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. for the period ended November 30, 2009. The company is a shell corporation organized to investigate and acquire a target business to achieve long-term growth. It currently has no significant operations, no revenues, and relies on advances from stockholders and management to fund compliance costs. The filing explicitly states that the company is insolvent and that there is substantial doubt about its ability to continue as a going concern.
Key Financial Metrics
| Metric | Nine Months Ended Nov 30, 2009 | Nine Months Ended Nov 30, 2008 |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | ($20,983) | ($10,677) |
| Cash Flow from Operations | ($105) | ($20,212) |
| Cash and Cash Equivalents (End of Period) | $4,666 | $4,788 |
| Total Assets | $4,666 | $4,771 |
| Total Liabilities | $49,904 | $38,026 |
| Stockholders' Deficiency | ($45,238) | ($33,255) |
| Convertible Debt (Current) | $13,545 | $0 |
Note: The company reported no gross margin or operating income. Expenses were primarily General & Administrative ($10,105) and Interest/Amortization ($10,878).
Material Changes vs. Prior Period
- Increased Net Loss: The net loss for the nine-month period more than doubled from $10,677 in 2008 to $20,983 in 2009.
- Debt Restructuring: A $25,000 convertible promissory note, originally advanced in May 2008, was formalized in November 2008. The carrying value of this debt is $13,545 due to a significant discount allocated to a beneficial conversion feature. This debt is now classified as current (due within one year).
- Interest Expense Spike: Interest and amortization of debt discount increased significantly to $10,878 (compared to $1,042 in the prior year) due to the amortization of the debt discount associated with the convertible note.
- Related Party Advances: Amounts due to related parties increased from $7,442 to $8,442.
Outlook, Risks, and Management Commentary
Plan of Operation: Management intends to locate a target company for a business combination (merger or acquisition) within the next 12 months. The company has no specific target identified and will not restrict candidates to any specific industry. Operations are currently limited to maintaining SEC compliance.
Liquidity and Going Concern: The company has negative working capital and negative stockholders' equity. It has no revenues and relies entirely on funding from stockholders, management, or investors to continue. The financial statements do not include adjustments that might be necessary if the company cannot continue as a going concern.
Risks and Contingencies:
- Insolvency: The company is unable to pay debts as they become due.
- Speculative Nature: Success depends entirely on finding a suitable business combination, which is not guaranteed.
- Management Constraints: The sole officer and director (Robert Wilson) works on an "as needed" basis and has other full-time employment.
- Stock Liquidity: The common stock trades on the OTC "Pink Sheets" with no assurance of a liquid market. Shares are subject to penny stock regulations.
- Control: A principal shareholder owns approximately 51% of the common stock, controlling corporate actions.
Investor Verification Checklist
- Verify Debt Terms: Confirm the maturity date (Nov 1, 2010) and conversion price ($0.01/share) of the $25,000 convertible note to assess immediate dilution risk.
- Assess Cash Runway: With only $4,666 in cash and monthly expenses (including related party services) totaling approximately $3,000+, verify if additional funding has been secured to survive until a merger.
- Related Party Transactions: Review the $9,000 charge for services and office space provided by the sole director to ensure fair valuation and proper capitalization.
- Merger Progress: Investigate if any preliminary discussions with target companies have occurred, as the filing states no contacts have been made.
- Shareholder Concentration: Confirm the ownership percentage of IACE Investments One, Inc. (approx. 51%) and its influence on potential merger terms.