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FORM 10-Q FOR GOLD CREST MINES INC, QUARTERLY REPORTQuarterly ReportITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Form 10-Q, including in "Management's Discussion and Analysis of Financial Condition and Results of Operations", includes forward-looking statements. Our forward-looking statements include our current expectations and projections about future results, performance, results of litigation, prospects and opportunities. We have tried to identify these forward-looking statements by using words such as "may," "will," "expect," "anticipate," "believe," "intend," "feel," "plan," "estimate," "project," "forecast" and similar expressions. These forward-looking statements are based on information currently available to us and are expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. 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 Gold Crest Mines, Inc. 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. The safe harbors of forward-looking statements provided by Section 21E of the Exchange Act are unavailable to issuers of penny stock. As we issued securities at a price below $5.00 per share, our shares are considered penny stock and such safe harbors set forth under Section 21E are unavailable to us. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements included elsewhere in this report, as well as the audited consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-KSB for the year ended December 31, 2007. Overview and Plan of Operation As discussed in "Note 3. Going Concern" to our consolidated financial statements, the Company has had no revenues and incurred an accumulated deficit of $8,847,430 through September 30, 2008. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management intends to seek additional capital from new equity securities offerings and joint venture agreements that will provide funds needed to increase liquidity, fund internal growth and fully implement its business plan. We are in the business of exploration, development, and if warranted the mining of properties containing valuable mineral deposits. We are traded on the over the counter market in the United States and, as is typical with such companies, losses are incurred in the stages of exploration and development, which typically need to be funded through equity or debt financing. We currently control approximately 22,240 acres of land under State of Alaska jurisdiction after having transferred 15,320 acres into Golden Lynx, LLC as part of our joint venture with Cougar Gold LLC. See "Note 5. Mineral Properties - Golden Lynx, LLC" to our consolidated financial statements for further details. Additionally, we currently control approximately 46 unpatented federal mill site claims and 185 unpatented federal lode claims in the Stibnite District in Central Idaho covering approximately 3,930 acres. We have been successful in entering into agreements with various unrelated companies under which, we believe, we have the opportunity to implement our business plan. These agreements and the references to further details contained in our consolidated financial statements follow:
Board of Directors On April 22, 2008, Gold Crest received a letter of resignation from Gerald Booth as director effective immediately. On April 24, 2008 Gold Crest received a letter of resignation from Thomas Loucks as director effective immediately. Mr. Loucks also served on the Audit Committee. On April 28, 2008, the Board of Directors appointed Dan McKinney as a director by unanimous consent to replace Mr. Booth. On May 30, 2008 Gold Crest received a letter of resignation from Howard Crosby as director and chairman of the board effective immediately. On June 5, 2008, the Board of Directors reappointed Howard Crosby as a director and chairman of the board by unanimous consent. Also on June 5, 2008, the Board of Directors appointed John Ryan as a director by unanimous consent. Comparison of the Three and Nine Months Ended September 30, 2008 and September 30, 2007: Results of Operations Overview of Operating Results Operating Expenses The decrease in operating expenses during both the 2008 third quarter and first nine months compared with the same periods in the prior year was primarily the result of our entrance into two separate joint venture agreements. Our partners in these joint venture agreements are conducting exploration activities on our behalf as part of the agreements' "earn-in" provisions. These decreases in exploration expenses were partially offset by $161,814 due to the settlement of a drilling contract which occurred in the second quarter of 2008. See "Note 4. Note Receivable" to our consolidated financial statements for further details. The decreases were further offset by $83,600 and $192,000 which corresponded to the abandonment of a mineral lease and the impairment of mineral properties and royalty interest in the third quarter of 2008. See "Note 4. Note Receivable" to our consolidated financial statements for further details. See "Note 5. Mineral Properties - Option and Real Property Sales Agreement with JJO, LLC", "Note 5. Mineral Properties - Mining Lease and Option to Purchase Agreement with Bradley Mining company"and "Note 6. Royalty Interest in Mineral Property" to our consolidated financial statements for further details. Also contributing to the decrease in operating expenses during both the 2008 third quarter and first nine months, although to a significantly lesser extent, was a decrease in directors' fees. During the 2008 second quarter we issued 400,000 shares of common stock to two new directors at a price of $0.10 per share. During the 2007 second quarter we issued 200,000 shares of common stock to one new director at a price of $0.53 per share. During the 2007 first quarter we issued an additional 200,000 to a new director at a price of $0.54 per share. Partially offsetting these positive impacts during the first nine months of 2008 compared with the same period last year was an increase in officer compensation related to amortization of options granted during 2008 and incremental compensation expense related to the hiring of three additional employees since the end of the 2007 first quarter. However, this trend began to reverse itself beginning in the third quarter of 2008 due to a decrease in both employees and time worked. Overview of Financial Position At September 30, 2008, Gold Crest had cash of $19,876 and total liabilities of $102,673. During the first nine months of 2008, we received proceeds of $110,500 from the pay off of promissory notes associated with the November 2007 private placement and net proceeds of $90,000 from the exercise of 300,000 warrants by three investors. The proceeds from the payoff of the promissory notes were primarily utilized to fund daily operations. The proceeds from the exercise of the warrants were used to complete the mining lease and option to purchase agreement with the Bradley Mining Company for $75,000 and the remainder was utilized to fund daily operations. Also during the first nine months ended September 30, 2008, the Company issued 1,666,667, 3,000,000 and 1,000,000 shares of restricted common stock for gross proceeds of $250,000, $300,000 and $50,000, respectively. See "Note 5. Mineral Properties - Golden Lynx, LLC" and "Note 5. Mineral Properties - Letter of Intent with Cougar" to our consolidated financial statements for further details. Royalty interest in mineral property During the nine months ending September 30, 2008, the Company purchased an option and royalty sales agreement for $400,000. In the third quarter the Company decided to impair the $400,000 carrying value of the property by $128,000, recorded as impairment of mineral properties and royalty interest on the statement of operations. This accounts for the entire increase in Royalty Interest in mineral property from December 31, 2007. See "Note 6. Royalty Interest in Mineral Property" to our consolidated financial statements for further details. Mineral Properties The decrease in mineral properties of $2,175 during the first nine months of 2008 was due to the purchase of an option and real property sales agreement with the Oberbillig estate for $125,000and the purchase of a mining lease and option to purchase agreement with the Bradley Mining Company for $75,000. The increase was offset by $83,600 in the third quarter of 2008 when we relinquished 26,400 acres of our Alaskan properties by notifying Greatland Exploration, LTD that we had exercised our right to cancel the lease agreement with option to purchase entered into on January 30, 2007. The increase was further offset by $54,575 due to the agreement entered into with Cougar Gold. Also in the third quarter two other contributing factors in the decrease were the impairment of both the option and real property sales agreement with the Oberbillig estate of $40,000 and the mining lease and option to purchase agreement with the Bradley Mining Company of $24,000. See "Note 5. Mineral Properties - Option and Real Property Sales Agreement with JJO, LLC", "Note 5. Mineral Properties - Mining Lease and Option to Purchase Agreement with Bradley Mining company" and "Note 6. Royalty Interest in Mineral Property" to our consolidated financial statements for further details. Accounts Payable and Accrued Liabilities The decrease in accounts payable and accrued liabilities of $239,257 during the first nine months of 2008 was primarily due to our paying off $242,080 worth of invoices that related to the 2007 drilling season which we were unable to pay by the year ending 2007. Miscellaneous Receivable During the first nine months of 2008, the balance in the "Miscellaneous Receivable" caption on the Company's financial statements increased by $24,872. This increase is entirely due to us providing consulting services and purchasing exploration supplies on behalf of Cougar Gold as part of the Golden Lynx LLC we entered into on April 18, 2008. As of the date of this report the entire amount of $24,872 has been reimbursed by Cougar Gold. See "Note 5. Mineral Properties - Golden Lynx, LLC" to our consolidated financial statements for further details. Prepaid Expenses During the first nine months of 2008, the balance in the "Prepaid Expenses" caption on the Company's financial statements decreased by $65,956. Of this decrease, $40,000 related to amortization of the "Prepaid Exploration Costs" associated with the note receivable from Diamond Drilling. The $40,000 consisted of $18,000 of amortization recorded in the normal course of business during the first nine months of 2008. The remaining $22,000 was written off in connection with Diamond Drilling "Settlement Agreement". See "Note 4. Note Receivable". The remaining decrease of $25,956 in "Prepaid Expenses" was composed of the following:
Common Stock Subscribed The change in common stock subscribed during the first nine months of 2008 was due to the receipt of installment payments of $110,500 owed on promissory notes by investors who participated in the November 2007 private placement. See "Note 8. Common Stock Subscribed" to our consolidated financial statements for further details. Additional Paid-In Capital The increase in additional paid-in capital during the nine months ending September 30, 2008, was primarily due to the following:
Liquidity and Capital Resources We have limited capital resources and thus have had to rely upon the sale of equity securities for the cash required for exploration and development purposes, for acquisitions and to fund our administration. Since we do not expect to generate any revenues in the near future, we must continue to rely upon the sale of our equity securities to raise capital. There can be no assurance that financing, whether debt or equity, will always be available to us in the amount required at any particular time or for any period or, if available, that it can be obtained on terms satisfactory to us. We were in the process of private placement for $500,000 related to the letter of intent with Cougar Gold but on September 9, 2008, we were notified by Cougar that they had decided not to proceed with the Proposed JV Agreement. See "Note 5. Mineral Properties - Letter of Intent with Cougar" to our consolidated financial statements for further details. Future Outlook Based on the current market environment and our low share price it is not likely we will be able to raise money through a private placement of our common stock. We are seeking a joint venture opportunity concerning our Idaho properties known as the Golden Meadows Project. A stipulation of any joint venture we enter would be an upfront cash infusion to cover our operating costs. Also, per our venture agreements with Newmont, if they choose to go forward with the three properties, they will be required to pay us $25,000 per property no later than January 15, 2009. During the third quarter we relinquished our Alaska properties that we were unable to place in joint ventures. It is also our intent to continue to reduce costs by reducing our employee base. We are currently operating with only two employees with reduced time and pay and we currently intend to rely on the use of outside consultants to provide certain services to the Company. We plan to move to a new office building in February 2009 where the rent and overhead costs will be greatly reduced. |