Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended November 30, 2010, for Desert Gateway, Inc. (Note: The input metadata referenced "Travere Therapeutics," but the filing text explicitly identifies the registrant as Desert Gateway, Inc.). The company is a shell company organized to investigate and acquire a target business. It has no significant operations, no revenues, and relies on advances from stockholders and management to fund compliance costs and search for a merger candidate.
Key Financial Metrics
| Metric | Nine Months Ended Nov 30, 2010 | Nine Months Ended Nov 30, 2009 |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | ($18,942) | ($20,983) |
| Cash Used in Operating Activities | ($109) | ($105) |
| Cash and Cash Equivalents (Ending) | $4,538 | $4,666 |
| Total Assets | $4,538 | $4,647 |
| Total Liabilities | $63,713 | $53,880 |
| Stockholders' Deficiency | ($59,175) | ($49,233) |
| Convertible Debt (Current) | $25,000 | $16,667 |
Material Changes
- Operating Expenses: Decreased slightly to $9,109 for the nine months ended November 30, 2010, compared to $10,105 in the prior year period. Expenses consist entirely of general and administrative costs.
- Liabilities: Total current liabilities increased by approximately $9,833, driven primarily by the reclassification of the $25,000 convertible note as due within one year (maturity date November 1, 2010) and an increase in accrued expenses.
- Related Party Transactions: The company recognized $9,000 in non-cash expenses for the fair value of services and office space provided by the sole officer/director, recorded as an increase in additional paid-in capital.
- Interest Expense: Total interest expense was $9,833, comprising $8,333 in amortization of the loan discount and $1,500 in accrued interest.
Outlook, Risks, and Management Commentary
- Going Concern: Management states that the company has negative working capital, negative stockholders' 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 obtaining additional funding from stockholders.
- Plan of Operation: The company intends to seek a merger or acquisition within the next 12 months. It has no specific target identified and no preliminary discussions with potential candidates.
- Convertible Debt: A $25,000 convertible promissory note matures on November 1, 2010. It bears 8% interest and is convertible into common stock at $0.01 per share. The discount on this note was fully amortized as of the maturity date.
- 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 full-time management team.
- Risk Factors: Significant risks include the speculative nature of the business plan, intense competition for acquisition targets, the possibility of the company remaining a shell company indefinitely, and the potential for significant dilution to existing shareholders upon a merger.
Investor Verification Checklist
- Verify the status of the $25,000 convertible note maturing November 1, 2010, and whether it has been repaid, converted, or extended.
- Confirm the company's ability to fund ongoing SEC compliance costs given the cash balance of only $4,538.
- Assess the likelihood of a business combination occurring given the lack of identified targets and the "not effective" disclosure controls.
- Review the concentration of ownership (IACE Investments One, Inc. owns ~51%) and the potential for related party transactions to influence corporate decisions.
- Check for any subsequent filings (Form 8-K) regarding a merger, acquisition, or default on the convertible debt.