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

                                  FORM 10-QSB

[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,
             NORTH LAS VEGAS, NEVADA                              89081
     (Address of principal executive offices)                   (Zip Code)

                                 (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 . . . . . . . . . . . . . . . . . . . . . . . .   1
    Item 1.  Financial Statements. . . . . . . . . . . . . . . . . . . . . . .   1
    Item 2.  Management's Discussion and Analysis or Plan of Operation . . . .   2
    Item 3.  Controls and Procedures . . . . . . . . . . . . . . . . . . . . .   7
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . .   8
    Item 1.  Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .   8
    Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds . . .   8
    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>
                         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]


                                        1
<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


                                        2
<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.

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 $2,853,000 and $3,580,000
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 0.10 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 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.


                                        3
<PAGE>
     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,
the  Company believes the following critical accounting policy involves the most
complex,  difficult  and  subjective  estimates  and  judgments.


                                        4
<PAGE>
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 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


                                        5
<PAGE>
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.


                                        6
<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.


                                        7
<PAGE>
                           PART II - OTHER INFORMATION

ITEM  1.  LEGAL PROCEEDINGS.

     Reference  is  made to Item 3 of the Company's Annual Report on Form 10-KSB
for  the fiscal year ended December 31, 2005, filed with the Commission on April
17,  2006.

     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 has 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.

     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. On June 14, 2006 final judicial approval was
received  on the signed documents. 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.

     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.

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

     During  the  fiscal quarter ended June 30, 2006, Gateway sold 1,000,000,000
common  shares  in  a  private transaction not involving a public offering.  The
1,000,000,000 shares bear a legend restricting their disposition.

<TABLE>
<CAPTION>
       DATE     NAME            LOCATION    # SHARES     CONSIDERATION
<S>             <C>             <C>       <C>            <C>
     5/09/2006    Roger Pawson  USA       1,000,000,000  $      100,000
</TABLE>

     The  use  of  the proceeds from the sale of our securities were for general
working  capital  needs  and  the  repayment  of  debt.

     The  shares  were  issued  in  reliance upon an exemption from registration
pursuant  to  Section  4(2)  of  the  Securities Act or Rule 506 of Regulation D
promulgated  under  the  Securities  Act.  The  investor took his securities for
investment purposes without a view to distribution and had access to information
concerning  us and our business prospects, as required by the Securities Act. In
addition,  there  was no general solicitation or advertising for the purchase of
our  shares. Our securities were sold only to an accredited investor, as defined
in  the  Securities  Act  with  whom  we  had  a  direct  personal  preexisting
relationship, and after a thorough discussion. Finally, our stock transfer agent
has  been  instructed not to transfer any of such shares, unless such shares are
registered  for  resale or there is an exemption with respect to their transfer.

     The  purchaser  was  provided  with  access  to  our  filings with the SEC,
including  the  following:

-    Our  annual  report  to  stockholders  for the most recent fiscal year, the
     definitive  proxy  statement  filed  in connection with that annual report,
     and,  if  requested  by the purchaser in writing, a copy of our most recent
     Form  10-KSB  under  the  Exchange  Act.

-    The  information  contained  in  an  annual report on Form 10-KSB under the
     Exchange  Act.


                                        8
<PAGE>
-    The  information contained in any reports or documents required to be filed
     by Charys under sections 13(a), 14(a), 14(c), and 15(d) of the Exchange Act
     since the distribution or filing of the reports specified above.

-    A  brief  description  of  the  securities  being  offered,  the use of the
     proceeds  from  the  offering,  and any material changes in Charys' affairs
     that  are  not  disclosed  in  the  documents  furnished.

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
<PAGE>
<TABLE>
<CAPTION>
ITEM  6.     EXHIBITS.

EXHIBIT
-------
  NO.                                       IDENTIFICATION OF EXHIBIT
  --                                        -------------------------
<S>      <C>
  3.1**  Articles of Incorporation.
  3.2**  Amended and Restated Articles of Incorporation.
  3.3**  Articles of Amendment to the Articles of Incorporation, filed effective on June 28, 2004.
  3.4**  Certificate of Change, filed effective on September 3, 2004.
  3.5**  Articles of Amendment to the Articles of Incorporation, filed effective on October 4, 2004.
         Certificate of Amendment to the Certificate of Designation for the Series A Preferred Stock, filed
  3.6**  effective on November 9, 2004.
  3.7**  Certificate of Change, filed effective on December 20, 2004.
  3.8**  Certificate of Designation for the Series B Preferred Stock, filed effective on January 18, 2005.
  3.9**  Amended By-laws.
  10.6*  Allan Gold Consulting Agreement, dated March 16, 2006.
  10.7*  Peter Hammer Employment Agreement, dated May 8, 2006.
  10.8*  Marshall Distributing Letter of Intent.
         Certification of Richard A. Bailey, Chief Executive Officer of Gateway Distributors, Ltd., pursuant to 18
  31.1*  U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
         Certification of Richard A. Bailey, Chief Financial Officer of Gateway Distributors, Ltd., pursuant to 18
  31.2*  U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
         Certification of Richard A. Bailey, Chief Executive Officer of Gateway Distributors, Ltd., pursuant to 18
  32.1*  U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
         Certification of Richard A. Bailey, Chief Financial Officer of Gateway Distributors, Ltd., pursuant to 18
  32.2*  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 August 18, 2006.
                                           By  /s/  Richard A. Bailey
                                             --------------------------------
                                             Richard A. Bailey,
                                             Chief Executive Officer
                                             and Chief Financial Officer


                                       10
<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)

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

Accounts payable:
  Trade Regular                                 $     422,847   $     201,308
  Set aside for prior amounts due and payable         329,035         399,500
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                           3,579,659       2,852,730
                                                --------------  --------------

LONG-TERM DEBT                                        935,573               -

Total Liabilities                                   4,515,232       2,852,730
                                                --------------  --------------

              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                       12,586,067      17,542,204
  Accumulated (deficit)                           (22,947,676)    (19,775,923)

                                                --------------  --------------
Net Stockholders' Equity                             (214,627)        763,263
                                                --------------  --------------

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-
<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
                              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   $(18,872,196)  $    357,855

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    (19,775,924)       763,262

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    (21,698,009)       171,177

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    (22,813,813)      (214,627)
</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.

     The  Company  has  unidentified  liabilities  of  $329,035  reported on the
     balance sheet under current liabilities titled "Set aside for prior amounts
     due  and  payable."  These are a portion of liabilities recognized in prior
     years'  financial  statements,  reduced  from  $1,682,886 to $400,000 as of
     December  31, 2004. The Company has been unsure and unable to identify what
     they  represent.  Some go back as much as ten years ago. Some may represent
     debts  recorded  in  prior mergers and acquisitions that the Company is not
     responsible  to  pay.  Others  may have come about by erroneously recording
     liabilities  that  were  already paid. Others may be duplicated liabilities
     that  did  not  belong  as  debt  in  the  first  place.

     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 - 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-14
<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-15
<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-16