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, 2008




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 276Reno,
      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 31,
2008, by non-affiliates of the issuer was approximately $6,179,299 based on the
closing market price of the registrant’s common stock of $0.07 as reported on
the OTC Bulletin Board.




As of
December 31, 2008 issuer had 88,275,702 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, COMMERCIAL VIABILITY OF ANY MINERAL
DEPOSITS AND ANY OTHER FACTORS DISCUSSED IN THIS AND OTHER REGISTRANT FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION.




THESE
RISKS AND UNCERTAINTIES AND OTHER FACTORS INCLUDE, BUT ARE NOT LIMITED TO THOSE
SET FORTH UNDER ITEM 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  our 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, Limited, 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, Limited 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.




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
reduced the number of shares held to 43,200.  On August 29, 2005, we
executed a Quit Claim deed in favor of U.S. Canadian covering all of the mining
claims identified in the Joint Venture for purposes of facilitating the
management of the claims by U.S. Canadian pursuant to the Joint
Venture.




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 OTC Bulletin
Board.  It faced a SEC imposed temporary trading suspension in October
of 2004, which has since expired.  We also have potentially 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 classified
it as a long term liability.  As at September 30, 2007 we 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.  There was no change to this treatment as at September 30,
2008.





Under the
Joint Venture, we are to explore the COD site and contribute the equipment as
required. U.S. Canadian was to contribute 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 pending the outcome of U.S. Canadian’s
reported discussions with third parties for the development of this
asset.  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 intentions of U.S. Canadian, this
field study has not been implemented as of September 30, 2008.




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. There was no activity at
this property during the year ended September 30, 2008.





On August
8, 2007, we announced that we had agreed to merger terms with Gold and
Minerals.  On February 13, 2008, we entered into an Agreement and Plan
of Merger with El Capitan Acquisition Company, our wholly owned Nevada
subsidiary, Gold and Minerals and Mr. Larry Lozensky, a shareholder and
President of Gold and Minerals, pursuant to which, at the effective time of the
merger, (i) El Capitan Acquisition Company will merge with and into Gold and
Minerals and (ii) Gold and Minerals will be the surviving company to the merger
and our wholly owned subsidiary.  Pursuant to the Merger Agreement, in
consideration of 100% of the outstanding shares of capital stock of Gold and
Minerals, the shareholders of Gold and Minerals will receive an aggregate of
118,965,000 shares of our common stock at the effective time of the merger,
subject to a working capital adjustment that will be determined at the closing
of the merger. Assuming no working capital adjustment is required, based upon
our currently outstanding shares of capital stock on a fully diluted basis
(assuming the conversion or exercise of our outstanding derivative securities),
the shareholders of Gold and Minerals will hold approximately 56% of our
outstanding capital stock immediately after the effective time of the merger
(assuming we do not issue any additional shares of common stock or additional
derivative securities). Gold and Minerals’ primary asset is a 60% ownership in
El Capitan, Limited, the company that holds the El Capitan deposit and its
related assets. We currently control the remaining 40% of El Capitan, Limited.
The consummation of the merger is subject to a number of conditions, including,
without limitation, the satisfaction of due diligence by the parties, Gold and
Minerals’ shareholder approval, completion and effectiveness of a registration
statement, and other standard conditions in similar transactions.




2




On July
23, 2008 we announced that the proposed merger with Gold and Minerals reached
the stage at which we were ready to file a Form S-4 registration statement with
the Securities and Exchange Commission. Due to the time consuming nature of the
preparation of a Form S-4 and the uncertainty of the timing of the SEC review
process, the companies had worked with counsel to examine alternative structures
for the transaction. While alternatives were identified, none held significant
promise to be less time consuming or more cost effective for shareholders. Both
companies concluded that the Form S-4 registration process will be the optimal
path forward, and decided to continue to pursue the original merger
structure.  Both companies agreed to delay the filing of the Form S-4
until sufficient funding could be raised to cover accrued and future merger
expenses.  We had originally anticipated that the merger would be
complete during fiscal year 2008, however, we experienced numerous unexpected
delays in the due diligence process; primarily related to obtaining current
audited financial statements and documentation related to historical Gold and
Minerals’ transactions. Preparation of these due diligence documents
substantially increased the costs of the process for both parties. We believe
that Gold and Minerals management has made every effort to provide us with
appropriate documentation and we expect that the merger can now move forward as
sufficient funding becomes available.  The management and Boards of
both companies agree that primary use of funds must be dedicated to furthering
progress on the metallurgical and permitting tasks associated with the El
Capitan precious metals project. As joint venture accounts are brought current
by Gold and Minerals the merger process will proceed.





On
September 16, 2008 we announced that both companies agreed to restart the merger
process as Gold and Minerals had brought its joint venture account
current.  Subsequently, Gold and Minerals’ joint venture account fell
into arrears and the merger process was again halted.  The revised
timetable projects filing of the Form S-4 registration statement with the
Securities and Exchange Commission could occur in the first calendar quarter of
2009.  It could take several months for the SEC to declare the Form
S-4 effective.  Assuming these milestones are achieved, the merger
could close in the third quarter of 2009.





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 with Gold and Minerals, we will
file a registration statement on Form S-4, which will constitute a proxy
statement of Gold and Minerals that also constitutes a prospectus of El Capitan,
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 US, GOLD AND MINERALS AND
THE PROPOSED MERGER. Once filed, shareholders and investors will be able to
obtain these documents, as well as other filings containing information about us
and Gold and Minerals, without charge at the SEC’s website (http://www.sec.gov).
Copies of our filings will also be available, without charge, once they are
filed with the SEC by directing a request to our Investor Relations at (775)
201-0168 or info@ElCapitanPMi.com.




3




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 deposit. 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 producing mining
company.




Price
of Precious Metals




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




High, low
and average London afternoon fix prices for gold, silver and platinum for the
period from January 1, 2008 to September 30, 2008 and for the years ended
December 31, 2007, 2006 and 2005 are as follows:





Gold - London Afternoon Fix
Prices - US Dollars





Period
                    
                    High
                    
                    
                    Low
                    
                    
                    AverageFor
      the nine months ended September 30, 2008
                    
                    $
                    1,011.25
                    
                    
                    $
                    740.75
                    
                    
                    $
                    897.15For
      the year ended December 31, 2007
                    
                    
                    841.10
                    
                    
                    
                    608.40
                    
                    
                    
                    695.39For
      the year ended December 31, 2006
                    
                    
                    725.00
                    
                    
                    
                    524.75
                    
                    
                    
                    603.46Data
      Source: Kitco, Inc.




Silver - London Fix Prices -
US Dollars





Period
                  
                  High
                  
                  
                  Low
                  
                  
                  AverageFor
      the nine months ended September 30, 2008
                  
                  $
                  20.92
                  
                  
                  $
                  10.66
                  
                  
                  $
                  16.60For
      the year ended December 31, 2007
                  
                  
                  15.82
                  
                  
                  
                  11.67
                  
                  
                  
                  13.38For
      the year ended December 31, 2006
                  
                  
                  14.94
                  
                  
                  
                  8.83
                  
                  
                  
                  11.55Data
      Source: Kitco, Inc.




Platinum - London Afternoon
Fix Prices - US Dollars





Period
                  
                  High
                  
                  
                  Low
                  
                  
                  AverageFor
      the nine months ended September 30, 2008
                  
                  $
                  2,273.00
                  
                  
                  $
                  1,004.00
                  
                  
                  $
                  1,807.06For
      the year ended December 31, 2007
                  
                  
                  1,544.00
                  
                  
                  
                  1,118.00
                  
                  
                  
                  1,303.05For
      the year ended December 31, 2006
                  
                  
                  1,355.00
                  
                  
                  
                  982.00
                  
                  
                  
                  1,142.31Data
      Source: Kitco, Inc.




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.




4




Government
Regulation




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




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




To the
extent we intend to take action on a property that is more than “casual use,”
which generally includes activities that cause only negligible disturbance to
the land (this would not generally include drilling or operating earthmoving
equipment on the property), we are required to prepare and file with the BLM
either a notice of operation or plan of operation identifying the activity we
intend to take on the property, including a plan of reclamation indicating how
we intend to return the land to its prior state upon completion of our
activities. For each claim that we file a notice or plan of operations, we are
required to pay a one-time reclamation bond to the BLM to be used toward
restoration of the property upon completion of our activities. The amount of the
reclamation bond is determined by the BLM based upon the scope of the activity
described in the notice or plan of operation, and will thus vary with each
property. 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.  On October 3, 2008, the New Mexico Energy,
Minerals and Natural Resources Department issued their Termination Report and
Confirmation of Completion of Work for Reclamation Activities confirming that
the reclamation activities required under the original order had been
completed.





In July
2007, we submitted a Plan of Operation for continued exploration on a 2,000 acre
parcel within our 7,000 acre El Capitan claim block near Capitan, New
Mexico.





In order
to ensure timely and appropriate permitting, we 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 our holdings without requiring further time-consuming
permitting efforts. The area being permitted will allow access to a number of
high-potential targets identified through previous surface sampling and remote
sensing efforts, as well as to the prospective area to the west of the existing
deposit, which remains open to geologic resource extension. This United States
Forest Service (USFS) permitting effort, governed by the National Environmental
Policy Act (NEPA) of 1972, is a robust process that can take a significant
amount of time to complete. The typical process generally takes longer than the
prescribed regulatory time frame, and is dependent upon a number of factors
outside of our control, including, without limitation, governmental approvals,
licensing and permitting, as well as potential opposition by third
parties.  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.




5




In July
2008, we entered into a Memorandum of Understanding with the USFS related to the
permitting of 112 exploration drill holes planned on 2,000 acres of the El
Capitan claims in Lincoln County, New Mexico. The action signals the initiation
of the Federal Environmental Assessment (EA) permitting process. Based upon
recent USFS EA completion timelines, we anticipate receipt of permits by the
third quarter of 2009 at which time exploration activity could resume should
funding be available.





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.




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, Limited, 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, Limited 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, Limited’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.




6




On
January 1, 2006, El Capitan, Limited 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, Limited 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, Limited 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
we are obligated to pay 40% of the expenses of El Capitan, Limited (in
proportion with our equity ownership interest of El Capitan, Limited), and thus
were obligated to pay Gold and Minerals $688,800 for the purchase of the
patented mining claims by El Capitan, Limited. This arrangement also provided
that, as of October 1, 2004 we 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, Limited that were
paid by us.  At September 30, 2008, Gold and Minerals owed us a net
amount of $49,370.




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, Limited, 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, Limited 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, Limited 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
Limited 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.  On October 3, 2008, the New Mexico Energy, Minerals and
Natural Resources Department issued their Termination Report and Confirmation of
Completion of Work for Reclamation Activities confirming that the reclamation
activities required under the original order had been completed.





In July
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 a final decision is not expected until the third quarter
of calendar 2009.  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.





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, if any, at this
time.




7




Over the
years, samples taken on the property, including samples taken by El Capitan,
Limited, have given low-grade precious metal results when using standard fire
assay methods.  Through August 2006, due to the unique nature of the
mineralization of the 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.




In
January 2005, El Capitan Limited 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.  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. Caustic fusion assays of the drill cuttings
were conducted during 2005.





Because
caustic fusion is not a typical precious metal industry assay technique, we
retained a small metallurgical R&D lab in August 2006 to assess the
potential for a modified fire assay technique that is more appropriate for the
material from the El Capitan deposit.  Throughout 2007, investigations
into the potential use of various industry-standard fire assay techniques to
estimate the metal content of the El Capitan mineral samples were
conducted.  Such standard fire assay techniques produced limited
improved results, and beginning in early 2008, we began investigations into
other assay techniques, including leaching, acid dissolution, and the addition
of various precious metal collecting agents during the assay
process.  As of November 2008, we had analyses ongoing at both
commercial laboratories and small, R&D-oriented facilities.  There
are no assurances that the techniques being pursued will provide more reliable
analytical results, and we may not realize any economic value from this research
or the application of the associated results.




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.





El
Capitan Limited 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.




8




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.  This arrangement terminated on March 31, 2005 and no payments
have been made since that date.




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.  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, we have spent approximately $2,500 on this
project.  There has been no activity by us at this property in the
year ended September 30, 2008 and we have not been advised by U.S. Canadian of
their intent with this property.





On August
29, 2005, we executed a Quit Claim deed in favor of U.S. Canadian covering all
of the mining claims identified in the joint venture for purposes of
facilitating the management of the claims by U.S. Canadian pursuant to the joint
venture.




The
following equipment was located on the COD Mine property when it was acquired by
Gold and Minerals:




·
            45
      x 94 foot steel building·
            20
      x 24 foot steel building·
            small
      steel building for equipment·
            rod
      mill·
            diagonal
      deck table·
            various
      fuel and water storage tanks·
            crushing
      circuit equipment and conveyors·
            compressors
      and generators·
            hoists·
            52’
      head frame including head frame, ore skip and work car·
            miscellaneous
      other mining supplies and equipment





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. No material exploration has been undertaken
to determine whether any potential reserves exist at the site. Currently, the
project is on hold as U.S. Canadian has been focusing on bringing current its
SEC filings.  In November 2005, El Capitan’s board of directors
approved an amendment to the joint venture agreement whereby it will contribute
$50,000 for the completion of the geological field study. No funds have been
advanced as of September 30, 2008





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.




9




We have
renewed our BLM claim related to this property but have not conducted any
additional exploration of this property in the year ended September 30,
2008.  We do not currently have any plans to explore this
property.




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 renewable one year lease at
the cost of $918 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.





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.




10




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, 2008, we had approximately $32,455 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 $49,370 relating to expenses we have paid on behalf
of El Capitan, Limited.  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, 2008, we had sufficient cash to fund
operations through November 2008.  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 31, 2008, the Company has raised $27,000 through the exercise
of outstanding warrants.  Based upon current management operational
plans, we will be required to continue to raise additional capital on terms
acceptable to us. There are no assurances that we will be successful in such
endeavors, in which case we may be forced to reduce our operating expenditures
or to cease development and operations altogether.




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




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




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




We have
had net losses for each of the years ended September 30, 2008, and September 30,
2007, and we have an accumulated (deficit) as of September 30, 2008, of
$(17,009,467). 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.




11




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 on its properties, which
estimates are inherently imprecise and depend to some extent on statistical
inferences drawn from both limited drilling on its properties and the placement
of drill holes that may not be spaced close enough to one another to enable it
to establish probable or proven results. These estimates may prove unreliable.
Additionally, we have relied upon small independent laboratories to assay its
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 the 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.




Because
caustic fusion is not a precious metal industry accepted assay technique, we
retained a small metallurgical R&D lab in August 2006 to assess the
potential for a modified fire assay technique that is more appropriate for the
material from the El Capitan property.  Throughout 2007,
investigations into the potential use of various industry-standard fire assay
techniques to estimate the metal content of the El Capitan mineral samples were
conducted.  Such standard fire assay techniques produced limited
improved results, and beginning in early 2008, we began investigations into
other assay techniques, including leaching, acid dissolution, and the addition
of various precious metal collecting agents during the assay
process.  As of November 2008, we have analyses ongoing at both
commercial laboratories and small, R&D-oriented facilities.  There
are no assurances that the techniques being pursued will provide more reliable
analytical results, and we may not realize any economic value from this research
or the application of the associated results.




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, Limited’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.




During
2005 and 2006, when El Capitan’s drilling samples were being analyzed, El
Capitan, Limited did not include with the drill samples either blanks or known
reference standards for quality control purposes. 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. Reference standards are samples that include a known
quantity of precious metals.  Blank and reference standard quality
control samples are relatively common practice in the industry and are used in
the assay process to ensure the integrity, repeatability and accuracy of the
work performed by the laboratory. Our failure to use such check sample may have
some effect on the integrity of the results of such testing.




12




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.




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 its claimed
properties.




13




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 its ability to obtain financing.
Additionally, the duration and success of our efforts to obtain permits are
contingent upon many variables outside of its control and may increase costs of
or cause delay to its 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 its properties.




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.  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, its mining claim would become invalid. In accordance
with the mining industry practice, generally a company will not obtain title
opinions until it is determined to sell a property. Also no title insurance is
available for mining. Accordingly, it is possible that title to some of our
undeveloped properties may be defective and in the event that it does not have
good title to its properties, we would be forced to curtail or cease its
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, 2008
and 2007, 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, 2008
                      
                      $
                      0.22
                      
                      
                      $
                      0.11June
      30, 2008
                      
                      
                      0.23
                      
                      
                      
                      0.08March
      31, 2008
                      
                      
                      0.39
                      
                      
                      
                      0.16December
      31, 2007
                      
                      
                      0.42
                      
                      
                      
                      0.30September
      30, 2007
                      
                      $
                      0.70
                      
                      
                      $
                      0.38June
      30, 2007
                      
                      
                      0.70
                      
                      
                      
                      0.36March
      31, 2007
                      
                      
                      1.10
                      
                      
                      
                      0.54December
      31, 2006
                      
                      
                      1.31
                      
                      
                      
                      0.76




(b)
Holders




The
number of record holders of our common stock as of December  26, 2008
was approximately 5,243 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, 2008, (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.  As of September 30,
2008, there are 16,000,000 shares authorized under 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,
                              warrantsand
                              rights
                              (b)
                            
                            Number of
                              securitiesremaining
                              availablefor future
                              issuanceunder
                              equitycompensation
                              plan(excluding (a))
                              (c)Equity
      compensation plans approved by security holders
                            —
                            
                            
                            —
                            
                            —Equity
      compensation plans not approved by security holders
                            6,176,000
                            
                            $
                            0.30
                            
                            9,292,324
                            (1)Total
                            6,176,000
                            
                            
                            —
                            
                            9,292,324





(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 have been and 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 2008, we made
no sales of unregistered securities during the fiscal year ended September 30,
2008.




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





Results of Operations - Fiscal year
ended September 30, 2008 compared to fiscal year ended September 30,
2007.





We have
not yet realized any revenue from operations, nor do we expect to realize
potential revenues in our fiscal year 2009, if ever.  We realized a
net decrease in operating expenses of $1,687,092 from $4,188,702 for the year
ended September 30, 2007 to $2,501,610 for the year ended September 30, 2008.
Our net operating loss decrease in 2008 from 2007 was mainly attributable to
decreases in: officer compensation, administrative consulting and severance
compensation aggregating $533,997; exploration costs of $146,094; other general
and administrative of $72,195; and warrants and option expense of
$1,092,885.  These decreases were offset by increases in: professional
fees of $58,638; and legal and accounting fees of $99,441.




Plan
of Operation




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




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




16




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




Our
objective is to continue the evaluation of geologic and metallurgical
opportunities presented by the El Capitan deposit with the intent to carry on
the implementation of the previously announced strategic plan for the
development or sale of this asset.  Over the past several years there
has been a significant effort to develop an understanding of the metallurgical
properties of this deposit.  We have learned that the complex
poly-metallic nature of the rock prevents analysis by standard fire assay
techniques typically applied to gold/silver deposits.  Further, the
oxide nature of the material does not appear to respond well to nickel-sulfide
analytical techniques typically used for sulfide platinum group metal (“PGM”)
deposits.  These factors have resulted in a reduction in the level of
activity directed towards force-fitting the El Capitan gold, silver, and PGM
deposit into the traditional analytical framework of a gold & silver or
sulfide PGM deposit. We do not have “reserves” as defined by Industry Guide 7 of
the SEC, and it is possible it 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 March 2007.




On July
19, 2007, we announced that we 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.




In order
to ensure timely and appropriate permitting, we 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 our holdings without requiring further time-consuming
permitting efforts. The area being permitted will allow access to a number of
high-potential targets identified through previous surface sampling and remote
sensing efforts, as well as to the prospective area to the west of the existing
deposit, which remains open to geologic resource extension. This United States
Forest Service (“USFS”) permitting effort, governed by the National
Environmental Policy Act (NEPA) of 1972, is a robust process that can take a
significant amount of time to complete. The typical process generally takes
longer than the prescribed regulatory time frame, and is dependent upon a number
of factors outside of our control, including, without limitation, governmental
approvals, licensing and permitting, as well as potential opposition by third
parties. 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 July
14, 2008, we announced that we had entered into a Memorandum of Understanding
with the USFS related to the permitting of 112 exploration drill holes planned
on 2,000 acres of the El Capitan claims in Lincoln County, New Mexico. The
action signals the initiation of the Federal Environmental Assessment (“EA”)
permitting process. Based upon recent USFS EA completion timelines, we
anticipate receipt of permits by the third quarter of calendar 2009 at which
time exploration activity could resume.




On August
8, 2007, we announced that wet had agreed to merger terms with Gold and
Minerals.  On February 13, 2008, we entered into an Agreement and Plan
of Merger with our wholly owned subsidiary, El Capitan Acquisition Company, a
Nevada corporation, Gold and Minerals and Mr. Larry Lozensky, a stockholder and
President of Gold and Minerals, pursuant to which, at the effective time of the
Merger, (i) El Capitan Acquisition Company will merge with and into Gold and
Minerals and (ii) Gold and Minerals will be the surviving company to the Merger
and our wholly owned subsidiary (the transaction shall be referred to herein as
the “Merger”). Pursuant to the Merger Agreement, in consideration of 100% of the
outstanding shares of capital stock of Gold and Minerals, the shareholders of
Gold and Minerals will receive an aggregate of 118,965,000 shares of our common
stock at the effective time of the Merger, subject to a working capital
adjustment that will be determined at the closing of the Merger. Assuming no
working capital adjustment is required, based upon our currently outstanding
shares of capital stock on a fully diluted basis (assuming the conversion or
exercise of El Capitan’s outstanding derivative securities), the stockholders of
Gold and Minerals will hold approximately 56% of our outstanding capital stock
immediately after the effective time of the Merger (assuming we do not issue any
additional shares of common stock or additional derivative securities). Gold and
Minerals’ primary asset is a 60% ownership in El Capitan, Limited, the company
that holds the El Capitan deposit and its related assets. We currently control
the remaining 40% of El Capitan, Limited.  The consummation of the
Merger is subject to a number of conditions, including, without limitation, the
satisfaction of due diligence by the parties, Gold and Minerals’ stockholder
approval, completion and effectiveness of a registration statement, and other
standard conditions in similar transactions.




17




On July
23, 2008 we announced that the proposed merger with Gold and Minerals reached
the stage at which we were ready to file a Form S-4 registration statement with
the Securities and Exchange Commission. Due to the time consuming nature of the
preparation of a Form S-4 and the uncertainty of the timing of the SEC review
process, the companies had worked with counsel to examine alternative structures
for the transaction. While alternatives were identified, none held significant
promise to be less time consuming or more cost effective for stockholders. Both
companies have concluded that the Form S-4 registration process will be the
optimal path forward, and have decided to continue to pursue the original merger
structure.




Both
companies had agreed to delay the filing of the Form S-4 until sufficient
funding was raised to cover accrued and future Merger expenses. We had
originally anticipated that the Merger would be complete by this point in time,
however, it experienced numerous unexpected delays in the due diligence process;
primarily related to obtaining current audited financial statements and
documentation related to historical Gold and Minerals’ transactions. Preparation
of these due diligence documents substantially increased the costs of the
process for both parties. Gold and Minerals’ management has made every effort to
provide us appropriate documentation and the Merger is moving forward since
sufficient funding is now available. The management and Boards of both companies
agree that primary use of such funds must be dedicated to furthering progress on
the metallurgical and permitting tasks associated with the El Capitan precious
metals project.




On
September 16, 2008 we announced that both companies agreed to restart the merger
process as Gold and Minerals had brought its joint venture account
current.  Subsequently, Gold and Minerals’ joint venture account fell
into arrears and the merger process was again halted.  The revised
timetable projects filing of the Form S-4 registration statement with the
Securities and Exchange Commission could occur in the first calendar quarter of
2009.  It could take several months for the SEC to declare the Form
S-4 effective and the merger should close approximately 45 days from the
effective date.  Assuming these milestones are achieved, the merger
could close in the third quarter of 2009.




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.




Liquidity




As of
September 30, 2008, we had $32,455 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, 2008, based upon our current
working capital utilization rate, we have working capital to fund two months of
operations.




Historically
we have not generated any revenues from operations and have generated interest
income revenue on a nominal basis. Our consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. We have
incurred losses from inception to date. Our primary source of funds used during
the fiscal year ended September 30, 2008, was from the sale of and issuance of
equity securities during fiscal 2007 and 2008.




18




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.





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.   In the year ended September 30, 2008 we
raised $177,825 from the exercise of warrants.  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.




19




Off-Balance Sheet
Arrangements




During
the year ended September 30, 2008, 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:




In
December 2004, FASB issued SFAS No. 123(R), “Share-based Payment” (“SFAS No. 123R”) and
requires companies to measure all stock compensation awards using a fair value
method and recognize the related compensation cost in its financial statements.
This statement replaces SFAS No. 123 “Accounting for Stock Based Compensation,”
and supersedes ABP Opinion No. 25, “Accounting for Stock Issued to
Employees.” Beginning with the
Company’s quarterly period that began on October 1, 2006, the Company adopted
the provisions of SFAS No. 123R and we expenses the fair value of employee stock
options and similar awards in the financial statements.





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 in accordance with EITF 96-18 “Accounting for
Equity Instruments Issued to Non-Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”.




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.




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.




20




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 does 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 was effective for us as of July 1, 2007.





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No.
157), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. This pronouncement
applies to other standards that require or permit fair value measurements.
Accordingly, this statement does not require any new fair value measurement. The
provisions of SFAS No. 157 are effective for the Company during the year ending
September 30, 2009. Management currently believes that adoption of the
provisions of SFAS No. 1547 does not have a material impact on our consolidated
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 adopted the provision of SAB No. 108
in our fiscal year 2007.





In
December 2007, the FASB issued Statement SFAS No. 141, Business Combinations
(SFAS 141R), and Statement of Financial Accounting Standards No. 160, Accounting
and Reporting of Noncontrolling Interest in Consolidated Financial Statements,
an amendment of ARB No. 51 (SFAS No. 160). SFAS No. 141R and SFAS No. 160 will
significantly change the accounting for and reporting of business combination
transactions and noncontrolling (minority) interests in consolidated financial
statements. SFAS No. 141R retains the fundamental requirements in Statement 141,
Business Combinations, while providing additional definitions, such as the
definition of the acquirer in a purchase and improvements in the application of
how the acquisition method is applied. SFAS No. 160 will change the accounting
and reporting for minority interests, which will be recharacterized as
noncontrolling interests, and classified as a component of equity. These
Statements become simultaneously effective during the year ending September 30,
2010. Early adoption is not permitted. Management is still evaluating the impact
the adoption of this pronouncement may on its operating results, financial
position or cash flows.




In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities Including an Amendment of FASB Statement No.
115 (SFAS No. 159), which permits entities to choose to measure many financial
instruments and certain other items at fair value (the Fair Value Option).
Election of the Fair Value Option is made on an instrument-by-instrument basis
and is irrevocable. At the adoption date, unrealized gains and losses on
financial assets and liabilities for which the Fair Value Option has been
elected would be reported as a cumulative adjustment to beginning retained
earnings. If the Company elects the Fair Value Option for certain financial
assets and liabilities, the Company will report unrealized gains and losses due
to changes in fair value in earnings at each subsequent reporting date. The
provisions of SFAS No. 159 are effective for the Company during the year ending
September 30, 2009. Management does not expect the adoption of this
pronouncement to have an immediate impact on its operating results, financial
position or cash flows.




21




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 Sheets - September 30, 2008 and September 30, 2007
                  
                  
                  F-2Consolidated
      Statements of Expenses – Years ended September 30, 2008 and 2007 and for
      the period from July 26, 2002 (inception) through September 30,
      2008
                  
                  
                  F-3Consolidated
      Statements of Changes in Stockholders’ Equity (Deficit) - period from July
      26, 2002, (inception) through September 30, 2008
                  
                  
                  F-4Consolidated
      Statements of Cash Flows - Years ended September 30, 2008 and 2007 and for
      the period from July 26, 2002 (inception) through September 30,
      2008
                  
                  
                  F-6Notes
      to Consolidated Financial Statements
                  
                  
                  F-9




22





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 sheets of El Capitan Precious
Metals, Inc. and Subsidiary (an exploration stage company) (the “Company”) as of
September 30, 2008 and 2007, and the related consolidated statements of
operations, stockholders’ equity (deficit), and cash flows for the years then
ended and for the period from July 26, 2002 (inception of exploration stage) to
September 30, 2008. 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, 2008,
insofar as it relates to amounts for prior periods through September 30, 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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
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 audits provide a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of September 30,
2008 and 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




January
12, 2009




F-1




EL
CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY




(An Exploration Stage
Company)





CONSOLIDATED
BALANCE SHEETS




September
      30,2008
                                                        
                                                        
                                                        2007ASSETSCURRENT
      ASSETS :Cash
                                                        
                                                        $
                                                        32,456
                                                        
                                                        
                                                        $
                                                        90,329Miscellaneous
      receivable
                                                        
                                                        
                                                        2,472
                                                        
                                                        
                                                        
                                                        8,096Prepaid
      expenses
                                                        
                                                        
                                                        40,643
                                                        
                                                        
                                                        
                                                        45,530Due
      from affiliated company
                                                        
                                                        
                                                        49,370
                                                        
                                                        
                                                        
                                                        72,270Total
      Current Assets
                                                        
                                                        
                                                        124,941
                                                        
                                                        
                                                        
                                                        216,225Furniture
      and equipment net of accumulated depreciation of
                                                          $20,599
      and $27,419, respectively
                                                        
                                                        
                                                        18,556
                                                        
                                                        
                                                        
                                                        75,714Investment
      in El Capitan, Limited
                                                        
                                                        
                                                        788,808
                                                        
                                                        
                                                        
                                                        788,808Deposits
                                                        
                                                        
                                                        27,638
                                                        
                                                        
                                                        
                                                        31,108Total
      Assets
                                                        
                                                        $
                                                        959,943
                                                        
                                                        
                                                        $
                                                        1,111,855LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                                                        
                                                        $
                                                        68,499
                                                        
                                                        
                                                        $
                                                        348,507Accrued
      liabilities
                                                        
                                                        
                                                        45,000
                                                        
                                                        
                                                        
                                                        36,785Interest
      payable
                                                        
                                                        
                                                        49,750
                                                        
                                                        
                                                        
                                                        49,750Short
      term debt
                                                        
                                                        
                                                        27,362
                                                        
                                                        
                                                        
                                                        30,071Total
      Current Liabilities
                                                        
                                                        
                                                        190,611
                                                        
                                                        
                                                        
                                                        465,113STOCKHOLDERS’
      EQUITY :Preferred
      stock, $0.001 par value; 5,000,000 shares authorized; none issued and
      outstanding
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —Common
      stock, $0.001 par value; 300,000,000 shares authorized; 86,172,125 and
      79,752,119 issued and outstanding, respectively
                                                        
                                                        
                                                        86,183
                                                        
                                                        
                                                        
                                                        79,754Additional
      paid-in capital
                                                        
                                                        
                                                        17,692,616
                                                        
                                                        
                                                        
                                                        15,188,972Deficit
      accumulated during the exploration stage
                                                        
                                                        
                                                        (17,009,467
                                                        )
                                                        
                                                        
                                                        (14,621,984
                                                        )Total Stockholders’ Equity
                                                        
                                                        
                                                        769,332
                                                        
                                                        
                                                        
                                                        646,742$
                                                        959,943
                                                        
                                                        
                                                        $
                                                        1,111,855




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





F-2





EL
CAPITAN PRECIOUS METALS, INC. AND SUBSIDIARY


(An
Exploration Stage Company)





CONSOLIDATED
STATEMENTS OF EXPENSES




Year ended
                      September 30,
                    
                    
                    July 26, 2002
                      (Inception)
                      Through
                      September 30,2008
                    
                    
                    2007
                    
                    
                    2008OPERATING
      EXPENSES:Professional
      fees
                    
                    $
                    179,617
                    
                    
                    $
                    120,979
                    
                    
                    $
                    3,457,502Officer
      compensation expense
                    
                    
                    455,410
                    
                    
                    
                    929,407
                    
                    
                    
                    2,548,833Administrative
      consulting fees
                    
                    
                    -
                    
                    
                    
                    60,000
                    
                    
                    
                    1,083,875Management
      fees, related parties
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    320,500Legal
      and accounting fees
                    
                    
                    232,213
                    
                    
                    
                    132,772
                    
                    
                    
                    1,109,656Exploration
      expenses
                    
                    
                    252,006
                    
                    
                    
                    398,100
                    
                    
                    
                    2,208,924Warrant
      and option expenses
                    
                    
                    1,156,590
                    
                    
                    
                    2,249,475
                    
                    
                    
                    3,569,815Other
      general and administrative
                    
                    
                    225,774
                    
                    
                    
                    297,969
                    
                    
                    
                    1,095,829(2,501,610
                    )
                    
                    
                    (4,188,702
                    )
                    
                    
                    (15,394,934
                    )LOSS
      FROM OPERATIONS
                    
                    
                    (2,501,610
                    )
                    
                    
                    (4,188,702
                    )
                    
                    
                    (15,394,934
                    )OTHER
      INCOME (EXPENSE):Interest
      income
                    
                    
                    555
                    
                    
                    
                    5,150
                    
                    
                    
                    36,215Interest
      expense:
                    
                    
                    (3
                    )
                    
                    
                    -
                    
                    
                    
                    -Related
      parties
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (28,220
                    )Other
                    
                    
                    -
                    
                    
                    
                    (17,982
                    )
                    
                    
                    (345,247
                    )Expenses
      associated with debt issuance and conversion
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (281,457
                    )Accretion
      of notes payable discounts
                    
                    
                    -
                    
                    
                    
                    (236,241
                    )
                    
                    
                    (1,109,399
                    )Other
      Income
                    
                    
                    113,575
                    
                    
                    
                    -
                    
                    
                    
                    113,575Total
      Other Income (Expenses)
                    
                    
                    114,127
                    
                    
                    
                    (249,073
                    )
                    
                    
                    (1,614,533
                    )NET
      LOSS
                    
                    $
                    (2,387,483
                    )
                    
                    $
                    (4,437,775
                    )
                    
                    $
                    (17,009,467
                    )Basic
      and diluted net loss per common share
                    
                    $
                    (0.03
                    )
                    
                    $
                    (0.06
                    )Weighted
      average number of common shares outstanding
                    
                    
                    82,234,030
                    
                    
                    
                    78,234,483





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 STOCKHOLDERS’ EQUITY (DEFICIT)


July 26,
2002 (Inception) to September 30, 2008




Common Stock
                                                    Shares
                                                  
                                                  
                                                  Common
                                                    Stock
                                                    Amount
                                                  
                                                  
                                                  Stock
                                                    Subscriptions
                                                  
                                                  
                                                  Additional Paid
                                                    in Capital
                                                  
                                                  
                                                  Deficit
                                                    Accumulated
                                                    During The
                                                    Exploration Stage
                                                  
                                                  
                                                  TotalInitial
      Issuance of Common Stock
                                                  
                                                  
                                                  3,315,000
                                                  
                                                  
                                                  $
                                                  3,315
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  $
                                                  (3,306
                                                  )
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  9Net
      loss
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (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
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (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
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (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
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (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-4


EL CAPITAN PRECIOUS METALS, INC. AND
SUBSIDIARY
 (An
Exploration Stage Company)
 CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
 July 26,
2002 (Inception) to September 30, 2008


Common Stock
                                                      Shares
                                                    
                                                    
                                                    Common
                                                      Stock
                                                      Amount
                                                    
                                                    
                                                    Stock
                                                      Subscriptions
                                                    
                                                    
                                                    Additional Paid
                                                      in Capital
                                                    
                                                    
                                                    Deficit
                                                      Accumulated
                                                      During The
                                                      Exploration 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
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (4,041,802
                                                    )
                                                    
                                                    
                                                    (4,041,802
                                                    )Balances
      at September 30, 2006
                                                    
                                                    
                                                    74,896,909
                                                    
                                                    
                                                    $
                                                    74,897
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    10,307,075
                                                    
                                                    
                                                    $
                                                    (10,184,209
                                                    )
                                                    
                                                    $
                                                    197,763Stock
      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
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (4,437,775
                                                    )
                                                    
                                                    
                                                    (4,437,775
                                                    )Balances
      at September 30, 2007
                                                    
                                                    
                                                    79,752,119
                                                    
                                                    
                                                    $
                                                    79,754
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    15,188,972
                                                    
                                                    
                                                    $
                                                    (14,621,984
                                                    )
                                                    
                                                    $
                                                    646,742Common
      stock sold in private placement
                                                    
                                                    
                                                    300,000
                                                    
                                                    
                                                    
                                                    300
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    149,700
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    150,000Common
      stock issued for exercise of cashless warrants
                                                    
                                                    
                                                    12,000
                                                    
                                                    
                                                    
                                                    12
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (12
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Common
      stock sold by the exercise of warrants and options
                                                    
                                                    
                                                    1,257,500
                                                    
                                                    
                                                    
                                                    1,257
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    176,568
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    177,825Common
      stock issued for compensation
                                                    
                                                    
                                                    1,637,356
                                                    
                                                    
                                                    
                                                    1,637
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    358,774
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    360,411Common
      stock issued for services
                                                    
                                                    
                                                    3,213,150
                                                    
                                                    
                                                    
                                                    3,212
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    662,035
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    665,247Warrant
      and option expense
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,156,590
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,156,590Net
      loss
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (2,387,483
                                                    )
                                                    
                                                    
                                                    (2,387,483
                                                    )Balances
      at September 30, 2008
                                                    
                                                    
                                                    86,172,125
                                                    
                                                    
                                                    $
                                                    86,172
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    17,692,627
                                                    
                                                    
                                                    $
                                                    (17,009,467
                                                    )
                                                    
                                                    $
                                                    769,332
  The
accompanying notes are an integral part of these consolidated financial
statements.
  F-5


EL
CAPITAN PRECIOUS METALS, INC.


(An
Exploration Stage Company)





CONSOLIDATED
STATEMENTS OF CASH FLOWS




Year Ended
                          September 30,
                        
                        
                        July 26, 2002 (Inception)
                          Through
                          September 30,2008
                        
                        
                        2007
                        
                        
                        2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                        
                        $
                        (2,387,483
                        )
                        
                        $
                        (4,437,775
                        )
                        
                        $
                        (17,009,467
                        )Adjustments
      to reconcile net (loss) to net cash used in operating
      activitiesWarrant
      and option expense
                        
                        
                        1,156,590
                        
                        
                        
                        2,249,475
                        
                        
                        
                        7,488,119Beneficial
      conversion feature of notes payable
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        225,207Non-cash
      expense with affiliate
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        7,801Non-cash
      compensation expense
                        
                        
                        1,025,658
                        
                        
                        
                        657,957
                        
                        
                        
                        1,683,615Accretion
      of discount on notes payable
                        
                        
                        -
                        
                        
                        
                        236,241
                        
                        
                        
                        1,149,588Loss
      on sale of fixed assets
                        
                        
                        42,604
                        
                        
                        
                        11,209
                        
                        
                        
                        53,813Provision
      for uncollectible note receivable
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        62,500Depreciation
                        
                        
                        15,950
                        
                        
                        
                        21,617
                        
                        
                        
                        61,379Changes
      in operating assets and liabilities:Miscellaneous
      receivable
                        
                        
                        8,096
                        
                        
                        
                        561
                        
                        
                        
                        2,391Interest
      receivable
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (13,611
                        )Prepaid
      expenses and other current assets
                        
                        
                        2,415
                        
                        
                        
                        49,509
                        
                        
                        
                        (43,116
                        )Expense
      advances on behalf of affiliated company
                        
                        
                        22,900
                        
                        
                        
                        51,537
                        
                        
                        
                        (612,360
                        )Accounts
      payable
                        
                        
                        (267,519
                        )
                        
                        
                        (28,061
                        )
                        
                        
                        62,769Accounts
      payable - Related Party
                        
                        
                        (12,489
                        )
                        
                        
                        12,853
                        
                        
                        
                        364Accrued
      liabilities
                        
                        
                        8,215
                        
                        
                        
                        (104,392
                        )
                        
                        
                        157,136Interest
      payable, other
                        
                        
                        -
                        
                        
                        
                        (36,872
                        )
                        
                        
                        37,441Net
      Cash (Used in) Operations
                        
                        
                        (385,063
                        )
                        
                        
                        (1,316,141
                        )
                        
                        
                        (6,686,431
                        )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property interest
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (100,000
                        )Purchase
      of furniture and equipment
                        
                        
                        (1,396
                        )
                        
                        
                        (3,780
                        )
                        
                        
                        (148,140
                        )Purchase
      of Automotive
                        
                        
                        -
                        
                        
                        
                        12,001
                        
                        
                        
                        12,001Deposits
                        
                        
                        3,470
                        
                        
                        
                        (263
                        )
                        
                        
                        (27,638
                        )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
                        
                        
                        2,074
                        
                        
                        
                        7,958
                        
                        
                        
                        (496,277
                        )




F-6


Year Ended
                              September 30,
                            
                            
                            July 26, 2002 (Inception)
                              Through
                              September 30,2008
                            
                            
                            2007
                            
                            
                            2008CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from the sale of common stock
                            
                            
                            150,000
                            
                            
                            
                            25,100
                            
                            
                            
                            3,456,706Costs
      associated with the sale of stock
                            
                            
                            
                            
                            
                            
                            -
                            
                            
                            
                            (19,363
                            )Proceeds
      from notes payable, related parties
                            
                            
                            
                            
                            
                            
                            -
                            
                            
                            
                            219,900Stock
      subscriptions received
                            
                            
                            
                            
                            
                            
                            -
                            
                            
                            
                            -Proceeds
      from warrant exercise
                            
                            
                            177,825
                            
                            
                            
                            1,123,900
                            
                            
                            
                            1,301,725Proceeds
      from notes payable, other
                            
                            
                            49,651
                            
                            
                            
                            54,529
                            
                            
                            
                            2,426,480Repayment
      of notes payable, related parties
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (61,900
                            )Repayment
      of notes payable, other
                            
                            
                            (52,360
                            )
                            
                            
                            (12,150
                            )
                            
                            
                            (108,384
                            )Net
      Cash Provided by Financing Activities
                            
                            
                            325,116
                            
                            
                            
                            1,191,379
                            
                            
                            
                            7,215,164NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                            
                            
                            (57,873
                            )
                            
                            
                            (116,804
                            )
                            
                            
                            32,456CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                            
                            
                            90,329
                            
                            
                            
                            207,133
                            
                            
                            
                            -CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                            
                            $
                            32,456
                            
                            
                            $
                            90,329
                            
                            
                            $
                            32,456


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




F-7




Year Ended
                      September 30,
                    
                    
                    July 26, 2002
      (Inception)
                      Through
                      September 30,2008
                    
                    
                    2007
                    
                    
                    2008SUPPLEMENTAL
      CASH FLOW INFORMATION :Cash
      paid for interest
                    
                    $
                    2,503
                    
                    
                    $
                    20,130
                    
                    
                    $
                    171,156Cash
      paid for income taxes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -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, Limited.
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    8Issuance
      of common stock to Gold and Minerals Company, Inc. in connection with the
      purchase of the COD property
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,600Issuance
      of common stock to Gold and Minerals Company, Inc. in connection with the
      purchase of the Weaver property
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,000Issuance
      of common stock for financing costs
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    56,250Conversion
      of accounts payable to equity
                    
                    
                    -
                    
                    
                    
                    62,905
                    
                    
                    
                    94,286Net
      non-cash advances from affiliated company
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    562,990Notes
      payable and accrued interest converted to equity
                    
                    
                    -
                    
                    
                    
                    750,000
                    
                    
                    
                    2,495,544Issuance
      of common stock for accrued fees payable
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    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





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.





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 $17,009,467 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 intends to 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 each of September 2006, October 2007 and
November 2007 the Company placed a private placement of securities. In September
2007, the Company exercised its call option on certain warrants which realized
$45,000 in proceeds.  During the year ended September 30, 2008, the
Company exercised certain warrants which realized approximately $176,600 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 additional 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, Limited (“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.  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 ECL.




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.





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, 2008, the
property contained four patented claims and 352 unpatented claims encompassing
approximately 7,000 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.




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 reduced the number of shares
held to 43,200.  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 4.




F-10




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 OTC Bulletin
Board.  As at September 30, 2008 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.





Reclassifications





Certain
prior year amounts have been reclassified to conform to the current year
presentation.




Cash
and Cash Equivalents




The
Company considers those short-term, highly liquid investments with maturities of
three months or less as cash and cash equivalents. At times, cash in banks may
be in excess of the FDIC limits.




Management
Estimates and Assumptions




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




Fair
Value of Financial Instruments




The fair
values of the Company’s financial instruments include cash, investments,
accounts payable, accrued expenses and notes payable approximate their carrying
amounts because of the short maturities of these instruments or because of
restrictions.





Furniture
and Equipment




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




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




Depreciation
expense for the years ended September 30, 2008 and 2007 was $15,950 and $21,617,
respectively.




F-11




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




In
December 2004, FASB issued SFAS No. 123(R), “Share-based Payment” (“SFAS No. 123R”) and
requires companies to measure all stock compensation awards using a fair value
method and recognize the related compensation cost in its financial statements.
This statement replaces SFAS No. 123 “Accounting for Stock Based
Compensation,” and
supersedes ABP Opinion No. 25, “Accounting for Stock Issued to Employees.” Beginning with the
Company’s quarterly period that began on October 1, 2006, the company adopted
the provisions of SFAS No. 123R and the Company expenses the fair value of
employee stock options and similar awards in the financial
statements.





The
Company recognized stock-based employee compensation aggregating $1,156,590 for
stock and stock options issued to employees during the year ended September 30,
2008 and $1,355,100 for stock and stock options issued to employees during year
ended September 30, 2007.





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 in accordance with EITF 96-18 “Accounting for
Equity Instruments Issued to Non-Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”.




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, 2008 and 2007, 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, Limited.




Income
Taxes




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




F-12




New
Accounting Pronouncements





In
December 2007, the FASB issued Statement SFAS No. 141, “Business Combinations”,
(SFAS No. 141R), and Statement of Financial Accounting Standards No. 160,
“Accounting and Reporting of Noncontrolling Interest in Consolidated Financial
Statements”, an amendment of ARB No. 51 (SFAS No. 160). SFAS No. 141R and SFAS
No. 160 will significantly change the accounting for and reporting of business
combination transactions and noncontrolling (minority) interests in consolidated
financial statements. SFAS No. 141R retains the fundamental requirements in
Statement 141, “Business Combinations”, while providing additional definitions,
such as the definition of the acquirer in a purchase and improvements in the
application of how the acquisition method is applied. SFAS No. 160 will change
the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests, and classified as a component of
equity. These Statements become simultaneously effective during the year ending
September 30, 2010. Early adoption is not permitted. The Company is still
evaluating the impact the adoption of this pronouncement may on its operating
results, financial position or cash flows.




In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities Including an Amendment of FASB Statement No.
115 (SFAS No. 159), which permits entities to choose to measure many financial
instruments and certain other items at fair value (the Fair Value Option).
Election of the Fair Value Option is made on an instrument-by-instrument basis
and is irrevocable. At the adoption date, unrealized gains and losses on
financial assets and liabilities for which the Fair Value Option has been
elected would be reported as a cumulative adjustment to beginning retained
earnings. If the Company elects the Fair Value Option for certain financial
assets and liabilities, the Company will report unrealized gains and losses due
to changes in fair value in earnings at each subsequent reporting date. The
provisions of SFAS No. 159 are effective for the Company during the year ending
September 30, 2009. The Company does not expect the adoption of this
pronouncement to have an immediate impact on its operating results, financial
position or cash flows.




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, (SFAS
No. 157), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. This pronouncement
applies to other standards that require or permit fair value measurements.
Accordingly, this statement does not require any new fair value measurement. The
provisions of SFAS No. 157 are effective for the Company during the year ending
September 30, 2009. The Company does not expect the adoption of this
pronouncement to have an immediate impact on its operating results, financial
position or cash flows.




NOTE
4 - INVESTMENTS IN US CANADIAN




On
September 30, 2008, the Company owned 43,200 shares of U.S. Canadian common
stock. The Company valued the shares at $0.00 per share, due to market
conditions for this stock.  The Company has a residual 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 note which was converted in full during the year
ended September 30, 2007, thereby, terminating the Company’s pledge of such
shares.





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 had 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.




F-13




Due
from Affiliated Company




During
the period October 2004 through September 2008, the Company made net payments on
behalf of Minerals aggregating to $2,217,612 relating to costs incurred by El
Capitan, Limited (“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, 2008, Minerals has reimbursed
the Company $2,168,242 of the advanced costs.




At
September 30, 2008, Minerals owed the Company $49,370.




Employment
Agreement





The
Company issued to Mr. Pavlich, President and CEO, 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. On September 9, 2008, this option was cancelled and Mr. Pavlich was
granted an option to purchase 2,500,000 of the Company’s common stock at an
exercise price of $0.14 per share, the fair market value of the Company’s stock
the date of the grant.  The option vests in four equal installments
with the first tranche vesting immediately.





Effective
May 7, 2007, the Company appointed R. William Wilson as its Chief Financial
Officer.  On May 4, 2007, the Company entered into an employment
agreement with Mr. Wilson relating to his service as Chief Financial
Officer.  This agreement was amended on September 9,
2008.  Pursuant to the agreement as amended, Mr. Wilson is entitled to
a monthly base salary of $20,000 per month which may be paid in Company stock
subject to mutual agreement.  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.  On September 9, 2008, this option was cancelled and Mr.
Wilson was granted an option to purchase 1,000,000 of the Company’s common stock
at an exercise price of $0.14 per share, the fair market value of the Company’s
stock the date of the grant.  The option vests in four equal
installments with the first tranche vesting immediately.




Consulting
Agreements




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.  This agreement was terminated in June
2008 in exchange for 445,833 shares of the Company’s unregistered common stock,
with a fair market value of $0.10 per share on the date of issue, and other
assets with a value of approximately $6,000.  During the life of this
agreement Mr. Mottley received $32,500 in cash payments.





NOTE
6 - 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 the years ended September 30, 2009 and 2010 are
$4,217 and $0, respectively.




F-14




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 $918.





For the
years ended September 30, 2008 and 2007, rent expense was $23,676 and $44,017,
respectively.





NOTE
7 - INCOME TAXES





The
Company has incurred no current income taxes during the period from July 26,
2002 (inception) through September 30, 2008. At September 30, 2008 and 2007, the
Company has Federal and state operating loss carry forwards approximating
$15,867,483 and $13,480,000 respectively, to reduce future taxable income, if
any, and expires at various dates in 2024 through 2028. 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 Ended September 30,2008
                                      
                                      
                                      2007Deferred
      tax assets
                                      
                                      $
                                      5,394,944
                                      
                                      
                                      $
                                      4,583,779Valuation
      allowance
                                      
                                      
                                      (5,394,944
                                      )
                                      
                                      
                                      (4,583,779
                                      )Net
      deferred tax asset after valuation allowance
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      —





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 30,2008
                                      
                                      
                                      2007Tax
      benefit at the federal statutory rate
                                      
                                      $
                                      811,165
                                      
                                      
                                      $
                                      1,427,531Increase
      in valuation allowance
                                      
                                      
                                      (811,165
                                      )
                                      
                                      
                                      (1,427,531
                                      )Income
      tax benefit (expense)
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      —




NOTE
8 - 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.  On July 30, 2008, the Board of Directors increased
the number of share of the Company’s common stock authorized for issuance under
this plan to 16,000,000 shares.





NOTE
9 - STOCKHOLDERS’ DEFICIT




Issuances
of Common Stock, Warrants and Options





Common
Stock





During
the year ended September 30, 2002, El Capitan issued 3,315,000 common shares at
its initial issuance.




F-15




During
the year ended September 30, 2003, El Capitan issued 33,685,000 shares of common
stock to Gold and Minerals Company, Inc., for the purchase of a 40% interest in
El Capitan, Limited, 6,720,000 shares of common stock in connection with the
acquisition of DML Services and 3,600,000 shares of common stock to Gold and
Minerals Company, Inc. in connection with the purchase of the COD
property.





During
the year ended September 30, 2008, El Capitan also issued 150,000 shares of
common stock valued at $189,000 for services, 2,114,280 shares of common stock
valued at $850,000 for compensation and 525,000 shares of common stock for
payment in full of a note payable of $17,500.





During
the year ended September 30, 2004, El Capitan issued 3,000,000 shares of common
stock in connection with the purchase of the Weaver property, 2,319,672 shares
of common stock for payment of notes payable of $573,368, 1,590,500 shares of
common stock valued at $280,397 for services and 3,650,164 shares of common
stock valued at $520,000 compensation.





During
the year ended September 30, 2005, El Capitan issued 200,000 shares of common
stock as subscribed stock, 432,701 shares of common stock for payment of notes
payable of $173,080, 2,241,422 shares of common stock valued at $1,236,881 for
services, 10 common shares for the exercise of warrants and sold 3,865,000
shares of common stock in a private placement for $1,938,137.





During
the year ended September 30, 2006, El Capitan issued 2,124,726 shares of common
stock for payment of notes payable of $1,236,881, 498,825 shares of common stock
for the exercise of options and warrants, 562,731 common shares value at
$387,136 for services, 112,181 shares of common stock valued at $175,000 for
compensation and sold 2,189,697 shares of common stock in a private placement
for $1,160,965.





In
November 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.





In
October 2006, the Company sold 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, for $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.





During
fiscal 2007, the Company issued 168,000 shares of restricted common stock for
$79,000 to shareholders for the exercise of warrants at $0.50 per
share.





During
fiscal 2007, the Company issued 951,994 shares of its S-8 common stock pursuant
to its 2005 Stock Incentive Plan for severance benefits and compensation valued
at $595,052.





During
fiscal 2007, the Company issued 95,216 shares of its S-8 common stock pursuant
to its 2005 Stock Incentive Plan for consulting services valued at
$62,905.





During
fiscal 2008, the Company sold 300,000 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, for $150,000. The shares were
sold along with 300,000 common stock warrants with a term of 2 years and an
exercise price of $0.60 per share.





During
fiscal 2008, the Company issued 1,257,500 shares of common stock for $177,825 to
shareholders for the exercise of warrants at prices from $0.11 to $0.44 per
share.





During
fiscal 2008, the Company issued 1,637,356 shares of its S-8 common stock
pursuant to its 2005 Stock Incentive Plan for severance benefits and
compensation valued at $360,411.




F-16




During
fiscal 2008, the Company issued 3,213,150 shares of its S-8 common stock
pursuant to its 2005 Stock Incentive Plan for consulting services valued at
$665,247.





During
fiscal 2008, the Company issued 12,000 restricted common shares for the cashless
exercise of warrants.





Warrants




During
fiscal 2007, the Company granted a total of 2,140,000 common stock warrants with
exercise prices ranging from $0.76 to $1.31 with terms of 2 years. The fair
value of the warrants granted was estimated using the Black-Scholes option
pricing model. The assumptions used in the model included the following: the
exercise prices noted above, expected terms of 1 to 2 years (the warrants
qualify as “plain vanilla” warrants under the provisions of Staff Accounting
Bulletin No. 107 ("SAB No. 107") and, due to limited warrant exercise data
available to the Company, the term was estimated pursuant to the provisions of
SAB No. 107), expected volatilities ranging from 94.35% to
134.31%,  risk-free interest rates of 4.90% to 5.10% and the market
price of the Company’s common stock on the grant dates of the warrants. The fair
value of these warrants was estimated to be $727,475. The warrants vested
immediately and the full fair value was expensed during the year ended September
30, 2007.





During
fiscal 2008, the Company granted 300,000 common stock warrants along with
300,000 common shares for $150,000. The warrants have terms of 2 years and are
exercisable at $0.60.





On May 9,
2008, the Company modified the terms of 150,000 warrants previously granted. The
exercise price of the warrants was reduced from $0.50 to $0.16. The modification
resulted in additional warrant expense of $9,311. The significant assumptions
used in the Black-Scholes option pricing model to compute the fair value of the
modification of these warrants include the following: remaining term of 0.6
years, expected volatility of 103.51%, risk-free interest rate of 1.66% and the
market price of the Company’s common stock on the modification date. The
warrants were subsequently exercised for cash.




During
July 2008, the Company modified the terms of 1,007,500 warrants previously
granted. The exercise price of the warrants was reduced from $0.50 to $0.11. The
modification resulted in additional warrant expense of $45,656. The significant
assumptions used in the Black-Scholes option pricing model to compute the fair
value of the modification of these warrants include the following: remaining
term of 0.8 years, expected volatility between 94.96 and 107.59%, risk-free
interest rates of 1.31% to 1.68% and the market price of the Company’s common
stock on the modification date. The warrants were subsequently exercised for
cash.





The
following table summarizes the warrant activity for the years ended September
30, 2008 and 2007:




Warrants Outstanding
                      
                      
                      Warrants ExercisableNumber ofShares
                      
                      
                      WeightedAverage ExercisePrice
                      
                      
                      Number ofShares
                      
                      
                      WeightedAverage ExercisePriceBalance,
      September 30, 2006
                      
                      
                      7,781,364
                      
                      
                      $
                      0.54
                      
                      
                      
                      7,781,364
                      
                      
                      $
                      0.54Granted
                      
                      
                      2,140,000
                      
                      
                      $
                      1.37
                      
                      
                      
                      2,140,000
                      
                      
                      $
                      1.37Cancelled
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Exercised
                      
                      
                      (2,258,000
                      )
                      
                      $
                      (0.50
                      )
                      
                      
                      (2,258,000
                      )
                      
                      $
                      (0.50
                      )Balance,
      September 30, 2007
                      
                      
                      7,663,364
                      
                      
                      $
                      0.75
                      
                      
                      
                      7,663,364
                      
                      
                      $
                      0.75Balance,
      September 30, 2007
                      
                      
                      7,663,364
                      
                      
                      $
                      0.75
                      
                      
                      
                      7,663,364
                      
                      
                      $
                      0.75Granted
                      
                      
                      300,000
                      
                      
                      $
                      0.60
                      
                      
                      
                      300,000
                      
                      
                      $
                      0.60Cancelled
                      
                      
                      (1,332,500
                      )
                      
                      
                      —
                      
                      
                      
                      (1,332,500
                      )
                      
                      
                      —Exercised
                      
                      
                      (1,257,500
                      )
                      
                      $
                      (0.14
                      )
                      
                      
                      (1,257,500
                      )
                      
                      $
                      (0.14
                      )Balance,
      September 30, 2008
                      
                      
                      5,373,364
                      
                      
                      $
                      0.84
                      
                      
                      
                      5,373,364
                      
                      
                      $
                      0.84




F-17




The
following table summarizes information for warrants outstanding and exercisable
at September 30, 2008:





Warrants Outstanding
                                
                                Warrants ExercisableWeighted Average
                                
                                Weighted AverageRange ofPrices
                                
                                Number
                                
                                Remaining Life
                                
                                Exercise Price
                                
                                Number
                                
                                Remaining Life
                                
                                Exercise Price$
                                0.50
                                
                                3,033,364
                                
                                0.7
                                
                                $
                                0.50
                                
                                3,033,364
                                
                                0.7
                                
                                $
                                0.50$
                                0.60
                                
                                300,000
                                
                                1.1
                                
                                $
                                0.60
                                
                                300,000
                                
                                1.1
                                
                                $
                                0.60$
                                1.31
                                
                                50,000
                                
                                0.2
                                
                                $
                                1.31
                                
                                50,000
                                
                                0.2
                                
                                $
                                1.31$
                                1.37
                                
                                1,990,000
                                
                                0.1
                                
                                $
                                1.37
                                
                                1,990,000
                                
                                0.1
                                
                                $
                                1.375,373,364
                                
                                0.2
                                
                                $
                                0.84
                                
                                5,373,364
                                
                                0.2
                                
                                $
                                0.84





The
aggregate intrinsic value of the outstanding warrants at September 30, 2008 was
zero.





At
September 30, 2008, the Company had 4,955,000 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,
2007, 6,542,000 warrants were callable. In the event the warrant holder does not
exercise the warrant within such thirty-day time period, the warrants could be
redeemed by the Company at the price per warrant share of $0.001.





Options





During
fiscal 2007, the Company granted employees and directors an aggregate of
4,550,000 options with terms ranging between 3 and 10 years and exercise prices
ranging from $0.41 to $1.20. The fair value of the options granted was estimated
using the Black-Scholes option pricing model. The assumptions used in the model
included the following: the exercise prices noted above, expected terms of 1.50
to 5.75 years (the options qualify as “plain vanilla” options under the
provisions of Staff Accounting Bulletin No. 107 ("SAB No. 107") and, due to
limited option exercise data available to the Company, the term was estimated
pursuant to the provisions of SAB No. 107), expected volatilities ranging from
119.50% to 128.91%,  risk-free interest rates of 4.62% to 5.03% and
the market price of the Company’s common stock on the grant dates of the
options. The fair value of these options is being expensed on a straight line
basis over their vesting periods. During the years ended September 30, 2008 and
2007, $938,956 and $1,473,940, respectively was expensed related to these
options.





During
fiscal 2008, the Company granted employees and directors an aggregate of
4,126,000 options with terms of 10 years and exercise prices ranging from $0.14
to $0.19. The fair value of the options granted was estimated using the
Black-Scholes option pricing model. The assumptions used in the model included
the following: the exercise prices noted above, expected terms of 5.25 to 5.75
years (the options qualify as “plain vanilla” options under SAB No. 107 and, due
to limited option exercise data available to the Company, the term was estimated
pursuant to the provisions of SAB No. 107), expected volatilities ranging from
110.88% to 117.25%,  risk-free interest rates of 3.45% to 3.62% and
the market price of the Company’s common stock on the grant dates of the
options. The fair value of these options is being expensed on a straight line
basis over their vesting periods. During the year ended September 30, 2008,
$162,667 was expensed related to these options.




F-18




The
following table summarizes the option activity for the years ended September 30,
2008 and 2007:




Options Outstanding
                                                            
                                                            
                                                            Options ExercisableNumber of Shares
                                                            
                                                            
                                                            Weighted AverageExercise Price
                                                            
                                                            
                                                            Number of Shares
                                                            
                                                            
                                                            Weighted Average
      Exercise PriceBalance,
      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
                                                            
                                                            
                                                            $
                                                            0.95Balance,
      September 30, 2007
                                                            
                                                            
                                                            6,029,000
                                                            
                                                            
                                                            $
                                                            0.74
                                                            
                                                            
                                                            
                                                            2,179,000
                                                            
                                                            
                                                            $
                                                            0.95Vested
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            1,175,000
                                                            
                                                            
                                                            $
                                                            0.19Granted
                                                            
                                                            
                                                            4,126,000
                                                            
                                                            
                                                            $
                                                            0.14
                                                            
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            $
                                                            -Exercised
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            $
                                                            -Expired
                                                            
                                                            
                                                            (3,979,000
                                                            )
                                                            
                                                            $
                                                            0.81
                                                            
                                                            
                                                            
                                                            (479,000
                                                            )
                                                            
                                                            $
                                                            1.99Balance,
      September 30, 2008
                                                            
                                                            
                                                            6,176,000
                                                            
                                                            
                                                            $
                                                            0.30
                                                            
                                                            
                                                            
                                                            2,875,000
                                                            
                                                            
                                                            $
                                                            0.46Weighted
      average contractual life in years
                                                            
                                                            
                                                            8.5
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            7.2





The
weighted average fair value of options granted in the year ended September 30,
2008 was $0.14 and the aggregate intrinsic value of the outstanding options at
September 30, 2008 was zero.





The
Company has a stock incentive plan under which 16,000,000 shares are reserved
for stock and option grants. There were 9,292,324 shares available for grant
under the Plan at September 30, 2008, excluding the 6,176,000 options
outstanding.





NOTE
10 - SUBSEQUENT EVENTS





In December
2008:





The
Company issued 740,000 shares of common stock pursuant to the exercise of
warrants for proceeds of $27,000 at an average exercise price of $0.05 per
share.





The
Company received $51,776 from Gold and Minerals in reduction of the amount it
owes for its share of the El Capitan project costs.




F-19




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





None.




ITEM8A(T).
            CONTROLS AND
      PROCEDURES




(a)
Evaluation of Disclosure Controls and Procedures.





We
maintain disclosure controls and procedures designed to provide reasonable
assurance that information required to be disclosed in our reports filed
pursuant to the Securities Exchange Act of 1934, as amended (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 that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer as appropriate, to allow
timely decisions regarding required disclosure. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance the objectives of the control system are met.





As of
September 30, 2008, our management, with the participation of our Chief
Executive Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of our disclosure controls and procedures as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company’s disclosure controls and procedures were not effective as of
September 30, 2008, because of the identification of the material weaknesses in
internal control over financial reporting described below. Notwithstanding the
material weaknesses that existed as of September 30, 2008, our Chief Executive
Officer and Chief Financial Officer have each concluded that the consolidated
financial statements included in this Annual Report on Form 10-KSB present
fairly, in all material respects, the financial position, results of operations
and cash flows of the Company and its subsidiaries in conformity with accounting
principles generally accepted in the United States of America
(“GAAP”).





The Board
is fully aware that there is lack of segregation of duties due to the small
number of employees dealing with general administrative and financial
matters.





(b)
Management’s Report on Internal Control over Financial Reporting.





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a
set of processes designed by, or under the supervision of, a company’s principal
executive and principal financial officers, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP and includes
those policies and procedures that:





·
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect our transactions and dispositions of our
      assets;





·
            Provide
      reasonable assurance our transactions are recorded as necessary to permit
      preparation of our financial statements in accordance with GAAP, and that
      receipts and expenditures are being made only in accordance with
      authorizations of our management and directors;
  and





·
            Provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use
      or disposition of our assets that could have a material effect on the
      financial statement.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. It should be noted that any system of internal
control, however well designed and operated, can provide only reasonable, and
not absolute, assurance that the objectives of the system will be met. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.




23




Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an assessment of the
effectiveness of our internal control over financial reporting based on criteria
established in “Internal Control-Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO), as of September
30, 2008.





A
material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of annual or interim financial statements will not be prevented or
detected. In connection with the assessment described above, management
identified the following control deficiencies that represent material weaknesses
at September 30, 2008:





·
            Due to the Company’s small size,
      with only 2 officers in separate locations, segregation of duties is not
      possible and timely review of financial data and banking information is
      not always practicable.   The Company has very limited
      review procedures in place.





As a
result of these material weaknesses described above, management has concluded
that, as of September 30, 2008, our internal control over financial reporting
was not effective based on the criteria in “Internal Control-Integrated
Framework” issued by COSO.





This
Annual Report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our independent
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management’s report in this annual
report.  Further, management did not engage an outside consultant to
assist in evaluation of internal controls.





(c)  Changes in Internal Control Over
Financial Reporting





During
the fiscal year ended September 30, 2008, there was no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





ITEM
      8B.
            OTHER
      INFORMATION





None.





24





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
              
              54
              
              President,
      Chief Executive Officer, Director
              
              November
      2006R.
      William Wilson
              
              51
              
              Chief
      Financial Officer, Director, Secretary, Treasurer
              
              February
      2005Bruce
      F. Snyder
              
              68
              
              Director
              
              December
      2006Marvin
      K. Kaiser
              
              67
              
              Director
              
              September
      2007Donald
      W. Gentry
              
              65
              
              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.  Dr. 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 Gryphon Gold
Corporation and Golden Gryphon Explorations.  Until December 2008, Dr.
Gentry served on the Board of Constellation Copper
Corporation.  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).




25




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, Electrum USA Ltd., Gryphon Gold Corporation
and Uranium Resources Inc.  Until December 2008, Mr. Kaiser served on
the Board of Constellation Copper Corporation and formerly was a member of the
Board of New West Gold Corporation until its 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




We have
established an audit committee.  Since January 23, 2008, our audit
committee has consisted of one Board member, Mr. Marvin K.
Kaiser.  The Board of Directors has determined that Mr. Kaiser 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. Kaiser 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.





From the
time of the resignation of Mr. R. William Wilson as the sole member of the audit
committee on May 7, 2007, contemporaneous with his appointment as Chief
Financial Officer of the Company, until the appointment of Mr. Kaiser, the
entire Board served 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, 2008 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 2008 that were not in compliance.




26




NAME OF FILER:
            
            DESCRIPTION OF TRANSACTION:Marvin
      K. Kaiser
            
            Stock
      issuance to independent directors granted on 2/29/08, reported on
      3/6/08Bruce
      F. Snyder
            
            Stock
      issuance to independent directors granted on 2/29/08, reported on
      3/6/08Donald
      W. Gentry
            
            Stock
      issuance to independent directors granted on 2/29/08, reported on
      3/6/08R.
      William Wilson
            
            Shares
      issued in lieu of salary on 11/30/07, reported one day late on
      12/5/07R.
      William Wilson
            
            Shares
      issued in lieu of salary on 8/31/07, reported on
  10/02/07Charles
      C. Mottley (former CEO)
            
            Shares
      issued in lieu of salary on 8/31/07, reported on
  10/02/07




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 El Capitan’s principal executive officer or
principal financial officer during its last completed fiscal year; and (ii) each
other individual that served as El Capitan’s executive officer at the conclusion
of the fiscal year ended September 30, 2008 and who received in excess of
$100,000 in the form of total compensation during such fiscal year
(collectively, the “named executives”) during the fiscal years ended September
30, 2008 and 2007:




Name and Principal Position
                        
                        Year
                        
                        Salary
                        
                        
                        Option
                          Awards (1)
                        
                        
                        All OtherCompensation(1)
                        
                        
                        TotalCompensationKenneth
      P. Pavlich,
                          President, Chief Executive Officerand
      Director (2)
                        
                        2008
                        
                        
                        148,553
                        (3)
                        
                        
                        701,729
                        (4)
                        
                        
                        27,138
                        (5)
                        
                        
                        877,4502007
                        
                        
                        116,667
                        (3)
                        
                        
                        899,713
                        (4)
                        
                        
                        66,570
                        (6)
                        
                        
                        1,082,950R.
      William Wilson,
                          Chief
      Financial Officer, Treasurer,Secretary and Director (7)
                        
                        2008
                        
                        
                        144,160
                        (8)
                        
                        
                        230,991
                        (9)
                        
                        
                        27,138
                        (10)
                        
                        
                        402,2892007
                        
                        
                        64,252
                        (8)
                        
                        
                        230,732
                        (9)
                        
                        
                        24,821
                        (11)
                        
                        
                        319,803




(1)
            Amounts
      shown reflect the dollar amount recognized for financial statement
      reporting purposes for the fiscal years ended September 30, 2008 and 2007
      in accordance with SFAS 123(R).  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 to the audited financial statements for the fiscal year
      ended September 30, 2008, which are included elsewhere in this
      report).





(2)
            Mr.
      Pavlich was appointed El Capitan’s President and Chief Executive Officer
      on April 6, 2007.





(3)
            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. Beginning in January 2008, Mr. Pavlich’s salary was paid monthly in
      stock and was valued at the average fair market value of the Company’s
      common stock in the month earned.  Mr. Pavlich’s employment
      agreement was amended on March 31, 2008 and also on September 9,
      2008.  See the narrative disclosure below for more detail as to
      Mr. Pavlich’s employment agreement and
  compensation.





(4)
            Reflects
      the vesting of (i) approximately 2,500,000 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. This
      option grant was cancelled on September 9, 2008; and (ii) approximately
      625,000 share options pursuant to the stock option granted to Mr. Pavlich
      on September 9, 2008 to acquire 2,500,000 shares of the Company’s common
      stock at an exercise price of $0.14, the fair market value of the
      Company’s common stock on the date of grant; and (ii) approximately 98,000
      share options pursuant to the stock option granted to Mr. Pavlich on March
      31, 2008 to acquire 98,000 shares of the Company’s common stock at an
      exercise price of $0.19, the fair market value of the Company’s common
      stock on the date of grant.  See Footnote 1
    above.




27




(5)
            Amount
      reflects the dollar amount recognized for financial statement reporting
      purposes for the fiscal year ended September 30, 2008 in accordance with
      SFAS 123(R), of the vesting of (i) 25,000 share options pursuant to the
      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 grant, in
      consideration of his services as a director and (ii) a 25,000 share
      options pursuant to the director performance stock option granted to Mr.
      Pavlich on September 9, 2008 to acquire 100,000 shares of the Company’s
      common stock at an exercise price of $0.14, the fair market value of the
      Company’s common stock on the date of the grant.  This option
      vests 25% immediately and in three equal installments each six months
      thereafter.  Amount also includes a management performance bonus
      in the form of a stock grant of 60,000 shares valued at $0.30 per share,
      the fair market value of the Company’s common stock on the date of the
      grant, January 23, 2008 ($18,000).  See Footnote 1
      above.





(6)
            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.





(7)
            Mr.
      Wilson was appointed El Capitan’s Chief Financial Officer, Treasurer and
      Secretary on May 7, 2007.





(8)
              Pursuant
      to the terms of Mr. Wilson’s original employment agreement with the
      Company, Mr. Wilson’s salary consisted of cash and stock.  Mr.
      Wilson’s employment agreement was amended in on March 31, 2008 and also on
      September 9, 2008.  Beginning in March 2008, Mr. Wilson’s salary
      was paid monthly in stock and was valued at the average fair market value
      of the Company’s common stock in the month earned. See the narrative
      disclosure below for more detail as to Mr. Wilson’s employment agreement
      and compensation.(9)
              Reflects
      the vesting of (i) approximately 1,000,000 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. This
      option grant was cancelled on September 9, 2008; and (ii) approximately
      250,000 share options pursuant to the stock option granted to Mr. Wilson
      on September 9, 2008 to acquire 1,000,000 shares of the Company’s common
      stock at an exercise price of $0.14, the fair market value of the
      Company’s common stock on the date of grant; and (ii) approximately 28,000
      share options pursuant to the stock option granted to Mr. Wilson on March
      31, 2008 to acquire 28,000 shares of the Company’s common stock at an
      exercise price of $0.19, the fair market value of the Company’s common
      stock on the date of grant. See Footnote 1 above.(10)
              Amount
      reflects the dollar amount recognized for financial statement reporting
      purposes for the fiscal year ended September 30, 2008 in accordance with
      SFAS 123(R), of the vesting of (i) 25,000 share options pursuant to the
      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 grant, in
      consideration of his services as a director and (ii) a 25,000 share
      options pursuant to the director performance stock option granted to Mr.
      Wilson on September 9, 2008 to acquire 100,000 shares of the Company’s
      common stock at an exercise price of $0.14, the fair market value of the
      Company’s common stock on the date of the grant.  This option
      vests 25% immediately and in three equal installments each six months
      thereafter.  Amount also includes a management performance bonus
      in the form of a stock grant of 60,000 shares valued at $0.30 per share,
      the fair market value of the Company’s common stock on the date of the
      grant, January 23, 2008 ($18,000).  See Footnote 1
      above.(11)
              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).




28




Employment
Agreements with Executives





President
and Chief Executive Officer




On April
6, 2007, El Capitan entered into an employment agreement with Kenneth P. Pavlich
relating to his service as its Chief Executive Officer and President. Pursuant
to the agreement, El Capitan 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 stockholders, 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,
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. On September 9,
2008, Mr. Pavlich and El Capitan agreed to cancel the option described above and
reissued a new ten-year option to purchase 2,500,000 shares of El Capitan common
stock at an exercise price of $0.14, the closing price of El Capitan common
stock on September 9.  The option shall vest in four equal
installments every six months, with the first tranche vesting
immediately.  The option is subject to accelerated vesting upon a
change in control of El Capitan or upon El Capitan common stock having a
volume-weighted average price exceeding $1.00 over 20 consecutive trading
days.




On
September 9, 2008, Mr. Pavlich and El Capitan amended the terms of his
employment agreement to provide for a fixed monthly base salary of $25,000 in
lieu of the prior variable base salary payment that was dependent upon the
monthly value of El Capitan’s common stock.  Upon agreement by El
Capitan, Mr. Pavlich may elect to receive his monthly base salary in the form of
El Capitan common stock.




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 stockholders, 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.




29




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.  On September 9, 2008, Mr. Wilson and El Capitan agreed
to cancel the option described above and reissued a new ten-year option to
purchase 1,000,000 shares of El Capitan common stock at an exercise price of
$0.14, the closing price of El Capitan common stock on
September 9.  The option shall vest in four equal installments
every six months, with the first tranche vesting immediately.  The
option is subject to accelerated vesting upon a change in control of El Capitan
or upon El Capitan common stock having a volume-weighted average price exceeding
$1.00 over 20 consecutive trading days.




On
September 9, 2008, Mr. Wilson and El Capitan amended the terms of his employment
agreement to provide for a fixed monthly base salary of $20,000 in lieu of the
prior variable base salary payment that was dependent upon the monthly value of
El Capitan’s common stock.  Upon agreement by El Capitan, Mr. Wilson
may elect to receive his monthly base salary in the form of El Capitan common
stock.




Former
President and Chief Executive Officer




On
October 1, 2007, El Capitan entered into a Consulting Agreement with Charles
Mottley, who served as chief executive officer of the Company until April 7,
2007.  This agreement was terminated in June 2008 in exchange for
445,833 shares of the Company’s unregistered common stock, with a fair market
value of $0.10 per share on the date of issue, and other assets with a value of
approximately $6,000.  During the life of this agreement Mr. Mottley
received $32,500 in cash payments.




Other
Former Executive Officers




Prior to
their resignations in April and May 2007, El Capitan did not have formal
employment agreements with James Ricketts, then its Secretary, L. Ronald
Perkins, then its Vice President in charge of Administration, Marketing and
Communication, and Stephen J. Antol, then its 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 El Capitan’s common stock.





Outstanding
Equity Awards at Fiscal Year-End





The
following table sets forth information regarding each unexercised option held by
each of El Capitan’s named executive officers as of September 30,
2008:




Name
                  
                  Number of Securities
      Underlying Unexercised Options Exercisable
                  
                  
                  Number of Securities
      Underlying Unexercised Options Unexercisable
                  
                  
                  OptionExercisePrice
                  
                  Option ExpirationDateKenneth
      P. Pavlich
                  
                  
                  100,000
                  
                  
                  
                  —
                  
                  
                  
                  0.83
                  
                  11/13/1625,000
                  
                  
                  
                  25,000
                  
                  
                  
                  0.41
                  
                  6/11/10-
                  
                  
                  
                  98,000
                  
                  
                  
                  0.50
                  
                  3/30/1825,000
                  
                  
                  
                  75,000
                  
                  
                  
                  0.14
                  
                  9/08/18625,000
                  
                  
                  
                  1,875,000
                  
                  
                  
                  0.14
                  
                  9/18/18R.
      William Wilson
                  
                  
                  100,000
                  
                  
                  
                  -
                  
                  
                  
                  0.56
                  
                  7/21/1525,000
                  
                  
                  
                  25,000
                  
                  
                  
                  0.41
                  
                  6/11/10-
                  
                  
                  
                  28,000
                  
                  
                  
                  0.50
                  
                  3/30/1825,000
                  
                  
                  
                  75,000
                  
                  
                  
                  0.14
                  
                  9/08/18250,000
                  
                  
                  
                  750,000
                  
                  
                  
                  0.14
                  
                  9/18/18





(1) All
options granted pursuant to El Capitan’s 2005 Stock Incentive Plan, as
amended.




30




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.




El
Capitan’s Board of Directors, or a committee thereof, serving as plan
administrator of its 2005 Stock Incentive Plan, has the authority to provide for
accelerated vesting of the options granted to its named executive officers and
any other person in connection with changes of control of the Company,
including: (a) the sale, lease, exchange or other transfer of substantially all
of its assets to a non-affiliate; (b) its 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 El Capitan’s outstanding
securities having the right to vote at elections of directors; (d) subject to
certain limitations, a merger or consolidation whereby El Capitan’s stockholders
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,
its then existing directors cease to constitute at least a majority of the
board. This description constitutes only a summary of the relevant terms to El
Capitan’s 2005 Stock Incentive Plan.





Director
Compensation





On July
21, 2005, based upon recommendations from El Capitan’s 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.  On January 23, 2008, the plan was amended to permit Board
members to receive any retainers, compensation and expense payments in either
all cash, all Company common stock or half in cash and half in Company common
stock.




On March
24, 2006, El Capitan issued R. William Wilson an option to purchase 44,000
shares of its common stock at an exercise price of $1.99 per share as a
performance bonus provided to its 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.  Mr. Wilson’s option expired unexercised
on March 23, 2008.




On
November 13, 2006, Kenneth Pavlich was granted an option to purchase El Capitan
common stock at $0.83 per share (the closing price of El Capitan’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 El Capitan common stock at $1.20 per share (the closing price of El Capitan’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, El Capitan issued each of its then four directors an option to
purchase 50,000 shares of its common stock at an exercise price of $0.41 per
share as a performance bonus provided to its directors. These options vest
25,000 on January 1, 2008 and 25,000 on January 1, 2009.




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




31




On
September 9, 2008, El Capitan issued each of its then five directors an option
to purchase 100,000 shares of its common stock at an exercise price of $0.14 per
share as a performance bonus provided to its directors. These options vest
25,000 immediately and in three equal installments each six months
thereafter.




The
following table shows the compensation earned by each of El Capitan’s
non-employee directors for the year ended September 30, 2008:




Name
                
                Fees Earned or Paid in
      Cash
                
                
                OptionAwards
                
                
                All Other
      Compensation
                
                
                TotalBruce
      F. Snyder
                
                
                11,500
                
                
                
                9,138
                (1)
                
                
                —
                
                
                
                20,638Donald
      W. Gentry
                
                
                7,500
                
                
                
                38,063
                (2)
                
                
                —
                
                
                
                45,563Marvin
      K. Kaiser
                
                
                10,500
                
                
                
                38,063
                (3)
                
                
                —
                
                
                
                48,563





(1)
            Amount
      reflects the dollar amount recognized for financial statement reporting
      purposes for the fiscal year ended September 30, 2008 in accordance with
      SFAS 123(R) of stock option awards, relating to: (i) a grant of an option
      on June 11, 2007 to purchase 50,000 shares of El Capitan common stock, at
      an exercise price of $0.41 the fair market value of its common stock on
      the date of grant pursuant to the terms of its director compensation plan
      and, (ii) approximately 25,000 share options pursuant to a director
      performance stock option granted to Mr. Snyder on September 9, 2008 to
      acquire 100,000 shares of the Company’s common stock at an exercise price
      of $0.14, the fair market value of the Company’s common stock on the date
      of the grant.  Assumptions used in the calculation of this
      amount for non-employees are identified in Note 9 to El Capitan’s
      financial statements for the year ended September 30, 2008 included
      elsewhere in this report.





(2)
            Amount
      reflects the dollar amount recognized for financial statement reporting
      purposes for the fiscal year ended September 30, 2008 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 El Capitan common stock,
      at an exercise price of $0.57, the fair market value of its common stock
      on the date of grant pursuant to the terms of its director compensation
      plan and, (ii) approximately 25,000 share options pursuant to a director
      performance stock option granted to Mr. Gentry on September 9, 2008 to
      acquire 100,000 shares of the Company’s common stock at an exercise price
      of $0.14, the fair market value of the Company’s common stock on the date
      of the grant. Assumptions used in the calculation of this amount for
      non-employees are identified in Note 9 to El Capitan’s financial
      statements for the year ended September 30, 2008 included elsewhere in
      this report.





(3)
            Amount
      reflects the dollar amount recognized for financial statement reporting
      purposes for the fiscal year ended September 30, 2008 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 El Capitan common stock,
      at an exercise price of $0.57, the fair market value of its common stock
      on the date of grant pursuant to the terms of its director compensation
      plan and, (ii) approximately 25,000 share options pursuant to a director
      performance stock option granted to Mr. Kaiser on September 9, 2008 to
      acquire 100,000 shares of the Company’s common stock at an exercise price
      of $0.14, the fair market value of the Company’s common stock on the date
      of the grant.  Assumptions used in the calculation of this
      amount for non-employees are identified in Note 9 to El Capitan’s
      financial statements for the year ended September 30, 2008 included
      elsewhere in this report.




ITEM 11.
            SECURITY OWNERSHIP OF CERTAIN
      BENEFICIAL OWNERS AND
MANAGEMENT




The
following table sets forth as of December 31, 2008, the number and percentage of
the 88,275,702 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.




32




Name and
      Addressof Beneficial
      Owner
                                      
                                      Amount and Nature of
      Beneficial Ownership
                                      
                                      
                                      Percent ofClassCharles C.
      Mottley7811 E.
      VaqueroScottsdale, AZ
      85258
                                      
                                      
                                      3,648,833
                                      (1)
                                      
                                      
                                      4.5
                                      %Kenneth P.
      Pavlich1325
      Airmotive Way, Suite 276Reno, NV
    89502
                                      
                                      
                                      1,407,653
                                      (2)
                                      
                                      
                                      1.6
                                      %R. William Wilson1325 Airmotive Way, Suite
      276 Reno, NV 89502
                                      
                                      
                                      839,190
                                      (3)
                                      
                                      
                                      1.0
                                      %Bruce F. Snyder1325 Airmotive Way, Suite
      276Reno, NV 89502
                                      
                                      
                                      306,568
                                      (4)
                                      
                                      
                                      *Donald W. Gentry 1325Airmotive Way, Suite
      276Reno, NV 89502
                                      
                                      
                                      126,910
                                      (5)
                                      
                                      
                                      *Marvin K. Kaiser1325 Airmotive Way, Suite
      276Reno, NV 89502
                                      
                                      
                                      140,978
                                      (6)
                                      
                                      
                                      *All Officers and Directors as a
      Group(5
      Persons)
                                      
                                      
                                      2,694,389
                                      
                                      
                                      
                                      3.1
                                      %*less
      than 1.0
                                      %




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





(2)
            Includes
      vested options to purchase (i) 100,000 shares of common stock at an
      exercise price of $0.83 per share, (ii) 25,000 shares of common stock at
      an exercise price of $0.41 per share and, (iii) 650,000 shares of common
      stock at an exercise price of $0.14 per share.  Includes 27,000
      shares held indirectly through Keogh Profit Sharing Plan.  Does
      not include unvested options to purchase (i) 1,950,000 shares of common
      stock at an exercise price of $0.14 per share, (ii) 25,000 shares of
      common stock at an exercise price of $0.41 per share and (iii) 98,000
      shares of common stock at an exercise price of $0.19 per
      share.





(3)
            Includes
      vested options to purchase (i) 100,000 shares of common stock at an
      exercise price of $0.56 per share, (ii) 25,000 shares of common stock at
      an exercise price of $.041, (iii) 275,000 shares of common stock at an
      exercise price of $0.14 per share.  Does not include unvested
      options to purchase (i) 825,000 shares of common stock at an exercise
      price of $0.14 per share (ii) 25,000 shares of common stock at an exercise
      price of $0.41 per share and (iii) 28,000 shares of common stock at an
      exercise price of $0.19 per share.





(4)
            Includes
      vested options to purchase (i) 100,000 shares of common stock at an
      exercise price of $1.20 per share, (ii) 25,000 shares of common stock at
      an exercise price of $0.41 per share and (iii) 25,000 shares of common
      stock at an exercise price of $0.14 per share.  Does not include
      unvested options to purchase (i) 25,000 shares of common stock at an
      exercise price of $0.41 per share and (ii) 75,000 shares of common stock
      at an exercise price of $0.14 per
share.







(5)
            Includes
      vested options to purchase (i) 50,000 shares of common stock at an
      exercise price of $0.57 per share and (ii) 25,000 shares of common stock
      at an exercise price of $0.14 per share.  Does not include
      unvested options to purchase (i) 50,000 shares of common stock at an
      exercise price of $0.57 per share and (ii) 75,000 shares of common stock
      at an exercise price of $01.4 per
share.




33




(6)
            Includes
      vested options to purchase (i) 50,000 shares of common stock at an
      exercise price of $0.57 per share and (ii) 25,000 shares of common stock
      at an exercise price of $0.14 per share.  Does not include
      unvested options to purchase (i) 50,000 shares of common stock at an
      exercise price of $0.57 per share and (ii) 75,000 shares of common stock
      at an exercise price of $01.4 per
share





ITEM 12.
            CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS




El
Capitan, 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
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 El Capitan on April 6, 2007.




Director
Independence




In determining whether the members of
our board and its committees are independent, El Capitan has 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. El Capitan’s Board of directors
consults with El Capitan’s 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.  Mr. Snyder serves as Chairman of the Company’s compensation
committee and is the sole member of that committee.




The
Board of Directors as a whole serves as the nominating committee.  The
Company’s Chief Executive Officer and Chief Financial Officer, both of whom
serve as directors, are not considered independent directors.





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)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).




34




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 10.1 to the Company’s Current Report on Form 8-K dated October 28,
      2005).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).




35




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).23.1
                Consent
      of Clyde Smith31.1
                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
      200232.1
                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).




36




ITEM 14.
            PRINCIPAL ACCOUNTANT FEES AND
      SERVICES




The
following table summarizes the aggregate fees billed to the Company by Epstein
Weber and Conover, PLC and Malone & Bailey P.C.in relation 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





The
following table summarizes the aggregate fees billed to the Company by Malone
& Bailey P.C. in relation to the audit and quarterly reviews of the Company
for the fiscal year ended September 30, 2008:





Year Ended
                        September 30,2008Audit
      Fees
                      
                      $
                      44,100Audit-Related
      Fees
                      
                      $
                      0Tax
      Fees
                      
                      $
                      0Total
                      
                      $
                      44,100




37




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.




E
      l
      Capitan
      Precious Metals, 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
                                    
                                    January
      13, 2009Kenneth
      P. Pavlich
                                    
                                    (Principal
      Executive Officer)/s/
      R. William Wilson
                                    
                                    Chief
      Financial Officer, Treasurer,
                                    
                                    January
      13, 2009R.
      William Wilson
                                    
                                    Secretary,
      Director
                                      (Principal
      Financial and Accounting Officer)/s/
      Bruce F. Snyder
                                    
                                    Director
                                    
                                    January
      13, 2009Bruce
      F. Snyder/s/
      Donald W. Gentry
                                    
                                    Director
                                    
                                    January
      13, 2009Donald
      W. Gentry/s/
      Marvin K. Kaiser
                                    
                                    Director
                                    
                                    January
      13, 2009Marvin
      K. Kaiser