U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 FORM 10-QSB/A
                                AMENDMENT NO. 1

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

     For the quarterly period ended June 30, 2006.

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

                        COMMISSION FILE NUMBER: 000-27879

                           GATEWAY DISTRIBUTORS, LTD.
                 (Name of small business issuer in its charter)

                       NEVADA                                 88-0301278
          (State or other jurisdiction of                  (I.R.S. Employer
           incorporation or organization)                 Identification No.)

              2555 EAST WASHBURN ROAD,                           89081
              NORTH LAS VEGAS, NEVADA                         (Zip Code)
     (Address of principal executive offices)

                                 (702) 317-2400
                          (Issuer's telephone number)

     Check  whether  the  issuer  (1)  filed all reports required to be filed by
Section  13  or 15(d) of the Exchange Act during the past 12 months (or for such
shorter  period  that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X]   No [ ]

     Indicate by check mark whether the registrant is a shell company as defined
in  Rule  12b-2  of  the  Exchange  Act.  Yes [ ]   No [X]

     State  the  number of shares outstanding of each of the issuer's classes of
common  equity,  as  of the latest practicable date:  As of August 11, 2006, the
issuer  had  12,717,010,636  shares  of its common stock issued and outstanding.

     Transitional Small Business Disclosure Format (check one):  Yes [ ]  No [X]


<PAGE>
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

<S>                                                                        <C>
PART I - FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . .   2
     Item 1.  Financial Statements. . . . . . . . . . . . . . . . . . . .   2
     Item 2.  Management's Discussion and Analysis or Plan of Operation .   3
     Item 3.  Controls and Procedures . . . . . . . . . . . . . . . . . .   8
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . .   9
     Item 1.  Legal Proceedings . . . . . . . . . . . . . . . . . . . . .   9
     Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds   9
     Item 3.  Defaults Upon Senior Securities . . . . . . . . . . . . . .   9
     Item 4.  Submission of Matters to a Vote of Security Holders.. . . .   9
     Item 5.  Other Information . . . . . . . . . . . . . . . . . . . . .   9
     Item 6.  Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . .  10
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.  11
CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.  13
</TABLE>


                                        i
<PAGE>
                                EXPLANATORY NOTE

     On  August  21,  2006, we filed with the Securities and Exchange Commission
our  Quarterly  Report  on  Form 10-QSB, for the quarterly period ended June 30,
2006.  This  Amendment  to our Quarterly Report on Form 10-QSB is being filed to
amend  the  introductory  paragraph contained in Item 2, Management's Discussion
and  Analysis  or Plan of Operation, and the information in Item 3, Controls and
Procedures.  Subsequent to the filing of Quarterly Report on Form 10-QSB for the
quarterly  period  ended  June  30,  2006, the Registrant's management and Audit
Committee,  after  consultation  with  the Registrant's independent accountants,
determined  that  the  financial statements for the year ended December 31, 2005
required  restatement  to  correct the accounting for two transactions occurring
during  that period which did not comply with U.S. generally accepted accounting
principles.  The  filing  of  this  Form  10-QSB/A,  Amendment  No. 1, is not an
admission  that our Form 10-QSB for the quarter ended June 30, 2006, when filed,
knowingly included any untrue statement of a material fact or omitted to state a
material  fact  necessary  to  make  the statements made therein not misleading.

     Management  became  aware  of  an  accounting  error  on  October  18, 2006
pertaining to the annual financial statements issued for the year ended December
31,  2004.

     The  accounting  error  contained two components. The first related to debt
forgiveness  income  recognized  in 2004 in the amount of $1,282,886. The second
pertained to $400,000 of liabilities remaining on the balance sheet.

     Prior to 2004 the company had recognized $1,682,886 of liabilities. Many of
these  liabilities  went back to 1999 and previous. The liabilities consisted of
liabilities  assumed  on  acquisition  of  other  companies  as  well  as  some
duplication  of  liabilities through accounting system changes. The company went
through  the  stated liabilities vendor by vendor trying to ascertain the actual
amount  owed  during  the end of 2004. The liabilities could be categorized into
three  segments.  The  first segment was international commissions owed prior to
changing  business  operations  in  Japan.  The  second  segment  was  duplicate
commissions  entered  for product sales reps that had already been paid, and the
third  segment  was liabilities assumed through acquisition that were previously
satisfied.

     The  liabilities  could  not  be  confirmed  and so the company relied upon
Nevada  state  law which states that after three years, indebtedness is forgiven
if there have been no lawsuits filed. This would be consistent with paragraph 16
B  of  SFAS  140,  however, the adjustment pertains to prior years and therefore
will  be  treated as a prior period adjustment and a correction of an error even
though  the  liabilities  were  determined  to  be  not  valid  in  2004.

     The  company  had isolated and determined that $1,282,886 was not valid and
therefore  under  State law and per the guidance of SFAS 140 16B determined that
these  debts were discharged and wrote them down to debt forgiveness income. The
company  however  could  not  determine  weather  the  remaining  $400,000  was
discharged  as  a  result  of  previous  business  acquisitions  and mergers and
therefore  left  this  balance  as  a contingent liability on the balance sheet.
There  have  not  been any claims or law suits filed on this amount even through
late  2006 and therefore can only be concluded that the adjustments pertain to a
prior  period.

     Management  has also addressed and modified its internal controls to review
and  confirm  all  of  its  ongoing  liabilities  to  ensure  the  accuracy  and
reliability of the information contained in its accounting systems.

     Management  has contacted it's independent certified public accountant firm
about  the  above  situation and determined that the best course of action is to
restate  and  amend  the  2004  filing  of  its  10KSB.

     The  effect of the 2004 restatement also changed the 2005 balance sheet and
statement  of  stockholders  equity (deficiency) as well as the first and second
quarters  of  2006  balance  sheets  and  statements  of  stockholders  equity
(deficiency).  In conjunction with this change an additional financial statement
foot  note  number  18  has  been  added.

     Except  as  described  herein,  no  other  changes  have  been  made to our
Quarterly  Report  on  Form  10-QSB. We have not updated the disclosures in this
Form 10-QSB/A, Amendment No. 1, to speak as of a later date or to reflect events
which  occurred  at  a  later  date,  except  as  noted.


                                        1
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

     As  used herein, the term "Company" refers to Gateway Distributors, Ltd., a
Nevada  corporation,  and  its  subsidiaries  and  predecessors unless otherwise
indicated.  Unaudited,  interim,  condensed,  consolidated  financial statements
including  a  balance  sheet for the Company as of the period June 30, 2006, and
statements  of  operations, and statements of cash flows, for interim periods up
to  the  date  of  such balance sheet and the comparable period of the preceding
year  are  attached hereto as Pages F-1 through F-16 and are incorporated herein
by  this  reference.

BASIS OF PRESENTATION

     The  accompanying  consolidated  interim unaudited financial statements are
presented  in  accordance  with  accounting principles generally accepted in the
United  States of America for interim financial information and the instructions
for  Form  10-QSB  and  Item 310 under subpart A of Regulation S-B. Accordingly,
they  do not include all of the information and footnotes required by accounting
principles  generally  accepted  in  the  United  States of America for complete
financial  statements. The accompanying statements should be read in conjunction
with  the  audited financial statements for the year ended December 31, 2005. In
the opinion of management, all adjustments considered necessary in order to make
the  financial  statements  not misleading have been included. Operating results
for the quarter and period ended June 30, 2006 are not necessarily indicative of
results that may be expected for the year ended December 31, 2006. The financial
statements  are  presented  on  the  accrual  basis.


                      [THIS SPACE LEFT BLANK INTENTIONALLY]


                                        2
<PAGE>
<TABLE>
<CAPTION>
                  GATEWAY DISTRIBUTORS, LTD. AND SUBSIDIARIES

                                  - CONTENTS -

                                              PAGE NUMBER
                                              -----------
<S>                                           <C>
Financial Statements:

     Balance Sheet                                F-1

     Statement of Operations                      F-3

     Statement of Stockholders - Equity           F-4

     Statement of Cash Flows                      F-5

     Notes to Financial Statements                F-7
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                          GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES
                             UNAUDITED CONSOLIDATED BALANCE SHEET
                           (CONDENSED, INTERIM FINANCIAL STATEMENTS)

                                                               June 30,     December 31,
                                                                 2006           2005
                                                              -----------  --------------
<S>                                                           <C>          <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                   $    8,371   $      93,305
  Accounts Receivable                                              8,756          23,756
  Inventories                                                    355,182         373,276
  Due From Chelsea Collection                                          -          90,000
  Prepaids                                                             -               -
                                                              -----------  --------------
                                        Total Current Assets     372,309         580,337
                                                              -----------  --------------

PROPERTY & EQUIPMENT
  Property and Equipment, at cost                              1,678,272         410,979
  (Less) accumulated depreciation and amortization              (350,785)       (327,818)
                                                              -----------  --------------
                                  Total Property & Equipment   1,327,487          83,161
                                                              -----------  --------------

MINORITY INTEREST IN SUBSIDIARY                                        -               -
                                                              -----------  --------------

OTHER ASSETS
  Prepaid Advertising                                            230,572         230,572
  Product Awaiting Marketing                                     183,650         183,650
  Formulas                                                       536,500         536,500
  Investment in QDS of Arizona                                         -         200,000
  Cal-Bay International Restricted Stock Held for Investment   1,271,005       1,361,005
  Chelsea Collection Restricted Stock Held for Investment        365,900         400,000
  Other Assets                                                    13,182          40,768
                                                              -----------  --------------
                                          Total Other Assets   2,600,809       2,952,495
                                                              -----------  --------------

Total Assets                                                   4,300,605       3,615,993
                                                              ===========  ==============
</TABLE>

                      SEE NOTES TO THE FINANCIAL STATEMENTS


                                      F-1
<PAGE>
<TABLE>
<CAPTION>
                        GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES
                           UNAUDITED CONSOLIDATED BALANCE SHEET
                         (CONDENSED, INTERIM FINANCIAL STATEMENTS)

                                             (Restated)      (Restated)
                                              June 30,      December 31,
                                                2006            2005
                                            -------------  --------------
<S>                                         <C>            <C>
                   LIABILITIES
CURRENT LIABILITIES:

Accounts payable:
  Trade Regular                             $    351,882   $     200,808

Accrued expenses:
  Payroll and employee benefits                  293,339         167,103
  Payroll taxes                                  198,159         142,925
  Interest                                       420,944         420,944
  Other                                           36,359          48,257
Stock Investors                                  188,078          94,078
Current maturities of long-term debt           1,690,898       1,378,615
                                            -------------  --------------
Total current liabilities                      3,179,659       2,452,730
                                            -------------  --------------

LONG-TERM DEBT                                   935,573               -

Total Liabilities                              4,115,232       2,452,730
                                            -------------  --------------

              STOCKHOLDERS' EQUITY

Preferred stock - $.001 par value
  Authorized - 400,000,000 shares
    Series A Preferred
      Authorized - 100,000,000 shares
      14,972,125 issued and outstanding           14,972          14,972
    Series B Preferred
      Authorized - 100,000,000 shares
      15,000,000 issued and outstanding           15,000          15,000
    No Series Designated Preferred
      Authorized - 200,000,000 shares
      Issued and outstanding - none
Common stock, - $.001 par value
  Authorized - 25,000,000,000 shares
  Issued and outstanding - 10,117,010,636     10,117,010       2,967,010
  Additional paid-in capital                  12,452,204      17,542,204
  Accumulated (deficit)                      (22,413,813)    (19,375,923)
                                            -------------  --------------
Net Stockholders' Equity                         185,373       1,163,263
                                            -------------  --------------

Total Liabilities & Stockholders' Equity    $  4,300,605   $   3,615,993
                                            =============  ==============
</TABLE>

                      SEE NOTES TO THE FINANCIAL STATEMENTS


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                                             GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES
                                          UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                                              (CONDENSED INTERIM FINANCIAL STATEMENTS)

                                                                   Quarter          Quarter        6 Months        6 Months
                                                                    Ended            Ended           Ended           Ended
                                                                   June 30,        June 30,        June 30,        June 30,
                                                                     2006            2005            2006            2005
                                                               ----------------  -------------  ---------------  -------------
<S>                                                            <C>               <C>            <C>              <C>
SALES                                                          $       155,767   $    190,081   $      359,337   $    391,766

COST OF SALES                                                           16,169         42,899           60,288         88,482
                                                               ----------------  -------------  ---------------  -------------

GROSS PROFIT                                                           139,598        147,182          299,049        303,284
                                                               ----------------  -------------  ---------------  -------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
  Depreciation Expense                                                  15,701         24,709           22,967         49,418
  Professional Services Not Classified Elsewhere                       662,874        172,924        2,109,336        297,284
  Development of Jeunesse by Francois Product Line                      48,490         58,088          129,719        120,159
  Product Development                                                   10,500         66,838           27,785        317,464
  All Other Selling, General and Administrative                        484,435         82,014          854,195        280,772
                                                               ----------------  -------------  ---------------  -------------

TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                   1,222,000        404,573        3,144,002      1,065,097
                                                               ----------------  -------------  ---------------  -------------

OTHER INCOME (EXPENSE):
  Gain on Sale of Property held for short term investment                    0              0                0         37,139
  Gain on Sale of Aspen Cove                                                 0        652,546                0        652,546
  Debt Forgiveness Income                                                    0              0           40,465              0
  (Loss) on Sale of Subsidiary - Los Cabos Beverage                          0              0                0         (8,256)
  (Loss) change in reporting QDS of Arizona as an investment                 0              0                0        (68,535)
  (Impairment) reporting Subsidiary QDS
  of Arizona as an investment                                                0              0                0         (9,101)
  (Loss) on Investment in QDS                                                0              0         (200,000)             0
  (Loss) on Sale of Valley Dr House                                          0        (10,380)               0        (10,380)
  Interest Expense                                                     (33,403)       (64,967)         (33,402)      (110,872)
  Other Income                                                               0              0                0              0
                                                               ----------------  -------------  ---------------  -------------

TOTAL OTHER INCOME (EXPENSE):                                          (33,403)       577,199         (192,937)       482,541
                                                               ----------------  -------------  ---------------  -------------

NET INCOME (LOSS) BEFORE MINORITY INTEREST                          (1,115,805)       319,808       (3,037,890)      (279,272)

MINORITY INTEREST                                                            0              0                0              0
                                                               ----------------  -------------  ---------------  -------------

NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAX                   (1,115,805)       319,808       (3,037,890)      (279,272)

PROVISION FOR INCOME TAX                                                     0              0                0              0
                                                               ----------------  -------------  ---------------  -------------

NET INCOME (LOSS)                                                   (1,115,805)       319,808       (3,037,890)      (279,272)

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE                              (0.00)          0.00            (0.00)         (0.00)
                                                               ----------------  -------------  ---------------  -------------

BASIC & DILUTED WEIGHTED AVERAGE SHARES OF COMMON STOCK         10,288,988,658    185,934,066    6,648,226,106    110,200,657
                                                               ================  =============  ===============  =============
</TABLE>

                      SEE NOTES TO THE FINANCIAL STATEMENTS


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                                          GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES
                                   UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   FOR THE PERIODS ENDED JUNE 30, 2006 AND DECEMBER 31, 2005

                               Preferred Stock           Common Stock            Paid in      (Restated)     (Restated)
                              Par Value $0.001         Par Value $0.001           Excess      Accumulated    Net Equity
                             -------------------  ---------------------------
                               Shares    Amount       Shares        Amount        of Par       (Deficit)    (Deficiency)
                             ----------  -------  --------------  -----------  ------------  -------------  -------------
<S>                          <C>         <C>      <C>             <C>          <C>           <C>            <C>
Balance - December 31, 2004   4,972,125  $ 4,972          98,590  $        99  $19,224,980   $(18,472,196)  $    757,855

Common Stock Issued:
  For Services -
  Restricted Stock                                 1,975,100,042    1,975,100   (1,262,199)                      712,901
  Cancelled Not Sold                                -242,749,998     -242,750       22,750                      (220,000)
  For Services -
  Unrestricted Stock                                 853,400,002      853,400     (375,173)                      478,227
  For Cash                                           381,162,000      381,160      (68,153)                      313,007
Loss for the Period                                                                              (903,728)      (903,728)
Preferred Stock Issued
  Preferred Stock B          15,000,000   15,000                                                                  15,000
  Preferred Stock A          10,000,000   10,000                                                                  10,000

                             ----------  -------  --------------  -----------  ------------  -------------  -------------
Balance for
December 31, 2005            29,972,125   29,972   2,967,010,636    2,967,009   17,542,205    (19,375,924)     1,163,262

Common Stock Issued:
  For Services -
  Unrestricted Stock                               3,850,000,000    3,850,000   (2,520,000)                    1,330,000

Loss for the Period                                                                            (1,922,085)    (1,922,085)

                             ----------  -------  --------------  -----------  ------------  -------------  -------------
Balance for March 31, 2006   29,972,125   29,972   6,817,010,636    6,817,009   15,022,205    (21,298,009)       571,177

Common Stock Issued:
  For Services -
  Restricted Stock                                 1,000,000,000    1,000,000     (900,000)                      100,000
  For Services -
  Unrestricted Stock                               2,300,000,000    2,300,000   (1,670,000)                      630,000

Loss for the Period                                                                            (1,115,804)    (1,115,804)

                             ----------  -------  --------------  -----------  ------------  -------------  -------------
Balance for June 30, 2006    29,972,125   29,972  10,117,010,636   10,117,009   12,452,205    (22,413,813)       185,373
</TABLE>

                      SEE NOTES TO THE FINANCIAL STATEMENTS


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                      GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES
                                    UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (CONDENSED INTERIM FINANCIAL STATEMENTS)

                                                                                  6 Months Ended     Year Ended
                                                                                     June 30,       December 31,
                                                                                       2006             2005
                                                                                 ----------------  --------------
<S>                                                                              <C>               <C>
OPERATING ACTIVITIES:
Net (loss)                                                                       $    (3,037,890)  $    (903,728)
Adjustments to reconcile Net (loss)
  to net cash from (to) operating activities:
  Stock issued for Services                                                            1,960,000         862,022
  Depreci. & Amortization Prop & Equip                                                    22,967          47,132
  Minority Interest                                                                            -          72,364

Changes in operating assets & liabilities which increase (decrease) cash flow:
  Accounts Receivable                                                                    215,000        (178,122)
  Inventories                                                                             18,094         120,923
  Properties Held for Short Term Investments                                                   -         179,741
  Prepaid Expenses & Other Current Assets                                                      -          25,500
  Accounts Payable and Commissions                                                       151,073        (128,532)
  Accrued Liabilities                                                                    169,572          26,989
                                                                                 ----------------  --------------
Net cash provided by operating activities                                               (501,184)        124,289
                                                                                 ----------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Product Development Awaiting Production                                                      -          (4,000)
  Capital (Outlays)/ Disposals                                                                 -       4,237,309
  Purchase of Property                                                                (1,267,293)              -
  Other Assets                                                                            27,586           7,938
                                                                                 ----------------  --------------
Net cash provided (used) from investing activities                                    (1,239,707)      4,241,247
                                                                                 ----------------  --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net Proceeds from Term Debt After Principal Payments                                 1,247,857               -
  Principal Payment on Debts (over) net proceeds Term Debt                                     -      (2,820,033)
  Stock Sales for Cash; Net                                                              100,000         338,009
  Investments                                                                            308,100      (1,827,366)
                                                                                 ----------------  --------------
Net cash provided (used) from financing activities                                     1,655,957      (4,309,390)
                                                                                 ----------------  --------------

NET INCREASE (DECREASE) IN CASH EQUIVALENTS                                              (84,934)         56,146

CASH AND CASH EQUIVALENTS - Beginning of Period                                           93,305          37,159
                                                                                 ----------------  --------------

Cash at end of period                                                            $         8,371   $      93,305
                                                                                 ================  ==============
</TABLE>

                      SEE NOTES TO THE FINANCIAL STATEMENTS


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                        GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                                             6 Months Ended   Year Ended
                                                June 30,     December 31,
                                                  2006           2005
                                             --------------  ------------
<S>                                          <C>             <C>
SUPPLEMENTAL DISCLOSURE

CASH PAID FOR:
  Interest                                           33,403       192,645
  Taxes                                                   0             0


NON CASH INVESTING AND FINANCING ACTIVITIES

STOCK ISSUED FOR:
  Services                                        1,960,000       862,022
  Investors                                         100,000       338,009
</TABLE>

                      SEE NOTES TO THE FINANCIAL STATEMENTS


                                      F-6
<PAGE>
                   GATEWAY DISTRIBUTORS, LTD. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 1 - BASIS OF PRESENTATION:

The consolidated interim condensed financial statements at June 30, 2006 and for
the periods ended June 30, 2006 and 2005 are unaudited, but include all
adjustments, which the Company considers necessary for a fair presentation.

The accompanying unaudited financial statements are for the interim periods and
do not include all disclosures normally provided in annual financial statements,
and should be read in conjunction with the Company's Form 10-KSB for the year
ended December 31, 2005. The accompanying consolidated unaudited interim
financial statements for the periods ended June 30, 2006 and 2005 are not
necessarily indicative of the results which can be expected for the entire year.

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

                          PRINCIPLES OF CONSOLIDATION
                          ---------------------------

As of June 30, 2006, the Company has the following wholly owned subsidiaries:

-    The Right Solution Gateway (multilevel marketing and retail sales)
-    Grandma Hammans Specialty Foods (an inactive corporation)
-    Gateway Venture Holdings, Inc. (house and manage the real estate, vehicles
     and equipment of the Company)
-    Gateway Corporate Administration, Inc. (an inactive corporation)

The Company also owns a 51% interest in Quality Distribution Services of
Arizona, a wholesale distributor of non-alcoholic beverages and food. In 2004,
the Company reported the operations of QDS in the financial statement. Beginning
in 2005, the Company did not report the operations of this company in the
financial statements, but recognized it as an investment, not as an equity
position (See Note "Investment in Quality Distribution Services of Arizona"
("QDS")). During the first quarter 2006, the Company wrote off it's investment
in QDS as the sale of the interest in the subsidiary has received no commitment
from potential buyers. The search for buyers will continue, although there is
little interest in QDS at this time.

The Company has signed a binding letter of intent to purchase the business
assets of Marshall Distributing, LLC, a Utah limited liability company and a
portion of EMS Business Development, Inc., a California corporation. These
assets will be assigned to the currently inactive subsidiary Grandma Hammans
Specialty Foods and the subsidiary will have an appropriate name change. The
asset purchase includes the operations and warehouse facility. The date of
implementation is being reviewed.

The accompanying consolidated financial statements include the accounts of its
subsidiaries, except for QDS. All significant intercompany balances and
transactions have been eliminated.

NOTE 3 - GRANDMA HAMMANS AND LOS CABOS BEVERAGE:


                                      F-7
<PAGE>
The Company purchased the assets of Grandma Hamman's Specialty Foods, LLC, from
Blaine Wendtland on August 15, 2002. On December 21, 2004 the assets and
liabilities of Grandma Hammans, other than some minor residual receivables and
payables, passed to Blaine Wendtland in exchange for a 51% interest in the sale
of private label water that Blaine Wendtland had developed. To date the
subsidiary, Grandma Hammans, remains inactive.

On December 30, 2004, the Company formed a corporation named Los Cabos Beverage,
Inc. ("Los Cabos") and acquired a 51% ownership with the remaining 49% going to
Blaine Wendtland. Los Cabos was formed to handle the operations of the sale of
private label water discussed in the prior paragraph. Operations were to begin
in 2005. The Company invested no initial money for this joint venture, but it
did provide a place of operation in its warehouse and limited funding for
payroll and selected other expenses.

During January and February of 2005 Los Cabos sales did not meet expectations.
Management determined that the operations would not be cost effective for the
Company. On February 28, 2005 the Company entered into an agreement with Blaine
Wendtland wherein he assumed all ownership and obligations and the Company
terminated its commitments and relationships with Los Cabos and with Blaine
Wendtland. There is a loss on the disposal of this subsidiary of $8,256 for
operations while the Company owned it during 2005.

NOTE 4 - LICENSING / PURCHASE AGREEMENT WITH THE CHELSEA COLLECTION INC.
(A RELATED PARTY):

The Company entered into an agreement December 12, 2003 with The Chelsea
Collection Inc, a Nevada corporation ("Chelsea Collection") that was finalized
on March 15, 2004 and later clarified on a few points May 4, 2004. Chelsea
Collection is now being traded on pink sheets as a public entity. Chelsea
Collection is majority owned by the officers of the Company and Francois
Vautour, an unrelated third party of the Company. Chelsea Collection in an
agreement dated November 25, 2003 acquired among other things from Francois
Vautour and assigns, except for Romania, all United States and Canada rights,
trademarks, formulas and licenses of the Jeunesse by Francois Vautour and the
GH3 skin care line.

In the agreement the Company has with Chelsea Collection, the Company will have
the opportunity to acquire the same Francois Vautour skin care line from Chelsea
Collection for virtually the same price and terms as Chelsea Collection is
buying it from Francois Vautour. The terms of the agreement involves a purchase
price of $4,000,000, payments are computed based on 15% of the gross sales less
cost of goods sold with a minimum weekly payment of $10,000. Once the purchase
price is paid, then a royalty of up to 15% of the gross sales less cost of goods
sold steps into place and continues thereafter. The cost outlays have been
charged to the statement of operations as a selling, general and administrative
expense, which were $487,863 for all of 2005 and $129,719 for the period, ended
June 30, 2006.

No title or ownership passes to the Company or to Chelsea Collection until the
November 25, 2003 agreement between Chelsea Collection and Fran ois Vautour is
satisfied, the payment of which is described in the prior paragraph. The Company
has opted not to capitalize the purchase price. Therefore, all monies paid have
been expensed.

The Company is responsible for all product research and development for current
and future marketing as well as carrying inventory on all Gateway Distributors'
products. An infomercial developed late in 2004 has been charged to the balance
sheet as an asset under "Prepaid Advertising" for $230,573. This remains
unchanged during 2005 and 2006. At year end (December 31, 2006), management will
evaluate the infomercial for impairment.

During the third quarter 2005, the Company sold to Chelsea Collection its
controlling block of preferred restricted stock in PolarWearZ, Inc. (refer to
note "Real Estate Sales") for $250,000. Chelsea Collection name changed the
corporation to "The Chelsea Collection, Inc." As of June 30, 2006, Chelsea
Collection had paid off all of the $250,000 sales price.


                                      F-8
<PAGE>
NOTE 5 - INVESTMENT IN QUALITY DISTRIBUTION SERVICES OF ARIZONA ("QDS"):

On May 30, 2004, an agreement was signed with Quality Distribution Services of
Nevada creating a wholesale beverage distribution center in the Phoenix, Arizona
area. For this joint venture, Quality Distribution Services of Arizona, Inc
("QDS") was incorporated in Nevada on June 7, 2004, of which 51% is owned by
Gateway.

The Company invested $282,700 during 2004 and another $50,000 through March 31,
2005 to assist in the development of the company. The other party to the joint
venture has secured the warehouse and equipment and has guaranteed payments of
such as well as continue providing for the operations of QDS.

Management has determined it is in the best interest of the Company not to
continue funding this joint venture. Negotiations are presently in process
wherein the Company would dispose of its interest. Management is unsure what the
settlement price will be upon disposing of this investment. In 2005, the Company
recognized an investment of $200,000 out of a total investment of $332,700. The
difference of $132,700 was recognized as a loss in 2004 as well as $9,101
impairment loss in 2005 upon presenting QDS as an investment in 2005 instead of
a subsidiary as in 2004. Management evaluated this investment and decided to
write-off the $200,000 in the first quarter of 2006. In addition, no operations
of this subsidiary are recognized in the consolidated statement of operations
for 2005 and 2006, as management has taken the position that the subsidiary is
not under its control.

NOTE 6- REAL ESTATE SALES:

During the first quarter of 2005, the Company borrowed an additional $400,000
from a financial institution on a 6.5% equity line secured by the office and
warehouse property located at 3220 Pepper Lane, Las Vegas, Nevada. Proceeds were
used for remodeling the office and warehouse property. This loan was paid off
upon sale of the building on September 30, 2005.

On February 28, 2005 the Company sold the Shellstone residential property real
estate in Las Vegas for approximately $369,000. The gain on this sale has been
recognized in the 2005 Statement of Operations as part of the "Gain on Sale of
Property Held for Short Term Investment".

In a single agreement on June 2, 2005, the Company sold Aspen Cove Resort
(property) and the subsidiary Aspen Cove Resort, Inc. (operations of Aspen Cove
Resort), hereafter referred to as "Aspen Cove," to Cal-Bay International
("Cal-Bay"). Aspen Cove sold for approximately $2,600,000, adjusted to the
estimated fair value of the Cal-Bay stock received in exchange for partial
payment as discussed later in this note. The sale was paid for with (1)
restricted Preferred Series B stock of Cal-Bay, (2) the controlling block of
stock (restricted preferred stock) in PolarWearZ, Inc., an inactive no asset
corporation trading on the pink sheets, valued at $200,000, (3) mortgage debt
assumption, and (4) cash paid to the mortgage holder catching up the past due
mortgage payments. The Mortgage Note was paid off in March 2006. Because there
was no distinction made between the sale of the Aspen Cove property and
operations (subsidiary), the transaction was recognized as one sale and netted
into one gain, effective June 2, 2005. The operations of Aspen Cove Resort are
reflected only thru June 2, 2005, the date the Company ceased owning the
operations. In July 2005. Cal-Bay included as part of the payment in exchange
for Aspen Cove approximately 800,000 free trading shares of common stock in
PolarWearZ, Inc (approximately 15% of the common stock) valued at $400,000.

The valuation of Cal-Bay stock received from the sale of Aspen Cove and the
Valley Drive real estate, is for a guaranteed minimum sales price of $0.05 per
share upon conversion from preferred "B" non voting stock to voting common
stock. The preferred stock is non-dilutable and, as per the agreement, upon sale
as common stock it is guaranteed to sell for no less than $0.05 per share, or
additional shares will be issued to compensate for any shortage. The market
value of the common stock of Cal-Bay International remained relatively stable
for over two years until November 25, 2005 when a reverse split took place.
Since then, the stock has retained a value well above the $0.05 per share
guarantee. It is unknown if this will continue. Based on that history, and that
the stock is non-dilutable and it has a minimum sales value of $1,600,000,
Management has assigned the 32,000,000


                                      F-9
<PAGE>
shares of preferred stock a value of $1,600,000 discounted by $348,501 to a
present value of 10% per year for 3 years giving an estimated fair value of
$1,271,499. The unrestricted common stock received in the third quarter 2005 in
PolarWearZ, Inc. (assigned a value of $400,000) was not included in the second
quarter 2005. This changes the recognized sales price from approximately
$2,200,000 as previously recognized in the second quarter 2005 to $2,600,000.
The adjusted gain on this sale of approximately $1,276,000 has been recognized
in the 2005 Statement of Operations as part of the "Gain on Sale of property."

In addition, during the second quarter 2005, the Company sold a residential
property in Las Vegas for approximately $250,000 to Cal-Bay. Under the terms of
the agreement the purchase payment is made up of (1) 3,200,000, later adjusted
to 2,800,000, shares of Cal-Bay International non-dilutable Preferred "B" stock,
guaranteed value at $0.05 per share, (2) and debt assumption of the underlying
mortgage, and, (3) cash paid to the mortgage holder catching up the past due
mortgage payments. The value of the stock is $140,000 (previously recognized in
the second quarter 2005 at $160,000) discounted to the present value at 10% per
year for 3 years, computing to an estimated fair value of $109,506 (previously
recognized in the second quarter 2005 at $125,150). This changes the recognized
sales price from approximately $250,000 to $235,365 instead of approximately
$251,000 as previously recognized in the second quarter 2005. The loss on this
sale has been recognized in the 2005 Statement of Operations as "Loss on Sale of
Valley Dr House" of $26,024, previously recognized in the second quarter 2005 as
$10,380).

On September 30, 2005, the Company closed on the sale of its Las Vegas, Nevada
property located at 3220 Pepper Lane, which housed its warehouse and office
facilities for a gain that has been reported as part of the "Gain on Sale of
Property" on the statement of operations in 2005.

The Company purchased a smaller commercial property on March 13. 2006. The
warehouse/operations have been moved to the new building. The offices are
operating out of a temporary location while the office portion of the building
is completed.

NOTE 7 - REVERSE STOCK SPLIT:

On March 28, 2005, the Company did a 500 for 1 reverse stock split. The
financial statements have reflected this reverse stock split retroactively to
inception.

NOTE 8 - EMPLOYEE STOCK INCENTIVE PLAN ("ESIP"):

Since 2003, the Company has filed with the Security and Exchange Commission
("SEC") forms S-8 notifying of Employee Stock Incentive Plans ("ESIP") and its
increases in stock approved to issue under such plans. No additional increases
in stock have been submitted or approved to issue under such plans since August
2004.

During 2004, the total number of shares approved to issue in these plans was
18,200,000,000 (18 billion, 200 million). Stock issued to employees through the
plan is not affected by reverse splits until after it has been sold. The
remaining unissued stock at any time remains unchanged despite what happens to
the stock once it is issued. i.e., stock reverse splits, dividends, etc. As of
June 30, 2006, there are no remaining shares approved to issue under the ESIP
plans.

During 2005, the Company issued 1,433,250,000 shares out of the ESIP plan before
stock splits. The number of shares after stock splits is recognized on the
statement of stockholders equity. The net proceeds to the Company from employee
stock sales during 2005 were approximately $228,000.

During January 1 through June 30, 2006 no stock was issued out of the ESIP plan.
There are currently no shares issued and unsold under the ESIP plan.


                                      F-10
<PAGE>
NOTE 9 - RECEIVABLE ESIP STOCK PLAN:

Stock sales through the Employee Stock Incentive Plan (ESIP) sold at quarter end
are reported as a receivable rather than negative equity provided they are
received within 45 days after quarter end. Funds to be received from the ESIP
Plan are reported as "Receivable ESIP Stock Plan" as a current asset in the
amount of $0. There is no receivable on stock as there has been no ESIP stock
issued during 2006.

NOTE 10 - NON-EMPLOYEE, DIRECTORS AND CONSULTANTS RETAINER STOCK PLANS ("RSP"):

The Company continually seeks to improve its financial position by seeking
investors in exchange for equity in the Company. The value assigned to the stock
for these transactions will vary based on the market value of the stock or
services performed at the time, whichever is more readily ascertainable.

Since 2003, the Company has filed with the Security and Exchange Commission
("SEC") forms S-8 notifying of Non-Employee Directors and Consultants Retainer
Stock Plans ("RSP") and its increases in stock approved to issue under such
plans. On July 27, 2006 a Form S-8, Non-Employee Consultants Retainer Stock Plan
for the Year 2006, was submitted for 7,000,000,000 (7 billion) shares.

During 2004, the total number of shares approved to issue in these plans were
8,500,000,000 (8 billion 500 million). The number of shares approved to issue
through the plan is not affected by reverse stock splits. The remaining unissued
stock at any time remains unchanged despite what happens to the stock once it is
issued. i.e., stock reverse splits, dividends, etc. As of June 30, 2006, the
total remaining shares approved to issue under the RSP plans are 44,150,000.
During 2005, the Company issued 1,093,000,000 shares out of the RSP plan before
stock splits. The number of shares after stock splits is recognized on the
statement of stockholders equity.

During January 1 through June 30, 2006, the Company issued 6,150,000,000 shares
out of the RSP plan.

NOTE 11 - AUTHORIZATION OF SERIES "B" PREFERRED STOCK AND ISSUANCE OF RESTRICTED
PREFERRED "B" STOCK TO CONSULTANTS:

On January 18, 2005, the Company authorized 100,000,000 shares of Series B
Preferred Stock with a par value of 0.001 per share. Series B preferred stock is
convertible to common stock on a one for one basis and has no voting rights.

During 2005, the Company issued 15,000,000 restricted shares of Series B
preferred stock to consultants for services rendered with an assigned value of
$15,000.

During January 1 through June 30, 2006, the Company issued no shares of Series B
preferred stock

NOTE 12 - RESTRICTED STOCK ISSUED TO OFFICERS (RELATED PARTY TRANSACTIONS):

During 2005, the Company issued to officers 23,000,000 shares of restricted
common stock, valued at approximately $10,000.

During January 1 through June 30, 2006, the Company did not issue any restricted
common stock to officers.

NOTE 13 - NEPOTISM DISCLOSURE (RELATED PARTY TRANSACTIONS):


                                      F-11
<PAGE>
The son of the Chief Operations Officer serves as Vice President of Operations
with additional responsibilities in Information Technology. Two other children
of the officers work part time for the Company in non-managerial positions.
During 2005, the daughter of the Chief Executive Officer worked as Marketing
Representative (reassigned March 1, 2005 to non-managerial responsibilities and
has since terminated employment).

NOTE 14 - RECLASSIFICATION AND RESTATEMENTS:

Selected items in the June 30, 2005 financial statements as previously reported
have been reclassified and restated to be consistent with the unaudited
financial statements as of June 30, 2006.

The Company has no off-balance sheet arrangements.

NOTE 15 - PRODUCTS PENDING PRODUCTION RECLASSISFIED TO PREPAID ADVERTISING COSTS
AND PRODUCT AWAITING MARKETING:

During 2004 and before, Company acquired sizeable capital investments.
Management, in an effort to use wisely and prudently the funds received, looks
at different alternatives in which to invest. Some of the funding goes into the
search and subsequent development of selected projects and products.

The types of costs the Company incurs for product development include direct
costs associated with the search, evaluation and market study for the product
development involved. These costs include: 1) outside services, 2) travel, 3)
testing and analysis, and 4) other direct cost that may arise. In accounting for
these costs, the Company charges to operations all preliminary and research
costs as well as all costs stemming from all issuances of stock for services.
The Company only recognizes as an asset those direct costs associated with those
projects the Company considers are beyond research and that the Company has
concluded are viable for the future benefit of the Company. The Company expenses
all amounts paid for services and products that are paid by stock, including the
common stock that is issued by the Company under its Non-Employee, Directors and
Consultants Retainer Stock Plan ("Plan").

On June 30, 2005, management reclassified $230,572 from "Products Pending
Production" to "Prepaid Advertising Costs" as an "Other Asset" on the Balance
Sheet. This is for an infomercial completed and ready to use in selected
geographic areas. Amortization of this prepaid advertising will begin when the
advertising campaigns begin, expected to be sometime after June 30, 2006 and
will be based over an estimated useful life yet to be determined. Management is
of the opinion that the estimated fair value of prepaid advertising exceeds the
cost recognized on the Balance Sheet. Management will evaluate the estimated
fair value at December 31, 2006 (year end) for impairment.

The remaining $187,650 left in "Products Pending Production" has been
reclassified to "Product Awaiting Marketing" as an "Other Asset." This is the
first product within the Pete Rose line. It is now completed with product on
hand and it is awaiting dissemination pending negotiations with third parties as
to how it will be marketed. The Company does not recognize products as
inventory, or as a current asset, until the marketing approach is established.
The Company originally had a marketing approach worked out, but has since
stopped the route originally selected to reconsider other marketing approaches.
Management is of the opinion that the estimated fair value of product awaiting
marketing exceeds the cost recognized on the Balance Sheet. Management will
evaluate the estimated fair value at December 31, 2006 (year end) for
impairment.

NOTE 16 - CONSIDERATIONS AFFECTING THE COMPANY'S ABILITY TO CONTINUE AS A GOING

                                    CONCERN:

There have been significant recurring losses and negative cash flows from
operations, which have resulted in a


                                      F-12
<PAGE>
working capital deficiency. In the event the Company is unable to raise
additional operating capital, the aforementioned conditions raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the occurrence
of such conditions, and have been prepared assuming that the Company will
continue as a going concern.

The Company has reassessed its operating commitments and continues taking steps
to assure that it focus on its core business going forward. The Company
continues seeking means and ways to raise funds and to make operations
profitable. Management is of the opinion that the Company is taking adequate
measures to assure itself that it has the ability to remain a going concern.

NOTE 17 - COMMITMENTS AND CONTINGENCIES:

                                  COMMITMENTS:
                                  ------------

On or about November 27, 2003 the Company entered into an arrangement to invest
in the development and marketing of a cosmetic line owned by Francois Vautour.
The products of Francois Vautour were previously successfully marketed in
various parts of the world. To acquire the full rights, exclusive of Romania,
the cosmetic line required a $4,000,000 commitment plus the costs of marketing.

Although the Company desired to acquire the rights and ownership of the line, it
was greater than the Company felt was prudent for it to do. So, to put a stop
loss feature in the agreement the two key officers of the Company, Rick Bailey,
CEO and Flo Ternes, COO, formed The Chelsea Collection, LLC ("LLC"), an entity
to provide the spring board for the Company to acquire the rights and to
minimize the Company's risk. This was agreeable with Francois Vautour and LLC.
Refer to Note above "Products Pending Production Reclassed to Prepaid
Advertising Costs and Product Awaiting Marketing".

On a separate matter, dealing with a marketing consultant the Company signed in
August of 2003 a consulting agreement committing to a ten-year contract to
provide training for the company distributors. Compensation will be based on the
ability of the consultant to sign up new distributors. Management believes it
will be a self-funding and revenue generating program.

                             CONTINGENT LIABILITIES:
                             -----------------------

The Company has no errors or omissions insurance for Directors and Officers.

In the normal course of business the Company experienced a change in position by
the Bureaus of Consumer Protection of Nevada and Maryland dealing with a now
discontinued product the Company previously sold to the public. A settlement was
made with the Maryland Attorney General on the investigation regarding a change
in position by the Bureaus of Consumer Protection of Nevada and Maryland dealing
with a now discontinued product the Company previously sold to the public. On
May 4, 2006, Assurance of Voluntary Compliance documents were signed. This
includes a Civil Penalty of $100,000 and restitution to consumers of $25,000. If
the amount paid to consumers for claims is less than $25,000, the Civil Penalty
will be increased to the difference between $25,000 and the amount paid in
restitution. The Civil Penalty is payable in monthly installments of $5,000 and
the restitution is to be paid as claims are presented.

A creditor of the Company, Allergy Research group / Nutricology filed in the
District Court of Clark County, Nevada an action against the Company on an
unpaid open account for goods and merchandise, Case No. A-487334, in the amount
of $168,000. The Company contested the amount claimed and made payment toward
the uncontested amount while negotiations with the plaintiff continued. The
Company offered to pay, through counsel, the sum of $50,000 with a payment of
$10,000 upon acceptance of the offer and $5,000 per month until paid. The offer
was accepted and payments are being made with a balance of $20,000 owing as of
June 30, 2006.


                                      F-13
<PAGE>
The Company has recognized, in the financial statements, part of the "accounts
payable" in the liabilities of the balance sheet to cover these contingencies.

                                     OTHER:
                                     ------

The Company originally acquired TRSG Corporation ("TRSG"), effective January 11,
2001, by passing all of its assets and selected debt to TRSG in exchange for
approximately 78% of the stock ownership of TRSG. When the Company later sold
its approximately 76% interest in TRSG, effective December 31, 2002, it received
$15,000

for the stock. It also acquired all of the assets of TRSG, its operations, and
selected debt from TRSG. The disposal of TRSG December 31, 2002 effectively
brought back into the Company what it had before it acquired TRSG in the first
place, effective January 11, 2001. These transactions, both the original
acquisition as well as the subsequent disposal, are reported under the purchase
method of accounting, with reported costs recognized as it was in the hands of
the predecessor. Under the terms of the agreement, TRSG chooses which creditors
it continues to owe for $200,000 in debt, and all others are passed to the
Company. The creditors of TRSG have not agreed upon this agreement. TRSG has
ongoing legal matters that may or may not implicate the Company. Management is
unable to estimate the possible loss exposure, but believes the ultimate outcome
to be minimal for the Company because the debts of TRSG paid by the Company are
debts of TRSG and not the Company.

In addition, complaints filed by the Security and Exchange Commission against
Suburban Capital also names the Company and its CEO is not settled. At this
juncture, legal counsel is unable to predict what the possible outcome of these
matters will be.

As of June 30, 2006, Management was continuing negotiations, initiated in 2003,
with the Internal Revenue Service ("IRS") to settle past taxes due. Since then,
a settlement is being negotiated and is awaiting finalization.

The Company has not recognized any contingent liability for these items.

NOTE 18 - RESTATEMENT OF FINANCIAL STATEMENTS TO CORRECT AN ACCOUNTING ERROR

The Company has restated its financial statements to correct an accounting error
in the recording of $1,282,886 as income from the reduction of liabilities
during the year ended December 31, 2004.  Management has made a determination
that the liabilities are not owed by the Company and that the write down of
these liabilities should have been reported in a period prior to the year ended
December 31, 2004.  In addition to the $1,282,886 in liabilities identified
above, the company originally had left an estimated $400,000 in liabilities on
the balance sheet at December 31, 2004.  Management has made a determination
that he Company should restate its financial statements to correct an accounting
error in the recording these $400,000 liabilities.  The Company does not owe
these amounts and the $400,000 has been included with the $1,282,886 as an
adjustment to a prior period.  Management has determined that following the
guidelines of SFAS 140 the Company has been legally discharged from all of these
obligations.


                                      F-14
<PAGE>
<TABLE>
<CAPTION>
The effects of the restatement on the balance sheet are illustrated below:

                         BALANCE SHEET-DECEMBER 31, 2005
                         -------------------------------

                                Restated                  Originally
                                 Amount     Adjustment     Reported
                              ------------  -----------  ------------
<S>                           <C>           <C>          <C>
Accounts payable                  200,808     (400,000)      600,808
Current liabilities             2,452,730     (400,000)    2,852,730
Accumulated (deficit)         (19,375,923)     400,000   (19,775,923)
Total liabilities &
  Equity                        3,615,993                  3,615,993

                           BALANCE SHEET-JUNE 30, 2006
                           ---------------------------

                              Restated                    Originally
                              Amount        Adjustment     Reported
                              ------------  -----------  ------------
Accounts payable                  351,882     (400,000)      751,882
Current liabilities             4,115,232     (400,000)    4,515,232
Accumulated (deficit)         (22,413,813)     400,000   (22,813,813)
Total liabilities &
  Equity                        4,300,605                  4,300,605
</TABLE>


There was no change in total assets or weighted average shares of common stock
outstanding due to restatement correction


NOTE 19 - SUBSEQUENT EVENTS:

The SEC has requested the company respond to questions they had raised regarding
the filing of the Company's 10-KSB as of December 31, 2004 due to changes in
filing requirements. Management responded to these questions and also filed an
Amended 2004 10-KSB ("10-KSB/A"). The 10-KSB/A expanded the explanations and
disclosures to the financial statements. Subsequent to filing the 10-KSB/A 2004,
the SEC raised additional questions seeking further clarification. Management
has filed responses to these additional questions, and regards these questions
as ones seeking clarification. Management does not anticipate any further
changes to the prior reported statements.

The Company has signed a binding letter of intent to purchase the business
assets of Marshall Distributing, LLC, a Utah limited liability company and a
portion of EMS Business Development, Inc., a California corporation. These
assets will be assigned to the currently inactive subsidiary Grandma Hammans
Specialty Foods and the subsidiary will have an appropriate name change. The
asset purchase includes the operations and warehouse facility. The date of
implementation is being reviewed. An 8-K, Entry into a Material Definitive
Agreement, was filed on July 24, 2006. The Form 8-K is included below.


                                      F-15
<PAGE>
FORM 8-K ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

On June 19, 2006, the Registrant and Marshall Distributing, LLC, and EMS
Business Development, Inc. (collectively, the "Company"), executed a binding
letter of intent whereby the Registrant agreed to acquire substantially all of
the assets and assume all receivables and payables of the Company.

Upon satisfaction of all Closing conditions of the parties contained in the
binding letter of intent (other than such conditions as shall have been waived),
the Registrant, pursuant to a liabilities undertaking in the form to be attached
to the Final Purchase Agreement shall assume certain liabilities and obligations
of the Company.

The purchase price that the Registrant shall pay for the Company's Assets shall
be $6,000,000 (the "Purchase Price").

The Purchase Price will be fully secured by: (a) the Assets (together with the
assets of Registrants or its affiliated company which acquire Assets and/or
succeed to the business operations of Marshall Distributing, LLC ; and (b) 12
million shares of Cal-Bay International, Inc. preferred B stock (the "CBAY
Shares") owned by Registrant. Registrant will deposit into an escrow account (to
be agreed upon by the parties) the 12 million CBAY Shares which shall be
restricted for one year and which shall be retained in escrow as part of the
security for the full and timely payment of the Purchase Price. At the Closing
the Registrant shall provide the escrow holder with irrevocable instructions to
pay the Purchase Price in full on or before the fourteenth (14th) month after
the Closing (the "Holding Period").

A closing (the "Closing") will be held on or before June 30, 2006 ("Closing
Date"), provided, however, that if any of the conditions not satisfied or waived
by such date, then the party to this Agreement which is unable to satisfy such
condition or conditions, despite the best efforts of such party, shall be
entitled to postpone the Closing by notice to the other parties until such
condition or conditions shall have been satisfied (which such notifying party
will seek to cause to happen at the earliest practicable date) or waived, but in
no event shall the Closing occur later than the "Termination Date" which shall
be July 30, 2006. The Closing shall be held at the Company's office unless the
parties otherwise agree.

If within fourteen (14) months following the Closing, the Purchase Price has not
been paid in full the Company shall have the right, in its sole and absolute
discretion to terminate the Final Purchase Agreement by providing Registrant and
the escrow holder of its election to terminate. In the event the Company elects
to terminate the Final Purchase Agreement: (a) the Final Purchase Agreement will
terminate; (b) escrow holder shall liquidate sufficient CBAY Shares held in the
escrow account and shall pay to the Company (on behalf of Registrant) the sum of
$200,000.00 in consideration for the Company having entered into the Final
Purchase Agreement and having removed the business from the market place; (c)
all Assets as well as any assets of the Registrant or affiliated company that
acquires the Assets or succeeds to the Business Operations of the Company shall
thereupon be deemed assigned to the Company; and (d) possession and title to the
Real Property shall be reconveyed to Terry Nielsen. Title shall be free and
clear of all matters of record, save and except those matters of record at the
Closing. If termination occurs pursuant to this Section 1.5, the parties will
cooperate to return the Assets, Real Property and the then current Business
Operations to The Company. Registrant will be responsible for all business
expenses and will be entitled to collect, all revenues attributable to the
Business Operations for the time period from the Closing to the date of
termination. The Company will pay all business expenses and retain all revenues
attributable to the Business Operations for the time period after the
termination date. The parties will reconcile their respective expenses and
revenues within ninety (90) days after the termination date.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements of Business Acquired.

It is not practicable to file the required historical financial statements at
this time. Accordingly, pursuant to Item 9.01(a)(4) of Form 8-K, the Registrant
will file such financial statements under cover of Form 8-K/A as soon as


                                      F-16
<PAGE>
practicable, but not later than the date required by applicable law.

(b) Pro forma financial information.

It is not practicable to file the required pro forma financial information at
this time. Accordingly, pursuant to Item 9.01(a)(4) of Form 8-K, the Registrant
will file such financial statements under cover of Form 8-K/A as soon as
practicable, but not later than the date required by applicable law.

On July 27, 2006 a Form S-8, Non-Employee Consultants Retainer Stock Plan for
the Year 2006, was submitted for 7,000,000,000 (7 billion) shares.


                                      F-17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.

FORWARD-LOOKING  INFORMATION

     Much of the discussion in this Item is "forward looking." Actual operations
and  results  may  materially  differ  from present plans and projections due to
changes  in  economic  conditions,  new business opportunities, changed business
conditions,  and  other  developments. Other factors that could cause results to
differ materially are described in the Company's filings with the Securities and
Exchange  Commission.

     There  are  several  factors  that  could cause actual results or events to
differ  materially  from  those anticipated, and include, but are not limited to
general  economic,  financial and business conditions, changes in and compliance
with  governmental  laws  and  regulations,  including various state and federal
environmental  regulations, the Company's ability to obtain additional financing
from  outside  investors  and/or  bank  and  mezzanine lenders and the Company's
ability  to  generate sufficient revenues to cover operating losses and position
the  Company  to  achieve  positive  cash  flow.

     Readers  are  cautioned  not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. The Company
believes  the information contained in this Form 10-QSB to be accurate as of the
date hereof. Changes may occur after that date. The Company will not update that
information  except  as  required  by  law  in  the  normal course of its public
disclosure  practices.

     Additionally,  the  following  discussion regarding the Company's financial
condition  and  results  of  operations  should  be read in conjunction with the
financial  statements  and  related  notes contained in Item 1 of Part I of this
Form  10-QSB,  as  well  as the financial statements in Item 7 of Part II of the
Company's  Form  10-KSB  for  the  fiscal  year  ended,  December  31,  2005.

MANAGEMENT'S PLAN OF OPERATIONS

GENERAL

     The  Company  was originally incorporated in the State of Nevada on May 26,
1993.  The  Company  markets and distributes different nutritional and/or health
and  skin  care  products.  The products which the Company sells are intended to
provide  nutritional supplementation to the users; the products are not intended
to  diagnose,  treat,  cure  or  prevent  any  disease.

CURRENT BUSINESS PLAN

     The  Company's  current  purpose  is  to  seek,  investigate  and,  if such
investigation  warrants, acquire an interest in business opportunities presented
to  the  Company  by  persons or firms who or which desire to seek the perceived
advantages  of  a  corporation which is registered under the Securities Exchange
Act  of  1934,  as  amended.  The  Company  does  not restrict its search to any
specific  business;  industry  or geographical location and may participate in a
business  venture  of  virtually  any  kind  or  nature.

     The  Company  may  seek  a  business  opportunity  with entities which have
recently  commenced  operations, or which wish to utilize the public marketplace
in  order  to  raise  additional capital in order to expand into new products or
markets,  to  develop  a new product or service or for other corporate purposes.
The  Company  may  acquire  assets  and  establish  wholly owned subsidiaries in
various  businesses  or  acquire  existing  businesses  as  subsidiaries.

     As  part of the Company's investigation of potential merger candidates, the
Company's  officers  and  directors will meet personally with management and key
personnel,  may  visit  and  inspect  material  facilities,  obtain  independent
analysis  or  verification  of certain information provided, check references of
management  and  key personnel and take other reasonable investigative measures,
to the extent of the Company's financial resources and management expertise. The
manner  in  which  the Company participates in an opportunity will depend on the
nature  of  the opportunity, the respective needs and desires of the Company and
other  parties,  the  management  of  the  opportunity,  the  Company's relative
negotiation  strength  and  that  of  the  other  management.

     The  Company  intends to concentrate on identifying preliminary prospective
business  opportunities  that  may be brought to the Company's attention through
present  associations  of  its  officers  and  directors, or by stockholders. In


                                        3
<PAGE>
analyzing  prospective  business  opportunities,  the Company will consider such
matters  as the available technical, financial and managerial resources; working
capital  and  other  financial  requirements;  history  of  operations,  if any;
prospects  for  the  future;  nature  of  present  and expected competition; the
quality  and  experience  of  management services which may be available and the
depth  of  that  management;  the potential for further research, development or
exploration;  specific  risk  factors  not now foreseeable but which then may be
anticipated  to  impact  the  Company's  proposed  activities; the potential for
growth  or expansion; the potential for profit; the perceived public recognition
or  acceptance  of  products, services or trades; name identification; and other
relevant  factors.

     The  Company's  officers and directors will meet personally with management
and  key personnel of the business opportunity as part of the investigation. The
Company  will  not acquire or merge with any company for which audited financial
statements  cannot  be obtained within a reasonable period of time after closing
of  the  proposed  transaction,  as  required  by  the  Exchange  Act.

     The Company will not restrict its search to any specific kind of firms, but
may acquire a venture which is in its preliminary or development stage, which is
already  in  operation,  or  which  is in essentially any stage of its corporate
life.  It  is  impossible  to predict at this time the status of any business in
which  the  Company  may  become engaged, in that such business may need to seek
additional  capital,  may  desire to have its shares publicly traded or may seek
other  perceived  advantages  which  the  Company  may  offer.

RECENT CHANGES IN CAPITAL STRUCTURE

None.

RESULTS OF OPERATIONS

CONTINUING OPERATIONS

SECOND QUARTER COSTS AND CHANGES IN FINANCIAL CONDITIONS

     The  balance  of  current  assets  at  December  31, 2005 was approximately
$580,000  compared  to  a  balance  of  $372,000 at June 30, 2006, a decrease of
$208,000.  The  balance  of  current  liabilities  was $2,453,000 and $3,180,000
respectively,  for  the  same  periods,  an  increase of $727,000. The resulting
current ratio at December 31, 2005 was 0.20 to 1. The current ratio at March 31,
2006 is 0.11 to 1. The current ratio indicates that the Company's ability to pay
the  Company's  obligations  has  worsened  since  December  31,  2005.

REVENUE & OPERATING EXPENSES

THREE  MONTHS  ENDED  JUNE  30, 2006 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------
2005
----

     Total  net  sales and revenues were at approximately $156,000 for the three
months  ended  June  30,  2006  compared to $190,000 for the prior period a year
earlier,  a  decrease  of 18 percent. This decrease reflects that the Aspen Cove
subsidiary  had prior year sales and none in the current year, as it was sold in
June  of  2005.

     The  Company's  gross  profit  for  the  three  months  ended June 30, 2006
compared  to  2005  decreased  to  $140,000  from  $147,000.  Gross  profit as a
percentage  of  sales  increased  to 90 percent in 2006 from 77 percent in 2005.

     Total operating expenses (selling, general and administrative expenses) for
the  three  months ended June 30, 2006 compared to 2005 increased by $817,000 to
$1,222,000  from  $405,000  in  the  prior  period.  This was primarily due to a
significant increase in services paid with stock issuances for professional fees
of  the  Company  during  the  period.

     Loss  from operations for the three months ended June 30, 2006 increased to
a  loss  of $1,116,000 from a gain of $320,000 compared to the same period 2005,
an  increase  of  $1,436,000.  The  Company's increase in the operating loss was
primarily  the  result of the increase in services paid with stock issuances for
professional  services and marketing efforts. Sales still remain insufficient to
cover  the  Company's  operating  needs.

     Net  interest  expense for the three months ended June 30, 2006 was $33,000
as  compared  to  the same period in 2005 of $65,000, down $32,000. The interest
expense  returned  in  the  2nd  Quarter,  2006  as  a  new  building  was


                                        4
<PAGE>
purchased  the  end  of the 1st Quarter, 2006 replacing the building sold in the
3rd  Quarter  of  2005  the  mortgage  on  which  interest  is  paid.

     Net  loss  increased  $1,436,000  from  a  gain  of  $320,000  to a loss of
$1,116,000  for the three months ended June 30, 2005 and 2006 respectively. This
net  increase is primarily attributable to the increase of professional services
paid  with  stock,  the  write-off  of  the investment in QDS and the prior year
reflecting  the  gain  on  the  sale  of  the  Aspen  Cove  subsidiary.

SIX  MONTHS  ENDED  JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005
--------------------------------------------------------------------------------

     Total  net  sales  and  revenues were at approximately $359,000 for the six
months  ended  June  30,  2006  compared to $392,000 for the prior period a year
earlier,  a  decrease  of  8 percent. This decrease reflects that the Aspen Cove
subsidiary  had prior year sales and none in the current year, as it was sold in
June  of  2005.

     The  Company's gross profit for the six months ended June 30, 2006 compared
to  2005  decreased  to  $299,000 from $303,000. Gross profit as a percentage of
sales  increased  to  83  percent  in  2006  from  77  percent  in  2005.

     Total operating expenses (selling, general and administrative expenses) for
the  six  months ended June 30, 2006 compared to 2005 increased by $2,079,000 to
$3,144,000  from  $1,065,000  in  the  prior period. This was primarily due to a
significant increase in services paid with stock issuances for professional fees
of  the  Company  during  the  period.

     Loss  from operations for the six months ended June 30, 2006 increased to a
loss  of $3,038,000 from a loss of $279,000 compared to the same period 2005, an
increase  of  $2,759,000.  The  Company's  increase  in  the  operating loss was
primarily  the  result of the increase in services paid with stock issuances for
professional  services and marketing efforts. Sales still remain insufficient to
cover  the  Company's  operating  needs.

     Net  interest expense for the six months ended June 30, 2006 was $33,000 as
compared  to  the  same  period  in 2005 of $111,000, down $78,000. The interest
expense  returned  in  the 2nd Quarter, 2006 as a new building was purchased the
end  of  the 1st Quarter, 2006 replacing the building sold in the 3rd Quarter of
2005  the  mortgage  on  which  interest  is  paid.

     Net  loss  increased  $2,759,000  from  a  loss  of  $279,000  to a loss of
$3,038,000  for  the  six months ended June 30, 2005 and 2006 respectively. This
net  increase is primarily attributable to the increase of professional services
paid  with  stock,  the  write-off  of  the investment in QDS and the prior year
reflecting  the  gain  on  the  sale  of  the  Aspen  Cove  subsidiary.

LIQUIDITY AND CAPITAL RESOURCES

     As  of  June  30,  2006, the Company had a deficiency in working capital of
$3,208,000.

     Net  cash  used  for  the  first  six  months  operating activities came to
approximately  $501,000,  up  $100,000  from  this period last year of $401,000.

     Cash used for investing activities during the first six months of this year
was approximately $1,240,000, of which the majority was for the financing of the
new  warehouse  building

     During  the  first  six  months of 2006, the Company's financing activities
provided  the  Company  with  $1,655,000  from  the  purchase  of the office and
warehouse  building,  gaining  an  asset,  but,  acquiring  mortgage  debt.

CRITICAL ACCOUNTING POLICIES

     The  preparation  of  the  Company's  consolidated  financial statements in
conformity  with  accounting  principles generally accepted in the United States
requires  the  Company to make estimates and judgments that affect the Company's
reported  assets,  liabilities,  revenues,  and  expenses, and the disclosure of
contingent assets and liabilities. The Company bases its estimates and judgments
on  historical  experience  and  on  various  other  assumptions  believed to be
reasonable  under the circumstances. Future events, however, may differ markedly
from  current  expectations  and  assumptions.  While  there  are  a  number  of
significant accounting policies affecting the consolidated financial statements,


                                        5
<PAGE>
the  Company believes the following critical accounting policy involves the most
complex,  difficult  and  subjective  estimates  and  judgments.

STOCK BASED COMPENSATION

     In December 2002, the FASB issued SFAS No. 148 - Accounting for Stock-Based
Compensation  -  Transition and Disclosure. This statement amends SFAS No. 123 -
Accounting  for  Stock-Based  Compensation,  providing  alternative  methods  of
voluntarily  transitioning  to  the fair market value based method of accounting
for  stock  based employee compensation. FAS 148 also requires disclosure of the
method  used  to account for stock-based employee compensation and the effect of
the  method  in both the annual and interim financial statements. The provisions
of  this  statement related to transition methods are effective for fiscal years
ending  after  December  15,  2002,  while  provisions  related  to  disclosure
requirements  are  effective  in financial reports for interim periods beginning
after  December  31,  2002.

     The  Company  elected  to  continue to account for stock-based compensation
plans using the intrinsic value-based method of accounting prescribed by APB No.
25,  "Accounting  for  Stock  Issued to Employees," and related interpretations.
Under  the  provisions  of  APB  No. 25, compensation expense is measured at the
grant  date  for  the  difference  between  the  fair value of the stock and the
exercise  price.

RECENT ACCOUNTING PRONOUNCEMENTS

     The  Company adopted SFAS No. 142. Under the new rules, the Company will no
longer  amortize goodwill and other intangible assets with indefinite lives, but
such  assets  will  be  subject to periodic testing for impairment. On an annual
basis,  and  when  there  is  reason  to  suspect  that  their  values have been
diminished  or  impaired,  these  assets  must  be  tested  for  impairment, and
write-downs to be included in results from operations may be necessary. SFAS No.
142  also  requires  us  to complete a transitional goodwill impairment test six
months  from  the  date of adoption. Based upon the information at the Company's
disposal,  Management  elected  not to adjust the value of goodwill after making
the  annual  review.

     Any  goodwill  impairment  loss  recognized as a result of the transitional
goodwill  impairment test will be recorded as a cumulative effect of a change in
accounting  principle no later than the end of fiscal year 2002. The adoption of
SFAS  No.  142  had no material impact on the consolidated financial statements.
SFAS  No.  143  establishes  accounting  standards  for  the  recognition  and
measurement  of  an  asset  retirement  obligation  and  its  associated  asset
retirement  cost.  It  also  provides  accounting guidance for legal obligations
associated  with  the  retirement of tangible long-lived assets. SFAS No. 143 is
effective  in  fiscal  years  beginning after June 15, 2002, with early adoption
permitted. The Company expects that the provisions of SFAS No. 143 will not have
a  material  impact  on  the  consolidated  results  of operations and financial
position.  We  adopted  SFAS  No.  143  effective  January  1,  2005.

     SFAS  No.  144  establishes a single accounting model for the impairment or
disposal  of  long-lived assets, including discontinued operations. SFAS No. 144
superseded  Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS  No.  121), and APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." The Company adopted
SFAS  No.  144  effective  January  1, 2002. The adoption of SFAS No. 144 had no
material  impact  on  the  consolidated  financial  statements.

     In  April  2002,  the  FASB  issued  Statement No. 145, "Rescission of FASB
Statements  No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses  from  Extinguishment  of Debt," and an amendment of that Statement, FASB
Statement  No.  64,  "Extinguishments  of  Debt  Made  to  Satisfy  Sinking-Fund
Requirements"  and  FASB  Statement No. 44, "Accounting for Intangible Assets of
Motor  Carriers."  This  Statement amends FASB Statement No. 13, "Accounting for
Leases,"  to  eliminate  an  inconsistency  between  the required accounting for
sale-leaseback  transactions  and  the  required  accounting  for  certain lease
modifications  that  have  economic  effects  that are similar to sale-leaseback
transactions. The Company does not expect the adoption to have a material impact
to  the  financial  position  or  results  of  operations.

     In  June  2002,  the  FASB  issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting  and  reporting  for  costs  associated  with  exit  or  disposal


                                        6
<PAGE>
activities  and  nullifies  Emerging  Issues  Task  Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to  Exit an Activity (including Certain Costs Incurred in a Restructuring)." The
provisions  of this statement are effective for exit or disposal activities that
are  initiated  after  December 31, 2002, with early application encouraged. The
Company  does not expect the adoption to have a material impact to the financial
position  or  results  of  operations.

     In  October  2002,  the  FASB  issued  Statement  No. 147, "Acquisitions of
Certain  Financial  Institutions-an  amendment of FASB Statements No. 72 and 144
and  FASB  Interpretation  No.  9,"  which  removes  acquisitions  of  financial
institutions  from  the  scope  of  both  Statement  72 and Interpretation 9 and
requires  that those transactions be accounted for in accordance with Statements
No.  141,  Business  Combinations,  and  No.  142, Goodwill and Other Intangible
Assets.  In  addition,  this  Statement  amends SFAS No. 144, Accounting for the
Impairment  or  Disposal of Long-Lived Assets, to include in its scope long-term
customer-relationship  intangible  assets  of  financial  institutions  such  as
depositor  and  borrower-relationship  intangible  assets  and credit cardholder
intangible  assets.  The  requirements  relating  to  acquisitions  of financial
institutions are effective for acquisitions for which the date of acquisition is
on  or  after  October  1,  2002.  The  provisions related to accounting for the
impairment  or  disposal  of  certain long-term customer-relationship intangible
assets  are effective on October 1, 2002. The adoption of this statement did not
have a material impact to the financial position or results of operations as the
Company  has  not  engaged  in  either  of  these  activities.

     In  December  2002,  the  FASB  issued  Statement  No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which amends FASB Statement
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of  transition  for  a  voluntary  change  to  the  fair  value  based method of
accounting  for  stock-based  employee compensation. In addition, this statement
amends  the  disclosure  requirements  of  Statement  123  to  require prominent
disclosures  in both annual and interim financial statements about the method of
accounting  for  stock-based  employee compensation and the effect of the method
used  on  reported  results.  The  transition  guidance  and  annual  disclosure
provisions of Statement 148 are effective for fiscal years ending after December
15,  2002,  with  earlier  application  permitted  in certain circumstances. The
interim  disclosure  provisions  are  effective for financial reports containing
financial  statements for interim periods beginning after December 15, 2002. The
adoption  of  this  statement  did  not  have a material impact on our financial
position  or  results of operations as we have not elected to change to the fair
value  based  method  of  accounting  for  stock-based  employee  compensation.

     In  January  2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company  includes  another  entity  in  its  consolidated  financial statements.
Previously,  the  criteria  were  based  on  control  through  voting  interest.
Interpretation  46  requires  a variable interest entity to be consolidated by a
company  if  that  company is subject to a majority of the risk of loss from the
variable  interest  entity's activities or entitled to receive a majority of the
entity's  residual  returns  or  both.  A  company  that consolidates a variable
interest  entity  is  called  the  primary  beneficiary  of  that  entity.  The
consolidation  requirements  of  Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply  to  older  entities  in the first fiscal year or interim period beginning
after  June  15,  2003.  Certain  of  the  disclosure  requirements apply in all
financial  statements  issued  after  January  31,  2003, regardless of when the
variable  interest entity was established. We do not expect the adoption to have
a material impact to our financial position or results of operations.

     In  April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS)  No.  149,  Amendment  of Statement No. 133 on Derivative Instruments and
Hedging Activities. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial  accounting  and  reporting  of  derivative  instruments  and  hedging
activities and requires that contracts with similar characteristics be accounted
for  on  a  comparable  basis.  The  provisions  of  SFAS  149 are effective for
contracts  entered  into  or  modified  after  June  30,  2003,  and for hedging
relationships  designated  after June 30, 2003. The adoption of SFAS 149 did not
have a material impact on the results of operations or financial position.

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments  with  Characteristics  of  Both  Liabilities  and  Equity. SFAS 150
establishes standards on the classification and measurement of certain financial
instruments  with characteristics of both liabilities and equity. The provisions
of  SFAS  150  are  effective for financial instruments entered into or modified
after  May  31, 2003 and to all other instruments that exist as of the beginning
of  the  first interim financial reporting period beginning after June 15, 2003.
The  adoption  of  SFAS  150  did  not  have a material impact on the results of
operations  or  financial  position.


                                        7
<PAGE>
OFF-BALANCE SHEET ARRANGEMENTS

     The Company does not have any off-balance sheet arrangements.

ITEM 3. CONTROLS AND PROCEDURES.

     Disclosure  controls  and procedures are controls and other procedures that
are  designed  to ensure that information required to be disclosed by Gateway in
the  reports  that  are  filed or submitted under the Exchange Act are recorded,
processed,  summarized  and  reported,  within the time periods specified in the
Securities  and  Exchange Commission's rules and forms.  Disclosure controls and
procedures  include,  without  limitation,  controls  and procedures designed to
ensure  that information required to be disclosed by Gateway in the reports that
are filed under the Exchange Act are accumulated and communicated to management,
including  the  principal  executive  and  financial officers, as appropriate to
allow  timely  decisions  regarding  required  disclosure.

     Evaluation of disclosure and controls and procedures.  As of the end of the
period  covered by this Quarterly report, Gateway conducted an evaluation, under
the  supervision  and  with the participation of the chief executive officer and
chief  financial  officer, of the disclosure controls and procedures (as defined
in  Rules  13a-15(e)  of the Exchange Act).  Based on this evaluation, the chief
executive  officer  and  chief  financial  officer  concluded  that  Gateway's
disclosure  controls  and  procedures  are  effective to ensure that information
required to be disclosed by Gateway in reports that are filed or submitted under
the  Exchange  Act  are  recorded, processed, summarized and reported within the
time  periods  specified  in Securities and Exchange Commission rules and forms.

     Changes in internal controls over financial reporting.  There was no change
in  Gateway internal controls, which are included within disclosure controls and
procedures,  during  the  most  recently  completed  fiscal  quarter  that  has
materially  affected,  or  is  reasonably  likely  to materially affect, Gateway
internal  controls.


                                        8
<PAGE>
                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

     Incorporated by reference from the Registrant's report on Form 10-QSB dated
August  18,  2006.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

     None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None.

ITEM 5. OTHER INFORMATION.

     None.


                                        9
<TABLE>
<CAPTION>
EXHIBIT NO.                                         IDENTIFICATION OF EXHIBIT
-----------                                         -------------------------
<S>          <C>
   31.1*     Certification of Richard A. Bailey, Chief Executive Officer of Gateway Distributors, Ltd., pursuant to 18
             U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
   31.2*     Certification of Richard A. Bailey, Chief Financial Officer of Gateway Distributors, Ltd., pursuant to 18
             U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
   32.1*     Certification of Richard A. Bailey, Chief Executive Officer of Gateway Distributors, Ltd., pursuant to 18
             U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
   32.2*     Certification of Richard A. Bailey, Chief Financial Officer of Gateway Distributors, Ltd., pursuant to 18
             U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
</TABLE>

__________
*    Filed Herewith.
**   Previously Filed

                                   SIGNATURES

     In  accordance  with  the  requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                        Gateway Distributors, Ltd.
Dated: November 1, 2006.
                                        By /s/ Richard A. Bailey
                                          -----------------------------------
                                          Richard A. Bailey, Chief Executive
                                          Officer and Chief Financial Officer