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same assets and liabilities as AMDM had prior to consummation of the Reorganization; (i) the capital stock of DGI was issued solely as part of a reorganization of AMDM into a holding company structure.

As was discussed previously, in a typical spin-off, the parent company distributes all of the stock of a subsidiary to the parent shareholders in the form of a pro rata dividend.  After the distribution is completed, the spun off company is no longer a subsidiary of the parent and the parent’s stockholders hold not only the parent’s stock but also the subsidiary’s stock.

In the present matter, the shareholders of the parent, or as is used above “existing company” did not retain their shares in the existing company.  Following the Statutory A Reorganization, the shares held by the shareholders in the existing company represented shares of the entity defined above as the “newly created entity.”

In effect, the newly created entity became the parent.  To further illustrate this discussion, please see the following diagram, to-wit:

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Existing Company merged into Subsidiary, whereby all assets and liabilities transferred into the survivor Subsidiary.  Existing Company ceases to exist.

Please note that under the terms of Title 8 §251(g) Desert Gateway has only become vested with the shareholders of the former AMDM or, as referred to in the diagram above, the Existing Company.

Further, we would note that Rule 144, as amended, provides for and discusses holding company formations and applicable holding periods.  Specifically, paragraph D(3)(ix)  provides as follows, to-wit:

“ix.

Holding company formations.  Securities acquired from the issuer in a transaction effected solely for the purpose of forming a holding company shall be deemed to have been acquired at the same time as the securities of the predecessor issuer exchanged in the holding company formation where:

A.

The newly formed holding company’s securities were issued solely in exchange for the securities of the predecessor company as part of a reorganization of the predecessor company into a holding company structure;

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B.

Holders received securities of the same class evidencing the same proportional interest in the holding company as they held in the predecessor, and the rights and interests of the holders of such securities are substantially the same as those they possessed as holders of the predecessor company’s securities; and

C.

Immediately following the transaction, the holding company has no significant assets other than securities of the predecessor company and its existing subsidiaries and has substantially the same assets and liabilities on a consolidated basis as the predecessor company had before the transaction.”

Clearly, the provisions provided for in 144 (ix) (A) (B) and (C) above were present.  Specifically, we refer you back to our lengthy discussion in our previous correspondence to the Commission regarding these principals.  Further, under 251(G), no shareholder vote was required because the provisions provided for in (A) (B) and (C) were applicable to the company’s reorganization.

Therefore, we propose to amend Item 1 and our discussion regarding the Company in the Background and Significant Accounting Policies attached to the audit as follows, to-wit:

ITEM 1  BUSINESS

(A)

BUSINESS DEVELOPMENT

History

Organizational Background:

Organizational Background:  We were incorporated February 8, 2008 as a subsidiary of American Merchant Data Services, Inc. Our former parent company, American Merchant Data Services, Inc. (American Merchant) was originally incorporated on January 27, 2000, in Florida as Boats.Com, Inc. On September 25, 2002 Boats.com, Inc. changed its name to American Merchant Data Services, Inc. American Merchant later re-domiciled to Oklahoma in October, 2007, under the name American Merchant Data Merger, Inc. (“AMDM”).

During the fiscal period ended February 29, 2008 we consummated a reorganization which we refer to collectively as the “2008 Reorganization” pursuant to Section 1081(a) of the Oklahoma General Corporation Law, as a tax-free organization.  On February 8, 2008, AMDM caused Desert Gateway, Inc. (“Desert Gateway”) to be incorporated in the State of Oklahoma, as a direct, wholly-owned subsidiary of AMDM and caused American Merchant Data Services, Inc. (“AMDS”) to also be incorporated in the State of Oklahoma as a direct wholly-owned subsidiary of Desert Gateway.  Under the terms of the Reorganization, AMDM was merged with and into AMDS pursuant to Section 1081(g) of the General Corporation Law of the State of Oklahoma (”OGCL”).  Upon consummation of the Reorganization, each issued and outstanding share of AMDM Common Stock was converted into and exchanged for a share of common stock of Desert Gateway (on a share-for-share basis) having the same designations, rights, powers and preferences, and qualifications, limitations and restrictions as the shares of AMDM being converted.  There was no spin-off and AMDM’s corporate existence ceased.  Under the 2008 Reorganization all American Merchant shareholders became shareholders of Desert Gateway in the same proportion.  In conjunction with the 2008 Reorganization, AMDM concluded a downstream merger into the second subsidiary AMDS.  All of AMDM’s losses and net operating losses

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carried forward to AMDS.  Following the Reorganization the Company was re-domiciled to Delaware.  Since 2004 and prior to consummation of the domiciliary merger in 2008,neither American Merchant nor Desert Gateway had any existing operations.

DESERT GATEWAY, INC.

BACKGROUND AND

SIGNIFICANT ACCOUNTING POLICIES

The Company

Organizational Background:  We were incorporated February 8, 2008 as a subsidiary of American Merchant Data Services, Inc. Our former parent company, American Merchant Data Services, Inc. (American Merchant) was originally incorporated on January 27, 2000, in Florida as Boats.Com, Inc. On September 25, 2002 Boats.com, Inc. changed its name to American Merchant Data Services, Inc. American Merchant later re-domiciled to Oklahoma in October, 2007, under the name American Merchant Data Merger, Inc. (“AMDM”).

Holding Company Formation and Forward Triangular Merger

During the fiscal period ended February 29, 2008 we consummated a reorganization which we refer to collectively as the “2008 Reorganization” pursuant to Section 1081(g) of the Oklahoma General Corporation Law, as a tax-free reorganization.  On February 8, 2008, AMDM caused Desert Gateway, Inc. (“Desert Gateway”) to be incorporated in the State of Oklahoma, as a direct, wholly-owned subsidiary of AMDM and caused American Merchant Data Services, Inc. (“AMDS”) to also be incorporated in the State of Oklahoma as a direct wholly-owned subsidiary of Desert Gateway.  Under the terms of the Reorganization, AMDM was merged with and into AMDS pursuant to Section 1081(g) of the General Corporation Law of the State of Oklahoma (”OGCL”).  Upon consummation of the Reorganization, each issued and outstanding share of AMDM Common Stock was converted into and exchanged for a share of common stock of Desert Gateway (on a share-for-share basis) having the same designations, rights, powers and preferences, and qualifications, limitations and restrictions as the shares of AMDM being converted.  There was no spin-off and AMDM’s corporate existence ceased.  Under the 2008 Reorganization all American Merchant shareholders became shareholders of Desert Gateway in the same proportion.  In conjunction with the 2008 Reorganization, AMDM concluded a downstream merger into the second subsidiary AMDS.  All of AMDM’s losses and net operating losses carried forward to AMDS.  Following the Reorganization the Company was re-domiciled to Delaware.  Since 2004 and prior to consummation of the domiciliary merger in 2008,neither American Merchant nor Desert Gateway had any existing operations. All of American Merchant’s operating assets, liabilities and tax attributes (including accumulated losses and net operating losses) carried forward to the second subsidiary. American Mercha nt’s second subsidiary is not a subsidiary of the Company. Accordingly, American Merchant is not considered a predecessor company for accounting or legal purposes of Desert Gateway.  Following the Reorganization we re-domiciled to Delaware. Since 2004 and prior to consummation of the domiciliary merger in 2008, neither American Merchant nor Desert Gateway had any existing operations.

3.

Item 1A.  Risk Factors, page 13

R.F.#16.  Our shareholders may face significant restrictions on the resale of our Common Stock due to state “blue sky” laws or if we conduct an offering of our common stock as a “blank check” company

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under Rule 419 adopted by the Securities and Exchange Commission.. page 18

We have reviewed your response to comment two of our letter dated August 5, 2008.  As indicated in our prior comment, it appears that you are a blank check company and that any resales would require registration in an offering subject to Rule 419.  Please revise the risk factor heading, the sentence appearing after the list of 19 states, and the last sentence in the second to last paragraph of the risk factor to state that any resales would require registration in an offering subject to Rule 419.

Response:

We have therefore modified Risk Factor 16 to read as follows,

to-wit:

16.

Our shareholders may face significant restrictions on the resale of our Common Stock due to state "blue sky" laws and due to the applicability of Rule 419 adopted by the Securities and Exchange Commission.

There are state regulations that may adversely affect the transferability of our Common Stock. We have not registered our Common Stock for resale under the securities or "blue sky" laws of any state. We may seek qualification or advise our shareholders of the availability of an exemption. But we are under no obligation to register or qualify our Common Stock in any state or to advise the shareholders of any exemptions.

Current shareholders, and persons who desire to purchase the Common Stock in any trading market that may develop in the future, should be aware that there might be significant state restrictions upon the ability of new investors to purchase the Common Stock.

Blue sky laws, regulations, orders, or interpretations place limitations on offerings or sales of securities by "blank check" companies or in "blind-pool" offerings, or if such securities represent "cheap stock" previously issued to promoters or others.  These limitations typically provide, in the form of one or more of the following limitations, that such securities are:

(a)

Not eligible for sale under exemption provisions permitting sales without registration to accredited investors or qualified purchasers;

(b)

Not eligible for the transaction exemption from registration for non-issuer transactions by a registered broker-dealer;

(c)

Not eligible for registration under the simplified small corporate offering registration (SCOR) form available in many states;

(d)

Not eligible for the "solicitations of interest" exception to securities registration requirements available in many states;

(e)

Not permitted to be registered or exempted from registration, and thus not permitted to be sold in the state under any circumstances.

Virtually all 50 states have adopted one or more of these limitations, or other limitations or restrictions affecting the sale or resale of stock of blank check companies or securities sold in "blind

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pool" offerings or "cheap stock" issued to promoters or others. Specific limitations on such offerings have been adopted in:

Any resales of our securities will require registration in an offering subject to Rule 419. The Securities and Exchange Commission has adopted a rule (Rule 419) which defines a blank-check company as (i) a development stage company, that is (ii) offering penny stock, as defined by Rule 3a51-1, and (iii) that has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies. Certain jurisdictions may have definitions that are more restrictive than Rule 419. We have been informed that the Securities and Exchange Commission has cautioned that "it will scrutinize registered offerings for attempts to create the appearance that the registrant has a specific business plan, in an effort to avoid the application of Rule 419." Provisions of Rule 419 apply to every registration statement filed under the Securities Act of 193 3, as amended, relating to an offering by a blank-check company.

Should we conduct an offering of our securities, before we complete a business combination with an operating company, the Company would be considered a blank check company within the meaning of Rule 419 and any sales or resales of the stock issued in the offering would require a registration under the Securities Act of 1933, as amended, in an offering subject to Rule 419, unless there exists a transaction or security exemption for such sale under the Securities Act of 1933, as amended.  Any resales of our Common Stock would require registration under the Securities Act of 1933, as amended, in an offering subject to Rule 419.

The Company's officers, directors and majority shareholders have expressed their intentions not to engage in any transactions with respect to the Company's Common Stock except in connection with or following a business combination resulting in us no longer being defined as a blank check issuer. Any transactions in our Common Stock by said shareholders will require compliance with the registration requirements under the Securities Act of 1933, as amended.

Finally, as requested, the Company acknowledges that:

●

The Company is responsible for the adequacy and accuracy of the disclosure in the filings;

●

Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

●

The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the Federal Securities Laws of the United States.

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If you should have any further questions or comments, or need further information, please do not hesitate to contact the undersigned.

Very truly yours,

/s/   John Heskett

John Heskett

JFH:dc

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