metals, Inc.;
  
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: August 14, 2017
 
 
 
 
 
 
 
/s/ Stephen J. Antol
 
 
Stephen J. Antol
 
 
Chief Financial Officer

 
 

EXHIBIT 32.1
 
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
 
In connection with the Quarterly Report of El Capitan Precious Metals, Inc. (the “Company”) on Form 10-Q for the nine-month period ended June 30, 2017, filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officers of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
 
(2)
The information contained in the Report fairly presents, in material respects, the financial condition and results of operations of the Company, as of, and for the periods presented in the Report.
 
 
Date: August 14, 2017
 
 
/s/ John F. Stapleton
 
John F. Stapleton
Chief Executive Officer, President and Director
 
 
 
 
 
/s/ Stephen J. Antol
 
Stephen J. Antol
Chief Financial Officer