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 August 31, 2009. The company is a shell company organized to investigate and acquire a target business. It has no active operations, no revenues, and relies on advances from related parties to fund minimal administrative 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 | Six Months Ended Aug 31, 2009 | Six Months Ended Aug 31, 2008 |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | ($14,339) | ($6,426) |
| Cash and Cash Equivalents (Ending) | $4,684 | $4,997 |
| Total Assets | $4,684 | $4,771 |
| Total Liabilities | $46,278 | $38,026 (Estimated) |
| Stockholders' Deficiency | ($41,594) | ($33,255) |
| Convertible Debt (Carrying Value) | $10,419 | $4,167 |
| Weighted Average Shares Outstanding | 95,910,983 | 95,910,983 |
Material Changes vs. Prior Period
- Increased Net Loss: The net loss for the six-month period increased by approximately 123% from $6,426 in 2008 to $14,339 in 2009.
- Interest Expense: The primary driver of the increased loss was interest and amortization of debt discount, which totaled $7,252 in the current period compared to $0 in the prior period. This relates to a $25,000 convertible note issued in November 2008.
- Debt Carrying Value: The carrying value of the convertible debt increased from $4,167 to $10,419 due to the amortization of the beneficial conversion feature discount.
- Related Party Advances: Amounts due to related parties increased from $7,442 to $8,442.
Outlook, Risks, and Management Commentary
- Going Concern: Management states the company has negative working capital and negative stockholders' equity. Continued operations depend entirely on locating a merger candidate or securing additional funding from stockholders and management.
- Plan of Operation: The company intends to seek a business combination within the next 12 months. It has no specific target identified and no preliminary discussions with potential candidates.
- Debt Obligations: The company has a $25,000 convertible promissory note maturing on November 1, 2010. It bears 8% interest and is convertible into 2.5 million shares at $0.01 per share.
- Internal Controls: Management concluded that disclosure controls and procedures were not effective as of the end of the period.
- Risk Factors: Significant risks include the speculative nature of the shell company status, intense competition for acquisition targets, lack of liquidity for common stock, and the possibility that the company will never consummate a business combination.
Investor Verification Checklist
- Verify the status of the $25,000 convertible note due November 1, 2010, and the company's ability to repay or convert it.
- Confirm the identity of the sole officer/director (Robert Wilson) and his commitment to the company given the "as needed" basis of his employment.
- Assess the liquidity of the company's common stock, which trades on the OTC "Pink Sheets" with no assurance of a sustained market.
- Review the "Going Concern" opinion in the auditor's report (referenced in the text) to understand the severity of the insolvency risk.
- Monitor for any announcements regarding a specific target company for a reverse merger or acquisition.