Business Context and Reporting Period
This Form 10-K covers the fiscal year ended February 28, 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 with no active operations, nominal assets, and no revenues. Its sole purpose is to locate and consummate a merger or acquisition with a private entity to establish a public trading market. The Company is incorporated in Delaware and trades on the Pink Sheets under the symbol "DGTE."
Key Financial Metrics
| Metric | Year Ended Feb 28, 2011 | Year Ended Feb 28, 2010 |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | ($23,022) | ($27,978) |
| Operating Expenses | $12,689 | $13,478 |
| Interest Expense | $10,333 | $14,500 |
| Cash and Cash Equivalents | $3,958 | $4,647 |
| Total Assets | $3,958 | $4,647 |
| Total Liabilities | $64,213 | $53,880 |
| Stockholders' Deficit | ($60,255) | ($49,233) |
| Accumulated Deficit | ($121,256) | ($98,234) |
| Shares Outstanding | 95,910,983 | 95,910,983 |
Debt and Liquidity: The Company has a $25,000 convertible promissory note (8% interest) that matured on November 1, 2010, and is currently in default. The note is convertible into 2.5 million shares at the holder's discretion. The Company has negative working capital and relies on advances from stockholders and officers to meet operating expenses.
Material Changes vs. Prior Period
- Net Loss Reduction: Net loss decreased by approximately $4,956 (from $27,978 to $23,022) primarily due to a reduction in interest expense and amortization of debt discount.
- Interest Expense: Interest expense dropped from $14,500 in 2010 to $10,333 in 2011. This includes amortization of the loan discount ($8,333 in 2011 vs. $12,500 in 2010) and accrued interest ($2,000 in both years).
- Operating Expenses: General and administrative expenses decreased slightly from $13,478 to $12,689. Both years included a $12,000 non-cash charge for the fair value of services and office space provided by the sole director/officer.
- Cash Position: Cash decreased by $689 during the year, leaving the company with minimal liquidity ($3,958).
- Stock Split: A 1-for-100 reverse stock split was declared on February 12, 2011. All share data in the filing has been restated to reflect this split retroactively.
Outlook, Risks, and Management Commentary
Going Concern: The Company's auditor has issued a "going concern" opinion. The Company has incurred a cumulative loss of $121,256 and has no revenues. There is substantial doubt about its ability to continue as a going concern without additional capital or a successful merger.
Management Commentary: Management plans to investigate and potentially acquire or merge with one or more businesses. They anticipate incurring costs for SEC reporting and consummating an acquisition, funded by treasury cash or loans from stockholders/management. No specific target has been identified.
Key Risks:
- Insolvency: The Company is insolvent, unable to pay debts as they come due, and relies on related-party advances.
- Defaulted Debt: The $25,000 convertible note is in default, creating immediate liability pressure.
- Dilution: Any future merger will likely result in substantial dilution to existing shareholders, as the target company will likely receive a controlling interest.
- Lack of Liquidity: There is no active trading market for the common stock, and shares may be subject to penny stock restrictions.
- Internal Controls: The Company identified a material weakness in internal controls due to a lack of segregation of duties (sole officer/director performs all functions) and lack of an audit committee.
- Management Conflict: The sole officer/director, Robert Wilson, devotes limited time (approx. 40 hours/month) to the Company due to other business interests.
Investor Verification Checklist
- Verify the status of the $25,000 defaulted convertible note and whether the holder has exercised conversion rights or demanded repayment.
- Confirm the reverse stock split (1-for-100) has been properly processed by the transfer agent and reflected in trading records.
- Assess the source of funding for ongoing SEC compliance costs, given the minimal cash balance ($3,958) and lack of revenue.
- Review the beneficial ownership of IACE Investments One, Inc. (51.08%), which controls the company and could influence merger terms.
- Investigate any potential merger targets or discussions, as the company's value is entirely dependent on a future business combination.
- Check for any legal actions related to the defaulted debt or shareholder disputes, though none are currently reported as pending.