Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended May 31, 2011, 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 minimal administrative costs.
Key Financial Metrics
| Metric | Q2 2011 (Three Months Ended May 31) | Q2 2010 (Three Months Ended May 31) |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | ($3,524) | ($6,644) |
| Cash Flow from Operations | ($24) | ($18) |
| Cash and Cash Equivalents (End of Period) | $3,934 | $4,629 |
| Total Assets | $3,934 | $4,629 (implied from cash flow) |
| Total Liabilities | $64,713 | $64,213 (prior period balance) |
| Stockholders' Deficiency | ($60,779) | ($60,255) |
| Convertible Debt (Current) | $25,000 | $25,000 |
| Shares Outstanding | 95,910,983 | 959,127 (Weighted Avg) |
Material Changes vs. Prior Period
- Net Loss Reduction: The net loss decreased to $3,524 from $6,644 in the prior year quarter. This improvement was primarily driven by a significant reduction in interest and amortization of debt discount expenses, which fell from $3,626 to $500.
- Operating Expenses: General and administrative expenses remained relatively flat, increasing slightly from $3,018 to $3,024. Both periods included a $3,000 non-cash charge for the fair value of services and office space provided by the sole officer/director.
- Liquidity: Cash on hand decreased by $24 during the quarter, reflecting minimal operating cash usage.
- Debt Status: The $25,000 convertible promissory note remains outstanding and is currently in default, having matured on November 1, 2010.
Outlook, Risks, and Management Commentary
- Going Concern: Management explicitly 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 locating a merger candidate and securing additional capital.
- Plan of Operation: The company intends to achieve growth through a business combination (merger or acquisition) rather than organic operations. It has no specific target identified and no preliminary discussions with potential candidates.
- 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: Key risks include the speculative nature of the shell company status, intense competition for acquisition targets, the possibility of the company being deemed an investment company under the 1940 Act, and the lack of a liquid market for its common stock (traded on OTC Pink Sheets).
- Related Party Transactions: The sole officer and director, Robert Wilson, provides services and office space valued at $3,000 per quarter without cash compensation, recorded as a contribution to paid-in capital. Related party advances total $8,796.
Investor Verification Checklist
- Debt Default: Verify the status of the $25,000 convertible note, which is in default and convertible into 2.5 million shares at $0.01/share.
- Going Concern: Confirm the company's ability to fund operations beyond the current $3,934 cash balance without a merger.
- Share Count Discrepancy: Note the significant difference between the weighted average shares used for EPS (959,127) and the total shares outstanding reported in the cover page (95,910,983).
- Internal Controls: Assess the impact of ineffective disclosure controls on the reliability of future filings.
- Management Commitment: Verify the time commitment of the sole officer/director, who works on an "as needed" basis.