SEC Filing Summary: Desert Gateway, Inc. (10-Q)
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for Desert Gateway, Inc., a shell company organized to investigate and acquire a target business. The report covers the quarterly and nine-month periods ended November 30, 2008. The company has no active operations, no revenues, and is seeking a business combination to achieve long-term growth. The filing was signed on October 25, 2010.
Key Financial Metrics
| Metric | Nine Months Ended Nov 30, 2008 | Balance Sheet (Nov 30, 2008) |
|---|---|---|
| Revenue | $0 | N/A |
| Net Loss | ($10,677) | N/A |
| Cash and Cash Equivalents | N/A | $4,788 |
| Total Assets | N/A | $4,788 |
| Total Liabilities | N/A | $33,454 |
| Stockholders' Deficiency | N/A | ($28,666) |
| Accumulated Deficit | N/A | ($62,667) |
| Convertible Debt (Carrying Value) | N/A | $1,042 |
| Shares Outstanding | 95,910,983 | 95,910,983 |
Material Changes vs. Prior Period
- Revenue: Remained at $0, consistent with the prior period where the company was not yet formed.
- Expenses: General and administrative expenses increased to $10,677 for the nine months ended Nov 30, 2008, compared to $0 in the prior period. This includes a $9,000 non-cash charge for the fair value of services and office space provided by the sole officer/director.
- Liquidity: Cash increased from $0 to $4,788, funded by a $25,000 convertible debt borrowing. This cash was primarily used to pay $20,000 in accrued professional fees.
- Debt Structure: A $25,000 advance received in May 2008 was formalized in November 2008 as a convertible promissory note. Due to a beneficial conversion feature, the carrying value on the balance sheet is recorded at a discount of $1,042.
Outlook, Risks, and Management Commentary
- Going Concern: Management explicitly states that the company has negative working capital, negative equity, and no revenues. These conditions raise substantial doubt about the company's ability to continue as a going concern. Continued operations depend on securing a business combination or additional funding from stockholders and management.
- Plan of Operation: The company intends to locate and merge with a target business within the next 12 months. It does not restrict potential targets to any specific industry. Costs will be funded by treasury cash or loans from insiders.
- Controls and Procedures: Management concluded that disclosure controls and procedures were not effective as of the end of the period due to resource constraints and the lack of a formal control system.
- Risk Factors: Key risks include the speculative nature of the plan, intense competition for targets, lack of diversification (likely only one acquisition), and the possibility that current management will not remain after a merger. The stock is subject to "penny stock" regulations, which may limit liquidity.
Investor Verification Checklist
- Verify the company's current status as a shell company and its lack of operating history.
- Confirm the terms of the $25,000 convertible note, including the 8% interest rate, $0.01 conversion price, and November 1, 2010 maturity date.
- Assess the "substantial doubt" regarding the going concern status and the reliance on related-party funding.
- Review the ineffectiveness of internal controls and disclosure procedures as stated in Item 4.
- Check for any updates on potential merger candidates, as none were identified in this filing.