**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-KSB**




x
            Annual
                report pursuant to section 13 or 15(d) of the Securities Exchange
                Act of
                1934




For
      the
      fiscal year ended September 30, 2006




o
            Transition
                report under section 13 or 15(d) of the Securities Exchange Act of
                1934




For
      the
      transition period from ___________ to ____________





Commission
      File Number:  333-56262




**EL
      CAPITAN PRECIOUS METALS, INC** .


(Name
      of
      small business issuer in its charter)





**NEVADA**
            **88-0482413**(State
                or other jurisdiction
            (I.R.S.
                Employer I.D. No.)incorporation
                or organization)





**14301
                North 87th Street, Suite 216****Scottsdale,
                Arizona**
            **85260**(Address
                of principal executive offices)
            (Zip
                Code)





Issuer’s
      telephone number, including area code: **(480)
      607-7093**




Securities
      registered pursuant to Section 12(b) of the Exchange Act: **None**




Securities
      registered under Section 12(g) of the Exchange Act:


**None**




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o




Check
      whether the Issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such report(s), and (2) has been
      subject to such filing requirements for the past 90 days. Yes x No o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is contained in this form, and no disclosure will be contained,
      to the best of the registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this form 10-KSB or any
      amendment to this Form 10-KSB. o




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




The
      issuer had no revenue for its most recent fiscal year.




The
      aggregate market value of the issuer’s voting stock held as of January 5, 2007,
      by non-affiliates of the issuer was approximately $56,914,904 **** based
      on
      the closing market price of the Registrant’s common stock of $0.85 as reported
      on the OTC Bulletin Board.




As
      of
      January 5, 2007, issuer had 77,259,409 **** shares
      of
      its $.001 par value common stock issued and outstanding.




Transitional
      Small Business Format: Yes o No
x




Documents
      incorporated by reference: None







**EL
      CAPITAN PRECIOUS METALS, INC.**


**FORM
      10-KSB**




**CAUTIONARY
      STATEMENT ON FORWARD-LOOKING STATEMENTS**




THIS
      REPORT MAY CONTAIN CERTAIN “FORWARD-LOOKING” STATEMENTS AS SUCH TERM IS DEFINED
      BY THE SECURITIES AND EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND
      RELEASES, WHICH REPRESENT THE REGISTRANT’S EXPECTATIONS OR BELIEFS, INCLUDING
      BUT NOT LIMITED TO, STATEMENTS CONCERNING THE REGISTRANT’S OPERATIONS, ECONOMIC
      PERFORMANCE, FINANCIAL CONDITION, GROWTH AND ACQUISITION STRATEGIES,
      INVESTMENTS, AND FUTURE OPERATIONAL PLANS. FOR THIS PURPOSE, ANY STATEMENTS
      CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO
      BE
      FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
      WORDS SUCH AS “MAY,” “WILL,” “EXPECT,” “BELIEVE,” “ANTICIPATE,” “INTENT,”
“COULD,” “ESTIMATE,” “MIGHT,” “PLAN,” “PREDICT” OR “CONTINUE” OR THE NEGATIVE OR
      OTHER VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY
      FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL
      RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE REGISTRANT’S CONTROL,
      AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT
      FACTORS, INCLUDING UNCERTAINTY RELATED TO ACQUISITIONS, GOVERNMENTAL REGULATION,
      MANAGING AND MAINTAINING GROWTH, THE OPERATIONS OF THE COMPANY AND ITS
      SUBSIDIARIES, VOLATILITY OF STOCK PRICE AND ANY OTHER FACTORS DISCUSSED IN
      THIS
      AND OTHER REGISTRANT FILINGS WITH THE SECURITIES AND EXCHANGE
      COMMISSION.




THESE
      RISKS AND UNCERTAINTIES AND OTHER FACTORS INCLUDE, BUT ARE NOT LIMITED TO THOSE
      SET FORTH UNDER ITEM 1 - RISK FACTORS. GIVEN THESE RISKS AND UNCERTAINTIES,
      READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON OUR FORWARD-LOOKING
      STATEMENTS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
      ATTRIBUTABLE TO THE COMPANY OR TO PERSONS ACTING ON OUR BEHALF ARE EXPRESSLY
      QUALIFIED IN THEIR ENTIRETY BY THESE CAUTIONARY STATEMENTS. EXCEPT AS REQUIRED
      BY FEDERAL SECURITIES LAWS, WE DO NOT INTEND TO UPDATE OR REVISE ANY
      FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
      EVENTS OR OTHERWISE.







**PART
      I**




**ITEM
      1.**  **DESCRIPTION
      OF BUSINESS**




**Business
      History**





El
      Capitan Precious Metals, Inc. (hereinafter, the “Company,” “we” and “our” refer
      to El Capitan Precious Metals, Inc.) is a precious minerals company based in
      Scottsdale, Arizona. We are an exploration stage company that owns interests
      in
      several properties located in the southwestern United States. We are principally
      engaged in the exploration of precious metals and other minerals. Our primary
      asset is a 40% equity interest in El Capitan, Ltd., an Arizona corporation
      which
      holds an interest in the El Capitan property located near Capitan, New Mexico.
      Additionally, our assets include interests in the COD property located near
      Kingman, Arizona and the Weaver property located near Congress, Arizona. There
      is no assurance that a commercially viable mineral deposit exists on any of
      our
      properties. Additional exploration will be required before a final evaluation
      can be made as to the economic and legal feasibility of a particular property.
      To date, we have not had any revenue producing operations.




The
      Company was previously organized as a Nevada corporation on December 20, 2000
      under the name DML Services, Inc. (“DML”). DML was in the catering and food
      service business, operating under the name “Go Espresso.” On March 17, 2003, we
      sold substantially all of the assets and the operations of the catering and
      food
      service business to Michael Flores and Deborah Flores, our executive officers
      and directors at that time, in exchange for the redemption of 30,120,000 shares
      of our common stock, par value $.001 and $50,000 in cash. Hereinafter, all
      references to shares of “Common Stock” shall include adjustments for the four
      for one stock split effective November 25, 2002, and the 200% stock dividend
      effective July 30, 2004.




On
      March
      18, 2003, we acquired all of the issued and outstanding common stock of El
      Capitan Precious Metals, Inc., a Delaware corporation (“ECPN”), in exchange for
      the issuance to ECPN’s shareholders of 39,000,000 shares of our Common Stock,
      which constituted approximately 85% of our total shares outstanding immediately
      following the exchange. ECPN constituted the accounting acquirer in the
      transaction, and the transaction was recorded as a reverse acquisition. On
      April
      11, 2003, we changed our name to “El Capitan Precious Metals, Inc.” Immediately
      after the transaction Gold and Minerals Co., Inc., a Nevada corporation (“Gold
      and Minerals”), which then held 77.5% of ECPN’s total outstanding equity, became
      our controlling shareholder holding 30,225,000 shares of our Common Stock,
      then
      constituting 66.1% of our outstanding Common Stock.




After
      the
      transaction with ECPN, our primary asset was a 40% equity interest in El
      Capitan, Ltd., an Arizona corporation which owns the El Capitan Mine, an
      inactive iron and related ore mine located in New Mexico, including the assets
      used to explore the property. The El Capitan property at the time of this
      transaction contained four patented claims and three unpatented claims on
      approximately 200 acres in the Capitan Mountains in Lincoln County, New Mexico.
      The other 60% equity interest in El Capitan, Ltd. is held by Gold and
      Minerals.




In
      August
      2003, we acquired from Gold and Minerals certain assets known as the COD
      property located near Kingman, Arizona. The assets we obtained included thirteen
      mining claims granted by the United States Bureau of Land Management (the
“BLM”), a building and personal property. In consideration for the purchase, we
      issued 3,600,000 shares of our Common Stock to Gold and Minerals, holding a
      market value at that time of approximately $1,440,000. Because the COD property
      was acquired from our controlling stockholder, who had no monetary economic
      basis in the property, in exchange for our Common Stock, the transaction was
      accounted for as a non-monetary exchange and the COD property was recorded
      at no
      value on our financial statements. Contemporaneously with the purchase of the
      COD property, we entered into a management consulting agreement with Mr. Larry
      Lozensky, the President of Gold and Minerals, pursuant to which Mr. Lozensky
      agreed to continue to manage the COD property until December 31, 2004, in
      exchange for a management consulting fee of $20,000 per month and the issuance
      to Mr. Lozensky of 600,000 shares of our Common Stock. Under the management
      consulting agreement, we obtained the right to pay the management consulting
      fee
      to Mr. Lozensky in the form of our Common Stock. From the expiration of the
      management consulting agreement on December 31, 2004, through March 31, 2005,
      Mr. Lozensky continued to manage the COD property on behalf of the Company
      on a
      month-to-month basis for a management consulting fee of $10,000 per month.
      Since
      March 31, 2005, Mr. Lozensky has continued to provide management services for
      the COD property without compensation from us.




1




In
      May
      2004, we executed a joint venture agreement (the “Joint Venture”) with U.S.
      Canadian Minerals, Inc. (“U.S. Canadian”), a publicly-traded Nevada company, to
      explore and utilize the COD property, including the recovery of any gold and
      silver from the tailings of the COD Mine. The Joint Venture is to exist under
      the name “CanEl” until May 2020, unless terminated earlier pursuant to the terms
      of the Joint Venture. Under terms of the Joint Venture Agreement, we were
      required to transfer to U.S. Canadian an 80% interest in the COD mine in
      exchange for 720,000 restricted shares of U.S. Canadian common stock. Pursuant
      to a stock split effected by U.S. Canadian, we currently hold 2,160,000 shares
      of the U.S. Canadian stock. On the date of the original transaction, shares
      of
      unrestricted freely trading U.S. Canadian common stock traded at $2.85 per
      share, or, adjusted for the split, at $0.95 per share. At September 30, 2006,
      2,160,000 of these shares were utilized as collateral for a $750,000 for a
      convertible promissory note issued by us.




The
      U.S.
      Canadian common stock was restricted with respect to sale until May 2005. U.S.
      Canadian’s common stock is currently traded on the Pink Sheets, its most recent
      SEC filings have not been reviewed by an independent registered public
      accounting firm, and it faced a SEC imposed temporary trading suspension in
      October of 2004, which has since expired. We also have continuing involvement
      (as discussed below) related to the COD property. Based on these factors, no
      gain on the sale was recorded and we have ascribed a value of $2,052,000 to
      the
      common stock received at September 30, 2004, the value on the date of the
      transaction, and recorded a deferred gain on the sale of an asset and is
      classified as a long term liability. Because these securities have no readily
      ascertainable value on a securities exchange or over-the-counter market, we
      have
      determined that the accounting prescribed for equity securities in Statement
      of
      Financial Accounting Standard (SFAS) No. 115, Accounting for Certain Investments
      in Debt and Equity Securities does not apply. Changes in market value of these
      securities are accounted for as an adjustment to the carrying value of the
      securities with a corresponding adjustment to the carrying value of the deferred
      gain liability account. The transaction was recorded in accordance with current
      Generally Accepted Accounting Principles (“GAAP”).




When
      the
      U.S. Canadian common stock resumes trading on the Bulletin Board, and once
      the
      Company’s assessment of the common stock allows for classification of the
      securities as marketable securities, it intends to classify the investment
      as
      available for sale under SFAS No. 115.




Under
      the
      Joint Venture, we are to explore the COD site and contribute the equipment
      as
      required. U.S. Canadian contributed 90 days operating capital, which provided
      for three workers, fuel, necessary equipment, and equipment repair and
      maintenance. The parties have also agreed to share the costs and expenses of
      the
      property in accordance with their profit participation in the property. Net
      profits, if any, from the tailings and settlement pond will be split equally
      among us and U.S. Canadian, and U.S. Canadian shall retain 100% of any other
      profit. Currently this project is on hold as U.S. Canadian is continuing to
      focus on bringing current their SEC filings and to resume trading on the
      Bulletin Board, and, accordingly, no exploratory work has been performed as
      to
      determine the extent, if any, of potential minerals in the
      tailings.




In
      addition to the Joint Venture, we also retained U.S. Canadian as a consultant
      for a period of two years to provide services pertaining to, among other things,
      identifying, studying and evaluating merger, acquisition, joint venture,
      strategic alliance and other proposals as well as implementation of our
      financial public relations programs. In exchange for its services, U.S. Canadian
      was issued a one-year warrant to acquire up to 3,000,000 shares of El Capitan
      common stock exercisable at $0.14 per share. This warrant expired on May 15,
      2005, unexercised. The total compensation cost related to the warrants was
      valued at $108,000 utilizing the Black-Scholes option pricing model; the entire
      amount was expensed during the year ended September 30, 2004.




In
      November 2005, our Board of Directors approved an amendment to the Joint Venture
      Agreement whereby we will contribute $50,000 for the completion of the
      geological field study. As consideration for this advance, we will be reimbursed
      for this advance and any other incurred expenses, and all net proceeds from
      the
      sale of the site, after deducting all incurred costs, are to be split equally
      with U.S. Canadian. Due to the unknown future status of U.S. Canadian, this
      field study has not been implemented as of September 30, 2006.




In
      July
      2004, we acquired from Gold and Minerals the Weaver property located near
      Congress, Arizona. Consideration for this purchase was 3,000,000 shares of
      our
      Common Stock, which had a market value of $400,000 on the closing date. Because
      the Weaver Mine was acquired from our controlling stockholder at the time in
      exchange for our Common Stock, and as Gold and Minerals had no economic monetary
      basis in the property, the transaction was accounted for as a non-monetary
      exchange and the Weaver property was recorded at no value on our financial
      statements as that was the basis of Gold and Minerals.




2




In
      July
      2004, we signed an agreement with Mr. Bob Langguth regarding the exploration
      of
      the Rainbow Valley property, consisting of claims located on approximately
      1,620
      acres in Maricopa County, Arizona. Under
      the
      terms of the agreement, Mr. Langguth was to be paid $2,500 monthly for managing
      the testing, further development of the property, necessary permitting and
      consulting on other properties the Company may have an interest in. Upon
      completion of the successful testing and permitting of the site, the Company
      would be obligated to pay the seller $100,000. The payments under this
      arrangement ceased in January 2006 due to the death of Mr. Langguth. The Company
      has determined that it does not intend to proceed with the testing or
      acquisition of this property.




**Business
      of Issuer**




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




We
      are
      concentrating on the exploration of the El Capitan property site. After
      completing final testing to determine the existence and concentration of
      precious metals or other minerals at this property site, and if the results
      of
      such testing are positive, we anticipate formalizing plans to sell this property
      to a major mining company in 2007 or later.




Over
      the
      last year, we have also been working on a proprietary process for the extraction
      of precious metals from various property interests. Upon the final testing
      and
      assaying of the results of the proprietary process, we determined in November
      2006 that it would not be economically feasible to proceed to the next planned
      stage of the project and terminated the project.




**Price
      of Precious Metals**




Gold,
      silver and platinum are each traded as investments on various world markets
      including London, New York, Zurich and Tokyo and are fixed twice daily in
      London. The “fix” is the reference price on which a large number of precious
      metal transactions around the world are based. The price is set by a number
      of
      market members matching buy and sell orders from all over the
      world.




High,
      low
      and average London afternoon fix prices for gold, silver and platinum for the
      period from January 1, 2006 to September 30, 2006 and for the years ended
      December 31, 2005, 2004, 2003 and 2002 are as follows:




Gold
      -
      London Afternoon Fix Prices - US Dollars





Period
            
            High
            
            Low
            
            AverageFor
                the nine months ended September 30, 2006
            
            $
            725.00
            
            $
            524.75
            
            $
            601.09For
                the year ended December 31, 2005
            
            
            536.50
            
            
            411.10
            
            
            444.74For
                the year ended December 31, 2004
            
            
            454.20
            
            
            375.00
            
            
            409.72For
                the year ended December 31, 2003
            
            
            416.25
            
            
            328.18
            
            
            363.38For
                the year ended December 31, 2002
            
            
            349.30
            
            
            277.75
            
            
            309.73Data
                Source: Kitco




Silver
      - London Afternoon Fix Prices - US Dollars


Period
              
              High
              
              Low
              
              AverageFor
                  the nine months ended September 30, 2006
              
              $
              14.9400
              
              $
              8.8300
              
              $
              11.228For
                  the year ended December 31, 2005
              
              
              7.5700
              
              
              6.3900
              
              
              7.3164For
                  the year ended December 31, 2004
              
              
              8.2900
              
              
              5.4950
              
              
              6.6711For
                  the year ended December 31, 2003
              
              
              5.9650
              
              
              4.3700
              
              
              4.8758For
                  the year ended December 31, 2002
              
              
              5.0975
              
              
              4.2350
              
              
              4.5995Data
                  Source: Kitco





3




Platinum
      - London Afternoon Fix Prices - US Dollars





**Period**
            
            **High**
            
            ******Low**
            
            **Average**For
                the nine months ended September 30, 2006
            
            $
            1,331.00
            
            $
            982.00
            
            $
            1,146.27For
                the year ended December 31, 2005
            
            $
            1,012.00
            
            $
            844.00
            
            $
            896.87For
                the year ended December 31, 2004
            
            
            936.00
            
            
            744.00
            
            
            845.31For
                the year ended December 31, 2003
            
            
            840.00
            
            
            603.00
            
            
            691.31For
                the year ended December 31, 2002
            
            
            607.00
            
            
            453.00
            
            
            539.13Data
                Source: Kitco




Should
      we
      be successful in our exploration and locate gold or other precious metals,
      our
      ability to sell any of our properties would be highly dependent upon the price
      of these precious metals, the market for which can be highly volatile. There
      is
      no assurance that should any of the properties be successfully explored, we
      will
      generate significant revenue from the sale of any precious metals or sale of
      a
      property.




**Competition**




The
      mining industry has historically been highly competitive. It is dominated by
      multi-billion dollar, multi-national companies that possess resources
      exponentially greater than ours. Additionally, due to our limited resources,
      we
      do not intend to develop any of our properties, but rather to only perform
      exploration on our properties with the anticipation of selling any properties
      in
      which our exploration proves successful. Given our size and financial condition,
      there is no assurance we can compete with any larger companies for the
      acquisition of additional potential mineral properties.




**Government
      Regulation**




Mining
      and exploration is highly regulated and subject to various constantly changing
      federal and state laws and regulations governing the protection of the
      environment. These laws are becoming more and more restrictive, and include
      without limitation: the Clean Water Act; the Clean Air Act; the Comprehensive
      Environmental Response, Compensation and Liability Act; the Emergency Planning
      and Community Right-to-Know Act; the Endangered Species Act; the Federal Land
      Policy and Management Act; the National Environmental Policy Act; the Resource
      Conservation and Recovery Act; and related state laws. The environmental
      protection laws dramatically impact the mining and mineral extraction industries
      as it pertains to both the use of hazardous materials in the mining and
      extraction process and from the standpoint of returning the land to a natural
      look once the mining process is completed. Compliance with federal and state
      environmental regulations can be expensive and time consuming.




Compliance
      with the various federal and state government regulations requires us to obtain
      multiple permits for each mining property. Although the requirements may differ
      slightly in each of the respective states in which we hold claims or may hold
      claims in the future, the process of permitting the claims generally requires
      the filing of a “Notice of Intent to Locate Mining Claims” and the payment of a
      fee of $25 to the BLM office in the state in which the claim is located.
      Subsequently, we are required to file and record a New Location Notice for
      each
      such claim within ninety days of locating the claim, the fee for which is
      approximately $165. On an annual basis, we are required to pay a maintenance
      fee
      of $125 per claim, together with payments of approximately $5 each for annual
      bulk fuel and water well permits.




To
      the
      extent we intend to take action on a property that is more than “casual use,”
which generally includes activities that cause only negligible disturbance
      to
      the land (this would not generally include drilling or operating earthmoving
      equipment on the property), we are required to prepare and file with the BLM
      either a notice of operation or plan of operation identifying the activity
      we
      intend to take on the property, including a plan of reclamation indicating
      how
      we intend to return the land to its prior state upon completion of our
      activities. For each claim that we file a notice or plan of operations, we
      are
      required to pay a one-time reclamation bond to the BLM to be used toward
      restoration of the property upon completion of our activities. The amount of
      the
      reclamation bond is determined by the BLM based upon the scope of the activity
      described in the notice or plan of operation, and will thus vary with each
      property. To date, we have only filed a plan of operation on the El Capitan
      property. We were required to pay a reclamation bond of $15,000 in connection
      with the plan of operation, and upon payment were issued a notice to proceed
      from the BLM. This allows us to proceed with our current plan of operation
      on up
      to 5 acres. The cost of obtaining a similar notice to proceed on our other
      properties, or for future plans of operation on the El Capitan property, will
      be
      determined by the BLM and be dependent upon the scope of the related activity,
      and we are thus unable at this time to estimate the total cost of such
      permits.




4




Although
      there is no guarantee that the regulatory agencies will approve, in a timely
      manner, if at all, the necessary permits for our current and anticipated
      explorations, we have no reason to believe at this time that we will not obtain
      the necessary permits in due course.




**Employees**




We
      currently have five employees, all of whom are full-time. Three of these
      employees also serve as directors of the Company. Our non-employee directors
      devote only such time to our business as is necessary to our conduct of
      administrative operations. Additionally, we use consultants for the testing
      and
      exploration of property claims. As administrative requirements expand, we
      anticipate hiring additional employees, and utilizing a combination of employees
      and consultants as necessary to conduct of these activities.





**Available
      Information**




We
      are a
      Nevada corporation with our principal offices at 14301 North 87th Street, Suite
      216, Scottsdale, Arizona 85260. Our telephone number is (480) 607-7093. Our
      website address is www.elcapitanpmi.com.




**ITEM
      2.**  **DESCRIPTION
      OF PROPERTY**





**El
      Capitan Property**





The
      El
      Capitan property originally consisted of approximately 200 acres of mineral
      lands bounded by the Lincoln National Forest in Lincoln County, New Mexico.
      The
      property is situated in the Capitan Mountains, near the city of Capitan, in
      southwest New Mexico. The main site can be reached by going north from Capitan
      on State Road 246 for 5.5 miles, turning right onto an improved private road
      and
      proceeding for about 0.7 miles.




The
      El
      Capitan property is owned by El Capitan Ltd., an Arizona corporation. In 2002,
      in consideration of $100,000 and 77.5% of our issued and outstanding shares
      (at
      which time we were a private Delaware corporation), we acquired a 40% equity
      interest in El Capitan Ltd. from Gold and Minerals, which holds the other 60%
      equity interest.  The
      property consists of four patented and nine BLM lode claims; a mineral deposit
      is covered by these claims. The lode claims known as Mineral Survey Numbers
      1440, 1441, 1442 and 1443 were each located in 1902 and patented in 1911. During
      October and November 2005, we staked and claimed on property surrounding the
      El
      Capitan site located in Lincoln County, New Mexico. This increased the total
      claimed area to approximately 10,000 acres in November 2005. The additional
      staking and claiming around our original site was done upon recommendations
      from
      our consulting geologist to insure protection of El Capitan Ltd’s interests. In
      August 2006, we reduced the number of claims to approximately 7,400 acres based
      upon geological work completed during the year and recommendations by our
      consulting geologist.




On
      January 1, 2006, El Capitan, Ltd. finalized the purchase of the four patented
      mining claims on the property, which constitute approximately 77.5 acres in
      the
      aggregate. In consideration for the claims, El Capitan, Ltd. transferred to
      the
      selling parties 2,100,000 shares of our Common Stock owned by Gold and Minerals.
      Pursuant to an agreement between El Capitan, Ltd. and Thelma Bouldin, DMR
      Resources, Mike Dunn, Kingfisher Resources, Inc., M.A.R.S. Inc., Stephanie
      Malone, Don Rodolph, Mike Rodolph, Norbert Rother and Steven Rother, all of
      whom
      were selling parties, the stock was valued at an aggregate of $1,722,000, or
      $0.82 per share, the market value of our stock on November 11, 2005. Pursuant
      to
      an arrangement with Gold and Minerals, ECPN is obligated to pay 40% of the
      expenses of El Capitan, Ltd. (in proportion with its equity ownership interest
      of El Capitan, Ltd.), and thus was obligated to pay Gold and Minerals $688,800
      for the purchase of the patented mining claims by ECL. During the first quarter
      of fiscal year 2006, we offset our portion of the purchase price against
      existing obligations of Gold and Minerals to us in the aggregate amount of
      $612,416 relating to past expenditures relating to El Capitan, Ltd. that were
      paid by us, resulting in an obligation to Gold and Minerals of $76,384,
      including interest, as of December 31, 2005.




5




The
      main
      El Capitan deposit is exposed in an open-pit and outcrops within a nearly
      circular 1,300 foot diameter area, with smaller bodies stretching eastward
      for a
      distance of up to 7,000 feet. The El Capitan property includes two
      magnetite-dominant bodies. The upper magnetite zone lies below a limestone
      cap
      that is a few tens of feet thick, and that is bleached and fractured with
      hematite-calcite fracture filling. Hematite is an iron oxide mineral, and
      calcite is a calcium carbonate mineral. Below the limestone cap, there is a
      mineral deposit which consists mainly of calc-silicate minerals, or minerals
      which have various ratios of calcium, silicon and oxygen. Beneath the
      calc-silicate deposit is granite rock. The El Capitan deposit has an abundance
      of hematite, which occurs with calcite in later stage fracture fillings,
      breccias (rock composed of sharp-angled fragments), and stockworks
      (multi-directional fractured rock containing veinlets of hydrothermally
      introduced materials).




To
      our
      knowledge, prior to its acquisition by El Capital Ltd., the property was last
      active in 1988. The property was previously drilled as an iron (Fe) resource
      by
      the U.S. Bureau of Mines in 1944 and 1948. From 1961 to 1988, to our knowledge,
      an estimated 250,000 tons of iron ore were produced on the property. Prior
      to
      December 2004, there had not been any significant exploration completed on
      the
      property. There had only been shallow drilling of the upper magnetite horizon,
      which was completed by the U.S. Bureau of Mines in 1944 and 1948, and
      additionally performed by El Capitan Ltd. in 2002. Additionally, there was
      geologic mapping of the property at a scale of 1:3,600 by Kelley in 1952. El
      Capitan Ltd. has obtained all the required permits to enter the property and
      conduct drilling and other exploratory work. In addition to its annual
      maintenance filings and payment of an annual maintenance fee to the BLM for
      the
      claims ($125 per year) and of bulk fuel and water well permits ($5 each per
      year), El Capitan Ltd. has filed a plan of operation to conduct drilling and
      other exploratory work on up to 5 acres on the El Capitan site. Upon payment
      of
      a reclamation bond of $15,000 to cover anticipate costs associated with
      reclamation of the property, El Capitan Ltd. received from the BLM a Minimal
      Impact Existing Mining Operation Permit enabling it to perform its current
      exploratory programs.




Potential
      mineralization has been defined as two separate types: (i) magnetite iron,
      and
      (ii) hematite-calcite mineralized skarn and limestone, which may contain
      precious metals. By using core holes located at strategic points throughout
      the
      property, we have been able to develop subsurface information and define the
      mineralization. To date, there have been no proven commercial precious metals
      reserves on the El Capitan property site. To establish “reserves” (as defined
      under Industry Guide 7 issued by the SEC) on any of our properties, we will
      be
      required to establish that the property was commercially viable; to establish
      commercial viability, we will be required to complete significant additional
      exploration and testing, including more extensive drilling, obtain positive
      engineering results and complete an economic feasibility study on the property.
      We have not completed a feasibility study on the property, and thus cannot
      identify the economic significance of the property at this time.




We
      have
      retained AuRIC Metallurgical Labs of Salt Lake City, Utah (“AuRIC”) to further
      test the El Capitan property. AuRIC offers significant assay and metallurgical
      experience in the gold and platinum group metals. AuRIC has performed tests
      on
      samples from the El Capitan property, which have resulted in potential
      commercial values. We have also retained the services of Dr. Clyde Smith to
      work
      with AuRIC in the testing of the property. Dr. Smith is a Consulting Geologist
      with over 30 years of experience in the mining industry. Dr. Smith holds a
      B.A.
      from Carleton College, a M.Sc. from the University of British Columbia, and
      a
      Ph.D. from the University of Idaho. Dr. Smith also served as a member of the
      Industrial Associates of the School of Earth Sciences at Stanford University
      for
      several years.




Over
      the
      years, samples taken on the property, including samples taken by El Capitan
      Ltd., have given low-grade precious metal results when using standard fire
      assay
      methods. In May 2004, we commissioned AuRIC to use its proprietary alkali fusion
      assay method on samples taken from the property. Alkali fusion assays, which
      are
      a more aggressive form of assay which completely convert the sample into water
      soluble salts, are not currently an industry standard assay method.




In
      January 2005, El Capitan Ltd. completed a preliminary 32-sample surface sampling
      and assay program on the property to determine the property’s gold and platinum
      potential using AuRIC’s alkali fusion assay method. This preliminary sampling
      was completed by Dr. Smith. An employee of AuRIC, which completed the assay
      on
      the samples, assisted Dr. Smith in the latter portion of the sampling process.
      This preliminary sampling and assay program was followed by three stages of
      diamond drilling and rotary drilling, totaling 45 holes between April 2005
      and
      September 2006.




6




Stage
      1
      of the drilling program was completed between April and May 2005, and consisted
      of 1,391 feet drilled in 12 vertical core holes, with depths ranging from 38
      to
      142 feet. Between June and August 2005, we completed Stage 2 drilling, which
      consisted of both drilling in areas adjacent to some of the Stage 1 drilling
      holes and drilling in new target areas to the southwest of the main deposit
      site. Stage 2 drilling consisted of 1,204 feet of combined core and rotary
      footage in 10 vertical holes, ranging from 24.5 to 344.5 feet in depth. The
      Stage 3 drilling program began in February 2006 and was completed in May 2006.
      The program consisted of 23 vertical reverse drill holes totaling 9,685 feet
      and
      varying depths from 270 to 710 feet. Drill cuttings were sent to AuRIC, and
      fusion assays of these holes were completed.




As
      the
      alkali fusion process used by AuRIC is not standard, we retained Mr. Richard
      Daniele, a metallurgical engineer with Daniele Metal-Mineral Services, to
      complete an independent third-party verification of the AuRIC results which
      were
      performed at an independent laboratory of Mr. Michael J. Wendell of Wendell
      and
      Company. The results of the verification were lower than the AuRIC results,
      but
      Mr. Daniele concluded that they were sufficient to demonstrate that the alkali
      fusion assay method was a valid analytical procedure to analyze materials and
      that verification of the AuRIC results had been achieved .




In
      each
      of the sampling processes, El Capitan Ltd. did not provide either AuRIC or
      Mr.
      Wendell a blank quality control sample, which is a man-made sample that
      incorporates the same mineral components as a sample taken from the property
      in
      question, but absent the precious mineral components located in the property
      samples. Blank quality control samples are relatively common practice in the
      industry and are used effectively as placebos in the assay process to ensure
      that samples are not contaminated at the lab. Our failure to use a blank quality
      control sample as often used in the industry may have some effect on the
      integrity of the results of such testing. As part of its internal controls,
      AuRIC was, however, able to test its procedures with two certified standard
      samples obtained by it from the Nevada Bureau of Mines and Geology (one for
      gold
      and silver and one for gold, platinum and palladium) and two from the CDN
      Resource Laboratories Ltd. of Delta, British Columbia (both of which were for
      gold, platinum and palladium); a certified standard sample is a sample that
      is
      made available to different labs to act as a placebo and tested to determine
      a
      standard testing result, to which the assayer’s results can be compared as a
      check against contamination or other flaws in the assaying process. AuRIC
      processed the certified standard samples and compared its results to the
      standard results, enabling it to determine that its results were within a
      suitable variance of the results obtained by the certified standards. A portion
      of the certified standard samples obtained by AuRIC were also provided to Mr.
      Wendell when completing the independent third-party verification.




In
      August
      2006, we retained the services of M.H.S.
      Research **** (“M.H.S.”) **** in
      Denver, Colorado, to **** work
      with
      a **** chain
      of
      custody composite sample **** and **** focus
      on
      various chemical pre-treatment options, flotation alternatives, magnetic
      separation, and gravity separation as mechanisms for improving the ease of
      identification and extraction of the Precious Metal (“PM”) and Platinum Group
      Metal (“PGM”) in the El Capitan deposit material. **** The
      research is being conducted by Mr. Mike Thomas, the Principal Scientist at
      M.H.S., who is also an instructor of mineral processing and a research associate
      at the Colorado School of Mines. Subsequent to our year ended September 30,
      2006, M.H.S. efforts have indicated that significant upgrading, or concentration
      of much of the PMs and PGMs into a smaller fraction of the host material is
      possible using gravity separation techniques. This means that upgrading of
      the
      material for optimization of extraction appears to be technically
      feasible. **** Also,
      after several months of investigation into the composite sample from the El
      Capitan property, M.H.S. results have shown the ability to readily produce
      ‘metal-in-hand’ using a minor modification of standard fire assay procedures.
      Mr. Thomas has recently begun testing various fire assay fluxes to improve
      the
      effectiveness and repeatability of the fire assay procedure on the specific
      rock
      matrix of this material. M.H.S. is continuing its work in these areas and will
      proceed to perform multiple replicate tests on composite material in order
      to
      establish a benchmark head grade for the composite sample. There can be no
      assurance that any mineral grade or recovery determined in a small scale
      laboratory test can or will be duplicated in larger tests under on-site
      conditions or during production.




El
      Capitan Ltd. has entered into agreements with various contractors (as referenced
      above) to complete exploration of the property. Each of the respective
      contractors utilizes its own equipment to complete such exploration and testing.
      El Capitan Ltd. does, however, have located at the El Capitan site equipment
      acquired by Gold and Minerals during the periods 1998 - 2001 and transferred
      to
      El Capitan, Ltd. This equipment, all of which is in general working condition,
      is located at the site but currently unused:




7




·
              40
                  x 80 foot steel building;




·
              two
                  impact mills;




·
              a
                  screening plant;





·
              loaders;





·
              water
                  tanks;




·
              conveyors;





·
              7,500
                  pound capacity furnace;





·
              uhf
                  concentration tables;





·
              a
                  fine grading attrition mill;





·
              chemical
                  reactors;





·
              laboratory
                  and fire assay equipment;





·
              150
                  and 250 kilowatt generators;





·
              a
                  magnetic separator;





·
              a
                  150 pound furnace;





·
              and
                  other miscellaneous mining and mineral processing supplies and
                  equipment




In
      the
      event we receive suitable testing results and a suitable report from Dr. Smith,
      we intend to market the property for sale to potential buyers, including major
      mining companies. On September 27, 2005, we entered into an Agreement with
      Pavlich Associates (“Pavlich”) which provides for Pavlich to be the primary
      representative of the Company in the sale of the El Capitan property to all
      viable third party mineral companies. The agreement provides for consulting
      time
      charges, expenses and a success fee based upon the sales price of the El Capitan
      property. This agreement has been superseded in its entirety by a similar
      agreement we entered into with Gold and Minerals and Pavlich dated June 21,
      2006, which incorporated Gold and Minerals as a party. Under the new agreement,
      Pavlich is entitled to a success fee of one quarter of one percent (0.25%)
      of
      the sales price of the property, with a minimum payment of $250,000 and a
      maximum payment of $3,000,000. Additionally, Pavlich is entitled to a consulting
      fee of $125 per hour and reimbursement of incurred expenses.





**COD
      Property**




The
      COD
      property is an underground property located in the Cerbat mountains in Mohave
      County, Arizona, approximately 11 miles north, northwest of Kingman, Arizona.
      The Cerbat mountains consist mainly of pre-Cambrian metamorphic rock which
      is
      intruded by granite, overlain by younger Tertiary-era volcanic rock. The
      property can be reached by taking Interstate 40 north out of Kingman to the
      Stockton Hill Road exit. After going approximately 5 miles north on Stockton
      Hill Road, there is a subdivision road extending west. Following the subdivision
      road to the second southern extension road, the visitor will see road signs
      showing the directions to the property from that point.




The
      property contains 13 claims granted by the BLM. This property has previously
      been mined through two underground shafts leading to seven levels, most recently
      in the mid 1980’s. The COD property was originally located in 1878.




In
      2003,
      we retained Mr. Larry Lozensky, the President of Gold and Minerals, to manage
      and oversee the COD site. Until December 31, 2004, this arrangement was governed
      by a management consulting agreement with Mr. Lozensky, pursuant to which he
      was
      paid a management fee of $20,000 per month and issued 600,000 shares of our
      Common Stock. From the expiration of that agreement in December 2004 through
      March 31, 2005, Mr. Lozensky continued to manage the COD property on our behalf
      on a month-to-month basis for a management consulting fee of $10,000 per month.
      Since March 31, 2005, Mr. Lozensky has continued to manage and oversee the
      COD
      property without any compensation from us.




8




Pursuant
      to a joint venture agreement with U.S. Canadian Minerals, Inc. (“U.S. Canadian”)
      entered into in May 2004, where we transferred an 80% interest in the COD
      property to U.S. Canadian. Pursuant to the agreement, we plan to explore the
      property to determine the feasibility of recovering gold and silver from the
      tailings of the COD site. As administrator of the COD property, we are to
      receive 50% of the profits from the gold and silver tailings, if any. We are
      required to contribute the equipment necessary for such exploratory operations.
      U.S. Canadian has agreed to contribute 90 days operating capital to provide
      for
      at least three workers, fuel, necessary equipment, and equipment repair and
      maintenance. After the 90-day period, the parties are to split the costs and
      expenses related to the operation of the mine in accordance with their profit
      participation in the COD property. To date, the Company has spent approximately
      $2,500 on this project.




The
      following equipment is located on the COD Mine property:




·
              45
                  x 94 foot steel building




·
              20
                  x 24 foot steel building




·
              small
                  steel building for equipment




·
              rod
                  mill




·
              diagonal
                  deck table




·
              various
                  fuel and water storage tanks




·
              crushing
                  circuit equipment and
                  conveyors




·
              compressors
                  and generators




·
              hoists




·
              52’
                  head frame including head frame, ore skip and work
                  car




·
              miscellaneous
                  other mining supplies and
                  equipment




The
      equipment was acquired by Gold and Minerals when they acquired the property.





To
      date,
      the only activity that has been completed at the COD property is the preliminary
      improvement of the road to the site to increase access and to the mine entrance
      to improve security. We have applied for permits to perform initial exploration
      on the property to take samples for analysis. We have not, however, completed
      any material exploration to determine whether any potential reserves exist
      at
      the site. In the event the joint venture receives suitable testing results,
      it
      will determine the economic feasibility of successfully marketing the property
      for sale to potential buyers, including major mining companies. Currently,
      the
      project is on hold as U.S. Canadian has been focusing on bringing current their
      SEC filings and to resume trading on the Bulletin Board. Subsequent to our
      current year ended, in November 2005, our Board of Directors approved an
      amendment to the joint venture agreement whereby we will contribute $50,000
      for
      the completion of the geological field study. As consideration for this advance,
      we will be reimbursed this advance and any other incurred expenses, and all
      net
      proceeds from the sale of the site, after deducting all incurred costs, are
      to
      be split equally with U.S. Canadian. Until we resume work on this property,
      Mr.
      Lozensky is completing the necessary annual filings with the BLM to enable
      the
      joint venture to retain the interest in the property, and serves as a liaison
      between us and U.S. Canadian.




**Weaver
      Property**





The
      Weaver property consists of approximately 40 acres of land located in Maricopa
      County, Arizona. The Weaver mountains are made up mainly of pre-Cambrian granite
      and metamorphic rock, overlain by Tertiary-era volcanic rock. The property
      is
      located approximately 75 miles north of Phoenix, near Congress, Arizona. From
      Congress, Arizona, the site can be reached by taking State Highway 89 north
      out
      of Congress to Stanton Road, taking Stanton Road east to Stanton, Arizona.
      The
      site is located approximately 1.5 miles northeast of Stanton, Arizona. The
      Weaver property was acquired from our majority shareholder, Gold and Minerals.
      Prior to the acquisition by Gold and Minerals, the site was operated by our
      President, Charles C. Mottley, and a partner of Mr. Mottley. Mr. Mottley and
      his
      partner operated the site from 1982 to 1984, mining approximately 150,000 tons
      of iron ore during that period of time.




9




We
      intend
      to complete additional exploration of this property, and depending on its
      findings, to determine the economic feasibility of the property to be marketed
      for sale to potential buyers, including major mining companies.




**Rainbow
      Valley Property**





The
      Rainbow Valley property consists of approximately 1,620 acres located in
      Maricopa county, approximately 30 miles south of Phoenix near Mobile, Arizona.
      In July 2004, we signed an agreement with Mr. Bob Langguth regarding the
      exploration of the Rainbow Valley property, consisting of claims located on
      approximately 1,620 acres in Maricopa County, Arizona. The property was
      permitted and was drilled and assayed in early 2005 to determine the iron ore
      content of the site. Under the terms of the agreement, Mr. Langguth was to
      be
      paid $2,500 monthly for managing the testing, further development of the
      property, necessary permitting and consulting on other properties the Company
      may have an interest in. Upon completion of the successful testing and
      permitting of the site, the Company would be obligated to pay the seller
      $100,000.




The
      payments under this arrangement ceased in January 2006 due to the death of
      Mr.
      Langguth. The Company has determined that it does not intend to proceed with
      the
      testing or acquisition of this property.




**Executive
      Offices**





Our
      executive offices are located at 14301 North 87th Street, Suite 216, Scottsdale
      Arizona, 85260. On November 1, 2004, we entered into a two-year lease for the
      space, at a monthly rent of $3,845. In October 2006, we extended our lease
      for
      two years at an average monthly rent of $3,629.  We
      believe that the offices are adequate to meet our current requirements. Other
      than our properties as described above, we do not own any real property.




**RISK
      FACTORS**





**Risks
      Relating to Our Common Stock**





***The
      limited trading of our Common Stock may make it difficult to sell shares of
      our
      Common Stock.***




Trading
      of our common stock is conducted on the National Association of Securities
      Dealers’ Over-the-Counter Bulletin Board, or “OTC Bulletin Board.” This has an
      adverse effect on the liquidity of our common stock, not only in terms of the
      number of shares that can be bought and sold at a given price, but also through
      delays in the timing of transactions and reduction in security analysts’ and the
      media’s coverage of us. This may result in lower prices for our common stock
      than might otherwise be obtained and could also result in a larger spread
      between the bid and asked prices for our common stock.





***Because
      our Common Stock is a “penny stock,” it may be difficult to sell shares of our
      Common Stock at times and prices that are acceptable.***




Our
      common stock is a “penny stock.” Broker-dealers who sell penny stocks must
      provide purchasers of these stocks with a standardized risk disclosure document
      prepared by the SEC. This document provides information about penny stocks
      and
      the nature and level of risks involved in investing in the penny stock market.
      A
      broker must also give a purchaser, orally or in writing, bid and offer
      quotations and information regarding broker and salesperson compensation, make
      a
      written determination that the penny stock is a suitable investment for the
      purchaser, and obtain the purchaser’s written agreement to the purchase. The
      penny stock rules may make it difficult for you to sell your shares of our
      stock. Because of the rules, there is less trading in penny stocks. Also, many
      brokers choose not to participate in penny stock transactions. Accordingly,
      you
      may not always be able to resell our shares of common stock publicly at times
      and prices that you feel are appropriate.




10




**Risks
      Relating to Our Financial Condition**




***The
      volatility of precious metal prices may negatively affect our
      earnings.***





We
      anticipate that a significant portion of our future revenues will come from
      the
      sale of one or more of our properties. In such an event, our earnings will
      be
      directly affected by the prices of precious metals believed to be located on
      such properties. Demand for precious metals can be influenced by economic
      conditions, including worldwide production, attractiveness as an investment
      vehicle, the relative strength of the U.S. dollar and local investment
      currencies, interest rates, exchange rates, inflation and political stability.
      The aggregate effect of these factors is not within our control and is
      impossible to predict with accuracy. The price of precious metals has on
      occasion been subject to very rapid short-term changes due to speculative
      activities. Fluctuations in precious metal prices may adversely affect the
      value
      of any discoveries made at the sites with which we are involved. If the market
      prices for these precious metals falls below the mining and development costs
      we
      incur to produce such precious metals, we will experience losses and may have
      to
      discontinue operations at one or more of our properties .




***Unless
      we develop or are able to sell one or our properties, we will not have enough
      cash to fund operations through the next fiscal year without raising additional
      working capital funds.***





As
      of
      September 30, 2006, we had approximately $207,133 of cash on hand. Additionally,
      as of such date we had a current receivable amount due from Gold and Minerals
      for an aggregate of $123,807 relating to expenses we have paid on behalf of
      El
      Capitan, Ltd. We will be required to raise additional capital in financing
      transactions in order to satisfy our expected cash expenditures. Based upon
      our
      monthly utilization of working capital (including exploration costs), at
      September 30, 2006, we had sufficient cash to fund operations through November
      2006. **** We
      continually evaluate business opportunities, such as joint venture processing
      agreements, with the aim of creating cash flow for working capital. Subsequent
      to our year end and through December 19, 2006, the Company has raised $881,250
      through the exercise of outstanding warrants and a private placement of common
      stock. In November 2006, the convertible note holder converted $300,000 of
      the
      outstanding note to 600,000 shares of Common Stock. Based upon current
      management operational plans, we will be required to continue to raise
      additional capital on terms acceptable to us. There
      are
      no assurances that we will be successful in such endeavors, in which case we
      may
      be forced to reduce our operating expenditures or to cease development and
      operations altogether.




***We
      have not had revenue-generating operations and may never generate
      revenues.***




We
      have
      not yet had revenue-generating operations, and it is possible that we will
      not
      find marketable amounts of minerals on our properties or that any of our
      properties will ever be sold. Should we fail to obtain revenues, our ability
      to
      continue to explore our properties or obtain any additional properties will
      likely be diminished and we may be required to sell one or more of our
      properties at a purchase price we do not believe to be reasonable.




***Our
      independent auditors have reported that conditions exists that raise substantial
      doubt about our ability to continue as a going
      concern.***




We
      have
      had net losses for each of the years ended September 30, 2006, and September
      30,
      2005, and we have an accumulated (deficit) as of September 30, 2006, of
      $(10,184,209). Since the financial statements for each of these periods were
      prepared assuming that we would continue as a going concern, in the view of
      our
      independent auditors, these conditions raise substantial doubt about our ability
      to continue as a going concern. Furthermore, since we may not generate
      significant revenues in the foreseeable future, our ability to continue as
      a
      going concern may depend, in large part, on our ability to raise additional
      capital through equity or debt financing transactions. If we are unable to
      raise
      additional capital, we may be forced to discontinue our business.




11


**Risks
      Relating to Our Business**





***Until
      we locate precious metals on one or more of our properties, we may not have
      any
      potential of generating any revenue.***




Our
      ability to sell our properties depends on the success of our exploration
      program. Mineral exploration for precious metals is highly speculative, and
      is
      often unsuccessful. Even if exploration leads to a valuable deposit, it might
      take several years to enter into an agreement for sale of a property. During
      that time, depending on economic conditions, it might become financially or
      economically unfeasible to produce the minerals at a particular property. A
      shortage of working capital would prohibit us from further exploration of our
      properties.




***Our
      inability to establish the existence of mineral resources in commercially
      exploitable quantities on any of our properties may cause our business to
      fail.***




All
      of
      our mineral properties are in the exploration stage. To date, we have not
      established a mineral reserve on any of these properties, and the probability
      of
      establishing a “reserve,” as defined by the Securities and Exchange Commission’s
      Industry Guide 7, is not ascertainable; it is possible that none of our
      properties contain a reserve and all resources we spend on exploration of our
      properties may be lost. In the event we are unable to establish our reserves
      or
      are otherwise able to sell any of our own properties, we will be unable to
      establish revenues and our business may fail.




***Uncertainty
      of mineralization estimates and the use of non-conventional testing and assaying
      methods may diminish our ability to properly value our
      properties.***




We
      rely
      on estimates of the content of mineral deposits in our properties, which
      estimates are inherently imprecise and depend to some extent on statistical
      inferences drawn from both limited drilling on our properties and the placement
      of drill holes that are not spaced close enough to one another to enable us
      establish probable or proven results. These estimates may prove unreliable.
      Additionally, we have relied upon small independent laboratories to assay our
      samples, which may produce results that are not as consistent as a larger
      commercial laboratory might produce.




Through
      August 2006, due to the unique nature of the mineralization of our El Capitan
      property, we have at times utilized testing and assaying methods that may be
      uncommon, including the use of alkali fusion assays, a more aggressive form
      of
      assay which completely converts the sample into a water soluble salt. Some
      of
      these methods, including the alkali fusion assay, are not, or may not, be
      industry standard methods, and the results from such testing and assaying
      methods may be varied and inconsistent or prove to be unreliable. This testing
      may result in imprecise testing and assaying results, and we may not realize
      any
      mineral discovery.




Currently,
      we have engaged M.H.S. Research to conduct an investigation into the potential
      to use a more standard fire assay technique in order to estimate the metal
      content of the El Capitan mineral samples. That effort continues in early 2007
      as Mike Thomas, Principal Scientist for M.H.S. Research, tests various fire
      assay fluxes and pretreatment techniques for their suitability for use with
      the
      El Capitan material. There are no assurances that the techniques used by M.H.S.
      Research will provide us more precise testing and assaying results, and we
      may
      not realize any mineral discovery through the use of these
      techniques.




***Our
      initial use of non-standard testing and assaying methods may make our properties
      less marketable than had we used conventional
      methods.***




Because
      of the unique nature of the mineralization of the El Capitan property, we have
      used testing and assay methods that are not conventional and are often more
      expensive than conventional methods. The use of non-conventional testing and
      assaying methods may also prevent us from performing conventional economic
      feasibility studies on our properties to determine the commercial viability
      of
      such properties. Additionally, the use of non-conventional testing and assaying
      methods may prevent us, or any purchaser of one or more of our properties on
      which we use such testing, from using conventional methods of processing such
      property or properties. In the event a purchaser will be required to use a
      more
      expensive method of processing one of our properties, the marketability of
      such
      property will likely be reduced accordingly. As described in the preceding
      risk
      factor, we have deployed a program to move away of the non-standard assay
      methods.




12




***Certain
      elements of El Capitan Ltd.’s preliminary testing on the El Capitan property may
      question the integrity of the results of such testing and limit our ability
      to
      rely on such results.***




To
      date,
      El Capitan Ltd. has not provided AuRIC and the other assayers a blank quality
      control sample at the time it provided samples from the property. A blank
      quality control sample is a man-made sample that incorporates the same mineral
      components as a sample taken from the property in question, but absent the
      precious mineral components located in the property. Blank quality control
      samples are relatively common practice in the industry and are used effectively
      as placebos in the assay process to ensure that samples are not contaminated
      at
      the lab. The Company’s failure to use a blank check sample as often used in the
      industry may have some effect on the integrity of the results of such testing.
      As part of its internal controls, however, AuRIC instead obtained two certified
      standard samples from the Nevada Bureau of Mines and Geology (one for gold
      and
      silver and one for gold, platinum and palladium) and two from CDN Resource
      Laboratories Ltd. of Delta, British Columbia (both of which were for gold,
      platinum and palladium); a certified standard sample is a sample that is made
      available to labs to again act as a placebo and tested to determine a standard
      testing result, to which the assayer’s results can be compared as a check
      against contamination or other flaws in the assaying process. A portion of
      these
      certified standard samples were also provided to Michael J. Wendell with respect
      to a later assay completed by Mr. Wendell.




***The
      limited industry experience of our Board may affect our ability to achieve
      our
      business objectives.***





Other
      than Charles Mottley and Kenneth Pavlich, our directors do not have significant
      industry experience. In the event we lose the services of our directors
      with significant industry experience, we will be required to rely upon third
      party consultants with respect to industry matters, and our ability to achieve
      our business objectives may be negatively affected.




***Any
      inability to retain key personnel may adversely affect our business
      operations.***




We
      are
      highly dependent upon the abilities and experience of our officers. The loss
      of
      any of our existing officers could have a material effect or our administrative
      operations. The strong competition within the mining industry makes the
      recruitment and retention of employees knowledgeable of the mining industry
      difficult and crucial to success. We may not be able to replace one or more
      of
      these individuals on terms acceptable to us. We have no life insurance on the
      life of any officer.




***Our
      inability to obtain additional financing would diminish our ability to fund
      our
      current exploration projects or acquire interests in other
      properties.***




Additional
      financing will be needed in order to fund beyond the initial exploration of
      our
      properties. Our means of acquiring investment capital is limited to private
      equity and debt transactions. Other than the interest earned on our short-term
      investments or further financing, we have no other source of currently available
      funds to engage in additional exploration, which will be necessary to explore
      our current property interests or to acquire interests in other mineral
      exploration projects that may become available. See “Risks Relating to Our
      Financial Condition - We currently do not have enough cash to fund operations
      during the next fiscal year.”




***The
      nature of mineral exploration is inherently risky, and we may not ever discover
      marketable amounts of precious minerals.***




The
      exploration for mineral deposits involves significant financial risks, which
      even experience and knowledge may not eliminate regardless of the amount of
      careful evaluation applied to the process. While the discovery of an ore body
      may result in substantial rewards, very few properties are ultimately developed
      into producing mines.




Whether
      a
      deposit will be commercially viable depends on a number of factors: financing
      costs; proximity to infrastructure; the particular attributes of the deposit,
      such as its size and grade; and governmental regulations, including regulations
      relating to prices, taxes, royalties, infrastructure, land use, importing and
      exporting of gold and environmental protection.




13




The
      effect of these factors cannot be accurately predicted, and the combination
      of
      any of these factors may prevent us from selling a property and receiving an
      adequate return on our invested capital.




***Extensive
      government regulation and environmental risks may require us to discontinue
      operations.***




Our
      business is subject to extensive federal, state and local laws and regulations
      governing exploration, development, production, labor standards, occupational
      health, waste disposal, and use of toxic substances, environmental regulations,
      mine safety and other matters. Additionally, new legislation and regulations
      may
      be adopted at any time that affects our business. Compliance with these changing
      laws and regulations could require increased capital and operating expenditures
      and could prevent or delay the sale of some or all of our
      properties.




***Any
      failure to obtain government approvals and permits may require us to discontinue
      exploration on one or more of our properties.***




We
      are
      required to seek and maintain federal and state governmental approvals and
      permits in order to conduct exploration and other activities on our claimed
      properties. The permitting requirements for our respective properties and any
      future properties we may acquire will be somewhat dependent upon the state
      in
      which the property is located, but generally will require an initial filing
      and
      fee (of approximately $25) relating to giving notice of an intent to make a
      claim on such property, followed by a one time initial filing of a location
      notice with respect to such claim (approximately $165), an annual maintenance
      filing for each claim (generally $125 per claim per year), annual filings for
      bulk fuel and water well permits (typically $5 per year each) and, to the extent
      we intend to take any significant action on a property (other than casual,
      surface-level activity), a one time payment of a reclamation bond to the Bureau
      of Land Management, or the BLM, which is to be used for the clean up of the
      property upon completion of exploration or other significant activity. In order
      to take any such significant action on a property, we are required to provide
      the BLM with either a notice of operation or a plan of operation setting forth
      our intentions. The amount of the reclamation bond is determined by the BLM
      based upon the scope of the activity described in the notice or plan of
      operation. With respect to our current plan of operations on the El Capitan
      property, the reclamation bond was $15,000, but this amount will thus vary
      with
      each property and respective notice or plan of operation.




Obtaining
      the necessary permits can be a complex and time-consuming process involving
      multiple jurisdictions, and requiring annual filings and the payment of annual
      fees. As we currently have no source of revenue, the payment of the costs of
      continued permitting is dependent upon our ability to obtain financing.
      Additionally, the duration and success of our efforts to obtain permits are
      contingent upon many variables outside of our control and may increase costs
      of
      or cause delay to our mining endeavors. There can be no assurance that all
      necessary approvals and permits will be obtained, and if they are obtained,
      that
      the costs involved will make it economically unfeasible to continue our
      exploration of some or all of our properties.




***Mineral
      exploration is extremely competitive, and we may not have adequate resources
      to
      successfully compete.***




There
      is
      a limited supply of desirable mineral properties available for claim staking,
      lease or other acquisition in the areas where we contemplate participating
      in
      exploration activities. We compete with numerous other companies and
      individuals, including competitors with greater financial, technical and other
      resources than we possess, and are thus in a better position to search for
      and
      acquire attractive mineral properties. Additionally, due to our limited
      financial and other resources, we do not anticipate developing or producing
      on
      any of our properties, but rather only exploration with the intent to sell
      any
      property on which exploration proves successful. Accordingly, our ability to
      acquire properties in the future will depend not only on our ability to explore
      and sell our present properties, but also on our ability to select and acquire
      suitable properties or prospects for future exploration. We may not be able
      to
      compete successfully with our competitors in acquiring such properties or
      prospects.




***Title
      to any of our properties may prove defective, possibly resulting in a complete
      loss of our rights to such properties*** .




A
      material portion of our holdings includes unpatented mining claims. The validity
      of unpatented claims is often uncertain and may be contested. These claims
      are
      located on federal land or involve mineral rights that are subject to the claims
      procedures established by the General Mining Law of 1872, as amended. We are
      required make certain filings with the county in which the land or mineral
      is
      situated and annually with the Bureau of Land Management and pay an annual
      holding fee of $125 per claim. If we fail to make the annual holding payment
      or
      make the required filings, our mining claim would become invalid. In accordance
      with the mining industry practice, generally a company will not obtain title
      opinions until it’s determined to sell a property. Also no title insurance is
      available for mining. Accordingly, it is possible that title to some of our
      undeveloped properties may be defective and in that event we do not have good
      title to our properties, we would be forced to curtail or cease our business
      exploratory programs on the property site.





14




**ITEM
      3.**  **LEGAL
      PROCEEDINGS**




We
      are
      not a party to any bankruptcy, receivership or other legal proceeding, and
      to
      the best of our knowledge, no such proceedings by or against us have been
      threatened.




**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITIES HOLDERS**




None.




**PART
      II**




**ITEM
      5.**  **MARKET
      FOR COMMON EQUITY AND RELATED MATTERS**




**(a)
      Market Information**




Our
      common stock is quoted on the Over-the-Counter Bulletin Board, or “OTC Bulletin
      Board” under the trading symbol “ECPN.” Prior to March 17, 2003 (as a result of
      the Company’s name change), the Company’s securities traded on the OTC Bulletin
      Board under the trading symbol “DMSV.” The following table sets forth the range
      of high and low closing bid quotes of our Common Stock per quarter as reported
      by the OTC Bulletin Board for the past two fiscal years ended September 30,
      2006
      and 2005, respectively. All quoted prices reflect inter-dealer prices without
      retail markup, mark-down commission and may not necessarily represent actual
      transactions.




Price
                RangeQuarter
                Ended
            
            High
            
            LowSeptember
                30, 2006
            
            $
            2.65
            
            $
            0.87June
                30, 2006
            
            
            4.10
            
            
            1.80March
                31, 2006
            
            
            2.55
            
            
            1.20December
                31, 2005
            
            
            2.05
            
            
            0.37September
                30, 2005
            
            $
            0.62
            
            $
            0.35June
                30, 2005
            
            
            0.57
            
            
            0.41March
                31, 2005
            
            
            0.85
            
            
            0.41December
                31, 2004
            
            
            1.00
            
            
            0.43




**(b)
      Holders**




The
      number of record holders of our common stock as of January 5, 2007 was
      approximately 1,241 based on information received from our transfer agent.
      This
      amount excludes an indeterminate number of shareholders whose shares are held
      in
“street” or “nominee” name.




**(c)
      Dividends**




We
      have
      not paid, nor declared, any cash dividends since our inception and do not intend
      to declare any such dividends in the foreseeable future. Our ability to pay
      dividends is subject to limitations imposed by Nevada law. Under Nevada law,
      dividends may be paid to the extent that a corporation’s assets exceed its
      liabilities and it is able to pay its debts as they become due in the usual
      course of business.




15


**(d)
      Equity Compensation Plan Information**





**Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
              **(a)**
            
            **Weighted-average
                price of outstanding options, warrants and rights**
              **(b)**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plan (excluding (a))**
              **(c)**Equity
                compensation plans approved by security holders
            
            
            —
            
            
            —
            
            
            —Equity
                compensation plans not approved by security holders
            
            
            1,529,000
            
            $
            1.01
            
            
            2,214,469
            (1)Total
            
            
            1,529,000
            
            
            —
            
            
            2,214,469





(1)
            The
                Company has registered (i) 261,444 shares on Form S-8 on June 14,
                2004 and
                (ii) 5,000,000 shares registered by the Company on Form S-8 on July
                19,
                2005. Shares may be issued from time to time to certain employees
                and
                consultants as compensation for services rendered to the Company.
                In the
                event of an issuance of Common Stock in lieu of salary or fees, as
                applicable, the number of shares to be issued to the employee or
                consultant is to be equal to the amount to be paid in Common Stock
                divided
                by a purchase price to be not less than the most recent sale price
                of the
                Company’s Common Stock.





**(** **e)
      Recent Sales of Securities**




In
      addition to the sales of unregistered securities that we reported in quarterly
      reports on Form 10-QSB and Current Reports on Form 8-K during fiscal year 2006,
      we made the following sales of unregistered securities during the quarter ended
      September 30, 2006. For each of the following transactions, we relied upon
      the
      exemptions from registration provided by Sections 4(2) and/or 4(6) of the
      Securities Act and Rule 506 promulgated thereunder based upon (i) the fact
      that
      each investor was an accredited or sophisticated investor with experience in
      investing in securities such that it could evaluate merits and risks related
      to
      our securities; (ii) that no general solicitation of the securities was made
      by
      us; (iii) the securities issued were “restricted securities” as that term is
      defined under Rule 144 promulgated under the Securities Act; and (iv) we placed
      appropriate restrictive legends on the certificates representing the securities
      regarding the restricted nature of these securities. The shares were issued
      as
      follows:




On
      August
      16, 2006, we issued 150,000 shares of restricted common stock for $75,000 to
      a
      shareholder upon exercise of a warrant at $0.50 per share.




During
      the quarter ended September 30, 2006, we issued 1,100,000 shares of common
      stock
      at $0.50 per share pursuant to the conversion of a convertible note payable
      of
      $550,000.




During
      the quarter ended September 30, 2006, we completed a private placement offering
      whereby we issued 450,000 restricted common shares to accredited investors
      in
      consideration of aggregate gross proceeds of $225,000. No commissions were
      paid
      relating to these issuances.




During
      September 2006, we issued 62,500 shares of common stock to certain shareholders,
      in consideration of $31,250, upon the exercise of warrants at $0.50 per share.
      Additionally, as an inducement to exercise the warrants, we issued the
      participating shareholders a two-year warrant to purchase one share of common
      stock at an exercise price of $1.37 per share for each warrant exercised. The
      warrants are callable under certain circumstances.




**ITEM
      6.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**




**Results
      of Operations - Fiscal year ended September 30, 2006 compared to fiscal year
      ended September 30, 2005** .




We
      have
      not yet realized any revenue from operations, nor do we expect to realize
      potential revenues in our fiscal year 2007, if ever. Net (loss) increased
      $(796,961) from $(3,244,841) for the year ended September 30, 2005 to
      $(4,041,802) for the year ended September 30, 2006. Our net loss increase in
      2006 from 2005 was mainly attributable to increases in: officer and
      administration compensation aggregating $201,125; exploration expenses of
      $159,696; general and administrative other of $185,249; interest expense of
      $169,353; expenses associated with debt issuance and conversion of $106,937;
      costs associated with the issuances of options and warrants of $163,750 and
      accretion of notes payable discounts of $873,158. These increases were offset
      by
      a decrease in professional fees of $1,101,496, which consists of legal, audit
      and review, finders and marketing fees; and administrative consulting fees.




16




**Plan
      of Operation**




To
      address the going concern problem addressed in our financial statements, we
      will
      require raising additional working capital. We will also require additional
      working capital funds for continuing payments for necessary corporate personnel,
      related general and administrative expenses and for the continued implementation
      of our business strategies.




We
      can
      make no assurance, however, that we will be able to have access to the capital
      markets in the future, or that the financing will be available on terms
      acceptable to terms to satisfy our cash requirements. Our inability to access
      various capital markets or acceptable financing could have a material effect
      on
      our results of operations, deployment of our business strategies and severely
      threaten our ability to operate as a going concern.




During
      the next twelve months, we will concentrate on raising the necessary working
      capital through equity financing and an acceptable debt facility to insure
      our
      ability to implement its business strategies. To the extent that additional
      capital is raised through the sale of equity or equity related securities,
      the
      issuance of such securities would result in dilution of our current
      shareholders.




We
      will
      continue to prove up our various properties and finalize the formal report
      on
      the El Capitan property site with the intent to formalize and implement the
      marketing plan for the sale of this site.




Effective
      December 1, 2006, based upon recent outside test results, we terminated the
      work
      on the proprietary process we have been working on for extraction of precious
      metal from various other property interests.




**Liquidity**




As
      of
      September 30, 2006, we had $207,133 of cash on hand. We will be required to
      raise additional capital in equity or financing transactions in order to satisfy
      our expected cash expenditures. At September 30, 2006, based upon our current
      working capital utilization rate, we have working capital to fund two months
      of
      operations.




Historically
      we have not generated any revenues from operations and have generated interest
      income revenue on a nominal basis. Our consolidated financial statements have
      been prepared on a going concern basis, which contemplates the realization
      of
      assets and satisfaction of liabilities in the normal course of business. We
      have
      incurred losses from inception to date. Our primary source of funds used during
      the fiscal year ended September 30, 2006, was from the sale of and issuance
      of
      equity securities during fiscal 2005 and 2006.




In
      the
      private placement that closed in October 2005, we issued 2,353,333 units, each
      consisting of one share of our common stock and one common stock purchase
      warrant for aggregate gross proceeds of $941,333, which includes the conversion
      of a $300,000 secured convertible debenture note payable which was rolled into
      the placement.




On
      October 28, 2005, we issued an 8 % secured convertible debenture note for
      $750,000 to an investment company. The note has a maturity of one and one-half
      years and contains a conversion feature into common stock at $0.50 per share.
      The note also provides for a five-year warrant for 500,000 shares of common
      stock at $0.60 per share and is collateralized by 2,160,000 shares of the US
      Canadian common stock that we own. We also issued a five-year warrant for
      225,000 shares of common stock at $0.60 per share as a finder’s fee. In
      November 2006, we issued 600,000 shares of common stock at $0.50 per share
      for a
      partial conversion of this note pursuant to the terms of conversion of the
      convertible note payable.




On
      January 20, 2006, we issued a second 8 % secured convertible debenture note
      for
      $550,000 to holder of the previous convertible debenture. The note has a
      maturity of one and one-half years and contains a conversion feature into common
      stock at $0.50 per share. The note also provides for a five-year warrant for
      366,667 shares of common stock at $0.60 per share and is also collateralized
      by
      the 2,160,000 shares of the US. Canadian common stock that we own. In
      September 2006, we issued 1,100,000 shares of common stock at $0.50 per share
      pursuant to the terms of conversion of the convertible note payable.




17




At
      September 30, 2005, we had two 12% unsecured notes payable to two of our
      stockholders amounting to $150,000 each, both of which were due September 15,
      2006. In January 2006, we converted the principal of the two unsecured notes
      payable to an aggregate of 274,726 restricted common shares.




In
      October 2006, in consideration of $25,000, we issued
      50,000 restricted common shares to an accredited investor pursuant to a private
      placement of securities under Section 4(2) and Rule 506 promulgated under the
      Securities Act. During the period October 1, 2006 and December 31, 2006, we
      issued 1,712,500 shares of common stock to shareholders upon the exercise of
      warrants at $0.50 per share for aggregate cash proceeds of $856,250.
      Additionally, as an inducement to exercise these warrants, we issued the
      participating warrantholders a two-year warrant to purchase one share of common
      stock at an exercise price of $1.37 per share for each warrant exercised. The
      warrants are callable under certain circumstances.




We
      also
      contemplate the exercise of the call options on various outstanding warrants,
      which if exercised, would provide us significant working capital to continue
      our
      exploratory programs. Such warrants are callable at our option if (i) the
      closing sales price of our common stock is at or above $1.25 per share for
      a
      period of ten consecutive days, relating to some of the warrants, or $1.99
      per
      share for a period of twenty consecutive days, relating to other warrants (each
      subject to adjustment as appropriate for stock splits, stock dividends, stock
      combinations, etc.) and (ii) the shares of common stock issuable upon exercise
      of the warrants are covered under an effective registration statement. In such
      an event, we must provide thirty days written notice of our exercise of such
      call right. In the event the warrant holder does not exercise the warrant within
      such thirty-day time period, the warrants are redeemable by us at a price per
      warrant share of $.001.




Additionally,
      we continually evaluate business opportunities such as joint venture processing
      agreements with the objective of creating cash flow to sustain the corporation
      and provide a source of funds for growth and continued exploration projects.
      There are no assurances of success in our ability to obtain continued financing
      through capital markets, joint ventures, or other acceptable arrangements.
      If
      management’s plans are not successful, operations and liquidity may be adversely
      impacted. In the event that we are unable to obtain additional working capital,
      we may be forced to reduce our operating expenditures or to cease development
      and operations altogether.




**Off-Balance
      Sheet Arrangements**




During
      the quarter ended September 30, 2006, we did not engage in any off balance
      sheet
      arrangements as defined in item 303(c) of the SEC’s Regulation S-B.




**Critical
      Accounting Policies**




Our
      consolidated financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America, which
      require us to make estimates and judgments that significantly affect the
      reported amounts of assets, liabilities, revenues and expenses, and related
      disclosure of contingent assets and liabilities at the date of the consolidated
      financial statements. Note 3, “Significant Accounting Policies” in the Notes to
      the Consolidated Financial Statements in our Form 10-KSB describe our
      significant accounting policies which are reviewed by management on a regular
      basis.




An
      accounting policy is deemed by us as critical if it requires an accounting
      estimate to be made based on assumptions about matters that are uncertain at
      the
      time the estimate is made, and if different estimates that reasonably could
      have
      been used, or changes in the accounting estimates that are reasonable likely
      to
      occur periodically, could materially impact the financial statements. The
      policies and estimates that we believe are most critical to the preparation
      of
      our consolidated financial statements and that require a higher degree of
      judgment are:




Stock-based
      compensation; and




Valuation
      of warrants and options under the Black Scholes option pricing
      model.




18




**New
      Accounting Pronouncements**





In
      December 2004, the FASB issued SFAS No. 123 (Revised 2004) “Share Based Payment”
(“SFAS No. 123R”), which is a revision to SFAS No. 123 and supersedes APB No. 25
      and SFAS No. 148. This statement requires that the cost resulting from all
      share-based payment transactions be recognized in the financial statements.
      This
      statement establishes fair value as the measurement objective in accounting
      for
      share-based payment arrangements and requires all entities to apply a fair-value
      based measurement method in accounting for share-based payment transactions
      with
      employees except for equity instruments held by employee share ownership
      plans.




SFAS
      No.
      123R applies to all awards granted after the required amended effective date
      and
      to awards modified, repurchased, or cancelled after that date. As of the
      required effective date, all public entities that used the fair-value-based
      method for either recognition or disclosure under SFAS No. 123 will apply to
      SFAS No. 123R using a modified version of prospective application. Under that
      transition method, compensation cost is recognized on or after the required
      effective date for the portion of outstanding awards, for which the requisite
      service has not yet been rendered, based on the grant-date fair value of those
      awards calculated under SFAS No. 123 for either recognition or pro forma
      disclosures. For periods before the required effective date, those entities
      may
      elect to apply a modified version of the retrospective application under which
      financial statements for prior periods adjusted on a basis consistent with
      the
      pro forma disclosures required for those periods by SFAS No. 123. As a result,
      beginning in our fiscal quarter starting October 2006, we will adopt SFAS No.
      123R and begin reflecting the stock option expense determined under fair value
      based methods in our income statement rather than a pro forma disclosure in
      the
      notes to the financial statements. We expect the effect of adopting SFAS No.
      123R to be similar to the effect presented in our pro forma disclosure related
      to SFAS No. 123.




In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections--a
      replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”).
      This statement replaces APB opinion No. 20, “Accounting Changes” and FASB
      Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”
and changes the requirements for the accounting for and reporting of a change
      in
      accounting principle. This statement applies to all voluntary changes in
      accounting principle. It also applies to changes required by an accounting
      pronouncement in the unusual instance that the pronouncement does not include
      specific transaction provision. When a pronouncement includes specific
      transaction provisions, those provisions should be followed. SFAS No. 154 is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005. Consequently, we will adopt the provisions
      of
      SFAS No. 154 for its fiscal year beginning October 1, 2006. Management currently
      believes that adoption of the provisions of SFAS No. 154 will not have a
      material impact on our consolidated financial statements.




In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
      interpretation of FASB No. 109” (“FIN 48”). FIN 48 clarifies the accounting for
      uncertainty in income taxes recognized in a company’s financial statements in
      accordance with SFAS No. 109 and provides guidance on recognizing, measuring,
      presenting and disclosing in the financial statements tax positions that a
      company has taken or expected to take on a tax return. FIN 48 is effective
      for
      us as of July 1, 2007. We have not at this time evaluated the impact, if any,
      of
      adopting FIN 48 on its financial statements.




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value and expands disclosures about fair value measurements. This statement
      addresses how to calculate fair value measurements required or permitted under
      other accounting pronouncements. SFAS 157 is effective for us beginning July
      1,
      2008. We have not at this time evaluated the impact, if any, of SFAS 157 on
      its
      financial statements.




The
      FASB
      has also issued SFAS No. 155, “Accounting for Certain Hybrid Financial
      Instruments”, SFAS No. 156, “Accounting for Servicing of Financial Assets” and
      SFAS No. 158, “Employers Accounting for Defined Benefit Pension and Other
      Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and
      132(R)”, but they will not have any relationship to our operations at this
      time.




In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB No.
      108”), which addresses the process and diversity in practice of quantifying
      financial statement misstatements resulting in the potential build up of
      improper amounts on the balance sheet. We will be required to adopt the
      provision of SAB No. 108 in fiscal year 2007. We currently do not believe that
      the adoption of SAB No. 108 will have a material impact on our financial
      statements.




19




**ITEM
      7. FINANCIAL STATEMENTS**




**EL
      CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY**


(An
      Exploration Stage Company)





INDEX
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




PageReport
                of Independent Registered Public Accounting Firm
            
            
            F-2Consolidated
                Balance Sheet - September 30, 2006
            
            
            F-3Consolidated
                Statements of Operations - Years ended September 30, 2006 and 2005
                and for
                the period July 26, 2002 (inception) through September 30,
                2006
            
            
            F-4Consolidated
                Statements of Changes in Stockholders’ Deficit - period from July 26,
                2002, (inception) through September 30, 2002, and for the years ended
                September 30, 2003, 2004, 2005 and 2006
            
            
            F-5Consolidated
                Statements of Cash Flows - Years ended September 30, 2006 and 2005
                and for
                the period July 26, 2002 (inception) through September 30,
                2006
            
            
            F-10Notes
                to Consolidated Financial Statements
            
            
            F-12




F-1


REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board
      of
      Directors,


El
      Capitan Precious Metals, Inc.:





We
      have
      audited the accompanying consolidated balance sheet of El Capitan Precious
      Metals, Inc. (an exploration stage mining company) as of September 30, 2006
      and
      the related consolidated statements of operations, stockholders’ deficit and
      cash flows for each of the two years ended September 30, 2006, and from July
      26,
      2002 (inception of exploration stage) to September 30, 2006. These financial
      statements are the responsibility of El Capitan Precious Metals, Inc.
      management. Our responsibility is to express an opinion on these financial
      statements based on our audit.





We
      conducted our audit in accordance with auditing standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of El Capitan Precious Metals, Inc.
      as
      of September 30, 2006 and the results of its operations and its cash flows
      for
      each of the two years ended September 30, 2006, and from July 26, 2002
      (inception of exploration stage) to September 30, 2006 in conformity with
      accounting principles generally accepted in the United States of
      America.





The
      accompanying financial statements have been prepared assuming that El Capitan
      Precious Metals, Inc. will continue as a going concern. As discussed in Note
      1
      to the financial statements, El Capitan Precious Metals, Inc. is in the
      exploration stage, has not yet generated any revenues, and is dependent upon
      raising capital from investors. Additionally, El Capitan Precious Metals, Inc.
      has incurred aggregate losses since inception of over $10,184,000 and has a
      working capital deficit of $661,000 at September 30, 2006. These
      matters raise substantial doubt about the Company’s ability to continue as a
      going concern. Management’s plans concerning these matters are also described in
      Note 1. The financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.







/s/
      Epstein Weber & Conover, PLC


Scottsdale,
      Arizona


December
      14, 2006




F-2





**EL
      CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY**


(An
      Exploration Stage Company)





CONSOLIDATED
      BALANCE SHEET


September
      30, 2006





**ASSETS**CURRENT
                ASSETS:Cash
            
            $
            207,133Miscellaneous
                receivable
            
            
            6,266Prepaid
                expenses
            
            
            95,040Due
                from affiliated company
            
            
            123,807Total
                Current Assets
            
            
            432,246FURNITURE
                AND EQUIPMENT, AT COST
            
            
            142,964Less:
                accumulated depreciation
            
            
            (23,812
            )119,152OTHER
                ASSETS:Investment
                in exploratory properties
            
            
            788,808Deposits
            
            
            30,845Note
                receivable net of allowance for doubtful accountof
                $12,500
            
            
            —Investment
                in common stock of US Canadian
            
            
            151,200$
            1,522,251**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**CURRENT
                LIABILITIES:Accounts
                payable
            
            $
            363,717Accrued
                liabilities
            
            
            128,868Interest
                payable, other
            
            
            86,622Deferred
                taxes
            
            
            80,322Note
                payable, less discount of $236,241
            
            
            513,759Total
                Current Liabilities
            
            
            1,173,288DEFERRED
                GAIN
            
            
            151,200Total
                Liabilities
            
            
            1,324,488COMMITMENTS,
                CONTINGENCIES AND SUBSEQUENT EVENTSSTOCKHOLDERS’
                EQUITY:Preferred
                stock, $0.001 par value; 5,000,000 sharesAuthorized;
                none issued and outstanding
            
            
            —Common
                stock, $0.001 par value; 300,000,000 shares authorized; 74,896,909
                issued
                and outstanding
            
            
            74,897Additional
                paid-in capital
            
            
            10,307,075Deficit
                accumulated during the exploration stage
            
            
            (10,184,209
            )Total
                Stockholders’ Equity
            
            
            197,763$
            1,522,251





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




F-3





**EL
      CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY**


(An
      Exploration Stage Company)





CONSOLIDATED
      STATEMENT OF OPERATIONS





Period
                FromJuly
                26, 2002(Inception)ThroughYear
                Ended September 30,
            
            September
                30,2006
            
            2005
            
            2006REVENUES
            
            $
            —
            
            $
            —
            
            $
            —GENERAL
                AND ADMINISTRATIVE EXPENSES:Professional
                fees
            
            
            396,256
            
            
            1,497,752
            
            
            3,156,905Officer
                compensation expense
            
            
            194,000
            
            
            179,000
            
            
            1,164,034Administrative
                consulting fees
            
            
            605,000
            
            
            418,875
            
            
            1,023,875Management
                fees, related parties
            
            
            —
            
            
            36,000
            
            
            320,500Legal
                and accounting fees
            
            
            282,181
            
            
            209,108
            
            
            744,671Exploration
                expenses
            
            
            851,442
            
            
            691,746
            
            
            1,558,819Other
            
            
            346,996
            
            
            161,747
            
            
            572,0672,675,875
            
            
            3,194,228
            
            
            8,540,871LOSS
                FROM OPERATIONS
            
            
            (2,675,875
            )
            
            (3,194,228
            )
            
            (8,540,871
            )OTHER
                INCOME (EXPENSE):Interest
                income
            
            
            14,197
            
            
            16,313
            
            
            30,510Interest
                expense:Related
                parties (Note 5)
            
            
            —
            
            
            (739
            )
            
            (28,220
            )Other
            
            
            (214,644
            )
            
            (44,552
            )
            
            (327,263
            )Expenses
                associated with debt issuance and conversion
            
            
            (128,572
            )
            
            (21,635
            )
            
            (281,457
            )Costs
                associated with the issuances ofOptions
                and warrants
            
            
            (163,750
            )
            
            —
            
            
            (163,750
            )Accretion
                of notes payable discounts
            
            
            (873,158
            )
            
            —
            
            
            (873,158
            )(1,365,927
            )
            
            (50,613
            )
            
            (1,643,338
            )NET
                LOSS
            
            $
            (4,041,802
            )
            $
            (3,244,841
            )
            $
            (10,184,209
            )Basic
                and diluted net loss per common share
            
            $
            (0.06
            )
            $
            (0.05
            )
            $
            (0.17
            )Weighted
                average number of commonshares
                outstanding
            
            
            72,695,696
            
            
            67,395,928
            
            
            58,461,555





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


F-4


**EL
      CAPITAN PRECIOUS METALS, INC.**


(An
      Exploration Stage Company)





CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)


For
      The
      Period July 26, 2002 (Inception) September 30, 2006




Common
                StockShares
            
            Amount
            
            StockSubscriptions
            
            AdditionalPaid-InCapital
            
            DeficitAccumulatedDuring
                    TheExplorationStage
            
            TotalInitial
                issuance of common stock inSeptember
                2002, $0.00 per share
            
            
            3,315,000
            
            $
            3,315
            
            $
            -
            
            $
            (3,306
            )
            $
            -
            
            $
            9Net
                loss, period ended
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (21,577
            )
            
            (21,577
            )Balances
                at September 30, 2002
            
            
            3,315,000
            
            
            3,315
            
            
            -
            
            
            (3,306
            )
            
            (21,577
            )
            
            (21,568
            )Issuance
                of common stock to Gold andMinerals
                Company, Inc. in connectionwith
                purchase of interest in assets ofEl
                Capitan, Ltd. In November 2002,
              $0.00
                per share
            
            
            30,225,000
            
            
            30,225
            
            
            -
            
            
            (30,217
            )
            
            -
            
            
            8Issuance
                of common stock for cashin
                November 2002, $0.00 per share
            
            
            5,460,000
            
            
            5,460
            
            
            -
            
            
            (5,446
            )
            
            -
            
            
            1439,000,000
            
            
            39,000
            
            
            -
            
            
            (38,969
            )
            
            (21,577
            )
            
            (21,546
            )Acquisition
                of DML Services, Inc.on
                March 17, 2003
            
            
            6,720,000
            
            
            6,720
            
            
            -
            
            
            (56,720
            )
            
            -
            
            
            (50,000
            )Common
                stock issued in connection
              with
                notes payable in March 2003,
              $0.03
                per share
            
            
            525,000
            
            
            525
            
            
            -
            
            
            16,975
            
            
            -
            
            
            17,500Common
                stock and warrants issuedfor
                services in March 2003, $1.26
              per
                share
            
            
            150,000
            
            
            150
            
            
            -
            
            
            188,850
            
            
            -
            
            
            189,000Common
                stock issued under executivecompensation
                agreement in March2003,
                $0.45 per share
            
            
            1,057,140
            
            
            1,057
            
            
            -
            
            
            478,943
            
            
            -
            
            
            480,000Issuance
                of common stock to Gold andMinerals
                Company, Inc. in connectionwith
                purchase of COD property inAugust
                  2003, $0.00 per share
            
            
            3,600,000
            
            
            3,600
            
            
            -
            
            
            (3,600
            )
            
            -
            
            
            -Common
                stock issued under
              management
                agreement in August
              2003,
                $0.35 per share
            
            
            1,057,140
            
            
            1,058
            
            
            -
            
            
            368,942
            
            
            -
            
            
            370,000Net
                loss, year ended September 30, 2003
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,561,669
            )
            
            (1,561,669
            )Balances
                at September 30, 2003
            
            
            52,109,280
            
            $
            52,110
            
            $
            -
            
            $
            954,421
            
            $
            (1,583,246
            )
            $
            (576,715
            )




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




F-5




**EL
      CAPITAN PRECIOUS METALS, INC.**


(An
      Exploration Stage Company)





CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)


For
      The
      Period July 26, 2002 (Inception) to September 30, 2006





Common
                StockShares
            
            Amount
            
            StockSubscriptions
            
            AdditionalPaid-InCapital
            
            DeficitAccumulatedDuring
                    TheExplorationStage
            
            TotalCost
                associated with warrants issued
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            108,000
            
            $
            -
            
            $
            108,000Common
                stock issued under executivecompensation
                agreement in May 2004,
              $0.13
                per share
            
            
            1,350,000
            
            
            1,350
            
            
            -
            
            
            178,650
            
            
            -
            
            
            180,000Common
                stock issued under management
              agreement
                in May 2004, $0.13 per share
            
            
            1,350,000
            
            
            1,350
            
            
            -
            
            
            178,650
            
            
            -
            
            
            180,000Common
                stock issued for services in June
              2004,
                $0.20 per share
            
            
            836,760
            
            
            837
            
            
            -
            
            
            163,728
            
            
            -
            
            
            164,565Common
                stock issued in connection with
              notes
                payable in June 2004, $0.25 per share
            
            
            225,000
            
            
            225
            
            
            -
            
            
            56,025
            
            
            -
            
            
            56,250Common
                stock issued under executivecompensation
                agreement in July 2004
              $0.14
                per share
            
            
            285,714
            
            
            286
            
            
            -
            
            
            39,714
            
            
            -
            
            
            40,000Common
                stock issued under
              management
                agreement in July 2004,
              $0.14
                per share
            
            
            285,714
            
            
            285
            
            
            -
            
            
            39,715
            
            
            -
            
            
            40,000Common
                stock issued for acquisition of
              Weaver
                property interest in July 2004, $0.00 per share
            
            
            3,000,000
            
            
            3,000
            
            
            -
            
            
            (3,000
            )
            
            -
            
            
            -Common
                stock issued for services in July
              2004,
                $0.15 per share
            
            
            703,740
            
            
            704
            
            
            -
            
            
            105,128
            
            
            -
            
            
            105,832Common
                stock issued for retirement of a
              note
                payable and accrued interest in
              July
                2004, $0.13 per share
            
            
            1,343,154
            
            
            1,343
            
            
            -
            
            
            177,744
            
            
            -
            
            
            179,087Common
                stock issued under executivecompensation
                agreement in August 2004
              $0.14
                per share
            
            
            142,857
            
            
            143
            
            
            -
            
            
            19,857
            
            
            -
            
            
            20,000Common
                stock issued under
              management
                agreement in August
              2004,
                $0.14 per share
            
            
            142,857
            
            
            143
            
            
            -
            
            
            19,857
            
            
            -
            
            
            20,000Common
                stock issued for services in
              August
                2004, $0.20 per share
            
            
            50,000
            
            
            50
            
            
            -
            
            
            9,950
            
            
            -
            
            
            10,000Common
                stock issued under executive
              compensation
                agreement in September
              2004,
                $0.43 per share
            
            
            46,511
            
            
            46
            
            
            -
            
            
            19,954
            
            
            -
            
            
            20,000Common
                stock issued under
              management
                agreement in September
              2004,
                $0.43 per share
            
            
            46,511
            
            
            47
            
            
            -
            
            
            19,953
            
            
            -
            
            
            20,000Common
                stock issued for retirement of
              notes
                payable and accrued interest in
              September
                2004, $0.35 per share
            
            
            751,518
            
            
            751
            
            
            -
            
            
            262,280
            
            
            -
            
            
            263,031Beneficial
                Conversion feature of Notes payable
            
            
            -
            
            
            -
            
            
            -
            
            
            75,000
            
            
            -
            
            
            75,000Stock
                subscriptions
            
            
            -
            
            
            -
            
            
            50,000
            
            
            -
            
            
            -
            
            
            50,000





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


F-6





**EL
                CAPITAN PRECIOUS METALS, INC****.**
              (An
                Exploration Stage Company)
              
              CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
              For
                The Period July 26, 2002 (Inception) to September 30,
                2006





Common
                StockShares
            
            Amount
            
            StockSubscriptions
            
            AdditionalPaid-InCapital
            
            AccumulatedDuring
                    TheExplorationStage
            
            TotalNet
                loss, year ended September 30, 2004
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,314,320
            )
            
            (1,314,320
            )Balances
                at September 30, 2004
            
            
            62,669,616
            
            $
            62,670
            
            $
            50,000
            
            $
            2,425,626
            
            $
            (2,897,566
            )
            $
            (359,270
            )Subscribed
                stock issued
            
            
            200,000
            
            
            200
            
            
            (50,000
            )
            
            49,800
            
            
            -
            
            
            -Common
                stock issued in settlement ofaccounts
                payable in October 2004, at
              $0.82
                per share
            
            
            20,000
            
            
            20
            
            
            -
            
            
            16,361
            
            
            -
            
            
            16,381Common
                stock issued for professional
              in
                October 2004, at $0.66 per share
            
            
            106,500
            
            
            106
            
            
            -
            
            
            70,029
            
            
            -
            
            
            70,135Common
                stock issued for consulting agree-
              ment
                in November 2004, $0.60 per share
            
            
            1,536,859
            
            
            1,537
            
            
            -
            
            
            920,578
            
            
            -
            
            
            922,115Common
                stock sold in private placement
              in
                November 2004 at $0.50 per share
            
            
            2,110,000
            
            
            2,110
            
            
            -
            
            
            1,052,890
            
            
            -
            
            
            1,055,000Common
                stock issued in settlement ofAccounts
                payable in November 2004
              at
                $0.60 per share
            
            
            25,000
            
            
            25
            
            
            -
            
            
            14,975
            
            
            -
            
            
            15,000Common
                stock sold in private placement
              In
                December 2004 at $0.50 per share
            
            
            50,000
            
            
            50
            
            
            -
            
            
            24,950
            
            
            -
            
            
            25,000Costs
                associated with warrants issued
            
            
            -
            
            
            -
            
            
            -
            
            
            135,000
            
            
            -
            
            
            135,000Costs
                associated with stock private
              placement
            
            
            -
            
            
            -
            
            
            -
            
            
            (19,363
            )
            
            -
            
            
            (19,363
            )Common
                stock sold in private placementin
                January 2005 at $0.50 per share
            
            
            265,000
            
            
            265
            
            
            -
            
            
            132,235
            
            
            -
            
            
            132,500Common
                stock issued for retirement ofnotes
                payable and accrued interest inFebruary
                2004 at $0.40 per share
            
            
            432,701
            
            
            433
            
            
            -
            
            
            172,647
            
            
            -
            
            
            173,080Common
                stock sold in private placementin
                March 2005 at $0.50 per share
            
            
            200,000
            
            
            200
            
            
            -
            
            
            99,800
            
            
            -
            
            
            100,000Beneficial
                conversion of notes payable
            
            
            -
            
            
            -
            
            
            -
            
            
            21,635
            
            
            -
            
            
            21,635Costs
                associated with warrants issued
            
            
            -
            
            
            -
            
            
            -
            
            
            14,000
            
            
            -
            
            
            14,000Discounts
                associated with issuance ofconvertible
                debt with detachable warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            113,448
            
            
            -
            
            
            113,448Common
                stock sold in private placementMay
                -June 2005 at $0.40 per share
            
            
            880,000
            
            
            880
            
            
            -
            
            
            351,120
            
            
            -
            
            
            352,000Common
                stock sold in private placementIn
                July 2005 at $0.40 per share
            
            
            360,000
            
            
            360
            
            
            -
            
            
            143,640
            
            
            -
            
            
            144,000Common
                stock issued for consulting servicesIn
                August 2005 at $0.57 per share
            
            
            8,772
            
            
            9
            
            
            -
            
            
            4,991
            
            
            -
            
            
            5,000Common
                stock issued for unpaid consultingthrough
                July 2005 at $0.38 per share
            
            
            544,291
            
            
            544
            
            
            -
            
            
            207,706
            
            
            -
            
            
            208,250





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


F-7





**EL
                CAPITAN PRECIOUS METALS, INC.**
              (An
                Exploration Stage Company)
              
              CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
              For
                The Period July 26, 2002 (Inception) to September 30,
                2006





Common
                StockShares
            
            Amount
            
            StockSubscriptions
            
            AdditionalPaid-InCapital
            
            Deficit
              Accumulated
              During
                The
              Exploration
              Stage
            
            TotalShare
                rounding on affiliate share distributionto
                its shareholders
            
            
            10
            
            
            -
            
            $
            -
            
            $
            4
            
            $
            -
            
            $
            4Net
                loss, year ended September 30, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,244,841
            )
            
            (3,244,841
            )Balances
                at September 30, 2005
            
            
            69,408,749
            
            
            69,409
            
            
            -
            
            
            5,952,072
            
            
            (6,142,407
            )
            
            (120,926
            )Common
                stock issued for accrued consulting services
              for
                August 2005 at $0.462 per share
            
            
            146,270
            
            
            146
            
            
            -
            
            
            67,490
            
            
            -
            
            
            67,636Common
                stock issued for services
              At
                $0.41 per share
            
            
            200,000
            
            
            200
            
            
            -
            
            
            81,800
            
            
            -
            
            
            82,000Common
                stock issued for accrued consulting servicefor
                September 2005 at $0.418
            
            
            106,461
            
            
            106
            
            
            -
            
            
            44,394
            
            
            -
            
            
            44,500Common
                stock sold in private placementOctober
                2005 at $0.40 per share
            
            
            1,603,333
            
            
            1,603
            
            
            -
            
            
            639,730
            
            
            -
            
            
            641,333Common
                stock issued for conversionconvertible
                debt at $0.40 per share
            
            
            750,000
            
            
            750
            
            
            -
            
            
            299,250
            
            
            -
            
            
            300,000Common
                stock issued for servicesat
                $1.60 per share
            
            
            50,000
            
            
            50
            
            
            -
            
            
            79,950
            
            
            -
            
            
            80,000Costs
                associated with options issued
            
            
            -
            
            
            -
            
            
            -
            
            
            28,500
            
            
            -
            
            
            28,500Costs
                associated with warrants issued forfinancial
                services and other
            
            
            -
            
            
            -
            
            
            -
            
            
            135,250
            
            
            -
            
            
            135,250Common
                stock sold by the exercise of optionsat
                $0.65 per share
            
            
            50,000
            
            
            50
            
            
            -
            
            
            32,450
            
            
            -
            
            
            32,500Discounts
                associated with issuance of convertible debt with detachable
                warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            1,018,640
            
            
            -
            
            
            1,018,640Issuance
                of common stock for the exercise ofoptions
                and warrants at $0.65 and $0.50,respectively
            
            
            110,000
            
            
            110
            
            
            -
            
            
            63,890
            
            
            -
            
            
            64,000Common
                stock issued for compensation at$1.56
                per share
            
            
            112,181
            
            
            112
            
            
            -
            
            
            174,888
            
            
            -
            
            
            175,000Common
                stock issued for conversion of notespayable
                at $1.56 per share
            
            
            274,726
            
            
            275
            
            
            -
            
            
            428,297
            
            
            -
            
            
            428,572Common
                stock issued for servicesat
                $1.69 per share
            
            
            20,000
            
            
            20
            
            
            -
            
            
            33,780
            
            
            -
            
            
            33,800Common
                stock issued for servicesat
                $1.98 per share
            
            
            40,000
            
            
            40
            
            
            -
            
            
            79,160
            
            
            -
            
            
            79,200Common
                stock issued for cashless exercise ofwarrants
            
            
            36,325
            
            
            36
            
            
            -
            
            
            (36
            )
            
            -
            
            
            -Costs
                associated with stock private placement
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,368
            )
            
            -
            
            
            (5,368
            )





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


F-8





**EL
                CAPITAN PRECIOUS METALS, INC.**
              (An
                Exploration Stage Company)
              
              CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
              For
                The Period July 26, 2002 (Inception) to September 30,
                2006





Common
                StockShares
            
            Amount
            
            StockSubscriptions
            
            AdditionalPaid-InCapital
            
            DeficitAccumulatedDuring
                    TheExplorationStage
            
            TotalCommon
                stock sold in private placementApril
                2006 at $2.20 per share
            
            
            136,364
            
            
            137
            
            
            -
            
            
            299,863
            
            
            -
            
            
            300,000Common
                stock sold by the exercise of optionsat
                $0.65 and $0.56 per share
            
            
            90,000
            
            
            90
            
            
            -
            
            
            53,910
            
            
            -
            
            
            54,000Common
                stock sold by the exercise of warrantsat
                $0.50 per share
            
            
            212,500
            
            
            213
            
            
            -
            
            
            106,037
            
            
            -
            
            
            106,250Common
                stock sold in private placementSeptember
                2006 at $0.50 per share
            
            
            450,000
            
            
            450
            
            
            -
            
            
            224,550
            
            
            -
            
            
            225,000Stock
                issued for conversion of convertible noteat
                $0.50 per share
            
            
            1,100,000
            
            
            1,100
            
            
            -
            
            
            548,900
            
            
            -
            
            
            550,000Provision
                for deferred tax liability related to thebook
                and tax difference due to debt discount
            
            
            -
            
            
            -
            
            
            -
            
            
            (80,322
            )
            
            -
            
            
            (80,322
            )Net
                loss for year ended September 30, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (4,041,802
            )
            
            (4,041,802
            )Balances,
                September 30, 2006
            
            
            74,896,909
            
            $
            74,897
            
            $
            -
            
            $
            10,307,075
            
            
            ($10,184,209
            )
            $
            197,763




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




F-9




**EL
      CAPITAN PRECIOUS METALS, INC.**


(An
      Exploration Stage Company)





STATEMENTS
      OF CASH FLOWS




Period
                FromJuly
                26, 2002(Inception)ThroughYear
                Ended September 30,
            
            September
                30,2006
            
            2005
            
            2006CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (4,041,802
            )
            $
            (3,244,841
            )
            $
            (10,184,209
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Costs
                associated with common stock, options and warrants
            
            
            613,750
            
            
            1,405,539
            
            
            4,082,054Beneficial
                conversion feature of notes payable
            
            
            128,572
            
            
            21,635
            
            
            225,207Non-cash
                expense with affiliate
            
            
            7,801
            
            
            —
            
            
            7,801Accretion
                of discount on notes payable
            
            
            873,157
            
            
            22,690
            
            
            913,347Provision
                for uncollectible note receivable
            
            
            —
            
            
            50,000
            
            
            62,500Depreciation
            
            
            16,022
            
            
            7,790
            
            
            23,812Changes
                in operating assets and liabilities:Decrease
                (increase) in advance to officer
            
            
            1,064
            
            
            (1,064
            )
            
            —(Increase)
                in miscellaneous receivable
            
            
            (6,266
            )
            
            —
            
            
            (6,266
            )(Increase)
                in interest receivable
            
            
            —
            
            
            (13,611
            )
            
            (13,611
            )(Increase)
                in prepaid expenses
            
            
            (82,917
            )
            
            (12,123
            )
            
            (95,040
            )(Increase)
                in expense advances on behalf of affiliated company
            
            
            (334,851
            )
            
            (351,946
            )
            
            (686,797
            )(Increase)
                in deposits
            
            
            (14,400
            )
            
            (16,445
            )
            
            (30,845
            )Increase
                in accounts payable
            
            
            64,399
            
            
            101,596
            
            
            358,349Increase
                in accrued liabilities
            
            
            65,334
            
            
            124,968
            
            
            241,004(Decrease)
                in interest payable, related parties
            
            
            —
            
            
            (1,652
            )
            
            —Increase
                in interest payable, other
            
            
            68,278
            
            
            2,373
            
            
            86,622Net
                Cash (Used) in Operating Activities
            
            
            (2,641,859
            )
            
            (1,905,091
            )
            
            (5,016,072
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of property interest
            
            
            —
            
            
            —
            
            
            (100,000
            )Purchase
                of furniture and equipment
            
            
            (73,863
            )
            
            (69,101
            )
            
            (142,964
            )Issuance
                of notes receivable
            
            
            —
            
            
            (236,930
            )
            
            (249,430
            )Payments
                received on notes receivable
            
            
            —
            
            
            66,930
            
            
            66,930Cash
                paid in connection with acquisition of DLM Services, Inc.
            
            
            —
            
            
            —
            
            
            (50,000
            )Net
                Cash (Used) in Investing Activities
            
            
            (73,863
            )
            
            (
                239,101
            )
            
            (475,464
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from the sale of common stock
            
            
            1,491,083
            
            
            1,740,500
            
            
            3,281,606Costs
                associated with sale of stock
            
            
            —
            
            
            (19,363
            )
            
            (19,363
            )Proceeds
                from notes payable, related parties
            
            
            —
            
            
            —
            
            
            219,900Proceeds
                of notes payable, other
            
            
            1,300,000
            
            
            600,000
            
            
            2,322,300Repayment
                of notes payable, related parties
            
            
            —
            
            
            (42,577
            )
            
            (61,900
            )Repayment
                of notes payable, other
            
            
            —
            
            
            (25,000
            )
            
            (43,874
            )Net
                Cash Provided by Financing Activities
            
            
            2,791,083
            
            
            2,253,560
            
            
            5,698,669




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


F-10





**EL
                CAPITAN PRECIOUS METALS, INC.**
              (An
                Exploration Stage Company)
              
              STATEMENTS
                OF CASH FLOWS





Period
                FromJuly
                26,2002(Inception)ThroughYear
                Ended September 30,
            
            September
                30,2006
            
            2005
            
            2006INCREASE
                IN CASH
            
            
            75,361
            
            
            109,368
            
            
            207,133CASH,
                BEGINNING OF PERIOD
            
            
            131,772
            
            
            22,404
            
            
            —CASH,
                ENDING OF PERIOD
            
            $
            207,133
            
            $
            131,772
            
            $
            207,133SUPPLEMENTAL
                CASH FLOW INFORMATION:Cash
                paid for interest
            
            $
            146,396
            
            $
            950
            
            $
            148,523Cash
                paid for income taxes
            
            $
            —
            
            $
            —
            
            $
            —SUPPLEMENTAL
                DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Issuance
                of common stock to Gold and Minerals Company, Inc. in connection
                with the
                purchase of interest in of El Capitan, Ltd.
            
            $
            —
            
            $
            —
            
            $
            8Issuance
                of common stock to Gold and Minerals Company, Inc. in connection
                with the
                purchase of the COD property (Note 1)
            
            $
            —
            
            $
            —
            
            $
            3,600Issuance
                of common stock to Gold and Minerals Company, Inc. in connection
                with the
                purchase of the Weaver property
            
            $
            —
            
            $
            —
            
            $
            3,000Costs
                associated with warrants issued
            
            $
            163,750
            
            $
            149,004
            
            $
            420,754Stock
                based compensation
            
            $
            450,000
            
            $
            1,205,500
            
            $
            3,494,897Issuance
                of common stock for financing costs
            
            $
            —
            
            $
            —
            
            $
            56,250Issuance
                of common stock for interest costs
            
            $
            —
            
            $
            3,683
            
            $
            62,801Conversion
                of accounts payable to equity
            
            $
            —
            
            $
            31,381
            
            $
            31,381Conversion
                of accrued interest to equity
            
            $
            —
            
            $
            15,971
            
            $
            15,971Net
                non-cash advances from affiliated company
            
            $
            562,990
            
            $
            —
            
            $
            562,990Conversion
                of notes payable and accruedinterest
                for the issuance of common stock
            
            $
            1,150,000
            
            $
            153,426
            
            $
            1,745,544Conversion
                of accrued fees payable for the issuance of common stock
            
            $
            112,136
            
            $
            —
            
            $
            112,136


The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-11


EL
      CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY


(An
      Exploration Stage Company)





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


Fiscal
      Years Ended September 30, 2006 and 2005





**NOTE
      1 - BUSINESS, OPERATIONS, ORGANIZATION, LIQUIDITY AND BASIS OF
      PRESENTATION**





**Business
      and Operations**





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. On March 18, 2003,
      El
      Capitan Precious Metals, Inc. (Delaware) entered into a share exchange agreement
      with DML Services, Inc. (“ DML ”),
      a
      Nevada corporation, and became the wholly owned subsidiary of DML .
      On
      April 11, 2003, DML changed
      its name to El Capitan Precious Metals, Inc. The
      results of El Capitan Precious
      Metals, Inc. ,
      a
      Nevada corporation (formerly DML Services, Inc.) ,
      and
      its wholly
      owned Delaware
      subsidiary of the same name (collectively “El Capitan” or the “Company”) are
      presented on a consolidated basis.




The
      Company is in the exploration stage and since inception, has completed certain
      acquisitions and transactions (NOTE 2), but has not had any revenue producing
      operations.




**Organization**




The
      Company was previously organized as DML Services, Inc., a Nevada corporation,
      in
      2000. On March 17, 2003, DML sold the assets and operations of its catering
      and
      food service business to the executive officers and directors of DML in exchange
      for the return of 30,120,000 shares of DML and cash of $50,000, paid by El
      Capitan. On March 18, 2003, DML acquired all of the issued and outstanding
      common stock of El Capitan in exchange for 39,000,000 shares of DML’s common
      stock issued to the El Capitan stockholders, which represented 85% of the
      Company’s total shares outstanding immediately following the exchange. As a
      result of a four share for one stock split completed by DML on November 25,
      2002, and the retirement of 30,120,000 post-reverse-split shares which took
      place immediately prior to closing the transaction, the stockholders of DML
      held
      6,720,000 shares of the Company’s common stock, which represented 15% of the
      total outstanding shares of common stock of the Company immediately following
      the exchange.




The
      El
      Capitan transaction was recorded as a reverse acquisition based on factors
      demonstrating that El Capitan constituted the accounting acquirer. The
      shareholders of El Capitan received 85% of the post-acquisition outstanding
      common stock of DML. In addition, post-acquisition management personnel and
      the
      sole board member of the Company consisted of individuals previously holding
      positions with El Capitan. The historical stockholders’ equity of El Capitan
      prior to the exchange was retroactively restated (a recapitalization) for the
      equivalent number of shares received in the exchange after giving effect to
      any
      differences in the par value of the DML and El Capitan common stock, with an
      offset to additional paid-in capital. The restated consolidated deficit
      accumulated during the development stage of the accounting acquirer (El Capitan)
      has been carried forward after the exchange.




**Basis
      of Presentation and Going Concern**




The
      accompanying financial statements have been prepared assuming the Company will
      continue as going concern, which contemplates the realization of assets and
      the
      settlement of liabilities and commitments in the normal course of business.
      The
      Company is an exploration stage company and since its inception has had no
      revenues and has incurred recurring losses aggregating $(10,184,209) accumulated
      during the exploration stage. In addition, the Company does not have a revolving
      credit facility with any financial institution. These factors raise substantial
      doubt about the Company’s ability to continue as a going concern. The ability of
      the Company to continue as a going concern is dependent on raising additional
      capital, negotiating adequate financing arrangements and on achieving
      sufficiently profitable operations. The financial statements do not include
      any
      adjustments relating to the recoverability and classification of assets or
      the
      amounts and classification of liabilities that might be necessary should the
      Company be unable to continue as a going concern.




F-12




The
      Company will continue to pursue its cash requirements over the next fiscal
      year
      through a combination of financing activities and prior to cash flow generated
      through operations. In October 2005, the Company completed a private placement
      under Section 4(2) and Rule 506 promulgated under the Securities Act, to certain
      accredited investors for an aggregate of 2,353,333 shares of common stock and
      2,353,333 warrants to purchase common stock at an exercise price of $.50 per
      share for the aggregate cash consideration to the Company of $941,333. These
      amounts include the rollover into the private placement of a convertible
      debenture issued on March 30, 2005. This rollover converted the $300,000
      convertible note into 750,000 shares of common stock and 750,000 warrants to
      purchase common stock. The Company completed a private placement during the
      quarter ended December 31, 2005, (NOTE 11) and also completed a placement of
      a
      convertible debenture (NOTE 7). During the quarter ended March 31, 2006, the
      Company completed a second placement of a convertible debenture (NOTE 7) to
      the
      same party and as provided for in the original agreement. In September 2006,
      the
      Company placed a private placement of securities (NOTE 11). During the Company’s
      next fiscal year the Company anticipates exercising the call option on various
      warrants, which, if exercised, would provide the Company significant working
      capital to continue its exploratory programs. We continually evaluate business
      opportunities such as joint venture processing agreements with the objective
      of
      creating cash flow to sustain the corporation and provide a source of funds
      for
      growth. There are no assurances of success in this regard or in the Company’s
      ability to obtain continued financing through capital markets, joint ventures,
      or other acceptable arrangements. If management’s plans are not successful,
      operations and liquidity may be adversely impacted.




Given
      the
      Company’s limiting operating history, lack of revenue, and its operating losses,
      there can be no assurance that it will be able to achieve or maintain
      profitability. Accordingly, these factors raise substantial doubt about the
      Company’s ability to continue as a going concern.





**NOTE
      2 - ACQUISITIONS AND DIVESTITURES**





**Acquisition
      of El Capitan Property from Gold and Minerals Company, Inc** *.*




In
      October 2003, the Company completed the acquisition of a 40% equity interest
      in
      El Capitan, Ltd. (“ECL”), an Arizona corporation, which prior to the transaction
      was wholly-owned subsidiary of Gold and Minerals Company, Inc. (“Minerals”), a
      Nevada corporation. Minerals is affiliated with the Company in that it is a
      shareholder of the Company and the Company’s CEO/President is a shareholder of
      Minerals. Minerals is involved in the exploration and testing of potential
      mineral properties. Consideration for the acquisition consisted of the issuance
      of 30,225,000 shares of the Company’s common stock to Minerals (which occurred
      in November 2002, and which constituted a 77.5% equity ownership in the Company
      prior to the reverse acquisition) and $100,000 cash, of which $86,000 was paid
      through September 30, 2003, and $14,000 was paid in October 2003. Minerals
      retained the remaining 60% ownership in El Capitan, Ltd.




During
      the quarter ended December 31, 2005, ECL finalized the purchase of four patented
      mining claims, constituting approximately 77.5 acres in aggregate, located
      in
      Lincoln County, New Mexico. The purchased claims are located on the Property,
      which is owned by ECL. In consideration for the claims, ECL transferred
      2,100,000 shares of the Company’s common stock owned by Minerals. Pursuant to an
      agreement between ECL and the selling parties, the stock was valued at $0.82
      per
      share, the market value of the stock on November 11, 2005.




Pursuant
      to an arrangement with Minerals, the Company is obligated to Minerals to pay
      $688,800 for the purchase of the patented mining claims by ECL. The Company
      has
      offset its portion of the purchase price against existing obligations of
      Minerals due the Company.




The
      assets of ECL primarily consist of the El Capitan property (the “Property”), an
      inactive iron and related mineral property located in New Mexico. At September
      30, 2006, the Property contained four patented claims and 352 unpatented claims
      encompassing approximately 7,100 acres in the Capitan Mountains in Lincoln
      County, New Mexico. The Property has no proven reserves. The Company did not
      assume any liabilities or obligations of ECL.




F-13




**Purchase
      of Mining Claims from Minerals**




In
      August
      2003, the Company acquired from Minerals certain mining claims granted by the
      United States Bureau of Land Management, buildings and personal property known
      as the COD property located near Kingman, Arizona. The COD property is an
      inactive underground mineral property consisting of thirteen mining claims
      as
      well as various outbuildings and other associated personal property. In
      consideration for the purchase, we issued 3,600,000 shares of the Company’s
      common stock to Minerals, having a market value on the date of the transaction
      of approximately $1,440,000. Because the COD property was acquired from the
      Company’s then controlling stockholder in exchange for the Company’s common
      stock, and Minerals had no economic monetary basis in the property, the
      transaction was accounted for as a non-monetary exchange and the COD property
      was recorded, in accordance with Generally Accepted Accounting Principles
      (GAAP), at no value on the Company’s consolidated financial
      statements.




**Sale
      of 80% of Mining Claims and Joint Venture**




In
      May
      2004, the Company executed a joint venture agreement with U.S. Canadian
      Minerals, Inc. (“US Canadian”), a publicly-traded Nevada company (Pink Sheets;
      USCA.PK), to explore the COD property, including the recovery of gold and silver
      from the tailings of the COD site. The joint venture is to operate under the
      name “CanEl” until May 2020, unless terminated earlier pursuant to the terms of
      the joint venture agreement. Under terms of the agreement, the Company was
      required to transfer to US Canadian an 80% interest in the COD property in
      exchange for 720,000 shares of US Canadian common stock. Pursuant to a stock
      split affected by US Canadian, the Company currently holds 2,160,000 shares
      of
      the US Canadian common stock. On the date of the original transaction, shares
      of
      unrestricted freely trading US Canadian common stock traded at $2.85 per share,
      or as adjusted for the split, at $0.95 per share. At December 31, 2005, these
      shares were pledged as security for the Company’s $1,300,000 convertible
      debenture notes. See NOTE 7.




The
      US
      Canadian common stock was restricted with respect to sale until May 2005. US
      Canadian’s common stock is currently traded on the Pink Sheets, its most recent
      SEC filings have not been reviewed by an independent registered public
      accounting firm, and it faced a SEC imposed temporary trading suspension in
      October of 2004, which has since expired. The Company also has continuing
      involvement (as discussed below) related to the COD property. Based on these
      factors, no gain on the sale was recorded and the Company has ascribed a value
      of $2,052,000 to the common stock received at September 30, 2004, the value
      on
      the date of the transaction, and recorded a deferred gain on the sale of an
      asset and is classified as a long term liability. Any future decrease in market
      value of the securities, the reduction in value will reduce the deferred gain
      liability account. The transaction was recorded in accordance
      with current GAAP.




When
      the
      US Canadian resumes trading on the Bulletin Board, and once the Company’s
      assessment of the common stock allows for classification of the securities
      as
      marketable securities, it intends to classify the investment as available for
      sale under Statement of Financial Accounting Standard (SFAS) No. 115 *,
      “Accounting for Certain Investments in Debt and Equity
      Securities* .”




The
      joint
      venture provides that the Company is to explore the COD property as it relates
      to the tailings and settlement pond and contribute the equipment needed for
      such
      exploration, which have not yet begun. US Canadian agreed to contribute 90
      days
      operating capital to provide for at least three workers, fuel, necessary
      equipment agreed upon by the parties, and equipment repair and maintenance
      and
      paid $12,500 in July 2004. Net profits, if any, from the operations tailings
      and
      settlement pond operations will be split equally among the Company and US
      Canadian. This project has been on hold as US Canadian has been focusing on
      bringing current their SEC filings and to resume trading on the Bulletin Board.
      In November 23, 2005, our Board of Directors approved an amendment to the joint
      venture agreement whereas the Company will contribute $50,000 for the completion
      of the geological field study. As consideration for this advance, the Company
      will be reimbursed for this advance and any other incurred expenses and all
      net
      proceeds after deducting all incurred costs, are to be split equally with US
      Canadian. Due to the unknown future status of US Canadian, this field study
      has
      not been implemented as of September 30, 2006.




F-14




**Acquisition
      of Weaver Mining Claims**




In
      July
      2004, we acquired from Minerals the Weaver property located near Congress,
      Arizona. Consideration for this purchase was 3,000,000 shares of our common
      stock, which had a market value of $400,000 on the closing date. At the time
      the
      Weaver property was acquired from our controlling stockholder in exchange for
      the Company’s common stock, Minerals had no economic monetary basis in the
      property. Accordingly, the transaction was accounted for as a non-monetary
      exchange and the Weaver property was recorded at no value on the Company’s
      consolidated financial statements and was done in accordance with current
      GAAP.




**NOTE
      3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Principals
      of Consolidation**




The
      consolidated financial statements include the accounts of El Capitan Precious
      Metals, Inc. and its wholly owned subsidiary. All significant inter-company
      accounts and transactions have been eliminated in the consolidated financial
      statements.




**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.




**Management
      Estimates and Assumptions**




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




**Fair
      Value of Financial Instruments**




The
      fair
      values of the Company’s financial instruments 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.




**Furniture
      and Equipment**




Furniture
      and equipment are stated at cost. Depreciation is calculated for financial
      statements using the straight-line basis over the estimated useful lives as
      follows:




Automobile
            
            
            5
                yearsOffice
                furniture and equipment
            
            
            3-10
                yearsMine
                equipment
            
            
            7
                years




Depreciation
      expense for the years ended September 30, 2006 and 2005 was $16,022 and $7,780,
      respectively.


F-15




**Comprehensive
      Income (Loss)**




SFAS
      No.
      130, “ *Reporting
      Comprehensive Income* ,”
      establishes requirements for disclosure of comprehensive income and its
      components, which include, among other items, unrealized gains or losses from
      marketable securities and foreign currency translation adjustments that
      previously were only reported as a component of stockholders’ equity. The
      Company did not have any components of comprehensive income (loss) during the
      periods presented.




**Net
      Income (Loss) Per Share**




SFAS
      No.
      128, “ *Earnings
      per Share,”* requires
      dual presentation of basic and diluted earnings or loss per share (“EPS”) with a
      reconciliation of the numerator and denominator of the basic EPS computation
      to
      the numerator and denominator of the diluted EPS computation. Diluted EPS
      reflects the potential dilution that could occur if securities or other
      contracts to issue common stock were exercised or converted into common stock
      or
      resulted in the issuance of common stock that then shared in the earnings of
      the
      entity. Basic loss per common share is computed based on weighted average shares
      outstanding and excludes any potential dilution from stock options, warrants
      and
      other common stock equivalents and is computed by dividing loss available to
      common shareholders by the weighted average number of common shares outstanding
      for the period. Diluted net loss per common share reflects potential dilution.
      These dilutive securities are not considered in the calculation, as the impact
      of the potential shares would be to decrease loss per share. Therefore, diluted
      loss per share is equivalent to basic loss per share. The historical loss per
      share **** of
      El
      Capitan prior to the merger has been retroactively restated to reflect the
      new
      capital structure.





At
      September 30, 2006, potential dilutive securities consisted of stock options
      representing 1,529,000 common shares were outstanding with an exercise price
      ranging between $0.56 and $1.99 per share and with a weighted average exercise
      price of $1.01. At September 30, 2006, stock warrants representing 7,781,364
      common shares were outstanding with exercise prices ranging between $0.50 and
      $2.20 per share, with weighted average exercise price of $0.55 per
      share.





At
      September 30, 2005, potential
      dilutive securities consisted of stock options representing 1,150,000 common
      shares were outstanding with an exercise price of $0.50 per share. At September
      30, 2005, stock warrants representing 5,015,000 common shares with exercise
      prices ranging between $0.50 and $2.50 per share, with a weighted average
      exercise price of $0.78.





**Stock-Based
      Compensation - Transition and Disclosure**




The
      Company has elected to follow Accounting Principles Board Opinion No. 25,
“ *Accounting
      for Stock Issued to*  *Employees”* (“APB
      No. 25”), and the related interpretations in accounting for its employee stock
      options. Under APB No. 25, because the exercise price of employee stock options
      equals or exceeds the market price of the underlying stock on the date of grant,
      no compensation expense is recorded. If the exercise price of employee stock
      options is under the market price of the underlying stock on the date of grant,
      compensation expense is recorded for the price differential times the quantity
      of options granted. The Company has adopted the disclosure-only provisions
      of
      SFAS No. 123, “ *Accounting
      for Stock Based Compensation,”*  as
      amended by SFAS No. 148, *“Accounting
      for Stock-Based Compensation - Transition & Disclosure* .”




The
      Company recognized stock-based employee compensation aggregating $538,690 for
      options issued to employees during year ended September 30, 2006, and none
      was
      recognized for the prior comparable year in 2005.





The
      fair
      value of option grants is estimated as of the date of grant utilizing the
      Black-Scholes option pricing model with the following weighted average
      assumptions for all grants, expected life of options of 1 year, expected
      volatility of 138.951%, risk-free interest rate of two percent (2.25%), and
      a
      zero percent (0%) dividend yield. Transactions in equity instruments with
      non-employees for goods and services are accounted for by the fair value
      method.




F-16




The
      following table illustrates the pro forma effect on net (loss) and (loss) per
      share if the Company had applied the fair value recognition provisions of
      Financial Accounting Standards Board (“FASB”) Statement No. 148, “ *Accounting
      For Stock-Based Compensation - Transition & Disclosure, An Amendment to FASB
      Statement No. 123* ,”
to
      stock-based employee compensation.




Year
                Ended September 30,2006
            
            2005Net
                (loss), as reported
            
            $
            (4,041,802
            )
            $
            (3,244,841
            )Add:
                total stock-based compensation expense included in reported net
                loss
            
            
            175,000
            
            
            —Deduct
                - stock-based compensation expense determined under the fair value
                method,
                net of tax effect
            
            
            (713,690
            )
            
            —Pro
                forma net (loss)
            
            $
            (4,580,492
            )
            $
            (3,244,841
            )(Loss)
                per share:Net
                (loss) per share, as reported
            
            $
            (0.06
            )
            $
            (0.04
            )Net
                (loss) per share, pro forma
            
            $
            (0.06
            )
            $
            (0.04
            )




In
      December 2004, FASB issued SFAS No. 123(R), “ *Share-based
      Payment”* (“SFAS
      No. 123R”) and requires companies to measure all stock compensation awards using
      a fair value method and recognize the related compensation cost in its financial
      statements. This statement replaces SFAS No. 123 “ *Accounting
      for Stock Based Compensation,* ” ** and
      supersedes ABP Opinion No. 25, “ *Accounting
      for Stock Issued to Employees.* ” ** Beginning
      with the Company’s quarterly period that begins on October 1, 2006, the Company
      adopted the provisions of SFAS No. 123R and the Company will be required to
      expense the fair value of employee stock options and similar awards in the
      financial statements. The Company has no compensation cost relating to unvested
      portion of awards granted prior to the date of adoption to recognize at the
      time
      of adoption.




**Impairment
      of Long-Lived Assets**




Management
      assesses the carrying value of long-lived assets for impairment when
      circumstances indicate such amounts may not be recoverable from future
      operations. Generally, assets to be held and used are considered impaired if
      the
      sum of expected undiscounted future cash flows is less than the carrying amount
      of the asset. At September 30, 2006 and 2005, long-lived assets were recorded
      at
      no value in the consolidated financial statements.




**Mineral
      Property Costs**




Mineral
      property exploration 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 its mineral properties. The Company has capitalized
      $788,808 of mineral property acquisition costs.




**Income
      Taxes**




The
      Company computes deferred income taxes under the asset and liability method
      prescribed by the SFAS No. 109. Under this method, deferred tax assets and
      liabilities are recognized for temporary differences between the financial
      statement amounts and the tax basis of certain assets and liabilities by
      applying statutory rates in effect when the temporary differences are expected
      to reverse. Valuation allowances are established when necessary to reduce
      deferred tax assets to the amount more likely than not to be
      realized.




F-17




**New
      Accounting Pronouncements**





In
      December 2004, the FASB issued SFAS No. 123 (Revised 2004) “ *Share
      Based Payment* ”
(“SFAS
      No. 123R”), which is a revision to SFAS No. 123 and supersedes APB No. 25 and
      SFAS No.148. This statement requires that the cost resulting from all
      share-based payment transactions be recognized in the financial statements.
      This
      statement establishes fair value as the measurement objective in accounting
      for
      share-based payment arrangements and requires all entities to apply a fair-value
      based measurement method in accounting for share-based payment transactions
      with
      employees except for equity instruments held by employee share ownership
      plans.




SFAS
      No.
      123R applies to all awards granted after the required amended effective date
      and
      to awards modified, repurchased, or cancelled after that date. As of the
      required effective date, all public entities that used the fair-value-based
      method for either recognition or disclosure under SFAS No. 123 will apply to
      SFAS No. 123R using a modified version of prospective application. Under that
      transition method, compensation cost is recognized on or after the required
      effective date for the portion of outstanding awards, for which the requisite
      service has not yet been rendered, based on the grant-date fair value of those
      awards calculated under SFAS No. 123 for either recognition or pro forma
      disclosures. For periods before the required effective date, those entities
      may
      elect to apply a modified version of the retrospective application under which
      financial statements for prior periods adjusted on a basis consistent with
      the
      pro forma disclosures required for those periods by SFAS No. 123. As a result,
      beginning in our fiscal quarter starting October 2006, we will adopt SFAS No.
      123R and begin reflecting the stock option expense determined under fair value
      based methods in our income statement rather than a pro forma disclosure in
      the
      notes to the financial statements. We expect the effect of adopting SFAS No.
      123R to be similar to the effect presented in our pro forma disclosure related
      to SFAS No. 123.




In
      May
      2005, the FASB issued SFAS No. 154, “ *Accounting
      Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB
      Statement No. 3”* (“SFAS
      No. 154”). This statement replaces APB opinion No. 20, “ *Accounting
      Changes* ”
and
      FASB Statement No. 3, “ *Reporting
      Accounting Changes in Interim Financial Statements* ”
and
      changes the requirements for the accounting for and reporting of a change in
      accounting principle. This statement applies to all voluntary changes in
      accounting principle. It also applies to changes required by an accounting
      pronouncement in the unusual instance that the pronouncement does not include
      specific transaction provision. When a pronouncement includes specific
      transaction provisions, those provisions should be followed. SFAS No. 154 is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005. Consequently, the Company will adopt the
      provisions of SFAS No. 154 for its fiscal year beginning October 1, 2006.
      Management currently believes that adoption of the provisions of SFAS No. 154
      will not have a material impact on the Company’s consolidated financial
      statements.




In
      June
      2006, the FASB issued FASB Interpretation No. 48, “ *Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB No.
      109* ”
(“FIN
      48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in a company’s financial statements in accordance with SFAS No. 109 and provides
      guidance on recognizing, measuring, presenting and disclosing in the financial
      statements tax positions that a company has taken or expected to take on a
      tax
      return. FIN 48 is effective for the Company as of July 1, 2007. The Company
      at
      this time has not evaluated the impact, if any, of adopting FIN 48 on its
      financial statements.




In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measurements* ”
(“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value and expands disclosures about fair value measurements. This statement
      addresses how to calculate fair value measurements required or permitted under
      other accounting pronouncements. SFAS 157 is effective for the Company beginning
      July 1, 2008. The Company at this time has not evaluated the impact, if any,
      of
      SFAS 157 on its financial statements.




The
      FASB
      has also issued SFAS No. 155, “ *Accounting
      for Certain Hybrid Financial Instruments* ”,
      SFAS
      No. 156, “ *Accounting
      for Servicing of Financial Assets* ”
and
      SFAS No. 158, “ *Employers
      Accounting for Defined Benefit Pension and Other Postretirement Plans, an
      amendment of FASB Statements No. 87, 88, 106, and 132(R)* ”,
      but
      they will not have any relationship to the operations of the Company at this
      time.




F-18




In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB No.
      108”), which addresses the process and diversity in practice of quantifying
      financial statement misstatements resulting in the potential build up of
      improper amounts on the balance sheet. The Company will be required to adopt
      the
      provision of SAB No. 108 in fiscal year 2007. The Company currently does not
      believe that the adoption of SAB No. 108 will have a material impact on our
      financial statements.




**NOTE
      4 - INVESTMENTS IN US CANADIAN**




On
      September 30, 2006, the Company owned 2,160,000 shares of U.S. Canadian common
      stock. The Company valued the shares at $0.07 per share, the market value per
      unrestricted share at the closing of the market on September 30, 2006, for
      a
      value of $151,200. The Company has a continuing involvement related to the
      COD
      property and accordingly no gain on the sale is recognized and any future
      decrease in market value of the securities, the reduction in value will reduce
      the deferred gain liability account in accordance
      with current GAAP.




The
      Company has pledged all the shares of its US Canadian investment as security
      for
      a secured convertible debenture notes (NOTE
      6).




**NOTE
      5 - RELATED PARTY TRANSACTIONS**




**Notes
      Receivable**




In
      March
      2003, the Company advanced $12,500 to an affiliate in which a prior officer
      of
      the Company was also an officer, in exchange for two unsecured, 8% promissory
      notes, which are due on demand. At September 30, 2006 and 2005, the Company
      has
      recorded a valuation allowance of $12,500 against this receivable due to
      uncertainty as to the ultimate collectibility of these promissory
      notes.




**Due
      from Affiliated Company**




During
      the period October 2004 through September 2006, the Company made net payments
      on
      behalf of Minerals aggregating to $1,228,278 relating to costs incurred by
      El
      Capitan Limited (“ECL”) on the El Capitan property site. Pursuant to a verbal
      agreement with Minerals effective October 1, 2004, costs incurred by ECL at
      the
      El Capitan site are to be split between the companies in accordance with their
      percentage ownership interest. The Company holds a 40% equity interest in ELC,
      and Minerals holds the remaining 60% equity interest. To
      secure
      the amounts due under the note and the cost advances made on behalf of Minerals
      by the Company, Minerals had pledged to the Company 1,000,000 free trading
      shares of the Company’s common stock that Minerals owns. These shares were
      released back to Minerals in February 2006. Through September 30, 2006, Minerals
      has reimbursed the Company $1,104,471
      of the advanced costs.




During
      the quarter ended December 31, 2005, ECL, finalized the purchase of four
      patented mining claims, constituting approximately 77.5 acres in aggregate,
      located in Lincoln County, New Mexico. The purchased claims are located on
      the
      El Capitan Property. In consideration for the claims, ECL transferred to the
      selling parties 2,100,000 shares of the Company’s common stock owned by
      Minerals, who holds the remaining 60% equity interest in ECL. Pursuant to an
      agreement between ECL and the selling parties, the stock was valued at $0.82
      per
      share, the market value of the stock on November 11, 2005, and the Company
      recorded the transaction as effective at December 31, 2005.




Pursuant
      to the cost splitting arrangement with Minerals, the Company was obligated
      to
      Minerals to pay $688,800 for the purchase of the patented mining claims by
      ECL.
      The Company offset its portion of the purchase price against existing
      obligations of Minerals due the Company and resulted in the Minerals owing
      the
      Company $123,087 at September 30, 2006.




F-19




**Employment
      Agreement**




Terms
      of
      the current verbal employment agreement of the CEO and president is entitled
      to
      a monthly compensation of $12,000. The Company currently has verbal employment
      agreements with four other individuals, three of whom are officers and/or
      directors of the Company, at an aggregate salary amount of $40,000 per
      month.




**Management
      Fees**




The
      Company had informal arrangements with four individuals, three of whom are
      officers and/or directors of the Company, pursuant to which such individuals
      serve as support staff for the functioning of the home office and all related
      corporate activities and projects. There are no written agreements with these
      individuals, and the Company paid an aggregate amount of $40,000 per month
      to
      these individuals for their services. Effective June 1, 2005, they agreed to
      take accrued back compensation in S-8 common stock of the Company and three
      of
      the consultants agreed to take monthly compensation in S-8 common stock of
      the
      Company for the months of June through September 2005. Effective January 1,
      2006, the four individuals were converted to full-time employees at the same
      rate of pay.




**Consulting
      Agreements**




The
      Company entered into a consulting agreement in 2003 with an officer of Minerals
      relating to the El Capitan property pursuant to which the Company issued 600,000
      shares of common stock to the consultant and agreed to pay a fee of $20,000
      per
      month, which may be paid in shares of the Company’s common stock at the
      Company’s option. Through December 31, 2004, the Company has issued 2,282,222
      shares in payment of $420,000 of the earned fees and
      the
      agreement expired on December 31, 2004. The Company extended the contract on
      a
      month-to-month basis through March 2005, at $10,000 per month.




On
      September 27, 2005, the Company entered into an agreement with Pavlich
      Associates (“Pavlich”) which provides for Pavlich to be the primary
      representative of the Company in the sale of the El Capitan property to all
      viable third party mineral companies. The agreement provides for consulting
      time
      charges, expenses and a success fee based upon the sales price of the El Capitan
      property. This agreement has been superseded in its entirety by a similar
      agreement entered into by the Company, Minerals and Pavlich dated June 21,
      2006,
      pursuant to which Minerals became a party. Under the new agreement, Pavlich
      is
      entitled to a success fee of one quarter of one percent (0.25%) of the sales
      price of the property, with a minimum payment of $250,000 and a maximum payment
      of $3,000,000. Additionally, Pavlich is entitled to a consulting fee of $125
      per
      hour for time consulting with the Company and reimbursement of incurred
      expenses.




The
      Company during the fiscal year 2005 and the first quarter of fiscal year 2006
      had informal arrangements with four individuals, three of whom are officers
      and/or directors of the Company, pursuant to which such individuals serve as
      support staff for the functioning of the home office and all related corporate
      activities and projects. There are no written agreements with these individuals,
      and the Company currently pays an aggregate amount of $40,000 per month to
      these
      individuals for their services. Effective June 1, 2005, they agreed to take
      accrued back compensation in S-8 common stock of the Company and three of the
      consultants agreed to take monthly compensation in S-8 common stock of the
      Company for the months of June through September 2005. Total management fees
      paid under these agreements for the years ended September 30, 2006 and 2005
      was
      $120,000 and $418,875, respectively.




**NOTE** **6
      - NOTES PAYABLE OTHER**




At
      September 30, 2005, the Company had two 12% unsecured notes payable to two
      stockholders of the Company amounting to $150,000 each, both of which were
      due
      September 15, 2006. In January 2006, the Company converted the principal of
      the
      two unsecured notes payable to restricted common shares of the Company.




On
      October 28, 2005, the note holder and Company agreed to roll the secured
      convertible debenture note principal into a private placement offering completed
      by the Company on October 28, 2005. The Company paid all accrued interest on
      such date to the note holder.


F-20





On
      October 28, 2005, the Company issued an 8 % secured convertible debenture note
      for $750,000 to an investment company. The note has a maturity of one and
      one-half years and contains a conversion feature into common stock at $0.50
      per
      share. The note also provides for a five-year warrant for 500,000 shares of
      common stock at $0.60 per share and is collateralized by 2,160,000 shares of
      the
      US Canadian common stock that the Company owns. The Company also issued a
      three-year warrant for 225,000 shares of common stock at $0.60 per share as
      a
      finder’s fee. At September 30, 2006, this note has been classified as a current
      liability as it has a maturity date under twelve months.





The
      intrinsic value of the beneficial conversion feature of the note was $384,320
      and the portion of the proceeds allocated to the warrants issued in connection
      with the debt amounted to $84,320. Accordingly, $468,640 was recognized as
      a
      discount of the convertible debt and an addition to paid-in capital. At
      September 3 0,
      2006,
      $232,399 of the
      discount has been amortized.





On
      January 20, 2006, the Company issued a second 8 % secured convertible debenture
      note for $550,000 to holder of the previous convertible debenture. The note
      has
      a maturity of one and one-half years and contains a conversion feature into
      common stock at $0.50 per share. The note also provides for a five-year warrant
      for 366,667 shares of common stock at $0.60 per share and is also collateralized
      by the 2,160,000 shares of the US Canadian common stock that the Company owns.





The
      intrinsic value of the beneficial conversion feature of the note was $267,857
      and the portion of the proceeds allocated to the warrants issued in connection
      with the debt amounted to $282,143. Accordingly, $550,000 was recognized as
      a
      discount of the convertible debt and an addition to paid-in capital. In
      September 2006, the debenture holder exercised their option to convert the
      debenture into 1,100,000 of the Company’s common stock and the discount was
      fully amortized at the time of conversion.




NOTE
      7 -
      LONG-TERM NOTE PAYABLE




On
      March
      30, 2005, the Company issued a 10% secured convertible debenture note for
      $300,000 to a stockholder of the Company. The note has a maturity of two and
      one-half years and contains a conversion feature into common stock at $0.60
      per
      share. The note also provided for a five-year warrant to be issued for the
      purchase of common stock at an exercise price of $0.75. The note was
      collateralized by 1,000,000 shares of the U.S. Canadian common stock that the
      Company owned.




The
      intrinsic value of the beneficial conversion feature of the note was $61,724
      and
      the portion of the proceeds allocated to the warrants issued in connection
      with
      the debt amounted to $51,724. Accordingly, $113,448 was recognized as a discount
      of the convertible debt and an addition to paid-in capital. At September 30,
      2005, $22,690 of discount had been amortized and the balance of $90,758 was
      expensed upon the conversion of the note. On October 28, 2005, the note holder
      and Company agreed to roll the secured convertible debenture note principal
      into
      a private placement offering completed by the Company on October 28, 2005.
      The
      Company paid all accrued interest on such date to the note holder.




**NOTE
      8 - CONSULTING AGREEMENTS**




On
      October 19, 2004, the Company entered into an Investment Advisory Agreement
      with
      Blake Advisors, LLC (“Blake”) for certain financial and investment advisory
      services. The term of the agreement expired on October 31, 2005. Compensation
      under the agreement provided for (i) the payment of $175,000 in cash and (ii)
      a
      monthly fee of $5,000 from November 1, 2004 to October 1, 2005. Pursuant
      to the agreement, the Company granted a
      five-year warrant to the consultant for the purchase of 500,000 shares of the
      Company’s common stock at an exercise price of $0.85 per share, a
      cashless-exercise provision and piggyback registration rights. Subsequently,
      the
      warrant exercise price was reduced to $0.50 per share in consideration of Blake
      agreeing to remove the cashless exercise provision provided for in the original
      warrant. Under the terms of the Agreement, the Company became obligated and
      paid
      fees amounting to $175,000.




On
      November 4, 2004, the Company entered into an Exclusive Agency Agreement with
      Asia Finance Company, LLC (“AFC”) pursuant to which AFC was engaged to source
      buyers of iron ore for the Company in the Asian market. The Agreement appoints
      AFC as its exclusive representative for the solicitation and sale of iron ore
      buyers in Asia. As partial consideration for such services, the Company issued
      1,536,859 shares of restricted common stock to AFC and monetary consideration
      of
      $100,000. At June 30, 2005, the Company has expensed this amount.




F-21




On
      August
      22, 2005, the Company entered into a formal agreement with Clyde L. Smith,
      PhD.,
      P. Eng. as consulting geologist to the El Capitan Project. The agreement
      provides for Smith to continue acting as the Company’s consulting geologist at
      his regular compensation rate and to receive a success fee of $250,000 for
      the
      successful sale of the Project. The agreement was amended on October 25, 2005,
      to provide Smith with an option for the purchase of 150,000 shares of our common
      stock at $0.65 per share, the market price on the date of grant. The option
      was
      granted under provisions of the Company’s 2005 Stock Incentive Plan and the
      option expires on October 25, 2006. At September 30, 2006, all options had
      been
      exercised.




On
      September 27, 2005, the Company entered into an agreement with Pavlich
      Associates (“Pavlich”) which provides for Pavlich to be the primary
      representative of the Company in the sale of the El Capitan property to all
      viable third party mineral companies. The agreement provides for consulting
      time
      charges, expenses and a success fee based upon the sales price of the El Capitan
      property. This agreement has been superseded in its entirety by a similar
      agreement entered into by the Company, Minerals and Pavlich dated June 21,
      2006,
      pursuant to which Minerals became a party. Under the new agreement, Pavlich
      is
      entitled to a success fee of one quarter of one percent (0.25%) of the sales
      price of the property, with a minimum payment of $250,000 and a maximum payment
      of $3,000,000. Additionally, Pavlich is entitled to a consulting fee of $125
      per
      hour for time consulting with the Company and reimbursement of incurred
      expenses.





See
      NOTE
      5 for a description of the consulting agreement with a related
      party.




Upon
      the
      recommendation of Clyde Smith, in February 2006, the Company engaged Earth
      Search Sciences, Inc. to conduct hyperspectral surveys on certain of the
      company’s properties for a cost of approximately $45,000. Charles Mottley, the
      Company’s CEO and a director, provides consulting services to Earth Search
      Sciences, Inc. and therefore abstained from the boards vote relating to the
      retention of Earth Search.




**NOTE
      9 - COMMITMENTS AND CONTINGENCIES**




On
      October 19, 2004, the Company entered into an Investment Advisory Agreement
      with
      Blake for certain financial and investment advisory services. The term of the
      agreement expired on October 31, 2005. Compensation under the agreement provided
      for (i) the payment of $175,000 in cash and (ii) a monthly fee of $5,000 from
      November 1, 2004 to October 1, 2005. Pursuant
      to the agreement, the Company granted a
      five-year warrant to the consultant for the purchase of 500,000 shares of the
      Company’s common stock at an exercise price of $0.85 per share, a
      cashless-exercise provision and piggyback registration rights. Subsequently,
      the
      warrant exercise price was reduced to $0.50 per share for Blake agreeing to
      remove the cashless exercise provision provided for in the original warrant.
      Under the terms of the agreement, the Company became obligated and paid fees
      amounting to $175,000.




The
      Company signed a lease for office space in Scottsdale, Arizona, effective
      November 1, 2004. The lease has a two-year term and requires monthly payments
      of
      $3,845 plus taxes and tenant charges. For the year ended September 30, 2006
      and
      2006, rent expense was $48,513 and $34,118, respectively. The Company renewed
      the lease in October 2006 for an additional two year term and remaining
      commitments under this lease for our year ended September 30, 2007, 2008 and
      2009 is $40,338, $50,442 and $4,217, respectively.





On
      August
      22, 2005, the Company entered into a formal agreement with Clyde L. Smith,
      PhD.,
      P. Eng., as consulting geologist to the El Capitan Project. The agreement
      provides for Smith to continue acting as the Company’s consulting geologist at
      his regular compensation rate and to receive a success fee of $250,000 for
      the
      successful sale of the Project. The agreement was amended on October 25, 2005,
      to provide Smith with an option for the purchase of 150,000 shares of our common
      stock at $0.65 per share, the market price on the date of grant **.** The
      option was granted under provisions of the Company’s 2005 Stock Incentive Plan
      and the option expires on October 25, 2006. At September 30, 2006, all options
      had been exercised.


F-22





On
      September 27, 2005, the Company entered into an agreement with Pavlich which
      provides for Pavlich to be the primary representative of the Company in the
      sale
      of the El Capitan property to all viable third party mineral companies. The
      agreement provides for consulting time charges, expenses and a success fee
      based
      upon the sales price of the El Capitan property. This agreement has been
      superseded in its entirety by a similar agreement entered into by the Company,
      Minerals and Pavlich dated June 21, 2006. This new agreement incorporated
      Minerals as a party. Under the new agreement, Pavlich is entitled to a success
      fee of one quarter of one percent (0.25%) of the sales price of the property,
      with a minimum payment of $250,000 and a maximum payment of $3,000,000.
      Additionally, Pavlich is entitled to a consulting fee of $125 per hour for
      time
      consulting with the Company and reimbursement of incurred expenses.





**NOTE
      10 - INCOME TAXES**


The
        Company has incurred no current income taxes during the period from July
        26,
        2002 (inception) through September 30, 2006. At September 30, 2006 and 2005,
        the
        Company has Federal and state operating loss carry forwards approximating
        $8,993,000 and $6,142,000, respectively, to reduce future taxable income,
        if
        any, and expires at various dates in 2022 through 2026. The calculated tax
        benefit at September 30, 2006 and 2005 is based on a Federal statutory income
        tax rate of 34%. The difference between the expected tax benefit and
        non-recognition of a tax benefit during the periods is the result of a valuation
        allowance applied to the net deferred tax asset, which consists of the Company’s
        net operating loss carry forwards. A valuation allowance has been provided
        to
        reduce the net deferred tax asset, as realization of the asset is not
        assured.
  Year
                  Ended September 30,2006
              
              2005Computed
                  expected tax benefit
              
              $
              1,121,000
              
              $
              1,297,000Valuation
                  allowance
              
              
              (1,121,000
              )
              
              (1,297,000
              )Net
                  deferred tax asset generated
              
              $
              --
              
              $
              --
 
 The
        Company has a deferred tax liability of $80,000 at September 30, 2006, related
        to the book and tax basis differences for debt due to the debt discount
        associated with the warrants and beneficial conversion feature. There is
        a total
        deferred tax asset of $3,563,000 at September 30, 2006, primarily related
        to net
        operating loss carry-forwards.




**NOTE
      11 - ADOPTION OF 2005 STOCK INCENTIVE PLAN**





On
      June
      2, 2005, the Board of Directors adopted the Company’s 2005 Stock Incentive Plan
      which reserves 5,000,000 shares for issuance under the Plan out of the
      authorized and unissued shares of par value $0.001 common stock of the Company.
      On July 8, 2005, the Board of Directors authorized the Company to take the
      steps
      necessary to register the Plan shares under a registration statement on Form
      S-8. On July 19, 2005, the Form S-8 was filed with the SEC.





**NOTE
      12 - STOCKHOLDER’S DEFICIT**




**Changes
      to the Company’s Capital Structure**





On
      December 28, 2004, the Company’s Board of Directors authorized an additional
      increase in the number of shares authorized for issuance by the Company from
      100,000,000 to 300,000,000. The Company’s majority shareholder approved the
      change by written consent on March 11, 2005, and a Certificate of Amendment
      to
      the Articles of Incorporation was filed with the State of Nevada on April 7,
      2005, to effect the amendment .




**Issuances
      of Common Stock, Warrants and Options**





***Common
      Stock***





On
      October 4, 2004, the Company issued 200,000 shares of restricted common stock
      for stock subscriptions received on September 28, 2004.





On
      October 4, 2004, the Company issued 20,000 shares of S-8 common stock in
      settlement of $16,381 of accounts payable.


F-23





On
      October 4, 2004, the Company issued 100,000 shares of S-8 common stock to two
      consultants for consulting fees amounting to $65,000.





On
      October 19, 2004, the Company granted a five-year warrant for the purchase
      of
      500,000 shares of common stock at an exercise price of $0.85 per share for
      professional services rendered to the Company.





On
      October 20, 2004, the Company issued 6,500 shares of S-8 common stock to a
      consultant for consulting fees amounting to $5,135.





On
      November 4, 2004, the Company issued 1,536,859 restricted common shares under
      the terms and conditions on an Exclusive Agency Agreement with an aggregate
      value of $922,115.





In
      November and December 2004 the Company issued 2,160,000 restricted common shares
      to accredited investors pursuant to a private placement of securities under
      Section 4(2) and Rule 506 promulgated under the Securities Act, in an aggregate
      amount of $1,080,000. The placement also provided with each share of common
      stock a three-year warrant to purchase one share of common stock at an exercise
      price of $.75 per share. The warrants are callable under certain circumstances.
      The Company has agreed to file a registration statement covering the sale or
      the
      shares of common stock and the common stock issuable upon exercise of the of
      the
      warrants within ninety (90) days of the final sale under the placement and
      to
      use commercially reasonable efforts to cause such registration Statement to
      be
      declared effective by the SEC and to keep the registration statement effective
      for one year following the effective date.





On
      December 3, 2004, the Company issued 25,000 shares of restricted common stock
      in
      settlement of $15,000 of accounts payable.





On
      January 10 and 14, 2005, the Company issued an aggregate of 265,000 restricted
      common shares to accredited investors in the aggregate amount of $132,500
      pursuant to the placement offering commenced in November 2004, together with
      three year warrants for the purchase of an additional 265,000 shares of common
      stock at an exercise price of $0.75 per share.





On
      January 25, 2005, the Company granted a five-year warrant for the purchase
      of
      100,000 shares of common stock at an exercise price of $0.60 per share for
      professional services rendered to the Company.





On
      February 8, 2005, the Company issued 432,701 shares of restricted common stock
      at $0.40 per share for the conversion short-term notes payable of $153,426
      and
      accrued interest of $19,654.





On
      March
      16, 2005, the Company issued 200,000 restricted common shares to an accredited
      investor in a private placement of securities in the aggregate amount of
      $100,000 pursuant to the placement, together with a three-year warrant to
      purchase an additional 200,000 shares of common stock at an exercise price
      of
      $0.75 per share.





On
      March
      30, 2005, the Company issued a 10 % secured convertible debenture note for
      $300,000 to a shareholder of the Company. The convertible debenture also
      provided a warrant for the purchase of 250,000 shares of common stock at $0.75
      per share. See Note 7.





During
      the period May 24, 2005 through June 30, 2005, the Company issued 880,000
      restricted common shares to accredited investors pursuant to a private placement
      of securities under Section 4(2) and Rule 506 promulgated under the Securities
      Act, in an aggregate amount of $352,000. The placement also provided with each
      share of common stock a three-year warrant to purchase one share of common
      stock
      at an exercise price of $.50 per share. The warrants are callable under certain
      circumstances. The Company has agreed to file a registration statement covering
      the sale or the shares of common stock and the common stock issuable upon
      exercise of the of the warrants within ninety (90) days of the final sale under
      the placement and to use commercially reasonable efforts to cause such
      registration statement to be declared effective by the SEC and to keep the
      registration statement effective for one year following the effective
      date.


F-24





During
      the period July 7, 2005 through July 29, 2005, the Company issued 360,000
      restricted common shares to accredited investors pursuant to a private placement
      of securities under Section 4(2) and Rule 506 promulgated under the Securities
      Act, in an aggregate amount of $144,000. The placement also provided with each
      share of common stock a three-year warrant to purchase one share of common
      stock
      at an exercise price of $.50 per share. The warrants are callable under certain
      circumstances. The Company has agreed to file a registration statement covering
      the sale or the shares of common stock and the common stock issuable upon
      exercise of the of the warrants within ninety (90) days of the final sale under
      the placement and to use commercially reasonable efforts to cause such
      registration statement to be declared effective by the SEC and to keep the
      registration statement effective for one year following the effective
      date.





On
      August
      3, 2005, the Company issued 8,772 shares of its S-8 Common Stock pursuant to
      its
      2005 Stock Incentive Plan in consideration of consulting services to a Director
      of the Company aggregating $5,000.


On
      August
      15, 2005, the Company issued 544,291 shares of its S-8 Common Stock pursuant
      to
      its 2005 Stock Incentive Plan in consideration of unpaid compensation
      aggregating $208,250 to the CEO and four consultants, three of which are
      officers and/or directors of the Company.





On
      October 3, 2005, the Company issued 146,270 shares of its S-8 Common Stock
      pursuant to its 2005 Stock Incentive Plan in consideration of unpaid
      compensation aggregating $67,636 to the CEO and four consultants, three of
      which
      are officers and/or directors of the Company.




On
      October 3, 2005, the Company issued 200,000 shares of its S-8 Common Stock
      pursuant to its 2005 Stock Incentive Plan in consideration of consulting
      services aggregating $82,000.




On
      October 27, 2005, the Company issued 106,461 shares of its S-8 Common Stock
      pursuant to its 2005 Stock Incentive Plan in consideration of unpaid
      compensation aggregating $44,500 to the CEO and four consultants, three of
      which
      are officers and/or directors of the Company.




On
      October 28, 2005, the Company issued 750,000 shares of restricted common stock
      at $0.40 per share for the conversion of a convertible note payable of $300,000,
      pursuant to a private placement of securities, together with a three-year
      warrant to purchase an additional 750,000 shares of common stock at an exercise
      price of $0.50 per share.




On
      October 28, 2005, in conjunction with the convertible debenture (see NOTE 7),
      the Company issued a five-year warrant for 500,000 shares of common stock at
      $0.60 per share and issued to an individual a three-year warrant for 225,000
      shares of common stock at $0.60 per share as a finder’s fee.




On
      October 30, 2005, the Company issued 1,603,333 restricted common shares to
      accredited investors pursuant to a private placement of securities under Section
      4(2) and Rule 506 promulgated under the Securities Act, in an aggregate amount
      of $641,333. The
      placement also provided with each share of common stock a three-year warrant
      to
      purchase one share of common stock at an exercise price of $.50 per share.
      The
      warrants are callable under certain circumstances. The
      Company has filed a registration statement covering the sale of the shares
      of
      common stock and the common stock issuable upon exercise of the of the
      warrants.




On
      December 19, 2005, the Company issued 50,000 shares of common stock in
      consideration of consulting services aggregating $80,000, the market on the
      date
      of issuance.




During
      the quarter ending December 31, 2005, the Company issued 50,000 shares of common
      stock for $32,500 to a consultant for the exercise of options at $0.65 per
      share.




On
      January 16, 2006, the Company issued 112,181 shares of common stock to employees
      at market value on the date of the transaction as compensation in an amount
      aggregating $175,000.


F-25




On
      January 17, 2006, the Company issued 274,726 shares of restricted
      common stock for
      the
      conversion of two 12% notes payable aggregating a principal balance of $300,000.
      The Company recorded a cost of conversion on the transaction in the amount
      of
      $128,572.




During
      the quarter ending March 31, 2006, the Company issued 60,000 shares of
      restricted common stock to two entities for consulting services in the aggregate
      amount of $113,000.




During
      the quarter ending March 31, 2006, the Company issued 50,000 shares of
      restricted common stock for $25,000 to a shareholder on the exercise of a
      warrant at $0.50 per share.




During
      the quarter ending March 31, 2006, the Company issued 60,000 shares of common
      stock for $39,000 to a consultant for the exercise of options at $0.65 per
      share.




On
      March
      23, 2006, the Company issued 36,325 shares of restricted common stock in
      reference to two shareholders exercising cashless warrant provisions aggregating
      65,000 shares.




On
      March
      24, 2006, the Board of Directors granted 523,000 two-year options to the current
      employees and directors with an exercise price of $1.99 per share.




On
      April
      6, 2006, the Company issued 136,364 restricted common shares to accredited
      investor pursuant to a private placement of securities under Section 4(2) and
      Rule 506 promulgated under the Securities Act, in an aggregate amount of
      $300,000. The placement also provided with each share of common stock a
      three-year warrant to purchase one share of common stock at an exercise price
      of
      $2.20 per share. The warrants are callable under certain
      circumstances.




On
      June
      5, 2006, the Board of Directors granted 144,000 two-year options to a new
      director with an exercise price of $2.99 per share. On August 6, 2006, the
      director resigned and the two-year unvested options expired.




During
      the quarter ending June 30, 2006, the Company issued 40,000 shares of common
      stock for $26,000 to a consultant for the exercise of options at $0.65 per
      share.




During
      the quarter ending June 30, 2006, the Company issued 50,000 shares of common
      stock for $28,000 to a former director of the Company for the exercise of
      options at $0.56 per share.




On
      August
      16, 2006, the Company issued 150,000 shares of restricted common stock for
      $75,000 to a shareholder on the exercise of a warrant at $0.50 per
      share.




During
      the quarter ended September 30, 2006, the Company issued 1,100,000 shares of
      common stock at $0.50 per share pursuant to the terms of conversion of a
      convertible note payable of $550,000.




During
      the quarter ended September 30, 2006, the Company issued 450,000 restricted
      common shares to accredited investors pursuant to a private placement of
      securities under Section 4(2) and Rule 506 promulgated under the Securities
      Act,
      in an aggregate amount of $225,000.




During
      September 30, 2006, the Company issued 62,500 shares of common stock for
      $31,250, to shareholders on the exercise of warrants at $0.50 per share. The
      warrant conversions, pursuant to a Written Action of the Board of Directors
      on
      September 29, 2006, also provided for each share of common stock issued under
      the warrant conversion, a two-year warrant to purchase one share of common
      stock
      at an exercise price of $1.37 per share. The warrants are callable under certain
      circumstances.




The
      Company filed a Registration Statement on Form SB-2 in January 2006 and became
      effective on September 20, 2006.




F-26


***Warrants***




The
      following table summarizes the warrant activity for the years ended September
      30, 2006 and 2005:





Warrants
                Outstanding
            
            Warrants
                ExercisableNumber
                of Shares
            
            Weighted
                Average Exercise Price
            
            Number
                of Shares
            
            Weighted
                Average Exercise PriceBalance,
                September 30, 2004
            
            
            3,300,000
            
            $
            0.28
            
            
            3,300,000
            
            $
            0.28Granted
            
            
            4,715,000
            
            $
            0.57
            
            
            4,715,000
            
            $
            0.57Exercised
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —Expired
            
            
            (3,000,000
            )
            $
            0.14
            
            
            (3,000,000
            )
            $
            0.14Balance,
                September 30, 2005
            
            
            5,015,000
            
            $
            0.64
            
            
            5,015,000
            
            $
            0.64Granted
            
            
            3,643,864
            
            $
            0.61
            
            
            3,643,864
            
            $
            0.60Exercised
            
            
            (327,500
            )
            $
            0.55
            
            
            (327,500
            )
            $
            0.55Expired
            
            
            (550,000
            )
            $
            1.25
            
            
            (550,000
            )
            $
            1.25Balance,
                September 30, 2006
            
            
            7,781,364
            
            $
            0.55
            
            
            7,781,364
            
            $
            0.55


The
      following table summarizes information for warrants outstanding and exercisable
      at September 30, 2006:


Warrants
                  Outstanding
              
              Warrants
                  ExercisableWeighted
                  Average
              
              Weighted
                  AverageRange
                  of Prices
              
              Number
              
              Remaining
                  Life
              
              Exercise
                  Price
              
              Number
              
              Remaining
                  Life
              
              Exercise
                  Price$
              0.50
              
              
              6,440,833
              
              
              .2.0
              
              $
              0.50
              
              
              6,440,833
              
              
              2.0
              
              $
              0.50$
              0.60
              
              
              1,091,667
              
              
              4.2
              
              $
              0.60
              
              
              1,091,667
              
              
              4.2
              
              $
              0.60$
              0.75
              
              
              50,000
              
              
              1.2
              
              $
              0.75
              
              
              50,000
              
              
              1.2
              
              $
              0.75$
              1.37
              
              
              62,500
              
              
              2.0
              
              $
              1.37
              
              
              62,500
              
              
              2.0
              
              $
              1.37$
              2.20
              
              
              136,364
              
              
              2.6
              
              $
              2.20
              
              
              136,364
              
              
              2.6
              
              $
              2.207,781,364
              
              
              2.4
              
              $
              0.55
              
              
              7,781,364
              
              
              2.4
              
              $
              0.55


At
      September 30, 2006, the Company had 5,487,197 warrants outstanding having a
      right to call feature by. These warrants are callable at the Company’s option if
      (i) the closing sales price of the Company’s common stock is at or above $1.25 -
      $3.50 per share (subject to adjustment as appropriate for stock splits, stock
      dividends, stock combinations, etc.) for a period of ten or twenty consecutive
      days and (ii) the shares of common stock issuable upon exercise of the warrants
      are covered under an effective registration statement. In such an event, the
      Company must provide thirty days written notice. At September 30, 2006,
      5,288,333 warrants were callable. In the event the warrant holder does not
      exercise does not exercise the warrant within such thirty-day time period,
      the
      warrants are redeemed by the Company at the price per warrant share of
      $.001.




In
      July
      2005, the Board of Directors approved a motion to offer shareholders holding
      warrants with a cashless conversion provision at prices ranging from $0.60
      to
      $0.85 per share, to replace the warrant with a warrant without a cashless
      provision at $0.50 per share. Warrants with the cashless provision provided
      for
      the purchase of 3,225,000 shares, of which, warrants aggregating 3,110,000
      converted to the warrants without the cashless provision.




***Options***




On
      July
      21, 2005, the Board of Directors, on a recommendation from the Compensation
      Committee, approved an initial grant of options to all officers, directors
      and
      employees as follows:




OptionsCEO
            
            
            300,000Employees/Directors
            
            
            200,000CFO
            
            
            150,000Outside
                Directors
            
            
            100,000Managers
            
            
            100,000


F-27





Total
      options granted under this approval were 1,150,000. The option price was set
      as
      the closing market price of $0.56 on July 21, 2005. Each initial option grant
      has a term of ten (10) years and becomes exercisable in two equal installments
      commencing January 1, 2006, and January 1, 2007.




Effective
      October 25, 2005, the Board of Directors approved an amendment expanding the
      duties of Dr. Clyde Smith and granted him a twelve month option to purchase
      150,000 shares of common stock of the Company at an exercise price of $0.65
      per
      share. On March 24, 2006, the Board of Directors granted 523,000 two-year
      options to the current employees and directors with an exercise price of $1.99
      per share. On June 5, 2006, the Board of Directors granted 144,000 two-year
      options with an exercise price of $2.99 per share to a new director and
      cancelled 94,000 options to a former director. In August 2006, the new director
      resigned and the unvested options were cancelled.




The
      following table summarizes the option activity for the years ended September
      30,
      2006 and 2005:




Options
                Outstanding
            
            Options
                ExercisableNumber
                of Shares
            
            Weighted
                Average Exercise Price
            
            Number
                of Shares
            
            Weighted
                Average Exercise PriceBalance,
                September 30, 2004
            
            
            —
            
            $
            -
            
            
            —
            
            $
            -Granted
            
            
            1,150,000
            
            $
            0.56
            
            
            —
            
            $
            -Exercised
            
            
            —
            
            $
            -
            
            
            —
            
            $
            -Balance,
                September 30, 2005
            
            
            1,150,000
            
            $
            0.56
            
            
            —
            
            $
            -Vested
            
            
            —
            
            $
            -
            
            
            575,000
            
            $
            0.56Granted
            
            
            817,000
            
            $
            1.92
            
            
            673,000
            
            $
            1.69Exercised
            
            
            200,000
            
            $
            0.63
            
            
            200,000
            
            $
            0.63Expired
            
            
            238,000
            
            $
            2.29
            
            
            —
            
            $
            -Balance,
                September 30, 2006
            
            
            1,529,000
            
            $
            1.01
            
            
            1,048,000
            
            $
            1.27


The
      weighted average fair value of options granted in the year ended September
      30,
      2006 was $1.92.





The
      Company has a stock incentive plan under which 5,000,000 shares are reserved
      for
      stock and option grants. There were 1,953,025 shares available for grant under
      the Plan at September 30, 2006.





**NOTE
      13 - SUBSEQUENT EVENTS**





In
      October 2006, the Company issued
      50,000 restricted common shares to an accredited investor pursuant to a private
      placement of securities under Section 4(2) and Rule 506 promulgated under the
      Securities Act, in an aggregate amount of $25,000.




During
      the period from October 1, 2006 and December 31, 2006, the Company issued
      1,712,500 shares of common stock to shareholders upon the exercise of warrants
      at $0.50 per share for cash aggregating $856,250. Additionally, as an inducement
      to exercise these warrants, the participating warrantholders were issued a
      two-year warrant to purchase one share of common stock at an exercise price
      of
      $1.37 per share for each warrant exercised. The warrants are callable under
      certain circumstances.




On
      October 5, 2006, the Board of Directors approved an agreement with Blake for
      investment advisory services for the period of October 5, 2006, through January
      5, 2007. Under the terms of the contract, Blake is to be paid $50,000 and 50,000
      two year warrants with at an exercise price of $1.31. The warrants do not have
      registration rights or call rights.


F-28





In
      November 2006, the Company issued 600,000 shares of common stock at $0.50 per
      share for the partial conversion of a secured convertible note payable in the
      amount of $300,000. The conversion was made pursuant to the terms of conversion
      of a convertible note payable for $750,000.




On
      November 13, 2006, Mr. Ken Pavlich was appointed to the Company’s Board of
      Directors and was granted 100,000 options under the 2005 Company’s Stock
      Incentive Plan at an exercise price of $0.83, the closing price on the date
      of
      grant. Fifty percent of the options will vest on January 1, 2007, and the
      remaining will vest on July 1, 2007.





On
      December 8, 2006, Mr. Bruce Snyder was appointed to the Company’s Board of
      Directors and was granted 100,000 options under the 2005 Company’s Stock
      Incentive Plan at an exercise price of $1.20, the closing price on the date
      of
      grant. Fifty percent of the options will vest on January 1, 2007, and the
      remaining will vest on July 1, 2007.




F-29




**ITEM
              **8.****
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**




On
      November 25, 2005, our Board of Directors approved the dismissal of Hein &
Associates LLP as our independent registered public accounting firm. This
      decision was precipitated by the future closing of the Hein & Associates LLP
      Phoenix, Arizona based office.




Hein
      and
      Associates LLP report on our financial statements for the fiscal year ended
      September 30, 2004 and the subsequent interim periods contained no adverse
      opinion nor a disclaimer of opinion and were not modified as to uncertainty,
      audit scope or accounting principles. However, for the year ended September
      30,
      2004, Hein & Associates LLP included a going concern qualification in our
      audited financial statements.




We
      had no
      disagreements with Hein & Associates LLP in connection with its audit for
      the most recent fiscal year, and for interim periods subsequent to September
      30,
      2004 through the date of dismissal on November 25, 2005 on any matter of
      accounting principles or practices, financial statement disclosure, or auditing
      scope or procedure, which disagreements, if not resolved to the satisfaction
      of
      Hein & Associates LLP, would have caused it to make reference to the subject
      matter of the disagreements in connection with its reports.




We
      made
      the contents of our Current Report on Form 8-K filing dated November 25, 2005
      available to Hein Associates LLP and requested it to furnish a letter to the
      Securities and Exchange Commission as to whether Hein & Associates agreed
      with or wished to clarify our expression of their views. A copy of Hein &
Associates LLP letter to the SEC dated November 30, 2005 is included as Exhibit
      16.1 to the Form 8-K.




On
      November 25, 2005, our Board of Directors approved the engagement of Epstein
      Weber & Conover PLC (“EWC)” as our independent registered public accounting
      firm. We did not consult with EWC prior to our engagement regarding the
      application of any accounting principles or any type of audit opinion that
      might
      be rendered by it.




**ITEM
      8A.**  **CONTROLS
      AND PROCEDURES**




We
      maintain “disclosure controls and procedures” (as defined in Rules 13a-15(e) and
      15d-15(e) under the Securities and Exchange Act of 1934, as amended (the
“Exchange Act”)) that are designed to ensure that information required to be
      disclosed by us in the reports that we file or submit under the Exchange Act
      is
      recorded, processed, summarized and reported, within the time periods specified
      in the Securities and Exchange Commission’s rules and forms, and is accumulated
      and communicated to our management as appropriate to allow timely decisions
      regarding required disclosure. Under the supervision of, and the participation
      of, our management, including our Chief Executive Officer and Chief Financial
      Officer, we have conducted an evaluation of our disclosure controls and
      procedures as of September 30, 2006. Based on this evaluation, our Chief
      Executive Officer and Chief Financial Officer have concluded that our disclosure
      controls and procedures are effective.




During
      the quarter ended September 30, 2006, there were no changes in the Company’s
      internal controls over financial reporting that have materially affected, or
      are
      reasonably likely to materially affect, our internal controls over financial
      reporting.




20




**PART
      III**




**ITEM
              9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION
                16(A) OF THE EXCHANGE ACT.**




**Identification
      of Directors and Executive Officers**





The
      following table sets forth the name, age, position and office term of each
      executive officer and director of the Company.





NAME
            
            AGE
            
            POSITION
            
            SINCECharles
                C. Mottley
            
            72
            
            President
                and Director
            
            July
                2002James
                Ricketts
            
            68
            
            Director
                and Secretary
            
            July
                2004Stephen
                J. Antol
            
            63
            
            Chief
                Financial Officer and Treasurer
            
            November
                2004L.
                Ronald Perkins
            
            61
            
            Director
                and Vice President of Administration, Marketing and
                Communication
            
            January
                2005R.
                William Wilson
            
            49
            
            Director
            
            February
                2005Kenneth
                P. Pavlich
            
            52
            
            Director
            
            November
                2006Bruce
                F. Snyder
            
            66
            
            Director
            
            December
                2006




CHARLES
      C. MOTTLEY .
      Mr.
      Mottley has been President and a Director of El Capitan Precious Metals, Inc.
      since July 2002. Mr. Mottley also served as Chairman and Chief Executive Officer
      of Gold and Minerals Co., Inc., our largest stockholder, from 1978 until July
      2004, at which time he resigned those positions. Mr. Mottley has been employed
      in the mining industry in various capacities from equipment sales and services
      to active mining operations for over 35 years. Mr. Mottley is the author of
      five
      books, is the founder of the Fatherhood Foundation in Scottsdale, Arizona,
      and
      is on the board of directors of Mirror Ministries in the same community. Mr.
      Mottley received a Bachelor of Arts Degree from Hampden Sydney College in
      1958.




JAMES
      RICKETTS. Mr.
      Ricketts has been our Secretary and a Director of our Company since July 2004.
      Mr. Ricketts has been self-employed in the area of Real Estate Development
      since
      2000. From 1994 to 2000, he served as the Chief Executive Officer of Technology
      Systems International, Inc. From 1983 to 1985, Mr. Ricketts served as a Director
      of the Arizona Department of Corrections in Phoenix, Arizona. From 1979 to
      1983,
      he served as the Executive Director of the Colorado Department of Corrections
      in
      Colorado Springs, Colorado. From 1985 to the present, Mr. Ricketts has been
      a
      Correctional Consultant, providing services on a consulting basis in the areas
      of safety and security in the prison system. Mr. Ricketts received a Ph. D.
      from
      the Ohio State University in 1971, and a M. Ed. from Bowling Green State
      University in 1963.




STEPHEN
      J. ANTOL. Mr.
      Antol has been our Chief Financial Officer since November 2004. From Late 1992
      through November 2004, Mr. Antol rendered services as a consultant chief
      financial officer for a number of small and medium size businesses requiring
      technical expertise on a limited or recurring basis. From 1990 to 1992, Mr.
      Antol served as Chief Financial Officer of Lou Register Furniture, a fine
      furniture retailer located in Phoenix, Arizona. From 1987 to 1989, Mr. Antol
      served as Director of Finance for F.S. Inc. (dba Audio Express and Country
      House
      Furniture), a retailer of furniture and stereo equipment in four southwestern
      states. From 1975 to 1987, Mr. Antol worked for Giant Industries, Inc., an
      independent refiner and marketer of petroleum products, in such capacities
      as
      Corporate Controller and Corporate Treasurer. Mr. Antol received a Bachelor
      of
      Arts degree from Michigan State University in 1968, and became a licensed
      Certified Public Accountant in 1970. He no longer practices as a licensed
      CPA.




L.
      RONALD
      PERKINS. Mr.
      Perkins has served as a director of the Company since February 2005, and has
      been the Company’s Vice-President in charge of Administration, Marketing and
      Communication since January 2005. From 2002 to 2005, Mr. Perkins was retired.
      Prior to his retirement, from 1989 to 2002, Mr. Perkins served as President
      and
      Chief Executive Officer of Pebble Technology, Inc., an Arizona company, which
      marketed a product used to coat the interior of swimming pools. Mr. Perkins
      received his Bachelors of Arts degree in Business Administration and Management
      from the University of Arizona in 1967, and his MBA from the University of
      Southern California in 1972.




21




R.
      WILLIAM WILSON. Mr.
      Wilson has been a director of our Company since February 2005. Since 2003,
      Mr.
      Wilson has been a principal in Two Dragons Group, LLC, a marketing and business
      development firm engaging in private equity and merger and acquisition
      transactions. From 1999 to 2002, Mr. Wilson served as Chief Financial Officer
      of
      Pebble Technology, Inc., and from 2002 to 2003, served as its Chief Executive
      Officer. Prior to that, Mr. Wilson served as an Executive Director and
      co-founder of Drexel Oceania, LLC. Mr. Wilson received his Bachelor or Science
      degree in Business Administration and Finance from the University of San
      Francisco in 1979.




KENNETH
      P. PAVLICH. Mr. Pavlich has been a director of our Company since November 2006.
      Since 2002, Mr. Pavlich has been the founding and principal officer of Pavlich
      Associates, which provides consulting services to precious metal, base metal
      and
      industrial mineral companies, including the Company. Prior to that time and
      since 1997, Mr. Pavlich held various senior management positions (including
      his
      most recent position as V.P. of Operations) with Oglebay Norton Company. Mr.
      Pavlich has a Masters Degree in Management and Administrative Science - Finance
      Concentration from the University of Texas and a Bachelor of Science Degree
      in
      Mining Engineering (Summa Cum Laude) from the University of Idaho.




BRUCE
      F.
      SNYDER. Mr. Snyder has been a director of our Company since December 2006.
      Since
      January 2005, Mr. Snyder has been a self-employed motivational speaker and
      organizational analyst. From January 2003 to 2005, Mr. Snyder was Offensive
      Coordinator with the University of Nevada - Las Vegas. From 2001 to 2002, Mr.
      Snyder was a Color Analyst with ESPN Radio. Prior to that and during 2001,
      Mr.
      Snyder was a Color Analyst with Pacific West Radio. Mr. Snyder has a Bachelors
      Degree in Mathematics Education from the University of Oregon.




**Significant
      Employees**




Not
      applicable.




**Family
      Relationships**




None.




**Involvement
      in Certain Legal Proceedings**




Not
      applicable.




**Audit
      Committee Financial Expert**




On
      March
      9, 2005, we established an audit committee, currently consisting of one Board
      member, Mr. R. William Wilson. The Board of Directors has determined that Mr.
      Wilson is an “audit committee financial expert” as that term is defined in Item
      401(e) (2) of Regulation S-B promulgated under the Securities Exchange Act
      of
      1934, as amended (the “Exchange Act”). Additionally, Mr. Wilson qualifies as an
“independent director” as that term is defined in Section 4200(a)(15) of
      National Association of Securities Dealers’ listing standards or under the
      criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange
      Act.
      At a meeting of the Board of Directors on September 5, 2006, the Board adopted
      the Audit Committee Charter as presented by the Audit Committee
      chairman.




**Compensation
      Committee**





At
      September 30, 2006, Mr. R. William Wilson acts as Chairman of this committee.
      Subsequent to our year end, in December 2006, Mr. Bruce Snyder was named the
      Chairman of the Compensation Committee.




22




At
      a
      meeting of the Board of Directors on September 5, 2006, the Board adopted the
      Compensation Committee Charter as presented by the Compensation Committee
      Chairman. The Compensation Committee is responsible for evaluation and
      recommending the compensation of our executive officers and members of the
      Board.




**Code
      of Ethics**





We
      have
      adopted a Code of Ethics for our financial management staff. The Code of Ethics
      was filed as Exhibit 99.1 to our Annual Report on Form 10-KSB for the year
      ended
      September 30, 2003. A copy of the Code of Ethics will be provided, without
      charge, to any person requesting it in writing, addressed to the attention
      of
      the Corporate Secretary, El Capitan Precious Metals, Inc., 14301 North 87th
      Street, Suite 216, Scottsdale, Arizona 85260.





**Compliance
      with Section 16(a) of the Exchange Act**





Section
      16(a) of the Securities Exchange Act of 1934 requires executive officers and
      directors and persons who beneficially own more than 10% of our common stock
      to
      file initial reports of ownership and reports of changes in ownership with
      the
      Securities and Exchange Commission. Executive officers, directors and
      greater-than-10% beneficial owners are required by SEC regulations to furnish
      us
      with copies of all Section 16(a) reports they file. Based solely on a review
      of
      the copies of such forms furnished to us during our fiscal year ending September
      30, 2006 and written representations from the executive officers, directors
      and
      greater-than-10% beneficial owners of our common stock, the following table
      shows the transactions for Fiscal 2006 that were not in compliance.





NAME
                OF FILER:
            
            DESCRIPTION
                OF TRANSACTION:Stephen
                J. Antol
            
            Option
                granted on March 24, 2006 reported on April 5, 2006W.
                Pierce Carson
            
            Option
                granted on March 24, 2006 reported on April 6, 2006Gordon
                Ellis
            
            Initial
                filing on Form 3 (due on June 15, 2006) was filed one day late on
                June 16,
                2006Charles
                C. Mottley
            
            Option
                granted on March 24, 2006 and purchase on July 13, 2006, reported on
                July 26, 2006Kenneth
                P. Pavlich
            
            Option
                granted on November 13, 2006 reported on November 16,
                2006Ronald
                Perkins
            
            Option
                granted on March 24, 2006 reported on August 3, 2006James
                Ricketts
            
            Option
                granted on March 24, 2006 reported on April 5, 2006Bruce
                F. Snyder
            
            Option
                granted on December 8, 2006 reported on December 13,
                2006R.
                William Wilson
            
            Option
                granted on March 24, 2006 reported on April 5,
                2006




**ITEM
      10.**  **EXECUTIVE
      COMPENSATION**




**General**




In
      March
      2003, we executed a two-year employment agreement under which we issued 600,000
      shares of Common Stock to Mr. Charles C. Mottley, our President and a member
      of
      our Board of Directors, as incentive compensation for his service. We also
      agreed to a salary of $20,000 per month, effective January 1, 2003, which,
      at
      Mr. Mottley’s option, may be satisfied in shares of the Company’s Common Stock.
      The agreement also required us to issue 1,500,000 shares of our Common Stock
      to
      Mr. Mottley if the El Capital property was sold prior to March 18, 2005, and
      in
      the event such sale was for $150,000,000 or more, we would also be required
      to
      grant Mr. Mottley a five-year option to purchase up to 6,000,000 shares of
      Common Stock at an exercise price of $1.00 per share. On February 1, 2005,
      our
      Board of Directors extended through March 18, 2006 and amended the conditional
      option provision relating to the El Capitan property, pursuant to which we
      agreed to grant Mr. Mottley a five-year option to purchase 1,750,000 shares
      of
      our common stock at an exercise price of $.75 per share in the event of a sale
      of the property for consideration in excess of $150,000,000. The agreement
      expired on March 18, 2006, with no options issued under the
      agreement.




23




As
      of
      September 30, 2006, we and Mr. Mottley have not entered into a formal employment
      agreement. Currently, Mr. Mottley receives consideration of $12,000 per month
      in
      which he serves as our CEO and President. Effective June 1, 2005, the President
      has agreed to take accrued back compensation and monthly compensation for June
      through September 2005 in S-8 common stock.




Commencing
      in November 2004, we agreed to pay Stephen J. Antol a consulting fee of $10,000
      per month, on a month-to-month basis, in consideration of his services to us
      as
      chief financial officer, and as of January 2005, as our treasurer. At this
      time,
      we and Mr. Antol have not entered into a formal written agreement. Effective
      June 1, 2005, Mr. Antol has agreed to take accrued back compensation and monthly
      compensation for June through September 2005 in S-8 common stock. Effective
      January 1, 2006, Mr. Antol’s compensation for services was structured as salary
      instead of as a consulting fee.




Commencing
      September 1, 2004, Mr. James Ricketts, our Secretary, received a consulting
      fee
      of $10,000 per month in consideration of his services overseeing our iron ore
      business. There is not a formal agreement in place with Mr. Ricketts, and the
      arrangement is on a month-to-month basis. Mr. Ricketts does not receive
      compensation for his services as our Secretary. Effective June 1, 2005, Mr.
      Ricketts has agreed to take accrued back compensation and monthly compensation
      for June through September 2005 in S-8 common stock. Effective January 1, 2006,
      Mr. Ricketts’ compensation for services was structured as salary instead of as a
      consulting fee.




In
      January 2005, we agreed to pay L. Ronald Perkins a consulting fee of $10,000
      per
      month, on a month-to-month basis, in consideration of his services to us as
      Vice
      President in charge of Administration, Marketing and Communication. At this
      time, we and Mr. Perkins have not entered into a formal written agreement.
      Effective June 1, 2005, Mr. Perkins has agreed to take accrued back compensation
      and monthly compensation for June through September 2005 in S-8 common stock.
      Effective January 1, 2006, Mr. Perkins’ compensation for services was structured
      as salary instead of as a consulting fee.




**Summary
      Compensation Table**




The
      following table summarizes the total compensation for the last three years
      who
      served as our chief executive officer and other executive officers who were
      serving at the end of the last completed fiscal year:




**Annual
                      Compensation**
                  
                  
                  **Long-Term
                      Compensation**Name
                    and Principal Position
                  
                  
                  Year
                  
                  
                  Salary
                    ($)
                  
                  
                  Bonus
                    ($)
                  
                  
                  Other
                    Annual
                      Compensation ($)
                  
                  
                  Restricted
                    Stock
                    Awards
                    ($)
                  
                  
                  
                  Securities
                      Underlying Options
                    (#)
                  
                  
                  **All**
                    **Other
                      Compensation ($)**Charles
                      C. Mottley
                    *President/Chief*
                    *Executive
                      Officer/*
                    *Director*(1)
                  
                  
                  2006
                    2005
                    2004
                  
                  
                  144,000
                    105,000
                    240,000
                  
                  
                  -0-
                    -0-
                    -0-
                  
                  
                  -0-
                    -0-
                    -0-
                  
                  
                  50,000
                    74,000
                    -0-
                  
                  (2)
                    (3)
                  
                  130,000
                    300,000
                    -0-
                    -0-
                  
                  
                  -0-
                    -0-
                    -0-Stephen
                      J. Antol
                    *Chief
                      Financial*
                    *Officer/Treasurer*
                  
                  
                  2006
                    2005
                  
                  
                  90,000
                    -0-
                  
                  (4)
                  -0-
                    -0-
                  
                  
                  30,000
                    41,739
                  
                  (5)
                    (5)
                  35,000
                    70,636
                  
                  (6)
                    (7)
                  
                  87,000
                    150,000
                  
                  
                  -0-
                    -0-James
                      G. Ricketts
                    *Secretary/Director*
                  
                  
                  2006
                    2005
                  
                  
                  90,000
                    -0-
                  
                  (4)
                  -0-
                    -0-
                  
                  
                  30,000
                    50,000
                  
                  (5)
                    (5)
                  35,000
                    60,000
                  
                  (6)
                    (8)
                  
                  87,000
                    200,000
                  
                  
                  -0-
                    -0-L.
                      Ronald Perkins
                    *Vice
                      President/Director*
                  
                  
                  2006
                    2005
                  
                  
                  90,000
                    -0-
                  
                  (4)
                  -0-
                    -0-
                  
                  
                  30,000
                    23,250
                  
                  (5)
                    (5)
                  35,000
                    53,250
                  
                  (6)
                    (9)
                  
                  87,000
                    200,000
                  
                  
                  -0-
                    -0-




24


(1)
              Mr.
                  Mottley was named our President and Chief Executive Officer on
                  March 18, 2003. Prior to the merger of ECPN with DML Services, Inc.,
                  Mr. Mottley served as President and Director of ECPN from November
                  1, 2002
                  until the merger on March 18, 2003.
 (2)
              Represents
                  32,052 shares of common stock issued in lieu of compensation. The
                  fair
                  market value of the common stock on the date of grant was $1.56
                  per share.
                  The shares were registered under a Registration Statement on Form
                  S-8.
 (3)
              Represents
                  183,508 shares of common stock issued in lieu of compensation.
                  The per
                  share average of the fair market value of the common stock on the
                  dates of
                  grant was $0.40. The shares were registered under a Registration
                  Statement
                  on Form S-8.
 (4)
              Constituting
                  salary received during Fiscal Year 2006 from January 1, 2006 to
                  September
                  30, 2006. Such individual’s arrangement with us converted from a
                  consultancy arrangement to an employment arrangement on January
                  1, 2006.
 (5)
              Received
                  in consideration of services rendered as a consultant. With respect
                  to
                  Fiscal Year 2006, compensation from October 1, 2005 to December 31,
                  2005 was in the form of a consulting fee, prior to such individual’s entry
                  into an employment arrangement with the Company on January 1,
                  2006.
 (6)
              Represents
                  22,436 shares of common stock issued in lieu of compensation. The
                  fair
                  market value of the common stock on the date of grant was $1.56
                  per share.
                  The shares were registered under a Registration Statement on Form
                  S-8.
 (7)
              Represents
                  172,551 shares of common stock issued in lieu of compensation.
                  The per
                  share average of the fair market value of the common stock on the
                  dates of
                  grant was $0.41. The shares were registered under a Registration
                  Statement
                  on Form S-8.
 (8)
              Represents
                  149,600 shares of common stock issued in lieu of compensation.
                  The per
                  share average of the fair market value of the common stock on the
                  dates of
                  grant was $0.40. The shares were registered under a Registration
                  Statement
                  on Form S-8.
 (9)
              Represents
                  131,356 shares of common stock issued in lieu of compensation.
                  The per
                  share average of the fair market value of the common stock on the
                  dates of
                  grant was $0.41. The shares were registered under a Registration
                  Statement
                  on Form S-8.





**Option
      Grants During Last Fiscal Year**





The
      following table sets forth the information concerning individual grants of
      stock
      options made by us to the named executives during the fiscal year ended
      September 30, 2006.





Name
            
            Number
                of Securities Underlying Options
              Granted
                (#)
            
            Percent
                of Total Options Granted to Employees inFiscal
                Year
            
            Exercise
                of Base Price($/share)
            
            ExpirationDate(s)Charles
                C. Mottley
            
            
            130,000
            
            
            25
            %
            $
            1.99
            
            
            3/24/08Stephen
                J. Antol
            
            
            87,000
            
            
            17
            %
            $
            1.99
            
            
            3/24/08James
                G. Ricketts
            
            
            87,000
            
            
            17
            %
            $
            1.99
            
            
            3/24/08L.
                Ronald Perkins
            
            
            87,000
            
            
            17
            %
            $
            1.99
            
            
            3/24/08





In
      addition to the option grants to named executives, we also granted options
      to
      purchase an aggregate of 132,000 shares of common stock at $1.99 per share
      to a
      consultant and two outside directors. Each option grant is for a two year period
      from the date of grant and became exercisable on September 30, 2006.





**Aggregated
      Option Exercises in Last Fiscal Year and Fiscal Year-End Option
      Values**





The
      following table sets forth the total amount of shares acquired by the named
      executives upon exercises of stock options during the fiscal year ended
      September 30, 2006, the aggregate dollar value realized upon such exercise,
      the
      total number of securities underlying unexercised options held at the conclusion
      of such fiscal year (separately identifying then-exercisable and unexercisable
      options), and the aggregate dollar value of in-the-money, unexercised options
      held at the conclusion of such fiscal year (separately identifying
      then-exercisable and unexercisable options).





Name
            
            Shares
                Acquired onExercise
                (#)
            
            ValueRealized
                ($)
            
            Number
                of Unexercised Securities Underlying Options
              at
                FY-End (#) Exercisable/
              Unexercisable
            
            Value
                of Unexercised In-the-Money Options at FY-End ($)
                Exercisable/
              Unexercisable(1)Charles
                C. Mottley
            
            
            -0-
            
            
            -0-
            
            
            280,000/150,000
            
            
            369,600/198,000Stephen
                J. Antol
            
            
            -0-
            
            
            -0-
            
            
            162,000/75,000
            
            
            213,840/99,000James
                G. Ricketts
            
            
            -0-
            
            
            -0-
            
            
            187,000/100,000
            
            
            246,840/132,000L.
                Ronald Perkins
            
            
            -0-
            
            
            -0-
            
            
            187,000/100,000
            
            
            246,840/132,000





(1)
            Value
                of unexercised in-the-money options on September 30, 2006, is based
                on a
                value of El Capitan Precious Metals, Inc. stock equal to $1.32 per
                share,
                as determined by the closing bid price of the Company’s common stock on
                such date.




25




**Long-Term
      Incentive Plan (“LTIP”) Awards Table**





Not
      Applicable.





**Compensation
      of Directors**




On
      July
      21, 2005, based upon recommendations from our Compensation Committee, the Board
      of Directors approved the compensation plan for the Board of Directors. The
      non-employee directors will be compensated with an annual retainer of $5,000,
      plus an additional $1,000 for each Board meeting attended by each such director
      in person, or $500 for each Board meeting attended by such director by
      telephone. In addition, non-employee directors serving as Chairman of the Audit
      and Compensation Committee shall receive an additional annual retainer of
      $4,000. Employee directors will not receive fees, or other compensation for
      service on the board or any committees thereof. All Board members shall be
      reimbursed for expenses incurred in connection with Board or committee
      meetings.




Accordingly,
      on November 13, 2006, Kenneth Pavlich was granted 100,000 options to purchase
      common stock at $0.83 per share (the closing price of the Company’s common stock
      on the date of his appointment to the Board), such options to vest in two equal
      installments on January 1, 2007 and July 1, 2007. Additionally, on December
      8,
      2006, Bruce Snyder was granted options to purchase 100,000 shares of common
      stock at $1.20 per share (the closing price of the Company’s common stock on the
      date of his appointment to the Board), such option to vest in two equal
      installments on January 1, 2007 and July 1, 2007.




On
      March
      24, 2006, we issued R. William Wilson an option to purchase 44,000 shares of
      our
      common stock at an exercise price of $1.99 per share as a performance bonus
      provided to our outside directors. Mr. Wilson’s options vested on September 30,
      2006. Pierce Carson, a director at that time, was also issued a similar option,
      but the option expired unvested upon Mr. Carson’s resignation from the Board in
      May 2006.




**Employment
      Contracts and Termination of Employment and Change-In-Control Arrangements**




In
      March
      2003, we executed a two-year employment agreement under which we issued 600,000
      shares of common stock to its President and Director as incentive compensation.
      The agreement calls for the President to be paid a salary of $20,000 per month
      commencing January 1, 2003, which, at the option of the President, may be
      satisfied in shares of our common stock. As of March 31, 2005, we had issued
      2,282,222 shares of common stock in payment of $420,000 of salary. The 600,000
      shares of common stock granted to the president were valued at $320,000, which
      was recorded as general and administrative expense in March 2003.




Terms
      of
      the employment agreement also required us to issue 1,500,000 shares of common
      stock to the President should we sell the El Capitan mine during the term of
      the
      employment agreement. The Agreement expired on March 18, 2005, and no shares
      were issued under this provision. On February 1, 2005, the Board of Directors
      amended and extended only the conditional option provision of employment
      agreement, which provided conditional stock options to be granted to the
      president if the El Capitan mining property is sold. The amended provision
      for
      conditional stock options provides that if the sale of the mine is for a price
      in excess of $150,000,000, during the period March 18, 2005, through March
      18,
      2006, we are required to grant the president a five-year stock option to
      purchase 1,750,000 shares of our common stock at an exercise price of $0.75
      per
      share. On March 18, 2006, the Agreement expired and no options were issued
      under
      the Agreement.




At
      September 30, 2006, no new formal employment agreement was in effect with the
      President and he is currently compensated at $12,000 per month. Effective June
      1, 2005, the President had agreed to take accrued back compensation and monthly
      compensation for June through September 2005 in S-8 common stock.




**Report
      on Repricing of Options/SARS**




Not
      Applicable.




26




**ITEM
              11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT**




The
      following table sets forth as of January 5, 2007, the number and percentage
      of
      the 77,259,409 9 shares
      of issued and outstanding Common Stock which, according to the information
      supplied to us, were beneficially owned by (i) each person who is currently
      a
      director, (ii) each executive officer, (iii) all current directors and executive
      officers as a group and (iv) each person who, to our knowledge, is the
      beneficial owner of more than 5% of the outstanding common stock. Except as
      otherwise indicated, the persons named in the table have sole voting and
      dispositive power with respect to all shares beneficially owned, subject to
      community property laws where applicable.


**Title
                  of Class**
              
              **Name
                  and Address**
                **of
                  Beneficial Owner**
              
              **Amount
                  and Nature of Beneficial****Ownership**
              
              **Percent****of Class**Common
              
              Charles
                  C. Mottley
                14301
                  N. 87thStreet, Suite 216
                Scottsdale,
                  AZ 85260
              
              6,306,779
              (1)
              
              8.0%Common
              
              James
                  Rickets
                14301
                  N. 87thStreet, Suite 216
                Scottsdale,
                  AZ 85260
              
              3,107,031
              (2)
              
              3.9%Common
              
              R.
                  William Wilson
                14301
                  N. 87thStreet, Suite 216
                Scottsdale,
                  AZ 85260
              
              168,000
              (3)
              
              *Common
              
              L.
                  Ronald Perkins
                14301
                  N. 87thStreet, Suite 216
                Scottsdale,
                  AZ 85260
              
              992,992
              (4)
              
              1.3%Common
              
              Stephen
                  Antol
                14301
                  N. 87thStreet, Suite 216
                Scottsdale,
                  AZ 85260
              
              1,166,897
              (5)
              
              1.5%Common
              
              Kenneth
                  P. Pavlich
                14301
                  N. 87thStreet, Suite 216
                Scottsdale,
                  AZ 85260
              
              113,700
              (6)
              
              *Common
              
              Bruce
                  F. Snyder
                14301
                  N. 87thStreet, Suite 216
                Scottsdale,
                  AZ 85260
              
              50,000
              (7)
              
              *Common
              
              All
                  Officers and Directors as a Group
                (6
                  Persons)
              
              11,905,399
              
              
              15.1%




(1)
            Includes
                (i) vested options to purchase 300,000 shares of common stock at
                an
                exercise price of $0.56 per share and (ii) options to purchase 130,000
                shares of common stock at an exercise price of $1.99 per share. Mr.
                Mottley also holds approximately 17% of the outstanding common stock
                of
                Gold and Minerals Co., Inc., one of our stockholders. Mr. Mottley’s
                interest in Gold and Minerals is not reflected herein.





(2)
            Includes
                (i) vested options to purchase 200,000 shares of common stock at
                an
                exercise price of $0.56 per share, (ii) warrants to purchase 37,500
                shares
                of common stock at an exercise price of $0.50 per share and (iii)
                options
                to purchase 87,000 shares of common stock at an exercise price of
                $1.99
                per share.





(3)
            Includes
                (i) vested options to purchase 100,000 shares of common stock at
                an
                exercise price of $0.56 per share and (ii) options to purchase 44,000
                shares of common stock at an exercise price of $1.99.





(4)
            Includes
                (i) vested options to purchase 100,000 shares of common stock at
                an
                exercise price of $0.56 per share, (ii) a warrant to purchase 100,000
                shares of common stock at an exercise price of $.50 per share and
                (iii)
                options to purchase 43,500 shares of common stock at an exercise
                price of
                $1.99.




27




(5)
            Includes
                (i) vested options to purchase 150,000 shares of common stock at
                an
                exercise price of $0.56 per share, (ii) options to purchase 87,000
                shares
                of common stock at an exercise price of $1.99 and (iii) 125,000 shares
                and
                warrants to purchase an additional 125,000 shares of common stock
                at an
                exercise price of $0.50 per share held by Mr. Antol’s
                spouse.





(6)
            Includes
                vested options to purchase 50,000 shares of common stock at an exercise
                price of $0.83 per share. Does not include unvested options to purchase
                50,000 shares of common stock at $0.83 per
                share.





(7)
            Consists
                of vested options to purchase 50,000 shares of common stock at an
                exercise
                price of $1.20 per share. Does not include unvested options to purchase
                50,000 shares of common stock at $1.20 per
                share.





**ITEM
              12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED
                TRANSACTIONS**




In
      March
      2003, we executed a two-year employment agreement under which we issued 600,000
      shares of Common Stock, valued at $320,000 at the time, to Mr. Charles C.
      Mottley, our President and a member of our Board of Directors, as incentive
      compensation for his service. We also agreed to a salary of $20,000 per month,
      effective January 1, 2003, which, at the Mr. Mottley’s option, may be paid in
      shares of the Company’s Common Stock. The agreement requires us to issue to Mr.
      Mottley 1,500,000 shares of our Common Stock if the El Capitan property is
      sold
      prior to March 18, 2005, and in the event such sale was for $150,000,000 or
      more, we would also be required to grant Mr. Mottley a five-year option to
      purchase up to 6,000,000 shares of Common Stock at an exercise price of $1.00
      per share. On February 1, 2005, the Board of Directors extended through
      March 18, 2006, and amended the conditional option provision relating to the
      El
      Capitan property, pursuant to which Mr. Mottley shall receive a five-year option
      to purchase 1,750,000 shares of our Common Stock at an exercise price of $.75
      per share in the event of a sale in excess of $150,000,000. On March 18, 2006,
      the Agreement expired and no options were issued under the
      Agreement.




As
      of
      September 30, 2005, we and Mr. Mottley have not entered into a new employment
      agreement. Mr. Mottley currently receives consideration in the amount of $12,000
      per month for his services as President and CEO. Effective June 1, 2005, the
      President has agreed to take accrued back compensation and monthly compensation
      for June through September 2005 in S-8 common stock of the Company. As of
      November 4, 2005, the Company has issued 2,465,730 shares of Common Stock to
      Mr.
      Mottley in payment of $487,000 in accrued and unpaid salary.




During
      the fiscal year ended September 30, 2003, Mr. Mottley loaned us a total of
      $13,500, of which $3,500 was repaid prior to the fiscal year end. The remaining
      balance of $10,000 was due on demand with an interest rate of 8% per annum.
      During the fiscal year ended September 30, 2004, Mr. Mottley loaned us an
      additional $13,400 on the same terms. As of September 30, 2005, all loans and
      accrued interest have been paid in full.




Beginning
      October 1, 2002, Mr. Thomas Olson, our Secretary at that time, received a
      management-consulting fee of $1,000 per month. Effective January 1, 2003, that
      amount was increased to $3,500 per month, which, at the option of Mr. Olson,
      could be paid in shares of our Common Stock. Mr. Olson’s total compensation for
      the fiscal year ended September 30, 2003 was $34,500. Of that amount, $4,000
      was
      paid in cash during the fiscal year and $30,500 was accrued. For the fiscal
      year
      ended September 30, 2004, Mr. Olson received total compensation of $35,000
      for
      his services as an officer of the Company as well as $7,000 in consulting fees
      for services rendered following his resignation as an officer in July 2004.
      In
      July and August of 2004, Mr. Olson converted a total of $44,000 of the amounts
      owed to him to 100,000 shares of Common Stock. Mr. Olson continued to provide
      services to us on a consulting basis through December 31, 2004 for a monthly
      consulting fee of $2,500.




On
      September 10, 2003, we entered into a management consulting agreement with
      Mr.
      Larry Lozensky, the President of Gold and Minerals, pursuant to which Mr.
      Lozensky agreed to continue to manage and oversee the COD property until
      December 31, 2004 in exchange for a management consulting fee of $20,000 per
      month and the issuance to Mr. Lozensky of 600,000 shares of our Common Stock.
      Under the management consulting agreement, we obtained the right to pay the
      management-consulting fee to Mr. Lozensky in the form of our Common Stock.
      From
      the expiration of the management consulting agreement on December 31, 2004
      until
      March 31, 2005, Mr. Lozensky continued to manage the COD Mine on our behalf
      on a
      month-to-month basis for a management-consulting fee of $10,000 per month.
      Mr.
      Lozensky is not currently compensated for the management and oversight of the
      COD property.




28




On
      October 19, 2004, we entered into an Investment Advisory Agreement with Blake
      Advisors, LLC (“Blake”), an entity controlled by a beneficial holder of in
      excess of 5% of our stock at such time, for certain financial and investment
      advisory services. The term of the agreement expired on October 31, 2005.
      Compensation under the agreement provided for (i) the payment of $175,000 in
      cash and (ii) a monthly fee of $5,000 from November 1, 2004 to October 1, 2005. Pursuant
      to the agreement, we granted a
      five-year warrant to Blake for the purchase of 500,000 shares of our common
      stock at an exercise price of $0.85 per share. The warrant included a
      cashless-exercise provision and piggyback registration rights. Subsequently,
      the
      warrant exercise price was reduced to $0.50 per share in consideration of Blake
      agreeing to remove the cashless exercise provision provided for in the original
      warrant. Under the terms of the agreement, we paid fees aggregating
      $175,000.




In
      October 2004, we loaned $120,000 at an interest rate of 12% per annum to Gold
      and Minerals Co., Inc., our majority shareholder.




In
      November 2004, we loaned $66,930 at an interest rate of 12% per annum to Castle
      Canyon Townhomes, LLC, a limited liability company of which James G. Ricketts,
      one or our directors, was a member. This loan and accrued interest was paid
      in
      full on January 19, 2005.




During
      the year ended September 30, 2005, we made net payments on behalf of Gold and
      Minerals Co., Inc. approximating $351,946 referencing costs incurred on the
      El
      Capitan mine site. Pursuant to an agreement effective October 1, 2004 between
      the two companies, costs incurred at the El Capitan mine are to be split in
      accordance with their percentage ownership interest. We hold a 40% interest
      in
      the El Capitan mine, and Gold and Minerals Co., Inc. holds a 60% interest.




Commencing
      in November 2004, we agreed to pay Stephen J. Antol a consulting fee of $10,000
      per month, on a month-to-month basis, in consideration of his services as our
      chief financial officer, and as of January 2005, as our treasurer of the
      Company. At this time, we and Mr. Antol have not entered into a formal written
      agreement. Effective June 1, 2005, Mr. Antol has agreed to take accrued back
      compensation and monthly compensation for June through September 2005 in S-8
      common stock.




Commencing
      September 1, 2004, Mr. James Ricketts, our Secretary, received a consulting
      fee
      of $10,000 per month in consideration of his services to us overseeing our
      iron
      ore business. There is not a formal agreement in place with Mr. Ricketts, and
      the arrangement is on a month-to-month basis. Mr. Ricketts does not receive
      compensation for his services as our Secretary. Effective June 1, 2005, Mr.
      Ricketts has agreed to take accrued back compensation and monthly compensation
      for June through September 2005 in S-8 common stock.




In
      January 2005, we agreed to pay L. Ronald Perkins a consulting fee of $10,000
      per
      month, on a month-to-month basis, in consideration of his services to us as
      Vice
      President in charge of Administration, Marketing and Communication. At this
      time, we and Mr. Perkins have not entered into a formal written agreement.
      Effective June 1, 2005, Mr. Perkins has agreed to take accrued back compensation
      and monthly compensation for June through September 2005 in S-8 common
      stock.




The
      Company, Gold and Minerals Co., Inc. and Pavlich Associates, a sole
      proprietorship of which Kenneth Pavlich, a director, is the principal, entered
      into the El Capitan Project Representation Agreement, dated June 21, 2006 (the
      “Agreement”) whereby Pavlich Associates agrees to provide certain consulting
      services in connection with a sale or certain other transactions (as defined
      in
      the Agreement) involving the El Capitan project, at a rate of $125 per hour.
      In
      addition, upon completion of a sale or other transaction, Pavlich Associates
      will be paid the greater of one-quarter of one percent of the Total Transaction
      Value (as more specifically defined in the Agreement) or $250,000 (the “Success
      Payment”). The total of all Success Payments under this Agreement cannot exceed
      $3,000,000.




**ITEM
              13.**
            **EXHIBITS
                AND REPORTS ON FORM 8-K.**




3.1
              Articles
                  of Incorporation, as amended (incorporated by reference to Exhibit
                  3.1 to
                  the Company’s Annual Report on Form 10-KSB dated September 30,
                  2004).
  29
  3.2
              Amendment
                  to Articles of Incorporation, as amended (incorporated by reference
                  to
                  Exhibit 3.1 to the Company’s Quarterly Report on Form 10-QSB dated March
                  31, 2005).3.3
              Restated
                  Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s
                  Registration Statement on Form SB-2 filed on July 12,
                  2006).4.1
              Form
                  of Warrant issued to Blake Advisors, LLC and its nominees (incorporated
                  by
                  reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-KSB
                  dated September 30, 2004)4.2
              Form
                  of Warrant issued in Offering dated November 5, 2004 (incorporated
                  by
                  reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-KSB
                  dated September 30, 2004).4.3
              Form
                  of Warrant issued to John Stapleton and other certain investors
                  (incorporated by reference to Exhibit 4.3 to the Company’s Quarterly
                  Report on Form 10-QSB dated December 31, 2004).4.4
              List
                  of other investors issued a Warrant substantially identical to
                  the Warrant
                  referenced in Exhibit 4.3 (incorporated by reference to Exhibit
                  4.4 to the
                  Company’s Quarterly Report on Form 10-QSB dated December 31,
                  2004).4.5
              Form
                  of Warrant issued in 2005 Offering (incorporated by reference to
                  Exhibit
                  4.1 to the Company’s Quarterly Report on Form 10-QSB dated June 30,
                  2005).4.6
              Secured
                  Convertible Promissory Note dated October 28, 2005 (incorporated
                  by
                  reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated
                  October 28, 2005).4.7
              Form
                  of Warrant issued to Whitebox Intermarket Partners, L.P. (incorporated
                  by
                  reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated
                  October 28, 2005).4.8
              Form
                  of Warrant issued in fall 2005 Offering (incorporated by reference
                  to
                  Exhibit 4.3 to the Company’s Current Report on Form 8-K dated October 28,
                  2005).4.9
              Rights
                  Agreement by and between the Company and OTR, Inc. dated December
                  28, 2005
                  (incorporated by reference to Exhibit 4.1 to the Company’s Current Report
                  on Form 8-K dated December 28, 2005).4.10
              Form
                  of Agent Warrant issued to Blake Advisors, LLC (incorporated by
                  reference
                  to Exhibit 4.8 to the Company's registration statement on Form
                  SB-2/A
                  filed on August 9, 2006.)4.11
              Secured
                  Convertible Promissory Note dated January 20, 2006 (incorporated
                  by
                  reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated
                  January 26, 2006).4.12
              Form
                  of Warrant issued to Whitebox Intermarket Partners, L.P. (incorporated
                  by
                  reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated
                  January 26, 2006).10.1
              Asset
                  Purchase Agreement dated as of October 18, 2002 by and between
                  the Company
                  and Gold Minerals, Inc. and El Capitan, Ltd. (incorporated by reference
                  to
                  Exhibit 10.1 to the Company’s Annual Report on Form 10-KSB dated September
                  30, 2004).10.2
              Employment
                  Agreement with Charles C. Mottley dated March 19, 2003 (incorporated
                  by
                  reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-KSB
                  dated September 30, 2004).10.3
              Consulting
                  Agreement with Larry Lozensky (incorporated herein by reference
                  to Exhibit
                  4.2 to the Company’s Form S-8 filed on 9/15/2003.)10.4
              Agreement
                  with Robert L. Langguth dated July 26, 2004 (incorporated by reference
                  to
                  Exhibit 10.4 to the Company’s Annual Report on Form 10-KSB dated September
                  30, 2004)10.5
              Exclusive
                  Agency Agreement with Asia Finance Company LLC dated November 4,
                  2004
                  (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report
                  on Form 10-KSB dated September 30,
                  2004).
  30
  10.6
              Agreement
                  for Consulting Services dated May 11, 2004 by and between the Company
                  and
                  U.S. Canadian Minerals, Inc. (incorporated by reference to Exhibit
                  10.6 to
                  the Company’s Annual Report on Form 10-KSB dated September 30,
                  2004).10.7
              Asset
                  Purchase Agreement dated as of July 14, 2004 by Gold and Minerals
                  Co.,
                  Inc., Larry Lozensky, the Company and Charles C. Mottley (incorporated
                  by
                  reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-KSB
                  dated September 30, 2004).10.8
              Joint
                  Venture Agreement dated May 11, 2004 by and between U.S. Canadian
                  Minerals, Inc. and the Company (incorporated by reference to Exhibit
                  10.8
                  to the Company’s Annual Report on Form 10-KSB dated September 30,
                  2004).10.9
              Asset
                  Purchase Agreement dated as of August 25, 2003 by and between Gold
                  and
                  Minerals Co., Inc., Charles Mottley and Larry Lozensky and the
                  Company
                  (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report
                  on Form 10-KSB dated September 30, 2004).10.10
              Investment
                  Advisory Agreement dated as of October 19, 2004 by and between
                  the Company
                  and Blake Advisors, LLC (incorporated by reference to Exhibit 10.1
                  to the
                  Company’s Quarterly Report on Form 10-QSB dated December 31,
                  2004).10.11
              2005
                  Stock Incentive Plan (incorporated by reference to Exhibit 4.1
                  to the
                  Company’s Registration Statement on Form S-8 filed on July 19,
                  2005).10.12
              Purchase
                  Agreement entered into as of October 28, 2005, by and among the
                  Company
                  and Whitebox Intermarket Partners, L.P. (incorporated by reference
                  to
                  Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 28,
                  2005).10.13
              Registration
                  Rights Agreement entered into as of October 28, 2005, by and among
                  the
                  Company and Whitebox Intermarket Partners, L.P. (incorporated by
                  reference
                  to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated October
                  28, 2005).10.14
              Security
                  Agreement entered into as of October 28, 2005, by and among the
                  Company
                  and Whitebox Intermarket Partners, L.P. (incorporated by reference
                  to
                  Exhibit 10.3 to the Company’s Current Report on Form 8-K dated October 28,
                  2005).10.15
              Consulting
                  Agreement dated August 22, 2005, by and between the Company and
                  Clyde L.
                  Smith (incorporated by reference to Exhibit 10.15 to the Company’s
                  registration statement on Form SB-2/A filed on August 9,
                  2006).10.16
              Amendment
                  No. 1 to Consulting Agreement dated October 25, 2005 by and between
                  the
                  Company and Clyde Smith (incorporated by reference to Exhibit 10.16
                  to the
                  Company's registration statement on Form SB-2/A filed on August
                  9,
                  2006.)10.17
              El
                  Capitan Project Representation Agreement dated September 27, 2005
                  by and
                  between the Company and Pavlich Associates (incorporated by reference
                  to
                  Exhibit 10.17 to the Company's Registration Statement on Form SB-2/A
                  filed
                  on August 31, 2006).10.18
              Amendment
                  to El Capitan Project Representation Agreement dated March 1, 2006
                  (incorporated by reference to Exhibit 10.18 to the Company's Registration
                  Statement on Form SB-2/A filed on August 31, 2006).10.19
              El
                  Capitan Project Representation Agreement dated June 21, 2006 by
                  and among
                  the Company, Gold and Minerals and Pavlich Associates (incorporated
                  by
                  reference to Exhibit 10.19 to the Company's Registration Statement
                  on Form
                  SB-2/A filed on August 31, 2006).23.1
              Consent
                  of Clyde Smith.23.2
              Consent
                  of AuRIC Metallurgical Labs.23.3
              Consent
                  of Richard Daniele.
  31
  23.4
              Consent
                  of Michael J. Wendell23.5
              Consent
                  of Mike Thomas31.1
              Certification
                  of Charles C. Mottley pursuant to Section 302 of the Sarbanes-Oxley
                  Act of
                  200231.2
              Certification
                  of Steve Antol pursuant to Section 302 of the Sarbanes-Oxley Act
                  of
                  200232.1
              Certification
                  of Charles C. Mottley pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  200232.2
              Certification
                  of Steve Antol pursuant to Section 906 of the Sarbanes-Oxley Act
                  of
                  200299.1
              El
                  Capitan Precious Metals, Inc. Code of Ethics for Senior Financial
                  Management (incorporated herein by reference to Exhibit 99.1 to
                  the
                  Company’s Form 10-KSB for the fiscal year ended 9/30/03 and filed on
                  2/13/04).




**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**




The
      following table summarizes the aggregate fees billed to the Company by Hein
      & Associates LLP in fiscal year 2005 related to the audit and quarterly
      reviews of the Company for the fiscal year ended September 30, 2005 and $22,000
      accrued to Epstein Weber and Conover, PLC, for the audit of our year ended
      September 30, 2005:





Year
                Ended
              September
                30, 2005Audit
                Fees
            
            $
            56,697Audit-Related
                Fees
            
            $
            0Tax
                Fees
            
            $
            0Total
            
            $
            56,697





Fees
      for
      audit services billed in fiscal year 2005 consisted of (i) audit of the
      Company’s annual financial statements for the year ended September 30, 2004;
      (ii) reviews of the Company’s quarterly financial statements; (iii) consents and
      other services related to SEC matters; and (iv) consultations on financial
      accounting and reporting matters arising during the course of the audits and
      reviews. The amount also includes an accrual of $22,000 for audit fees
      attributable to the year ended September 30, 2005.





The
      following table summarizes the aggregate fees paid to Epstein Weber and Conover,
      PLC, for the fiscal year ended September 30, 2006, related to the audit and
      quarterly reviews of the Company for the fiscal year then ended.





Year
                Ended
              September
                30, 2006Audit
                Fees
            
            $
            51,859Audit-Related
                Fees
            
            $
            0Tax
                Fees
            
            $
            0Total
            
            $
            51,859





Fees
      for
      audit services billed in fiscal year 2006 consisted of (i) audit of the
      Company’s annual financial statements for the year ended September 30, 2006;
      (ii) reviews of the Company’s quarterly financial statements; (iii) consents and
      other services related to SEC matters; and (iv) consultations on financial
      accounting and reporting matters arising during the course of the audits and
      reviews. The amount also includes an accrual of $23,000 for audit fees
      attributable to the year ended September 30, 2006.




32




**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




ELCAPITANPRECIOUSMETALS,
                  INC.By:
            /s/
              Charles C. MottleyCharles
                C. MottleyPresident
                and Chief Executive Officer




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.




**Name**
              
              **Title**
              
              **Date**/s/
                  Charles C. Mottley
              
              President
                  and Chief Executive Officer
              
              January
                  12, 2007Charles
                  C. Mottley
              
              (Principal
                  Executive Officer)/s/
                  Stephen J. Antol
              
              Chief
                  Financial Officer and Treasurer
              
              January
                  12, 2007Stephen
                  J. Antol
              
              (Principal
                  Financial and Accounting Officer)/s/
                  James G. Ricketts
              
              Director
                  and Secretary
              
              January
                    12, 2007James
                  G. Ricketts/s/
                  L. Ronald Perkins
              
              Director
              
              January
                  12, 2007L.
                  Ronald Perkins/s/
                  R. William Wilson
              
              Director
              
              January
                  12, 2007R.
                  William Wilson/s/
                  Kenneth P. Pavlich
              
              Director
              
              January
                  12, 2007Kenneth
                  P. Pavlich/s/
                  Bruce F. Snyder
              
              Director
              
              January
                  12, 2007Bruce
                  F. Snyder