**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, 2007




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)





**1325
                Airmotive Way, Suite 276****Reno,
                NV**
            **89502**(Address
                of principal executive offices)
            (Zip
                Code)





Issuer’s
      telephone number, including area code: **(775)
      786-6444**




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 December 21,
      2007, by non-affiliates of the issuer was approximately $32,245,835 **** based on
      the closing market price of the Registrant’s common stock of $0.40 as reported
      on the OTC Bulletin Board.




As
      of
      December 21, 2007, issuer had 80,614,587 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
      Reno, Nevada. 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 any 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 deposit, an
      inactive iron and related ore mine located in New Mexico, including certain
      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 remaining 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 then 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 subsequently held 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 convertible
      promissory note issued by us in the aggregate amount of $750,000. During the
      fiscal year ended September 30, 2007 the note was converted in full to the
      Company’s Common Stock. As of October 9, 2007 U.S. Canadian announced a 50 to 1
      reverse split of its common stock which will reduce the number of shares held
      to
      432,000.




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 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”). As at September 30, 2007 we
      have ascribed a zero value to these shares due to market conditions with a
      corresponding adjustment to the carrying value of the deferred gain liability
      account.





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, accordingly, no exploratory
      work has been performed as to determine the extent, if any, of potential
      minerals in the tailings.




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, 2007.




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.





On
      August
      8, 2007, the Company announced that it had entered into a letter of intent
      relating to merger terms with Gold and Minerals Company, Inc. (G&M) subject
      to appropriate due diligence and shareholder approval. Under the terms
      contemplated ECPN will exchange 118.965 million shares of common stock for
      100%
      of G&M’s outstanding common stock. When combined with ECPN’s 79.310 million
      then outstanding shares, the merged company would have 198.275 million
      outstanding shares of common stock. The final number of shares in the exchange
      will be subject to adjustment for working capital at the time of the merger.
      The
      primary asset of G&M is a 60% ownership in El Capitan, Limited, the company
      that holds the El Capitan deposit and its related assets. ECPN currently
      controls the remaining 40% of El Capitan, Limited. The consummation of the
      merger generally, and at the terms referenced above specifically, is subject
      to
      a number of conditions, including, without limitation, the negotiation and
      completion of a definitive merger agreement, satisfaction of due diligence
      by
      the parties, shareholder approval of G&M, completion and effectiveness of a
      registration statement, and other standard conditions in similar transactions.
      The companies expect to complete the merger in the first half of
      2008.




2




**An
      offer of securities in the United States pursuant to a business combination
      transaction will only be made through a prospectus which is part of an effective
      registration statement filed with the Securities and Exchange Commission (the
      “SEC”). In connection with the proposed merger of ECPN and G&M, ECPN will
      file a registration statement on Form S-4, which will constitute a proxy
      statement of G&M that also constitutes a prospectus of ECPN, and other
      documents with the SEC. Such registration statement, however, is not currently
      available. SHAREHOLDERS ARE URGED TO READ THE DEFINITIVE REGISTRATION STATEMENT
      ON FORM S-4 AND OTHER RELEVANT DOCUMENTS FILED OR THAT WILL BE FILED WITH THE
      SEC, INCLUDING THE PROXY STATEMENT/PROSPECTUS THAT WILL BE PART OF THE
      DEFINITIVE REGISTRATION STATEMENT ON FORM S-4, WHEN THEY BECOME AVAILABLE
      BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT ECPN, G&M AND THE
      PROPOSED MERGER. Once filed, shareholders and investors will be able to obtain
      these documents, as well as other filings containing information about ECPN
      and
      G&M, without charge at the SEC’s website (http://www.sec.gov). Copies of
      filings made by ECPN will also be available, without charge, once they are
      filed
      with the SEC by directing a request to ECPN’s Investor Relations at (775)
      201-0168 or info@ElCapitanPMi.com.**




**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. After completing
      further 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 for the development of the asset
      by
      either selling to or joint venturing with a major mining company.




In
      prior
      years we had also worked on a proprietary process for the extraction of precious
      metals from various property interests. We determined in November 2006 to
      terminate this 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.




3




High,
      low
      and average London afternoon fix prices for gold, silver and platinum for the
      period from January 1, 2007 to September 30, 2007 and for the years ended
      December 31, 2006, 2005 and 2004 are as follows:





Gold
      -
      London Afternoon Fix Prices - US Dollars





Period
            
            High
            
            Low
            
            AverageFor
                the nine months ended September 30, 2007
            
            $
            743.00
            
            $
            608.40
            
            $
            665.58For
                the year ended December 31, 2006
            
            
            725.00
            
            
            524.75
            
            
            603.46For
                the year ended December 31, 2005
            
            
            536.50
            
            
            411.10
            
            
            444.45For
                the year ended December 31, 2004
            
            
            454.20
            
            
            375.00
            
            
            409.16Data
                Source: Kitco





Silver
      - London Afternoon Fix Prices - US Dollars





Period
            
            High
            
            Low
            
            AverageFor
                the nine months ended September 30, 2007
            
            $
            14.58
            
            $
            11.67
            
            $
            13.10For
                the year ended December 31, 2006
            
            
            14.94
            
            
            8.83
            
            
            11.55For
                the year ended December 31, 2005
            
            
            9.23
            
            
            6.39
            
            
            7.31For
                the year ended December 31, 2004
            
            
            8.29
            
            
            5.50
            
            
            6.66Data
                Source: Kitco




Platinum
      - London Afternoon Fix Prices - US Dollars





**Period**
            
            **High**
            
            ******Low**
            
            **Average**For
                the nine months ended September 30, 2007
            
            $
            1,377.00
            
            $
            1,118.00
            
            $
            1,256.35For
                the year ended December 31, 2006
            
            
            1,355.00
            
            
            982.00
            
            
            1,142.31For
                the year ended December 31, 2005
            
            
            1,012.00
            
            
            841.00
            
            
            896.16For
                the year ended December 31, 2004
            
            
            936.00
            
            
            767.00
            
            
            845.58Data
                Source: Kitco




Should
      we
      be successful in our exploration and locate gold or other precious metals,
      our
      ability to sell or develop 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 on our own, but rather to only
      perform exploration on our properties with the anticipation of selling or
      developing through an appropriate joint venture any properties in which our
      exploration proves successful. Given our size and financial condition, there
      is
      no assurance we can compete with any larger companies for the acquisition of
      additional potential mineral properties.




**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.




4




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. We filed an original plan of operation on the El Capitan property.
      We
      were required to pay a reclamation bond of $15,000 in connection with that
      plan
      of operation, and upon payment were issued a notice to proceed from the BLM.
      This allowed us to proceed with our current plan of operation on up to 5 acres.
      On March 30, 2007 the New Mexico Energy, Minerals and Natural Resources
      Department issued a Cessation Order due to un-permitted exploration activities.
      On September 17, 2007 the New Mexico Energy, Minerals and Natural Resources
      Department issued their Completion of Abatement Steps for Cessation Order
      confirming that the abatement steps required under the original order had been
      completed. In September 2007 a new plan of operations was submitted to the
      applicable regulatory agencies including the U.S. Forest Service to encompass
      approximately 2,000 acres of exploration. The approval process allows for public
      review and comment and is not expected to be completed until the second half
      of
      calendar 2008.




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 these
      government agencies 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.





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 two employees, both of whom are full-time. Both 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 and development 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 1325 Airmotive Way, Suite
      276,
      Reno, Nevada. Our telephone number is (775) 786-6444. Our website address is
      www.elcapitanpmi.com.




5





**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 ensure 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, as of October 1, 2004 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. This
      arrangement also provided that, as of October 1, 2004 ECPN had primary
      responsibility for the management of the development of the El Capitan deposit.
      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. At
      September 30, 2007, Gold and Minerals owed us a net amount of
      $72,270.




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 Capitan, 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. 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 proceed
      with its exploratory programs. On March 30, 2007 the New Mexico Energy, Minerals
      and Natural Resources Department issued a Cessation Order due to un-permitted
      exploration activities. On September 17, 2007 the New Mexico Energy, Minerals
      and Natural Resources Department issued their Completion of Abatement Steps
      for
      Cessation Order confirming that the abatement steps required under the original
      order had been completed. In September 2007 a new plan of operations was
      submitted to the United States Forest Service. This plan, if approved, will
      encompass an exploration are of approximately 2,000 acres. The approval process
      allows for public review and comment and is not expected to be completed until
      the second half of calendar 2008. While we are awaiting approval to continue
      exploration activities on the property, we are pursuing metallurgical research
      and development activities and the completion of the proposed merger with Gold
      and Minerals.




6




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 is 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.




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 retained AuRIC Metallurgical Labs of Salt Lake City,
      Utah (“AuRIC”) to test the El Capitan property through the use of 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 a precious metals industry
      standard assay method. Using this 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. This
      preliminary sampling was completed by Dr. Clyde 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.





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.





Because
      caustic fusion is not a precious metal industry accepted assay technique, we
      retained M.H.S. Research of Lakewood, Colorado (“M.H.S.”) in August 2006 to
      research and develop a modified fire assay technique that we believe is more
      appropriate for the material from the El Capitan property. Preliminary results
      to date by M.H.S. indicate values that meet or exceed the values obtained by
      AuRic. The principal of M.H.S. is Michael Thomas who has over thirty years
      of
      experience in geology and mining related area including extensive laboratory
      work in fire assaying, mineral processing and precious metals recovery. He
      is
      presently an adjunct professor in the Mining Engineering Department at the
      Colorado School of Mines providing part-time instruction in mineral processing
      and fire assaying.





We
      have
      also retained the services of Dr. Clyde Smith to manage the exploration 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.




7




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 has
      performed 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.




**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.




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




8




·
            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. 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
      former 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.




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.




**Executive
      Offices**





Our
      executive offices are located at 1325 Airmotive Way, Suite 276 Reno, Nevada
      since June 1, 2007. We lease the premises under a one year lease at the cost
      of
      $883 per month. We believe that the offices are adequate to meet our current
      requirements and we do not anticipate any difficulty in either renewing this
      lease or obtaining suitable space under comparable terms. We have sublet our
      former premises in Scottsdale, Arizona until the original lease term expires
      in
      October 2008. 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.




9




***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.




**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 or the development of a property through
      a
      joint venture with a larger mining company with more significant resources.
      In
      either 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 or enter into a joint venture development
      agreement on one of 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, 2007, we had approximately $90,329 of cash on hand. Additionally,
      as of such date we had a current net receivable amount due from Gold and
      Minerals for an aggregate of $72,270 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, 2007, we had sufficient cash to fund operations through December
      2007. **** 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 7, 2007, the Company has raised $193,000
      through the exercise of outstanding warrants and a private placement 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.




10




***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, 2007, and September
      30,
      2006, and we have an accumulated (deficit) as of September 30, 2007, of
      $(14,621,984). 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.





**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 or enter into a joint venture for the development of 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 or joint venture development
      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 or joint venture the development of 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 may not be 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.




11




Currently,
      we have engaged M.H.S. Research to conduct an investigation into the potential
      to use a more industry-standard fire assay technique in order to estimate the
      metal content of the El Capitan mineral samples. That effort continues in
      December 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.




***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.***




Previously,
      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.





***Any
      loss of the industry experience of our Board may affect our ability to achieve
      our business objectives.***





Three
      of
      our five directors 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 on our business
      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.




12




***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.





The
      effect of these factors cannot be accurately predicted, and the combination
      of
      any of these factors may prevent us from selling or otherwise developing 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 reclamation of
      the
      property upon completion of exploration or other significant activity. In order
      to take any such significant action on a property, we are required to provide
      the BLM with either a notice of operation or a plan of operation setting forth
      our intentions. The amount of the reclamation bond is determined by the BLM
      based upon the scope of the activity described in the notice or plan of
      operation. With respect to 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.




13




The
      approval process for certain exploration permits provides for notice to the
      public and allows for the public to comment on the application. The governmental
      permitting authorities are obligated to consider the comments received from
      the
      public and to assess the merits thereof as part of the approval process. The
      public notice period for the current El Capitan deposit exploration permits
      remains open. To date, we have received both positive and negative comments
      from
      individuals regarding our proposed exploration activities. It is possible that
      public comments may ultimately be deemed to have sufficient merit to delay
      or
      even deny our application.




***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 without a strong financial operating partner.
      Alternatively, we may elect 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 develop or 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.





**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.





14


**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,
      2007
      and 2006, 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, 2007
            
            $
            0.70
            
            $
            0.38June
                30, 2007
            
            
            0.70
            
            
            0.36March
                31, 2007
            
            
            1.10
            
            
            0.54December
                31, 2006
            
            
            1.31
            
            
            0.76September
                30, 2006
            
            $
            2.65
            
            $
            0.95June
                30, 2006
            
            
            3.94
            
            
            1.99March
                31, 2006
            
            
            2.37
            
            
            1.50December
                31, 2005
            
            
            1.88
            
            
            0.38




**(b)
      Holders**




The
      number of record holders of our common stock as of December 21, 2007 was
      approximately 5,474 based on information received from our transfer agent and
      an
      estimate by Broadridge Financial Solutions, Inc. of the 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.





**(d)
      Equity Compensation Plan Information**





The
      following table sets forth, as of September 30, 2007, (i) the number of
      securities to be issued upon the exercise of outstanding options, warrants
      and
      rights issued under our equity compensation plans, (ii) the weighted average
      exercise price of such options, warrants and rights, and (iii) the number of
      securities remaining available for future issuance under our equity compensation
      plans. All outstanding options identified herein are governed by the terms
      of
      the Company’s 2005 Stock Incentive Plan.




15




**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
              
              
              6,029,000
              
              $
              0.74
              
              
              5,896,997
              (1)Total
              
              
              6,029,000
              
              
              —
              
              
              5,896,897




(1)
            The
                Company has registered (i) 261,444 shares on Form S-8 on June 14,
                2004,
                (ii) 5,000,000 shares registered by the Company on Form S-8 on July
                19,
                2005 and (iii) 3,000,000 shares registered by the Company on Form
                S-8 on
                October 18, 2007. 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
                the
                number of shares to be issued to the employee 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 the most recent month’s average daily closing price. In the event
                of an issuance of Common Stock in lieu of fees the number of shares
                to be
                issued to the 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 the
                most
                recent month’s average daily closing price subject to a subsequent
                adjustment for a price decline, if any, as compared to the following
                month’s average daily closing
                price.





**(e)
      Recent Sales of Securities**




Other
      than 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 2007, we
      made
      the no sales of unregistered securities during the quarter ended September
      30,
      2007.





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





**Results
      of Operations - Fiscal year ended September 30, 2007 compared to fiscal year
      ended September 30, 2006** .




We
      have
      not yet realized any revenue from operations, nor do we expect to realize
      potential revenues in our fiscal year 2008, if ever. Net increased $-395,973
      from $-4,041,802 for the year ended September 30, 2006 to $-4,437,775 for the
      year ended September 30, 2007. Our net loss increase in 2007 from 2006 was
      mainly attributable to increases in: officer, administrative consulting and
      severance compensation aggregating $190,407; stock based compensation of
      $1,355,100; and costs associated with the issuances of options and warrants
      of
      $730,625. These increases were offset by decreases in: other general and
      administrative costs of $49,026; exploration costs of $453,342; accretion of
      note payable discount and related costs of $765,489; net interest expense of
      $187,614; and, professional fees of $424,688, which consists of legal, audit
      and
      review and finders and marketing fees.




**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.




16




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 ensure
      our
      ability to implement our 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 develop the geologic and metallurgical opportunities presented
      by
      the El Capitan deposit with the intent to continue the implementation of the
      strategic plan for the development or sale of this deposit.





On
      July
      19, 2007 the Company announced that it had submitted a Plan of Operation for
      continued exploration on a 2,000 acre parcel within its 7,000 acre El Capitan
      claim block near Capitan, New Mexico. The existing 6.1 million gold-equivalent
      ounce Measured Resource (Canadian National Instrument 43-101 standard) is
      contained within a 200 acre parcel of this defined exploration zone. We do
      not
      have "reserves" as defined by Industry Guide 7 of the SEC, and it is possible
      we
      may never have reserves. Previous exploration efforts have focused on private,
      patented land and nearby federal claims. However, the unconventional permitting
      approach used in those efforts severely limited the opportunity for exploration
      expansion of the deposit, and ultimately curtailed exploration activity since
      May 2006.




In
      order
      to insure timely and appropriate permitting, the Company has hired an
      experienced, New Mexico headquartered, environmental services firm, GL
      Environmental, to manage this effort. When the permit is granted, it will
      provide the opportunity for a professional and methodical investigation into
      the
      additional geologic potential of this portion of the Company’s holdings, without
      the requirement to undergo further time-consuming permitting efforts. The area
      being permitted will allow access to a number of high-potential targets
      identified through previous surface sampling and remote sensing efforts, as
      well
      as to the prospective area to the west of the existing deposit, which remains
      open to geologic resource extension. This U.S. Forest Service permitting effort,
      governed by the National Environmental Policy Act (NEPA) of 1972, is a robust
      process that will take a minimum of four months, as prescribed by regulations.
      However, the typical process generally takes somewhat longer than the prescribed
      time frame, and is dependent upon a number of factors outside of our control,
      including, without limitation, governmental approvals, licensing and permitting,
      as well as potential opposition by third parties. Consequently, exploration
      activity is not likely to resume until the 2 nd half of
      2008. Concurrently, GL Environmental has submitted a permit application with
      the
      New Mexico Mining & Minerals Division. Both permits must be approved prior
      to the commencement of drilling activity.




On
      August
      8, 2007 the Company announced that it had agreed to merger terms with Gold
      and
      Minerals Company, Inc. (G&M) subject to appropriate due diligence and
      shareholder approval. Under the terms currently contemplated, ECPN will exchange
      118.965 million shares of common stock for 100% of G&M’s outstanding common
      stock. When combined with ECPN’s 79.310 million then outstanding shares, the
      merged company would have 198.275 million outstanding shares of common stock.
      The final number of shares in the exchange will be subject to adjustment for
      working capital at the time of the merger. The primary asset of G&M is a 60%
      ownership in El Capitan, Limited, the company that holds the El Capitan deposit
      and its related assets. ECPN currently controls the remaining 40% of El Capitan
      Limited. The consummation of the merger generally, and at the terms referenced
      above specifically, is subject to a number of conditions, including, without
      limitation, the negotiation and completion of a definitive merger agreement,
      satisfaction of due diligence by the parties, shareholder approval of G&M,
      completion and effectiveness of a registration statement, and other standard
      conditions in similar transactions. The companies expect to complete the merger
      in the first half of 2008.




**Additional
      Information About the Merger and Where to Find It**




**An
      offer of securities in the United States pursuant to a business combination
      transaction will only be made through a prospectus which is part of an effective
      registration statement filed with the Securities and Exchange Commission (the
      “SEC”). In connection with the proposed merger of ECPN and G&M, ECPN will
      file a registration statement on Form S-4, which will constitute a proxy
      statement of G&M that also constitutes a prospectus of ECPN, and other
      documents with the SEC. Such registration statement, however, is not currently
      available. SHAREHOLDERS ARE URGED TO READ THE DEFINITIVE REGISTRATION STATEMENT
      ON FORM S-4 AND OTHER RELEVANT DOCUMENTS FILED OR THAT WILL BE FILED WITH THE
      SEC, INCLUDING THE PROXY STATEMENT/PROSPECTUS THAT WILL BE PART OF THE
      DEFINITIVE REGISTRATION STATEMENT ON FORM S-4, WHEN THEY BECOME AVAILABLE
      BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT ECPN, G&M AND THE
      PROPOSED MERGER. Once filed, shareholders and investors will be able to obtain
      these documents, as well as other filings containing information about ECPN
      and
      G&M, without charge at the SEC’s website (http://www.sec.gov). Copies of
      filings made by ECPN will also be available, without charge, once they are
      filed
      with the SEC by directing a request to ECPN’s Investor Relations at (775)
      201-0168 or info@ElCapitanPMi.com.**




17




**Liquidity**




As
      of
      September 30, 2007, we had $90,329 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, 2007, based upon our current
      working capital utilization rate, we have working capital to fund three 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, 2007, was from the sale of and issuance
      of
      equity securities during fiscal 2006 and 2007.




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 had a maturity of one and one-half
      years and contained a conversion feature into common stock at $0.50 per share.
      The note also provided for a five-year warrant for 500,000 shares of common
      stock at $0.60 per share and was 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 had a
      maturity of one and one-half years and contained a conversion feature into
      common stock at $0.50 per share. The note also provided for a five-year warrant
      for 366,667 shares of common stock at $0.60 per share and was 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 entire outstanding balance
      of
      the convertible note payable.





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.




18




In
      the
      private placement that closed in October and November 2007, we issued 300,000
      units, each consisting of one share of our common stock and one common stock
      purchase warrant for aggregate gross proceeds of $150,000.




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 of the El
      Capitan deposit. 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, 2007, 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.





**New
      Accounting Pronouncements**





In
      December 2004, the Financial Accounting Standards Board (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.




19




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 have adopted SFAS
      No.
      123R and begun 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 have adopted the provisions
      of SFAS No. 154 for the 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 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.





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 are required to adopt the provision
      of
      SAB No. 108 in fiscal year 2007.




20





**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-1Consolidated
                Balance Sheet - September 30, 2007
            
            
            F-3Consolidated
                Statements of Operations - Years ended September 30, 2007 and 2006
                and for
                the period July 26, 2002 (inception) through September 30,
                2007
            
            
            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, 2004, 2005, 2006 and 2007
            
            
            F-5Consolidated
                Statements of Cash Flows - Years ended September 30, 2007 and 2006
                and for
                the period July 26, 2002 (inception) through September 30,
                2007
            
            
            F-7Notes
                to Consolidated Financial Statements
            
            
            F-9




21




REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To
        the
        Board of Directors and
 Stockholders
        of El Capitan Precious Metals, Inc.
 (An
        Exploration Stage Company)
 Reno,
        NV
  We
        have
        audited the accompanying consolidated balance sheet of El Capitan Precious
        Metals, Inc. and Subsidiary (an exploration stage company) (the “Company”) as of
        September 30, 2007 and the related consolidated statements of operations,
        stockholders’ equity (deficit), and cash flows for the year then ended and for
        the period from July 26, 2002 (inception of exploration stage) to September
        30,
        2007. The financial statements for the period from July 26, 2002 (inception
        of
        exploration stage) through September 30, 2006 were audited by other auditors
        whose reports expressed unqualified opinions on those statements. The financial
        statements for the period from July 26, 2002 (inception of exploration stage)
        through September 30, 2006, include total revenues and net loss of $0 and
        $10,184,209 respectively. Our opinion on the statements of operations,
        stockholders’ equity (deficit), and cash flows for the period from July 26, 2002
        (inception of exploration stage) through September 30, 2007, insofar as it
        relates to amounts for prior periods through September30, 2006, is based
        solely
        on the report of other auditors. These financial statements are the
        responsibility of the Company's management. Our responsibility is to express
        an
        opinion on these financial statements based on our audit.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform an audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit also includes examining,
        on a test basis, evidence supporting the amounts and disclosures in the
        financial statements, 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 the Company as of September
        30,
        2007 and the results of its operations and cash flows for the periods described
        above, 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, the Company has incurred losses since inception,
        which raises substantial doubt about its ability to continue as a going concern.
        Management’s plans regarding those matters also are described in Note 1. The
        financial statements do not include any adjustments that might result from
        the
        outcome of this uncertainty.
  /s/
        Malone & Bailey PC
  www.malone-bailey.com
 Houston,
        Texas
  December
        31, 2007
  F-1
 **REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
   Board
          of
          Directors,
 El
          Capitan Precious Metals, Inc.:
 
 We
          have
          audited the accompanying consolidated statements of operations, stockholders’
deficit and cash flows for year ended September 30, 2006, and from July
          26, 2002
          (inception of exploration stage) to September 30, 2006 of El Capitan Precious
          Metals, Inc. (an exploration stage mining company). 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 results of operations and cash flows of El Capitan
          Precious Metals, Inc. for the year 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 $741,000 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.
 
 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, 2007
 
 **ASSETS**CURRENT
                  ASSETS :Cash
              
              $
              90,329Miscellaneous
                  receivable
              
              
              8,096Prepaid
                  expenses
              
              
              45,530Due
                  from affiliated company
              
              
              72,270Total
                  Current Assets
              
              
              216,225FURNITURE
                  AND EQUIPMENT, AT COST
              
              
              103,133Less:
                  accumulated depreciation
              
              
              (27,419
              )75,714INVESTMENT
                  IN EL CAPITAN, LTD.
              
              
              788,808OTHER
                  ASSETS - Deposits
              
              
              31,108$
              1,111,855**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**CURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              348,507Accrued
                  liabilities
              
              
              36,785Interest
                  payable
              
              
              49,750Short
                  term debt
              
              
              30,071Total Current Liabilities
              
              
              465,113Total
                  Liabilities
              
              
              465,113COMMITMENTS,
                  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; 79,752,119
                  issued
                  and outstanding
              
              
              79,754Additional
                  paid-in capital
              
              
              15,188,972Deficit
                  accumulated during the exploration stage
              
              
              (14,621,984
              )Total Stockholders’ Equity
              
              
              646,742$
              1,111,855
 
 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
                  From26-Jul-02(Inception)ThroughYear
                  Ended September 30,
              
              September
                  30,2007
              
              2006
              
              2007REVENUES
              
              $
              —
              
              $
              —
              
              $
              —GENERAL
                  AND ADMINISTRATIVE EXPENSES:Professional
                  fees
              
              
              120,979
              
              
              396,256
              
              
              3,277,885Officer
                  compensation expense
              
              
              929,407
              
              
              194,000
              
              
              2,093,423Administrative
                  consulting fees
              
              
              60,000
              
              
              605,000
              
              
              1,083,875Management
                  fees, related parties
              
              
              —
              
              
              —
              
              
              320,500Legal
                  and accounting fees
              
              
              132,772
              
              
              282,181
              
              
              877,443Exploration
                  expenses
              
              
              398,100
              
              
              851,442
              
              
              1,956,918Expenses
                  associated with issuance of options and warrants
              
              
              894,375
              
              
              163,750
              
              
              1,058,125Stock
                  based compensation expenses
              
              
              1,355,100
              
              
              —
              
              
              1,355,100Other
              
              
              297,969
              
              
              346,996
              
              
              870,055(4,188,702
              )
              
              (2,839,625
              )
              
              (12,893,324
              )LOSS
                  FROM OPERATIONS
              
              
              (4,188,702
              )
              
              (2,839,625
              )
              
              (12,893,324
              )OTHER
                  INCOME (EXPENSE):Interest
                  income
              
              
              5,150
              
              
              14,197
              
              
              35,660Interest
                  expense:Related
                  parties (Note 5)
              
              
              —
              
              
              —
              
              
              (28,220
              )Other
              
              
              (17,982
              )
              
              (214,644
              )
              
              (345,244
              )Expenses
                  associated with debt issuance and conversion
              
              
              —
              
              
              (128,572
              )
              
              (281,457
              )Accretion
                  of notes payable discounts
              
              
              (236,241
              )
              
              (873,158
              )
              
              (1,109,399
              )(249,073
              )
              
              (1,202,177
              )
              
              (1,728,660
              )NET
                  LOSS
              
              $
              (4,437,775
              )
              $
              (4,041,802
              )
              $
              (14,621,984
              )Basic
                  and diluted net loss per common share
              
              $
              (0.06
              )
              $
              (0.06
              )Weighted
                  average number of commonshares
                  outstanding
              
              
              78,234,483
              
              
              72,695,696
 
 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) to September 30,
                  2007
  Common
                  Stock
              
              Stock
                Subscrip-
              
              Additional
                Paid
                  in
              
              Deficit
                  Accumulated During The
                  ExplorationShares
              
              Amount
              
              tions
              
              Capital
              
              Stage
              
              TotalInitial
                  Issuance of Common Stock
              
              
              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 and Minerals Company, Inc. in connection
                  with
                  purchase of interests in assets of El Capitan, Ltd. In November
                  2002
              
              
              35,685,000
              
              
              35,685
              
              
              -
              
              
              (35,663
              )
              
              -
              
              
              22Acquisition
                  of DML Services on March 17, 2003
              
              
              6,720,000
              
              
              6,720
              
              
              -
              
              
              (56,720
              )
              
              `
              
              
              (50,000
              )Common
                  stock issued for notes payable
              
              
              525,000
              
              
              525
              
              
              -
              
              
              16,975
              
              
              -
              
              
              17,500Common
                  stock and warrants issued for services
              
              
              150,000
              
              
              150
              
              
              -
              
              
              188,850
              
              
              -
              
              
              189,000Common
                  stock issued for compensation
              
              
              2,114,280
              
              
              2,115
              
              
              -
              
              
              847,885
              
              
              -
              
              
              850,000Issuance
                  of common stock to Gold and Minerals Company, Inc. in connection
                  with
                  purchase of COD property in August 2003, $0.00 per share
              
              
              3,600,000
              
              
              3,600
              
              
              -
              
              
              (3,600
              )
              
              -
              
              
              -Net
                  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**Cost
                  associated with warrants and options issued
              
              
              -
              
              
              -
              
              
              -
              
              
              108,000
              
              
              -
              
              
              108,000Common
                  stock issued for compensation
              
              
              3,650,164
              
              
              3,650
              
              
              -
              
              
              516,350
              
              
              -
              
              
              520,000Common
                  stock issued for services
              
              
              1,590,500
              
              
              1,591
              
              
              -
              
              
              278,806
              
              
              
              
              
              280,397Common
                  stock issue for notes payable
              
              
              2,319,672
              
              
              2,319
              
              
              -
              
              
              571,049
              
              
              
              
              
              573,368Common
                  stock issued for acquisition of Weaver property interest in July
                  2004
              
              
              3,000,000
              
              
              3,000
              
              
              -
              
              
              (3,000
              )
              
              
              
              
              -Stock
                  subscriptions
              
              
              -
              
              
              -
              
              
              50,000
              
              
              -
              
              
              -
              
              
              50,000Net
                  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 for services
              
              
              2,241,422
              
              
              2,241
              
              
              -
              
              
              1,234,640
              
              
              
              
              
              1,236,881Common
                  stock sold in private placement
              
              
              3,865,000
              
              
              3,865
              
              
              -
              
              
              1,934,272
              
              
              
              
              
              1,938,137Common
                  stock issued for notes payable
              
              
              432,701
              
              
              433
              
              
              -
              
              
              172,647
              
              
              
              
              
              173,080Beneficial
                  conversion of notes payable
              
              
              -
              
              
              -
              
              
              -
              
              
              21,635
              
              
              
              
              
              21,635Cost
                  associated with warrants and options issued
              
              
              10
              
              
              -
              
              
              -
              
              
              113,452
              
              
              
              
              
              113,452Net
                  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**
              **)**
  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,
                  2007
  Common
                  Stock
              
              
              Stock
                Subscrip-
              
              
              Additional
                  Paid in
              
              
              Deficit
                  Accumulated During The ExplorationShares
              
              
              Amount
              
              
              tions
              
              
              Capital
              
              
              Stage
              
              
              TotalCommon
                  stock issued for services
              
              
              562,731
              
              
              562
              
              
              -
              
              
              386,574
              
              
              
              
              
              387,136Common
                  stock sold in private placement
              
              
              2,189,697
              
              
              2,190
              
              
              -
              
              
              1,158,775
              
              
              
              
              
              1,160,965Common
                  stock issued for notes payable
              
              
              2,124,726
              
              
              2,125
              
              
              -
              
              
              1,276,447
              
              
              
              
              
              1,278,572Costs
                  associated with warrants and options issued
              
              
              -
              
              
              -
              
              
              -
              
              
              1,182,390
              
              
              
              
              
              1,182,390Common
                  stock issued for exercise of options and warrants
              
              
              498,825
              
              
              499
              
              
              -
              
              
              175,929
              
              
              
              
              
              176,428Common
                  stock issued for compensation
              
              
              112,181
              
              
              112
              
              
              -
              
              
              174,888
              
              
              
              
              
              175,000Net
                  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**Stock
                  issued for conversion of notes payable
              
              
              1,500,000
              
              
              1,500
              
              
              
              
              
              748,500
              
              
              
              
              
              750,000Common
                  stock sold in private placement
              
              
              50,000
              
              
              50
              
              
              
              
              
              24,950
              
              
              
              
              
              25,000Common
                  stock sold by the exercise of warrants and options
              
              
              2,258,000
              
              
              2,258
              
              
              
              
              
              1,121,742
              
              
              
              
              
              1,124,000Common
                  stock issued for compensation
              
              
              951,994
              
              
              953
              
              
              
              
              
              594,099
              
              
              
              
              
              595,052Common
                  stock issued for services
              
              
              95,216
              
              
              96
              
              
              
              
              
              62,809
              
              
              
              
              
              62,905Cost
                  associated with issuance of warrants and options
              
              
              
              
              
              
              
              
              
              
              
              2,329,797
              
              
              
              
              
              2,329,797Net
                  loss, year ended September 30, 2007
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              (4,437,775
              )
              
              (4,437,775
              )**Balances,
                  September 30, 2007**
              
              
              **79,752,119**
              
              **$**
              **79,754**
              
              
              
              
              **$**
              **15,188,972**
              
              **$**
              **(14,621,984**
              **)**
              **$**
              **646,742**
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-6
  **EL
        CAPITAN PRECIOUS METALS, INC.**
 (An
        Exploration Stage Company)
 
 STATEMENTS
        OF CASH FLOWS
  **Year
                  Ended September 30**
              
              **Period
                  From**
                **July
                  26, 2002**
                **(Inception)**
                **Through**
                **September
                  30,****2007**
              
              **2006**
              
              **2007**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  (loss)
              
              $
              (4,437,775
              )
              $
              (4,041,802
              )
              
              (14,621,984
              )Adjustments
                  to reconcile net (loss) to net cash (used in) operating
                  activities:Costs
                  associated with common stock, options and warrants
              
              
              2,249,475
              
              
              613,750
              
              
              6,331,529Beneficial
                  conversion feature of notes payable
              
              
              -
              
              
              128,572
              
              
              225,207Non-cash
                  expense with affiliate
              
              
              -
              
              
              7,801
              
              
              7,801Non-cash
                  compensation expense
              
              
              657,957
              
              
              
              
              
              657,957Accretion
                  of discount on notes payable
              
              
              236,241
              
              
              873,157
              
              
              1,149,588Loss
                  on sale of fixed assets
              
              
              11,209
              
              
              
              
              
              11,209Provision
                  for uncollectible note receivable
              
              
              -
              
              
              -
              
              
              62,500Depreciation
              
              
              7,422
              
              
              16,022
              
              
              45,429Changes
                  in operating assets and liabilities:
              
              
              -
              
              
              
              
              
              -Advance
                  to officer
              
              
              -
              
              
              1,064
              
              
              -Miscellaneous
                  receivable
              
              
              561
              
              
              (6,266
              )
              
              (5,705
              )Interest
                  receivable
              
              
              -
              
              
              -
              
              
              (13,611
              )Prepaid
                  expenses
              
              
              49,509
              
              
              (82,917
              )
              
              (45,531
              )Expense
                  advances on behalf of affiliated company
              
              
              51,537
              
              
              (334,851
              )
              
              (635,260
              )Accounts
                  payable
              
              
              (28,061
              )
              
              64,399
              
              
              330,288Accounts
                  payable - Related Party
              
              
              12,853
              
              
              
              
              
              12,853Accrued
                  liabilities
              
              
              (104,392
              )
              
              65,334
              
              
              148,921Interest
                  payable, other
              
              
              (36,872
              )
              
              68,278
              
              
              37,441Net
                  Cash (Used in) Operations
              
              
              (1,330,336
              )
              
              (2,627,459
              )
              
              (6,301,368
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of property interest
              
              
              -
              
              
              -
              
              
              (100,000
              )Purchase
                  of furniture and equipment
              
              
              (3,780
              )
              
              (73,863
              )
              
              (146,744
              )Sale
                  of Automotive
              
              
              26,196
              
              
              
              
              
              12,001Deposits
              
              
              (263
              )
              
              (14,400
              )
              
              (31,108
              )Issuance
                  of notes receivable
              
              
              -
              
              
              -
              
              
              (249,430
              )Payments
                  received on notes receivable
              
              
              -
              
              
              -
              
              
              66,930Cash
                  paid in connection with acquisition of DLM Services, Inc.
              
              
              -
              
              
              -
              
              
              (50,000
              )Net
                  Cash Provided by (Used in) Investing Activities
              
              
              22,153
              
              
              (88,263
              )
              
              (498,351
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Proceeds
                  from the sale of common stock
              
              
              25,100
              
              
              1,491,083
              
              
              3,306,706Costs
                  associated with the sale of stock
              
              
              -
              
              
              -
              
              
              (19,363
              )Proceeds
                  from notes payable, related parties
              
              
              -
              
              
              -
              
              
              219,900Proceeds
                  from warrant exercise
              
              
              1,123,900
              
              
              -
              
              
              1,123,900Proceeds
                  from notes payable, other
              
              
              54,529
              
              
              1,300,000
              
              
              2,376,829Repayment
                  of notes payable, related parties
              
              
              -
              
              
              -
              
              
              (61,900
              )Repayment
                  of notes payable, other
              
              
              (12,150
              )
              
              -
              
              
              (56,024
              )Net
                  cash Provided by Financing Activities
              
              
              1,191,379
              
              
              2,791,083
              
              
              6,890,048-NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              (116,804
              )
              
              75,361
              
              
              90,329CASH
                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD
              
              
              207,133
              
              
              131,772
              
              
              -CASH
                  AND CASH EQUIVALENTS, END OF PERIOD
              
              
              90,329
              
              
              207,133
              
              
              90,329
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-7
 
 **EL
                  CAPITAN PRECIOUS METALS, INC.**
                (An
                  Exploration Stage Company)
                
                STATEMENTS
                  OF CASH FLOWS
 
 Period
                  FromJuly
                  26,2002(Inception)ThroughYear
                  Ended September 30,
              
              September
                  30,2007
              
              2006
              
              2007SUPPLEMENTAL
                  CASH FLOW INFORMATION :Cash
                  paid for interest
              
              $
              20,130
              
              $
              146,396
              
              $
              168,653Cash
                  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 options and warrants issued
              
              $
              2,329,797
              
              $
              163,750
              
              $
              2,750,251Stock
                  based compensation
              
              $
              1,355,100
              
              $
              450,000
              
              $
              4,089,949Issuance
                  of common stock for financing costs
              
              $
              —
              
              $
              —
              
              $
              56,250Issuance
                  of common stock for interest costs
              
              $
              —
              
              $
              —
              
              $
              62,801Conversion
                  of accounts payable to equity
              
              $
              62,905
              
              $
              —
              
              $
              94,286Conversion
                  of accrued interest to equity
              
              $
              —
              
              $
              —
              
              $
              15,971Net
                  non-cash advances from affiliated company
              
              $
              —
              
              $
              562,990
              
              $
              562,990Conversion
                  of notes payable and accrued interest for the issuance of common
                  stock
              
              $
              750,000
              
              $
              1,150,000
              
              $
              2,495,544Conversion
                  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-8
 
 EL
        CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY
 (An
        Exploration Stage Company)
  NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Fiscal
        Years Ended September 30, 2007 and 2006
 
 **NOTE
        1 - BUSINESS, OPERATIONS, ORGANIZATION, LIQUIDITY AND BASIS OF
        PRESENTATION**
 
 **Business,
        Operations and Organization**
 
 On
        July
        26, 2002, El Capitan Precious Metals, Inc. was incorporated as a Delaware
        corporation to engage in the business of acquiring properties containing
        precious metals, principally gold, silver, and platinum. 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
        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.
 
 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.
 
 Certain
        prior year financial statement line items are reclassified to conform to
        current
        year presentation.
  **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 $(14,621,984) 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.
  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 each of September
        2006, October 2007 and November 2007 the Company placed a private placement
        of
        securities (NOTE 11). In September 2007 the Company exercised its call option
        on
        certain warrants which realized $45,000 in proceeds. 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.
  F-9
  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 a wholly-owned subsidiary of Gold and Minerals Company, Inc. (“Minerals”), a
        Nevada corporation. Minerals may be considered affiliated with the Company
        in
        that it is a shareholder of the Company **** and
        the
        Company’s former CEO/President is a significant 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, an inactive iron
        and
        related mineral property located in New Mexico. At September 30, 2007, 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.
  **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.
  F-10
  **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 effected by U.S. Canadian, we subsequently held 2,160,000 shares of
        the
        U.S. Canadian stock. As of October 9, 2007 U.S. Canadian announced a 50 to
        1
        reverse split of its common stock which will reduce the number of shares
        held to
        432,000. 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 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. During the fiscal year ended September 30, 2007 the note was
        converted in full to the Company’s Common Stock and the pledge of US Canadian
        common stock was accordingly released as collateral. See NOTE 7.
  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
        related to the COD property. Based on these factors, no gain on the sale
        was
        recorded. As at September 30, 2007 we have ascribed a zero value to these
        shares
        due to market conditions with a corresponding adjustment to the carrying
        value
        of the deferred gain liability account
 
 **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.
  F-11
  **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, 2007 and 2006 was $21,617 and $16,022,
        respectively.
  **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.
 
 **Stock-Based
        Compensation - Transition and Disclosure**
  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 “A *ccounting
        for Stock Based Compensation,* ”
and
        supersedes ABP Opinion No. 25, “ *Accounting
        for Stock Issued to Employees.* ” ** Beginning
        with the Company’s quarterly period that began on October 1, 2006, the Company
        adopted the provisions of SFAS No. 123R and the Company expensed 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.
 
 For
        the
        year ended September 30, 2006 the Company 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 $1,355,100
        for
        stock and stock options issued to employees during the year ended September
        30,
        2007 and $713,690 for stock and stock options issued to employees during
        year
        ended September 30, 2006.
  F-12
 
 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 using the Simplified
        Method, expected volatility based on historical trends, a risk-free interest
        rate using the appropriate term U.S. Treasury rate, 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.
 
 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
        FASB
        Statement No. 148, “ *Accounting
        For Stock-Based Compensation - Transition & Disclosure, An Amendment to FASB
        Statement No. 123* ,”
to
        stock-based employee compensation.
 
 Year
                  EndedSeptember
                  30,2007
              
              2006Net
                  (loss), as reported
              
              $
              (4,437,775
              )
              $
              (4,041,802
              )Add:
                  total stock-based compensation expense included in reported net
                  loss
              
              
              
              
              
              175,000Deduct
                  - stock-based compensation expense determined under the fair value
                  method,
                  net of tax effect
              
              
              
              
              
              (713,690
              )Pro
                  forma net (loss)
              
              $
              (4,437,775
              )
              $
              (4,580,492
              )(Loss)
                  per share:Net
                  (loss) per share, as reported
              
              $
              (0.06
              )
              $
              (0.06
              )Net
                  (loss) per share, pro forma
              
              $
              (0.06
              )
              $
              (0.06
              )
  **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, 2007 and 2006, 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 reflecting its investment
        in El
        Capitan, Ltd.
  **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.
  **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.
  F-13
  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 have adopted SFAS
        No.
        123R and begun 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
        Change* ”
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 adopted the
        provisions of SFAS No. 154 for its fiscal year beginning October 1, 2006.
        The
        adoption of the provisions of SFAS No. 154 did 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 October 1, 2007. The Company
        at this time has not evaluated the impact, if any, of adopting FIN 48 on
        its
        financial statements.
  **NOTE
        4 - INVESTMENTS IN US CANADIAN**
  On
        September 30, 2007, the Company owned 2,160,000 shares of U.S. Canadian common
        stock. The Company valued the shares at $0.00 per share, the market value
        due to
        market conditions for this stock for a value of zero. The Company has a
        continuing involvement related to the COD property and accordingly no gain
        on
        the sale is recognized and any future increase in market value of the
        securities, the increase in value will create a deferred gain liability account
        in accordance with current GAAP.
  The
        Company had pledged all the shares of its US Canadian investment as security
        for
        a secured convertible debenture notes which was converted in full during
        the
        year ended September 30, 2007, thereby terminating the Company’s pledge of such
        shares (NOTE 6).
  F-14
  **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 the Company has recorded
        a
        valuation allowance of $12,500 against this receivable due to uncertainty
        as to
        the ultimate collectability of these promissory notes. At September 30, 2007
        this receivable was written off.
  **Due
        from Affiliated Company**
  During
        the period October 2004 through September 2007, the Company made net payments
        on
        behalf of Minerals aggregating to $1,737,597 relating to costs incurred by
        El
        Capitan, Ltd. (“ECL”) on the El Capitan property site. Pursuant to an 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 ECL, 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, 2007, Minerals has reimbursed the Company
        $1,665,327 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.
 
 At
        September 30, 2007, Minerals owed the Company $72,270.
  **Employment
        Agreement**
 
 On
        April
        6, 2007, Mr. Charles Mottley, the Company’s Chief Executive Officer and
        President, informed the Board of his resignation from the offices of Chief
        Executive Officer and President of the Company effective April 6, 2007. On
        September 26, 2007 Mr. Mottley also retired as Chairman of the Board of
        Directors (the "Board"). The Company appointed Kenneth Pavlich as Chief
        Executive Officer and President effective upon Mr. Mottley’s resignation in
        April and acting Chairman upon Mr. Mottley’s resignation.
 
 The
        Company issued to Mr. Pavlich on April 6, 2007, 250,000 shares of the Company’s
        common stock in payment of Mr. Pavlich’s compensation for the remainder of
        calendar year 2007, valued on the date of grant at $0.70 per share.
        Additionally, on April 6, 2007, Mr. Pavlich was granted an option to purchase
        2,500,000 shares of the Company’s common stock at an exercise price of $0.70 per
        share, the fair market value of the Company’s stock on the date of grant. The
        option vests in five equal amounts of 500,000 shares upon the initial occurrence
        of each of certain events which are detailed in his employment agreement.
 
 The
        term
        of the employment agreement entered into with Mr. Pavlich on April 30, 2007
        is
        for two years, with automatic one-year extensions unless either party provides
        30 days notice of termination to the other prior to the expiration of the
        initial term or an extension thereof. Commencing January 1, 2008, and for
        the
        remainder of the term of the agreement, Mr. Pavlich will be entitled to a
        base
        salary consisting of 25,000 shares of common stock per month, provided the
        fair
        market value of the shares issued per month shall not exceed $100,000 based
        on
        the value of the average of the daily closing prices of the Company’s common
        stock during the month of service. Additionally, upon the completion of a
        sale
        or other transaction of the Company’s El Capitan property, Mr. Pavlich will be
        entitled to bonus compensation equal to 0.5% of value received by the Company
        (and its shareholders, if applicable) in such transaction; provided that,
        the
        Company’s consummation of a merger or other consolidation with Gold and Minerals
        Co., Inc. shall not constitute a transaction whereby the bonus compensation
        shall apply.
  F-15
 
 Effective
        April 15, 2007, James Ricketts resigned from the Board and from his position
        as
        secretary of the Company. Effective on the same date, L. Ron Perkins also
        resigned from the Board and from his position as Vice President of
        Administration, Marketing and Communication.
  Effective
        May 7, 2007, Stephen J. Antol resigned as the Company’s Chief Financial Officer.
        Mr. Antol continued to provide services to the Company in various capacities
        until May 15, 2007. The Company has agreed to issue Mr. Antol, each month
        for a
        period of twelve months, shares of the Company’s common stock with a fair market
        value equal to $10,000, as determined by the average daily closing price
        of the
        Company’s common stock during the month prior to such issuance, in consideration
        of his prior service and standard release of claims.
  Effective
        May 7, 2007, the Company appointed R. William Wilson as its Chief Financial
        Officer. Mr. Wilson has served as a director of the Company since February
        2005.
        On May 4, 2007, the Company entered into an employment agreement with Mr.
        Wilson
        relating to his service as Chief Financial Officer. Pursuant to the agreement,
        Mr. Wilson is entitled to a monthly base salary of (i) $10,000 and (ii) the
        issuance of 7,000 shares of the Company’s common stock; provided that the
        aggregate value of the base salary for any month shall not exceed $38,000,
        of
        which the value of the shares of common stock issued shall be determined
        by
        based on the value of the average of the daily closing prices of the Company’s
        common stock during the month of service. Additionally, the Agreement provided
        for the issuance to Mr. Wilson of a stock option to purchase 1,000,000 shares
        of
        the Company’s common stock at an exercise price of $0.50, the closing price of
        the Company’s common stock on May 7, 2007, the date on which Mr. Wilson
        commenced employment. The option vests in five equal amounts of 200,000 shares
        upon the initial occurrence of certain provisions in the Agreement.
  The
        term
        of the agreement is for two years, with automatic one-year extensions unless
        either party provides 30 days notice of termination to the other prior to
        the
        expiration of the initial term or an extension thereof. Additionally, upon
        the
        completion of a sale or other transaction of the Company’s El Capitan property,
        Mr. Wilson will be entitled to bonus compensation equal to 0.3% of value
        received by the Company (and its shareholders, if applicable) in such
        transaction; provided that, the Company’s consummation of a merger or other
        consolidation with Gold and Minerals Co., Inc. shall not constitute a
        transaction whereby the bonus compensation shall apply.
  **Management
        Fees**
  The
        Company had informal arrangements with four individuals, three of whom were
        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 were 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. None of these individuals were employed by the Company at September
        30, 2007.
  **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.
  F-16
  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. This agreement terminated upon Mr. Pavlich’s entering into an
        employment agreement with the Company on April 6, 2007.
  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, 2007and 2006
        was
        zero and $120,000, respectively.
  On
        April
        16, 2007, the Company terminated the two Houlihan Lockey Howard & Zurkin
        contracts dated January 12, 2006, and the associated contract between Blake
        Capital, Houlihan Lockey Howard & Zurkin, and the Company dated May
        2006.
 
 On
        October 1, 2007, the Company entered into a consulting agreement with Charles
        C.
        Mottley. Pursuant to the consulting agreement, Mr. Mottley has agreed to
        provide
        various services on a consulting basis, including strategic advisory services
        and corporate financial planning. In consideration for his services, the
        Company
        is required to pay Mr. Mottley a consulting fee in the aggregate amount of
        $300,000 consisting of a one-time payment of $25,000 and monthly installments
        thereafter, the amount of such monthly payments to be dependent upon the
        cash
        availability of the Company.
 
 **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.
 
 On
        October 28, 2005, the Company issued an 8 % secured convertible debenture
        note
        for $750,000 to an investment company. The note had a maturity of one and
        one-half years and contained a conversion feature into common stock at $0.50
        per
        share. The note also provided for a five-year warrant for 500,000 shares
        of
        common stock at $0.60 per share and was 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.
 
 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. In November
        2006 and February 2007, the debenture holder exercised their option to convert
        the debenture into 1,500,000 of the Company’s common stock and the discount was
        fully amortized at the time of conversion
  F-17
 
 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
        had
        a maturity of one and one-half years and contained a conversion feature into
        common stock at $0.50 per share. The note also provided for a five-year warrant
        for 366,667 shares of common stock at $0.60 per share and was 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
        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 provided 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 provided 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
        was
        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 was entitled to a consulting fee of
        $125
        per hour for time consulting with the Company and reimbursement of incurred
        expenses. This agreement was terminated upon Mr. Pavlich’s entering into an
        employment agreement with the Company on April 6, 2007. See NOTE 5.
  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, at
        the time the Company’s CEO and a director, provided consulting services to Earth
        Search Sciences, Inc. and therefore abstained from the board’s vote relating to
        the retention of Earth Search.
  F-18
 
 On
        October 1, 2007, the Company entered into a consulting agreement with Charles
        C.
        Mottley. Pursuant to the consulting agreement, Mr. Mottley has agreed to
        provide
        various services on a consulting basis, including strategic advisory services
        and corporate financial planning. In consideration for his services, the
        Company
        is required to pay Mr. Mottley a consulting fee in the aggregate amount of
        $300,000 consisting of a one-time payment of $25,000 and monthly installments
        thereafter, the amount of such monthly payments to be dependent upon the
        cash
        availability of the Company.
 
 **NOTE
        9 - COMMITMENTS AND CONTINGENCIES**
  The
        Company signed a two year lease for office space in Scottsdale, Arizona,
        effective November 1, 2004 and extended it for a further two years on October
        5,
        2006. The lease requires monthly payments of $4,055 for October 2007 and
        $4,217
        thereafter through October 2008, plus taxes and tenant charges. The remaining
        commitments under this lease for our years ended September 30, 2008 and 2009
        are
        $54,658 and $4,217, respectively. In June 2007 the Company sublet this office
        space and the rent proceeds under this sublease for our years ended September
        30, 2008 and 2009 are $42,155 and $3,513, respectively.
 
 In
        June
        2007 the Company relocated its corporate office to Reno, Nevada and entered
        into
        a one year lease for office space. The lease requires a monthly payment of
        $883.
 
 For
        the
        years ended September 30, 2007 and 2006, rent expense was $44,017 and $48,514
        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.
 
 On
        September 27, 2005, the Company entered into an agreement with Pavlich which
        provided 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 provided 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 was 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 was entitled to a consulting fee of $125 per hour for
        time
        consulting with the Company and reimbursement of incurred expenses. This
        agreement was terminated upon Mr. Pavlich’s entering into an employment
        agreement with the Company on April 6, 2007. See NOTE 5.
 
 On
        October 1, 2007, the Company entered into a consulting agreement with Charles
        C.
        Mottley. Pursuant to the consulting agreement, Mr. Mottley has agreed to
        provide
        various services on a consulting basis, including strategic advisory services
        and corporate financial planning. In consideration for his services, the
        Company
        is required to pay Mr. Mottley a consulting fee in the aggregate amount of
        $300,000 consisting of a one-time payment of $25,000 and monthly installments
        thereafter, the amount of such monthly payments to be dependent upon the
        cash
        availability of the Company.
 
 **NOTE
        10 - INCOME TAXES**
 
 The
        Company has incurred no current income taxes during the period from July
        26,
        2002 (inception) through September 30, 2007. At September 30, 2007and 2006,
        the
        Company has Federal and state operating loss carry forwards approximating
        $13,480,000 and $9,280,000 respectively, to reduce future taxable income,
        if
        any, and expires at various dates in 2023 through 2027. A valuation allowance
        has been provided to reduce the net deferred tax asset, as management determined
        that it is more likely than not that the deferred tax assets will not be
        realized.
  Year
                  EndedSeptember
                  30,2007
              
              2006Deferred
                  tax assets
              
              $
              4,583,779
              
              $
              3,156,249Valuation
                  allowance
              
              
              (4,583,779
              )
              
              (
                  3,156,249
              )Net
                  deferred tax asset after valuation allowance
              
              $
              —
              
              $
              —
  F-19
  The
        following table accounts for the differences between the actual income tax
        benefit and amounts computed by applying the statutory U.S. federal income
        tax
        rate of 34% to loss before income taxes for the years ended September
        30:
 
 Year
                  Ended September 30,2007
              
              2006Tax
                  benefit at the federal statutory rate
              
              $
              1,427,531
              
              $
              1,076,203Increase
                  in valuation allowance
              
              
              (1,427,531
              )
              
              (1,076,203
              )Income
                  tax benefit (expense)
              
              $
              —
              
              $
              —
  **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 8,000,000 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 for 5,000,000
        shares.
        On October 18, 2007 the Form S-8 was filed with the SEC for the remaining
        3,000,000 shares.
 
 **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.
 
 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.
  F-20
 
 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-21
 
 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.
  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.
  F-22
  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
        quarter ended 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.
 
 During
        the quarter ended December 31, 2006 the Company issued 1,500,000 shares of
        common stock at $0.50 per share pursuant to the terms of conversion of a
        convertible note payable of $750,000.
  F-23
 
 In
        October, 2006 the Company issued 50,000 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
        $25,000.
 
 During
        quarter ended December 31, 2006, the Company issued 2,090,000 shares of common
        stock for $1,045,000 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.
 
 In
        the
        April 2007, the Company issued 250,000 shares of its S-8 common stock pursuant
        to its 2005 Stock Incentive Plan in payment of our CEO’s salary of $175,000 for
        calendar 2007.
 
 In
        April
        2007, the Company issued 68,000 shares of restricted common stock for $34,000
        to
        a shareholder on the exercise of a warrant at $0.50 per share.
 
 In
        April
        2007 the Company issued 375,000 shares of its S-8 common stock pursuant to
        its
        2005 Stock Incentive Plan in payment of severance benefits to two officers
        and
        directors who had resigned.
 
 In
        April
        2007 the Company issued 15,000 shares of its S-8 common stock pursuant to
        its
        2005 Stock Incentive Plan in payment of consulting services performed by
        a
        director as authorized by the board of director’s resolution dated April 6,
        2007.
 
 In
        May
        2007 the Company issued 7,500 shares of its S-8 common stock pursuant to
        its
        2005 Stock Incentive Plan in payment of compensation.
 
 In
        June
        2007 the Company issued 37,038 shares of its S-8 common stock pursuant to
        its
        2005 Stock Incentive Plan in payment of severance benefits.
 
 In
        June
        2007 the Company issued 28,170 shares of its S-8 common stock pursuant to
        its
        2005 Stock Incentive Plan in payment of compensation.
 
 In
        July
        2007 the Company issued 4,684 shares of its S-8 common stock pursuant to
        its
        2005 Stock Incentive Plan in payment of consulting services.
 
 In
        July
        2007 the Company issued 96,402 shares of its S-8 common stock pursuant to
        its
        2005 Stock Incentive Plan in payment of severance benefits.
 
 In
        July
        2007 the Company issued 36,500 shares of its S-8 common stock pursuant to
        its
        2005 Stock Incentive Plan in payment of compensation.
 
 In
        August
        2007 the Company issued 41,668 shares of its S-8 common stock pursuant to
        its
        2005 Stock Incentive Plan in payment of severance benefits.
 
 In
        August
        2007 the Company issued 22,000 shares of its S-8 common stock pursuant to
        its
        2005 Stock Incentive Plan in payment of compensation.
 
 In
        August
        2007 the Company issued 12,392 shares of its S-8 common stock pursuant to
        its
        2005 Stock Incentive Plan in payment of consulting services.
 
 In
        September 2007 the Company issued 35,716 shares of its S-8 common stock pursuant
        to its 2005 Stock Incentive Plan in payment of severance benefits.
 
 In
        September 2007 the Company issued 22,000 shares of its S-8 common stock pursuant
        to its 2005 Stock Incentive Plan in payment of compensation.
  F-24
 
 In
        September 2007 the Company issued 63,140 shares of its S-8 common stock pursuant
        to its 2005 Stock Incentive Plan in payment of consulting services.
 
 In
        September 2007, the Company issued 100,000 shares of restricted common stock
        for
        $45,000 to a shareholder on the exercise of a warrant at $0.50 per
        share.
  ***Warrants***
  The
        following table summarizes the warrant activity for the years ended September
        30, 2007 and 2006:
 
 Warrants
                  Outstanding
              
              Warrants
                  ExercisableNumber
                  of Shares
              
              Weighted
                  Average Exercise Price
              
              Number
                  of Shares
              
              Weighted
                  Average Exercise PriceBalance,
                  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
              
              $
              0.55Granted
              
              
              2,140,000
              
              $
              1.37
              
              
              2,140,000
              
              $
              1.37Exercised
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -Expired
              
              
              (2,258,000
              )
              $
              (0.50
              )
              
              (2,258,000
              )
              $
              (0.50
              )Balance,
                  September 30, 2007
              
              
              7,663,364
              
              $
              0.75
              
              
              7,663,364
              
              $
              0.75
 The
        following table summarizes information for warrants outstanding and exercisable
        at September 30, 2007:
  Warrants
                  Outstanding
              
              
              Warrants
                  ExercisableWeighted
                  Average
              
              
              Weighted
                  AverageRange
                  of Prices
              
              
              Number
              
              
              Remaining
                  Life
              
              
              Exercise
                  Price
              
              
              Number
              
              
              Remaining
                  Life
              
              
              Exercise
                  Price$
              0.50
              
              
              5,185,864
              
              
              1.0
              
              $
              0.50
              
              
              5,185,864
              
              
              1.0
              
              $
              0.50$
              0.60
              
              
              225,000
              
              
              1.1
              
              $
              0.60
              
              
              1,091,667
              
              
              1.1
              
              $
              0.60$
              0.75
              
              
              50,000
              
              
              0.2
              
              $
              0.75
              
              
              50,000
              
              
              0.2
              
              $
              0.75$
              1.31
              
              
              50,000
              
              
              1.2
              
              $
              1.31
              
              
              50,000
              
              
              1.2
              
              $
              1.31$
              1.37
              
              
              2,152,000
              
              
              1.1
              
              $
              1.37
              
              
              2,152,000
              
              
              1.1
              
              $
              1.377,663,364
              
              
              1.0
              
              $
              0.75
              
              
              7,663,364
              
              
              1.0
              
              $
              0.75
  At
        September 30, 2007, the Company had 6,542,500 warrants outstanding having
        a
        right to call feature. 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 -
        $1.92 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.
  F-25
  ***Options***
 
 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.
 
 On
        November 13, 2006 the Board of Directors granted 100,000 ten-year options
        with
        an exercise price of $0.83 per share to a new director.
 
 On
        December 8, 2006 the Board of Directors granted 100,000 ten-year options
        with an
        exercise price of $1.20 per share to a new director.
 
 On
        April
        6, 2007 the Board of Directors granted 2,500,000 ten-year options with an
        exercise price of $0.70 to the new Chief Executive Officer pursuant to his
        employment agreement.
 
 On
        April
        6, 2007 the Board of Directors granted 250,000 three-year options with an
        exercise price of $0.70 to a former officer and director pursuant to his
        severance arrangements.
 
 On
        April
        6, 2007 the Board of Directors granted 200,000 three-year options with an
        exercise price of $0.70 to a former officer and director pursuant to his
        severance arrangements.
 
 On
        May 7,
        2007, the Board of Directors granted 1,000,000 ten-year options with an exercise
        price of $0.50 to the new Chief Financial Officer pursuant to his employment
        agreement.
 
 On
        June
        11, 2007 the Board of Directors granted 50,000 three-year options with an
        exercise price of $0.41 to each of the four directors pursuant to the annual
        board member compensation program. An aggregate of 200,000 options were
        issued.
 
 On
        September 26, 2007 the Board of Directors granted 100,000 ten-year options
        with
        an exercise price of $0.57 per share to a new director.
 
 On
        September 26, 2007 the Board of Directors granted 100,000 ten-year options
        with
        an exercise price of $0.57 per share to a new director.
  The
        following table summarizes the option activity for the years ended September
        30,
        2007 and 2006:
 
 Options
                  Outstanding
              
              
              Options
                  ExercisableNumber
                  of Shares
              
              
              Weighted
                  Average Exercise Price
              
              
              Number
                  of Shares
              
              
              Weighted
                  Average Exercise PriceBalance,
                  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
              )
              $
              .63Expired
              
              
              (238,000
              )
              $
              2.29
              
              
              -
              
              $
              -Balance,
                  September 30, 2006
              
              
              1,529,000
              
              $
              1.01
              
              
              1,048,000
              
              $
              -Balance,
                  September 30, 2006
              
              
              1,529,000
              
              $
              1.01
              
              
              1,004,000
              
              $
              1.24Vested
              
              
              —
              
              
              
              
              
              1,175,000
              
              $
              0.69Granted
              
              
              4,550,000
              
              $
              0.65
              
              
              —
              
              $
              -Exercised
              
              
              —
              
              
              —
              
              
              —
              
              $
              -Expired
              
              
              (50,000
              )
              $
              0.41
              
              
              -
              
              $
              -Balance,
                  September 30, 2007
              
              
              6,029,000
              
              $
              0.74
              
              
              2,179,000
              
              $
              0.95Weighted
                  average contractual life in years
              
              
              7.9
              
              
              
              
              
              5.3
 
 The
        weighted average fair value of options granted in the year ended September
        30,
        2007 was $0.65.
  F-26
 
 The
        Company has a stock incentive plan under which 8,000,000 shares are reserved
        for
        stock and option grants. There were 5,896,897 shares available for grant
        under
        the Plan at September 30, 2006, excluding the 6,029,000 options
        outstanding.
  **NOTE
        13 - SUBSEQUENT EVENTS**
 
 On
        October 1, 2007, the Company entered into a consulting agreement with Charles
        C.
        Mottley. Pursuant to the consulting agreement, Mr. Mottley has agreed to
        provide
        various services on a consulting basis, including strategic advisory services
        and corporate financial planning. In consideration for his services, the
        Company
        is required to pay Mr. Mottley a consulting fee in the aggregate amount of
        $300,000 consisting of a one-time payment of $25,000 and monthly installments
        thereafter, the amount of such monthly payments to be dependent upon the
        cash
        availability of the Company.
 
 In
        October 2007, the Company issued an aggregate 200,000 units, each consisting
        of
        one restricted common share and one warrant share, to two 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 $100,000.
        The
        warrant was issued as a two-year warrant to purchase one share of common
        stock
        at an exercise price of $0.60.
 
 In
        November 2007, the Company issued 100,000 units, each consisting of one
        restricted common share and one warrant share, 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 $50,000.
        The
        warrant was issued as a two-year warrant to purchase one share of common
        stock
        at an exercise price of $0.60.
  F-27




**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, 2007. 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, 2007, 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.




22


**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
            
            DIRECTOR
                SINCEKenneth
                P. Pavlich
            
            53
            
            President,
                Chief Executive Officer, Director
            
            November
                2006R.
                William Wilson
            
            50
            
            Chief
                Financial Officer, Director, Secretary, Treasurer
            
            February
                2005Bruce
                F. Snyder
            
            67
            
            Director
            
            December
                2006Marvin
                K. Kaiser
            
            66
            
            Director
            
            September
                2007Donald
                W. Gentry
            
            64
            
            Director
            
            September
                2007




KENNETH
      P. PAVLICH. Mr. Pavlich has been a director of our Company since November 2006
      and was appointed President and Chief Executive Officer on April 6, 2007. On
      September 26, 2007 he was named acting Chairman following the resignation of
      Charles C. Mottley. 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.




R.
      WILLIAM WILSON. Mr. Wilson has been a director of our Company since February
      2005 and was appointed Chief Financial Officer, Treasurer and Secretary on
      May
      7, 2007. 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, a merchant bank. From 1980
      to
      1994 he was employed by Westpac Banking Corporation, Australia’s largest
      financial institution, most recently as Chief Manager (Senior Vice President).
      Mr. Wilson received his Bachelor of Science degree in Business Administration
      and Finance from the University of San Francisco in 1979.




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.





DONALD
      W.
      GENTRY. Mr. Gentry has been a director of our Company since September 2007.
      Dr.
      Gentry retired from PolyMet Mining Corporation as its President, Chief Executive
      Officer, Chairman and Director from 1998 to 2003. He is a retired Professor
      Emeritus of the Colorado School of Mines, having served that institution from
      1972 to 1998 as Professor, Department Head and Dean of Engineering. Dr. Gentry
      also currently serves on the Boards of Constellation Copper Corporation, Gryphon
      Gold Corporation and Golden Gryphon Explorations. Earlier in his career, Dr.
      Gentry held positions with Anaconda Company, Kennecott Copper Corporation,
      and
      NL Industries, Inc. as a mining engineer. He has an international reputation
      as
      a consulting mining engineer, professional educator and mining executive. His
      primary interests center on the financial aspects of project evaluation,
      investment decision analysis, project financing, and corporate investment
      strategies. He previously served as a Director of Santa Fe Pacific Gold
      Corporation, Newmont Mining Corporation, and Newmont Gold Company. He was
      elected President of the Society for Mining, Metallurgy and Exploration, Inc.
      in
      1993 and the American Institute of Mining, Metallurgical and Petroleum Engineers
      in 1996 and to the National Academy of Engineering in 1996. Dr. Gentry holds
      degrees from University of Illinois (B.S. in Mining Engineering, 1965),
      University of Nevada (M.S. in Mining Engineering, 1967), and University of
      Arizona (Ph.D. in Mining Engineering, 1972).




23




MARVIN
      K.
      KAISER. Mr. Kaiser has been a director of our Company since September 2007.
      Mr.
      Kaiser was the Executive Vice President and Chief Administrative Officer of
      The
      Doe Run Company, an international natural resource company focused on the
      mining, smelting, recycling and fabrication of metals, from December 1993 to
      February 2006. Prior thereto, he was the Chief Financial Officer of: Amax Gold
      Inc., an NYSE listed company, from 1989 to 1993; Olympic Mining Corporation
      from
      1984 to1989; and, Ranchers Exploration from 1969 to 1984. Prior to that, Mr.
      Kaiser held positions with a manufacturing firm and a public accounting firm.
      Mr. Kaiser also serves as a director of Apollo Gold Corporation,
      Constellation Copper Corporation and Uranium Resources Inc. and formerly was
      a
      member of the Board of New West Gold Corporation until its recent acquisition
      by
      Fronteer Development. Mr. Kaiser graduated from Southern Illinois University
      with a Bachelor of Science in Accounting in 1963. He has sat on the SIU -
      Carbondale School of Accountancy Advisory Board from 1988 to Present, and served
      as Chair during 2005-2006. He currently sits on the Board of the Southern
      Illinois University Foundation. Mr. Kaiser also authored the Annual Silver
      Review for the Engineering & Mining Journal for 16 years.




**Audit
      Committee Financial Expert**




On
      March
      9, 2005, we established an audit committee, then 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 407(d) (s)
      of Regulation S-B promulgated under the Securities Exchange Act of 1934, as
      amended (the “Exchange Act”). Additionally, Mr. Wilson qualified 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.





On
      May 7,
      2007 Mr. Wilson resigned as the chairman of the audit committee contemporaneous
      with his appointment as Chief Financial Officer of the Company.





As
      of
      December 2007, the audit committee chair and audit committee is vacant. The
      board of directors anticipates appointing an audit committee chair in the first
      half of fiscal 2008. Until such time as the audit committee is reconstituted,
      the entire board shall serve the functions of the audit committee.




**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., 1325 Airmotive Way,
      Suite 276, Reno, Nevada, 89502.





**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, 2007 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 2007 that were not in compliance.




24




NAME
                OF FILER:
            
            DESCRIPTION
                OF TRANSACTION:Charles
                C. Mottley
            
            Shares
                transferred on April 15, 2007 and shares granted on June 1, 2007
                reported
                on June 6, 2007. Option granted on June 11, 2007 reported on June
                14,
                2007. Shares granted in lieu of salary on August 31, 2007 and September
                28, 2007 reported on October 4, 2007.Kenneth
                P. Pavlich
            
            Option
                granted on November 13, 2006 reported on November 16,
                2006Bruce
                F. Snyder
            
            Option
                granted on December 8, 2006 reported on December 13, 2006. Purchase
                on
                December 18, 2006 reported on June 6, 2007.R.
                William Wilson
            
            Stock
                grant on April 6, 2007 reported on April 18, 2007. Stock grant on
                August
                31, 2007 reported on October 2,
                2007.





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




**Summary
      Compensation Table**




The
      following table sets forth all of the compensation awarded to, earned by or
      paid
      to (i) each individual serving as our principal executive officer during our
      last completed fiscal year; and (ii) each other individual that served as our
      executive officer at the conclusion of the fiscal year ended September 30,
      2007
      and who received in excess of $100,000 in the form of total compensation during
      such fiscal year (collectively, the “named executives”):




Name
                and Principal Position
            
            Year
            
            Salary
              ($)
            
            Option
                Awards
              ($)
            
            All
                Other Compensation
              ($)
            
            Total
                Compensation
              ($)Kenneth
                P. Pavlich
              *President,
                Chief*
              *Executive
                Officer and Director*(1)
            
            
            2007
            
            
            116,667
            (2)
            
            899,713
            (3)
            
            66,570
            (4)
            
            1,082,950R.
                William Wilson
              *Chief
                Financial Officer,*
              *Treasurer,
                Secretary and Director*(5)
            
            
            2007
            
            
            64,252
            (6)
            
            230,730
            (7)
            
            24,821
            (8)
            
            319,803Charles
                C. Mottley(9)
              *Former
                President, Chief Executive Officer and Director*
            
            
            2007
            
            
            119,400
            
            
            
            
            
            510
            (10)
            
            119,910





(1)
            Mr.
                Pavlich was appointed our President and Chief Executive Officer on
                April
                6, 2007.(2)
            On
                April 16, 2007, the Company issued Mr. Pavlich an aggregate of 250,000
                shares of the Company’s common stock in payment of salary for the
                remainder of calendar year 2007. The shares were valued at $0.70
                per
                share, the market value of the Company’s common stock on the date of
                grant. See the narrative disclosure below for more detail as to Mr.
                Pavlich’s employment agreement and compensation.(3)
            Amount
                reflects the dollar amount recognized for financial statement reporting
                purposes for the fiscal year ended September 30, 2007 in accordance
                with
                SFAS 123(R), of the vesting of approximately 1,285,304 share options
                pursuant to the stock option granted to Mr. Pavlich on April 6, 2007
                to
                acquire 2,500,000 shares of the Company’s common stock at an exercise
                price of $0.70, the fair market value of the Company’s common stock on the
                date of grant.




25




(4)
            Amount
                reflects the dollar amount recognized for financial statement reporting
                purposes for the fiscal year ended September 30, 2007 in accordance
                with
                SFAS 123(R), of the vesting of (i) 100,000 share options pursuant
                to the
                stock option granted to Mr. Pavlich on November 13, 2006 to acquire
                100,000 shares of the Company’s common stock at an exercise price of
                $0.83, the fair market value of the Company’s common stock on the date of
                grant, in consideration of his services as a director and (ii) a
                director
                performance stock option granted to Mr. Pavlich on June 11, 2007
                to
                acquire 50,000 shares of the Company’s common stock at an exercise price
                of $0.41, the fair market value of the Company’s common stock on the date
                of the grant. This option vests 50% on January 1, 2008 and 50% on
                January
                1, 2009.(5)
            Mr.
                Wilson was appointed our Chief Financial Officer, Treasurer and Secretary
                on May 7, 2007.(6)
            Pursuant
                to the terms of Mr. Wilson’s employment agreement with the Company, Mr.
                Wilson’s salary for the fiscal year ended September 30, 2007 consists of
                (i) a cash salary in the aggregate amount of $48,100 and (ii) 33,670
                shares of the Company’s common stock issued. The share component of Mr.
                Wilson’s salary was issued in increments of 7,000 shares of common stock
                per month, and were valued at the fair market value of the Company’s
                common stock on each date of issuance. See the narrative disclosure
                below
                for more detail as to Mr. Wilson’s employment agreement and
                compensation.(7)
            Amount
                reflects the dollar amount recognized for financial statement reporting
                purposes for the fiscal year ended September 30, 2007 in accordance
                with
                SFAS 123(R), of the vesting of approximately 461,460 share options
                pursuant to the stock option granted to Mr. Wilson on May 7, 2007
                to
                acquire 1,000,000 shares of the Company’s common stock at an exercise
                price of $0.50, the fair market value of the Company’s common stock on the
                date of grant.(8)
            Amount
                includes $3,570 recognized for financial statement reporting purposes
                for
                the fiscal year ended September 30, 2007 in accordance with SFAS
                123(R),
                of a director performance stock option granted to Mr. Wilson on June
                11,
                2007 to acquire 50,000 shares of the Company’s common stock at an exercise
                price of $0.41, the fair market value of the Company’s common stock on the
                date of the grant. This option vests 50% on January 1, 2008 and 50%
                on
                January 1, 2009. Also includes $10,751 directors fees earned by Mr.
                Wilson
                from October 1, 2006 through May 6, 2007 and a consulting payment
                authorized by the board of directors on April 6, 2007 in the form
                of a
                stock grant of 15,000 shares valued at $0.70 per share, the fair
                market
                value of the Company’s common stock on the date of the grant
                ($10,500).(9)
            Mr.
                Mottley served as our President and Chief Executive Officer from
                March 18, 2003 until his resignation from both positions on April 6,
                2007. Prior to the merger of ECPN with DML Services, Inc., Mr. Mottley
                also served as President and Director of ECPN from November 1, 2002
                until
                the merger on March 18, 2003.(10)
            Amount
                includes $3,570 recognized for financial statement reporting purposes
                for
                the fiscal year ended September 30, 2007 in accordance with SFAS
                123(R),
                of a director performance stock option granted to Mr. Mottley on
                June 11,
                2007 to acquire 50,000 shares of the Company’s common stock at an exercise
                price of $0.41, the fair market value of the Company’s common stock on the
                date of the grant. This option was to vest 50% on January 1, 2008
                and 50%
                on January 1, 2009, but expired unvested due to Mr. Mottley’s resignation.
                The option has been cancelled.





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 using the Simplified
      Method, expected volatility based on historical trends, a risk-free interest
      rate using the appropriate term U.S. Treasury rate, and a zero percent (0%)
      dividend yield (see NOTE 3).





**Employment
      Agreements with Executives**





***President
      and Chief Executive Officer*** ****





On
      April
      6, 2007, we entered into an employment agreement with Kenneth P. Pavlich
      relating to his service as our Chief Executive Officer and President. Pursuant
      to the agreement, we agreed to issue Mr. Pavlich 250,000 shares of the Company’s
      common stock in payment of Mr. Pavlich’s compensation for the remainder of
      calendar year 2007, valued on the date of grant at $0.70 per share. The term
      of
      the agreement is for two years, with automatic one-year extensions unless either
      party provides 30 days notice of termination to the other prior to the
      expiration of the initial term or an extension thereof. Commencing January
      1,
      2008, and for the remainder of the term of the agreement, Mr. Pavlich will
      be
      entitled to a base salary consisting of 25,000 shares of common stock per month,
      provided the fair market value of the shares issued per month shall not exceed
      $100,000 based on the value of the average of the daily closing prices of the
      Company’s common stock during the month of service. Additionally, upon the
      completion of a sale or other transaction of the Company’s El Capitan property,
      Mr. Pavlich will be entitled to bonus compensation equal to 0.5% of value
      received by the Company (and its shareholders, if applicable) in such
      transaction; provided that, the Company’s consummation of a merger or other
      consolidation with Gold and Minerals Co., Inc. shall not constitute a
      transaction whereby the bonus compensation shall apply.




26





Additionally,
      on April 6, 2007, Mr. Pavlich was granted an option to purchase 2,500,000 shares
      of the Company’s common stock at an exercise price of $0.70 per share, the fair
      market value of the Company’s stock on the date of grant. The option shall vest
      in five equal amounts of 500,000 shares upon the initial occurrence of each
      of
      the certain events as detailed in his employment agreement.





***Chief
      Financial Officer and Treasurer***





On
      May 7,
      2007, the Company entered into an employment agreement with Mr. Wilson relating
      to his service as Chief Financial Officer. Pursuant to the agreement, Mr. Wilson
      is entitled to a monthly base salary of (i) $10,000 and (ii) the issuance of
      7,000 shares of the Company’s common stock; provided that the aggregate value of
      the base salary for any month shall not exceed $38,000, of which the value
      of
      the shares of common stock issued shall be determined by based on the value
      of
      the average of the daily closing prices of the Company’s common stock during the
      month of service. The term of the agreement is for two years, with automatic
      one-year extensions unless either party provides 30 days notice of termination
      to the other prior to the expiration of the initial term or an extension
      thereof. Additionally, upon the completion of a sale or other transaction of
      the
      Company’s El Capitan property, Mr. Wilson will be entitled to bonus compensation
      equal to 0.3% of value received by the Company (and its shareholders, if
      applicable) in such transaction; provided that, the Company’s consummation of a
      merger or other consolidation with Gold and Minerals Co., Inc. shall not
      constitute a transaction whereby the bonus compensation shall
      apply.





Additionally,
      the Agreement provided for the issuance to Mr. Wilson of a stock option to
      purchase 1,000,000 shares of the Company’s common stock at an exercise price of
      $0.50, the closing price of the Company’s common stock on May 7, 2007, the date
      on which Mr. Wilson commenced employment. The option shall vest in five equal
      amounts of 200,000 shares upon the initial occurrence of certain provisions
      in
      the Agreement.




***Former
      President and Chief Executive Officer***





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, then 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 could 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.





***Other
      Former Executive Officers***





Prior
      to
      their resignations in April and May 2007, we did not have formal employment
      agreements with James Ricketts, then our Secretary, L. Ronald Perkins, then
      our
      Vice President in charge of Administration, Marketing and Communication, and
      Stephen J. Antol, then our Chief Financial Officer and Treasurer. Each received,
      in consideration for their respective services, $10,000 per month on a
      month-to-month basis. Prior to January 1, 2006, their salaries were structured
      as consulting fees, but on such date their compensation was structured as
      salaries to employees. Each of Messrs. Ricketts, Perkins and Antol accepted
      accrued back compensation and monthly compensation for June through September
      2005 in the Company’s common stock.




27





***Outstanding
      Equity Awards at Fiscal Year-End***





The
      following table sets forth information regarding each unexercised option held
      by
      each of our named executive officers as of September 30, 2007.




**Name**
            
            **Number of**
              **Securities Underlying**
              **Unexercised
                Options**
              **Exercisable**
            
            **Number
                of Securities**
              **Underlying Unexercised**
              **Options**
              **Unexercisable**
            
            **Option
                Exercise Price**
            
            **Option
                Expiration Date**Kenneth
                P. Pavlich
            
            
            100,000
            
            
            —
            
            $
            0.83
            
            
            11/13/16—
            
            
            2,500,000
            
            $
            0.70
            
            
            4/06/1725,000
            
            
            25,000
            
            $
            0.41
            
            
            6/11/10R.
                William Wilson
            
            
            44,000
            
            
            —
            
            $
            1.99
            
            
            3/24/08—
            
            
            1,000,000
            
            $
            0.50
            
            
            5/07/17100,000
            
            
            25,000
            
            $
            0.56
            
            
            7/21/1525,000
            
            
            —
            
            $
            0.41
            
            
            6/11/10Charles
                C. Mottley
            
            
            130,000
            
            
            —
            
            $
            1.99
            
            
            3/24/08300,000
            
            
            —
            
            $
            0.56
            
            
            7/21/15





(1)
            All
                options granted pursuant to our 2005 Stock Incentive Plan, as amended.




***Severance
      and Change of Control Arrangements***





See
      “Employment Agreements with Executive Officers” above for a description of the
      severance and change of control arrangements with Mr. Pavlich and Mr.
      Wilson.





Our
      board
      of directors, or a committee thereof, serving as plan administrator of our
      2005
      Stock Incentive Plan, has the authority to provide for accelerated vesting
      of
      the options granted to our named executive officers and any other person in
      connection with changes of control of our Company, including: (a) the sale,
      lease, exchange or other transfer of substantially all of our assets to a
      non-affiliate; (b) our liquidation or dissolution; (c) subject to
      certain limitations, if any person becomes the beneficial owner of in excess
      of
      20% of the combined voting power of our outstanding securities having the right
      to vote at elections of directors; (d) subject to certain limitations, a
      merger or consolidation whereby our shareholders immediately prior to effective
      date of such merger or consolidation have beneficial ownership, immediately
      following the effective date of such merger or consolidation, of securities
      of
      the surviving corporation representing less than 80% of the combined voting
      power of the surviving corporation’s then outstanding securities ordinarily
      having the right to vote at elections of directors; or (e) if after the
      date our securities are first sold in a registered public offering, our then
      existing directors cease to constitute at least a majority of the Board. This
      description constitutes only a summary of the relevant terms to our 2005 Stock
      Incentive Plan.





***Director
      Compensation***





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 plus $500 per month for all Board meetings 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 other than participating in
      annual stock option awards to board members. All Board members shall be
      reimbursed for expenses incurred in connection with Board or committee
      meetings.




28




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





On
      November 13, 2006, Kenneth Pavlich was granted an option 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.





On
      December 8, 2006, Bruce Snyder was granted an option 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
      June
      11, 2007, we issued each of our then four directors an option to purchase 50,000
      shares of our common stock at an exercise price of $0.41 per share as a
      performance bonus provided to our directors. These options vest 25,000 on
      January 1, 2008 and 25,000 on January 1, 2009.





On
      September 26, 2007 we issued Donald W. Gentry and Marvin K. Kaiser each were
      granted an option to purchase 100,000 shares of common stock at $.057 per share
      (the closing price of the Company’s common stock on the date of their
      appointment to the Board) such option to vest in two equal installments on
      January 1, 2008 and January 1, 2009.





The
      following table shows the compensation earned by each of our non-employee
      directors for the year ended September 30, 2007:




Name
            
            Fees
                Earned or Paid in Cash
            
            Option
                Awards
            
            All
                Other Compensation
            
            TotalBruce
                F. Snyder
            
            $
            14,000
            
            
            23,070
            (1)
            
            —
            
            
            34,070Donald
                W. Gentry
            
            
            1,000
            
            
            0
            (2)
            
            —
            
            
            1,000Marvin
                K. Kaiser
            
            
            1,000
            
            
            0
            (2)
            
            —
            
            
            1,000




(1)
            Amount
                reflects the dollar amount recognized for financial statement reporting
                purposes for the fiscal year ended September 30, 2007 in accordance
                with
                SFAS 123(R) of stock option awards, relating to: (i) a grant of an
                option
                on December 8, 2006 to purchase 100,000 shares of our common stock,
                at an
                exercise price of $1.20, the fair market value of our common stock
                on the
                date of grant, and (ii) a grant of an option on June 11, 2007 to
                purchase
                50,000 shares of our common stock, at an exercise price of $0.41
                the fair
                market value of our common stock on the date of grant pursuant to
                the
                terms of our director compensation plan. Assumptions used in the
                calculation of this amount for non-employees are identified in Note
                3 to
                our financial statements for the year ended September 30, 2007 included
                elsewhere in this report.(2)
            Amount
                reflects the dollar amount recognized for financial statement reporting
                purposes for the fiscal year ended September 30, 2007 in accordance
                with
                SFAS 123(R) of stock option awards, relating to a grant of an option
                on
                September 26, 2007 to purchase 100,000 shares of our common stock,
                at an
                exercise price of $0.57, the fair market value of our common stock
                on the
                date of grant pursuant to the terms of our director compensation
                plan.
                Assumptions used in the calculation of this amount for non-employees
                are
                identified in Note 3 to our financial statements for the year ended
                September 30, 2007 included elsewhere in this
                report.




29




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




The
      following table sets forth as of December 21, 2007, the number and percentage
      of
      the 80,614,587 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
                7811
                  E. Vaquero
                Scottsdale,
                  AZ 85258
              
              
              5,981,779
              (1)
              
              7.4
              %Common
              
              
              Kenneth
                  P. Pavlich
                1325
                  Airmotive Way, Suite 276
                Reno,
                  NV 89502
              
              
              438,700
              (2)
              
              *Common
              
              
              R.
                  William Wilson
                1325
                  Airmotive Way, Suite 276
                Reno,
                  NV 89502
              
              
              255,670
              (3)
              
              *Common
              
              
              Bruce
                  F. Snyder
                1325
                  Airmotive Way, Suite 276
                Reno,
                  NV 89502
              
              
              145,500
              (4)
              
              *Common
              
              
              Donald
                  W. Gentry
                1325
                  Airmotive Way, Suite 276
                Reno,
                  NV 89502
              
              
              50,000
              (5)
              
              *Common
              
              
              Marvin
                  K. Kaiser
                1325
                  Airmotive Way, Suite 276
                Reno,
                  NV 89502
              
              
              50,000
              (6)
              
              *Common
              
              
              All
                  Officers and Directors as a Group
                (5
                  Persons)
              
              
              939,870
              
              
              1.2
              %*less
                  than 1.0
              %


(1)
            Includes
                (i) vested options to purchase 300,000 shares of common stock at
                an
                exercise price of $0.56 per share and (ii) vested options to purchase
                130,000 shares of common stock at an exercise price of $1.99 per
                share.





(2)
            Includes
                (i) vested options to purchase 100,000 shares of common stock at
                an
                exercise price of $0.83 per share and (ii) vested options to purchase
                25,000 shares of common stock at an exercise price of $0.41 per share.
                Includes 36,700 shares held jointly with spouse and 27,000 shares
                held
                indirectly through Keogh Profit Sharing Plan. Does not include unvested
                options to purchase (i) 2,500,000 shares of common stock at an exercise
                price of $0.70 per share and (ii) 25,000 shares of common stock at
                an
                exercise price of $0.41 per share.




(3)
            Includes
                (i) vested options to purchase 100,000 shares of common stock at
                an
                exercise price of $0.56 per share, (ii) vested options to purchase
                44,000
                shares of common stock at an exercise price of $1.99 and (iii) vested
                options to purchase 25,000 shares of common stock at an exercise
                price of
                $0.41 per share. Does not include unvested options to purchase (i)
                1,000,000 shares of common stock at an exercise price of $0.50 per
                share
                and (ii) 25,000 shares of common stock at an exercise price of $0.41
                per
                share.




30


(4)
            Includes
                (i) vested options to purchase 100,000 shares of common stock at
                an
                exercise price of $1.20 per share and (ii) vested options to purchase
                25,000 shares of common stock at an exercise price of $0.41 per share.
                Does not include unvested options to purchase 25,000 shares of common
                stock at an exercise price of $0.41 per share.




(5)
            Includes
                vested options to purchase 50,000 shares of common stock at an exercise
                price of $0.57 per share. Does not include unvested options to purchase
                50,000 shares of common stock at an exercise price of $0.57 per
                share




(6)
            Includes
                vested options to purchase 50,000 shares of common stock at an exercise
                price of $0.57 per share. Does not include unvested options to purchase
                50,000 shares of common stock at an exercise price of $0.57 per
                share




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




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 agreed 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
      was
      to 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 could not
      exceed $3,000,000. This agreement terminated upon Mr. Pavlich entering into
      an
      employment agreement with the Company on April 6, 2007.





**Director
      Independence**





In
      determining whether the members of our Board and its committees are independent,
      we have elected to use the definition of “independence” set forth by the
      American Stock Exchange and the standards for independence established by the
      American Stock Exchange, whereby a majority of the members of a listed company’s
      board of directors must qualify as “independent” as determined by the board. Our
      Board of Directors consults with our legal counsel to ensure that the Board’s
      determinations are consistent with all relevant securities and other laws and
      regulations regarding the definition of “independent,” including those set forth
      in the applicable listing standards of the American Stock Exchange. Consistent
      with these considerations, and after review of all relevant transactions or
      relationships between each director, or any of his family members, and El
      Capitan Precious Metals Inc., its senior management and its independent
      registered public accounting firm, the Board has determined that Bruce F.
      Snyder, Marvin K. Kaiser and Donald W. Gentry are independent directors within
      the meaning of the applicable listing standard of the American Stock
      Exchange.





**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).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)




31




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
            Consulting
                Agreement with Charles C. Mottley dated October 1, 2007 (incorporated
                by
                reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed on October 5, 2007).10.3
            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).10.4
            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).10.5
            2005
                Stock Incentive Plan, as amended (incorporated by reference to Exhibit
                10.1 to the Company’s Quarterly Report on Form 10-QSB for the quarter
                ended June 30, 2007).10.6
            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 10.1to
                the Company’s Current Report on Form 8-K dated October 28,
                2005).




32




10.7
            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).10.8
            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).10.9
            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).10.10
            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.)10.11
            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).10.12
            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).10.13
            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).10.14
            Audit
                Committee Charter (incorporated by reference to Exhibit 99.1 to the
                Company’s Current Report on Form 8-K dated September 5,
                2006).10.15
            Compensation
                Committee Charter (incorporated by reference to Exhibit 99.2 to the
                Company’s Current Report on Form 8-K dated September 5,
                2006).10.16
            Bonus
                Program relating to the sale of the El Capitan property as adopted
                by the
                Board on January 25, 2007 (incorporated by reference to Exhibits
                10.1 to
                the Company’s Current Report on Form 8-K dated January 31,
                2007).10.17
            Employment
                agreement dated April 30, 2007 with Kenneth P. Pavlich (incorporated
                by
                reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed on May 4, 2007).10.18
            Employment
                agreement with R. William Wilson dated May 4, 2007 (incorporated
                by
                reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed on May 10 2007).23.2
            Consent
                of AuRIC Metallurgical Labs.23.3
            Consent
                of Michael J. Wendell23.4
            Consent
                of Mike Thomas31.1
            Certification
                of Kenneth P. Pavlich pursuant to Section 302 of the Sarbanes-Oxley
                Act of
                200231.2
            Certification
                of R. William Wilson pursuant to Section 302 of the Sarbanes-Oxley
                Act of
                2002




33




32.1
            Certification
                of Kenneth P. Pavlich pursuant to Section 906 of the Sarbanes-Oxley
                Act of
                200232.2
            Certification
                of R. William Wilson 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 Epstein
      Weber and Conover, PLC, for the audit of our year ended September 30,
      2006:





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.





The
      following table summarizes the aggregate fees billed to the Company by Epstein
      Weber and Conover, PLC and Malone & Bailey P.C.in related to the audit and
      quarterly reviews of the Company for the fiscal year ended September 30,
      2007 :





Year
                Ended
              September
                30, 2007Audit
                Fees
            
            $
            32,950Audit-Related
                Fees
            
            $
            0Tax
                Fees
            
            $
            0Total
            
            $
            32,950




34




**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/
                Kenneth P. PavlichKenneth
                P. PavlichPresident
                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/
                Kenneth P. Pavlich
            
            President
                and Chief Executive Officer
            
            December
                31, 2007Kenneth
                P. Pavlich
            
            (Principal
                Executive Officer)/s/
                R. William Wilson
            
            Chief
                Financial Officer, Treasurer,
            
            December
                31, 2007R.
                William Wilson
            
            Secretary,
                Director
              (Principal
                Financial and Accounting Officer)/s/
                Bruce F. Snyder
            
            Director
            
            December
                31, 2007Bruce
                F. Snyder/s/
                Donald W. Gentry
            
            Director
            
            December
                31, 2007Donald
                W. Gentry/s/
                Marvin K. Kaiser
            
            Director
            
            December
                31, 2007Marvin
                K. Kaiser