El Capitan Precious Metals (ECPN) Risk Analysis
Risk Overview Q3, 2017
Source: the company's latest filing for the period ended Sep 30, 2017, filed Mar 30, 2018
Risk Change Over Time
No filing history is available.
- Accounting & Financial Operations - Risk 1We have minimal revenue-generating operations to date and may never generate significant revenues.
With the exception of immaterial revenue from the sale of test loads of iron ore to a construction contractor in fiscal 2016 and from the sale of two test melts on concentrates processed at our pilot plant located in Phoenix, Arizona in fiscal 2017, we have not yet had revenue-generating operations, and it is possible that we will not find marketable amounts of minerals on our El Capitan Property or that the property will ever be sold. Should we fail to obtain working capital through other avenues, our ability to continue to market our El Capitan Property could be curtailed.
- Debt & Financing - Risk 2We may not have access to the full amount available under the Purchase Agreement with L2 Capital.
Our ability to draw down funds and sell shares under the Purchase Agreement requires that a registration statement (and periodic post-effective amendments thereto) be declared effective and continue to be effective registering the resale of shares issuable under the Purchase Agreement. We filed a registration statement on Form S-1 registering the resale of 25,000,000 shares of our common stock, and that registration statement was declared effective on March 10, 2017. Our ability to sell any additional shares issuable under the Purchase Agreement is subject to our ability to prepare and file one or more additional registration statements registering the resale of such additional shares. These registration statements may be subject to review and comment by the staff of the Securities and Exchange Commission, and will require the consent of our independent registered public accounting firm. Therefore, the timing of effectiveness of these registration statements cannot be assured. The effectiveness of these registration statements is a condition precedent to our ability to sell all of the shares of our common stock to L2 Capital under the Purchase Agreement. Even if we are successful in causing one or more registration statements registering the resale of some or all of the shares issuable under the Purchase Agreement to be declared effective by the Securities and Exchange Commission in a timely manner, we may not be able to sell the shares unless certain other conditions are met. For example, we might have to increase the number of our authorized shares in order to issue the shares to L2 Capital. Increasing the number of our authorized shares will require board and stockholder approval. Accordingly, because our ability to draw down any amounts under the Purchase Agreement with L2 Capital is subject to a number of conditions, there is no guarantee that we will be able to draw down all of the proceeds of $5,000,000 under the Purchase Agreement.
Risk Highlights Q3, 2017
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 19
- Share Price & Shareholder Rights - Risk 1Our common stock is thinly traded, and there is no guarantee of the prices at which the shares will trade.
Trading of our common stock is conducted on the OTCQB Marketplace operated by the OTC Markets Group, Inc., or "OTCQB," under the ticker symbol "ECPN." Not being listed for trading on an established securities exchange has an adverse effect on the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts' and the media's coverage of the Company. This may result in lower prices for your common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock. Historically, our common stock has been thinly traded, and there is no guarantee of the prices at which the shares will trade, or of the ability of stockholders to sell their shares without having an adverse effect on market prices. We have been delinquent in filing certain periodic reports that we are required to file with the Securities and Exchange Commission and our common stock could be removed from the OTCQB Marketplace as a result. Trading in our common stock is conducted on the OTCQB Marketplace operated by the OTC Markets Group, Inc., or "OTCQB." The OTC Markets Group may remove a company's securities from trading on the OTCQB for failure to timely file required SEC periodic reports, subject to a 45 calendar day cure period. Due to the resignation of our former independent registered public accounting firm, we were unable to timely file our Annual Report on Form 10-K for fiscal 2017, and we were unable to remedy the delinquency within the cure period. Upon our request, the OTC Markets Group granted us an extension, until March 31, 2018, to cure our late filing. We completed the audit of our 2017 consolidated financial statements and filed our Form 10-K within the extended cure period. However, we are also delinquent in filing our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2017. The automatic cure period for filing the Form 10-Q will expire on March 31, 2018. We intend to request a short, additional extension of the cure period to file the Form 10-Q, and expect to be timely in our SEC periodic reporting thereafter. However, the OTC Markets Group is not required to honor our request and, if it elects not to do so, may remove our common stock from trading on the OTCQB Marketplace. Upon removal, our common stock would be quoted on the OTC Pink, another inter-dealer electronic quotation and trading system for equity securities operated by the OTCQB Marketplace. Investors may perceive our common stock to be less attractive because it is quoted on the OTC Pink. In addition, the OTC Pink is not recognized by the SEC as an "established public market." As a result, we will not be able to utilize equity lines or conduct similar financing transactions, and securities that we may register for resale on behalf of selling shareholders will not be eligible for at-the-market pricing. This will have a significant and negative impact our ability to finance our operations through the issuance and sale of securities. We must apply for re-admission to the OTCQB, which re-admission cannot be assured.
- Share Price & Shareholder Rights - Risk 2Our stock price may be volatile and as a result you could lose all or part of your investment.
In addition to volatility associated with securities traded on the OTCQB in general, the value of your investment could decline due to the impact of any of the following factors upon the market price of our common stock: - adverse changes in the worldwide prices for gold, silver or iron ore;- disappointing results from our exploration or development efforts;- failure to meet operating budget;- decline in demand for our common stock;- downward revisions in securities analysts' estimates or changes in general market conditions;- technological innovations by competitors or in competing technologies;- investor perception of our industry or our prospects; and - general economic trends. In addition, stock markets have experienced extreme price and volume fluctuations and the market prices of securities generally have been highly volatile. These fluctuations commonly are unrelated to operating performance of a company and may adversely affect the market price of our common stock. As a result, investors may be unable to resell their shares at a fair price. We have never paid dividends on our common stock and we do not anticipate paying any dividends in the foreseeable future. We have not paid dividends on our common stock to date, and we may not be in a position to pay dividends in the foreseeable future. Our ability to pay dividends depends on our ability to successfully develop the El Capitan Property and generate revenue from future operations. Further, our initial earnings, if any, will likely be retained to finance our growth. Any future dividends will depend upon our earnings, our then-existing financial requirements and other factors and will be at the discretion of our Board of Directors. Because our common stock is a "penny stock," it may be difficult to sell shares of our common stock at times and prices that are acceptable. Our common stock is a "penny stock." Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk disclosure document prepared by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the penny stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain the purchaser's written agreement to the purchase. The penny stock rules may make it difficult for you to sell your shares of our common stock. Because of these rules, many brokers choose not to participate in penny stock transactions and there is less trading in penny stocks. Accordingly, you may not always be able to resell shares of our common stock publicly at times and prices that you feel are appropriate.
- Share Price & Shareholder Rights - Risk 3Puts under the Purchase Agreement may cause dilution to existing shareholders.
Under the terms of the Purchase Agreement, L2 Capital has committed to purchase up to $5,000,000 worth of shares of our common stock. This arrangement is also sometimes referred to herein as the "Equity Line." From time to time during the term of the Purchase Agreement, and at our sole discretion, we may present L2 Capital with a put notice requiring L2 Capital to purchase shares of our common stock. As a result, our existing stockholders will experience immediate dilution upon the purchase of any of the shares by L2 Capital. L2 Capital may resell some, if not all, of the shares that we issue to it under the Purchase Agreement and such sales could cause the market price of the common stock to decline significantly. To the extent of any such decline, any subsequent puts would require us to issue and sell a greater number of shares to L2 Capital in exchange for each dollar of the put amount. Under these circumstances, the existing stockholders of our company will experience greater dilution. The effect of this dilution may, in turn, cause the price of our common stock to decrease further, both because of the downward pressure on the stock price that would be caused by a large number of sales of our shares into the public market by L2 Capital, and because our existing stockholders may disagree with a decision to sell shares to L2 Capital at a time when our stock price is low, and may in response decide to sell additional shares, further decreasing our stock price. If we draw down amounts under the Equity Line when our share price is decreasing, we will need to issue more shares to raise the same amount of funding.
- Share Price & Shareholder Rights - Risk 4There is no guarantee that we will satisfy the conditions to the Purchase Agreement.
Although the Equity Purchase Agreement provides that we can require L2 Capital to purchase, at our discretion, up to $5,000,000 worth of shares of our common stock in the aggregate, our ability to put shares to L2 Capital and obtain funds when requested is limited by the terms and conditions of the Equity Purchase Agreement, including restrictions on when we may exercise our put rights, restrictions on the amount we may put to L2 Capital at any one time, which is determined in part by the trading volume of our common stock, and a limitation on our ability to put shares to L2 Capital to the extent that it would cause L2 Capital to beneficially own more than 9.99% of the outstanding shares of our common stock.
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