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 September 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 September 30, 2006, the issuer
had 15,067,010,636 shares of its common stock issued and outstanding.

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


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                                TABLE OF CONTENTS


<S>                                                                       <C>
PART I - FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . .  3
    Item 1.  Financial Statements . . . . . . . . . . . . . . . . . . . . .3
    Item 2.  Management's Discussion and Analysis or Plan of Operation. .  4
    Item 3.  Controls and Procedures. . . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 11
    Item 1.  Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 11
    Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds. 11
    Item 3.  Defaults Upon Senior Securities. . . . . . . . . . . . . . . 12
    Item 4.  Submission of Matters to a Vote of Security Holders. . . . . 12
    Item 5.  Other Information. . . . . . . . . . . . . . . . . . . . . . 12
    Item 6.  Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
</TABLE>


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                         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 September 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 September 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]


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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 AND DESCRIPTION OF BUSINESS

GENERAL

The Company was originally incorporated in the State of Nevada on May 26, 1993.
The Company markets and distributes various 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.

The Company has acquired the business operations and assets of Marshall
Distributing, (Marshall's), a wholesale distribution company that has been in
business since 1974. Marshall's distributes natural products to retail stores
around the country as well as providing natural products for drop ship and
internet fulfillment utilizing state of the art technology.  Marshall's provides
a significant marketing and distribution channel for natural products. It also
allows the company to expand its product offering exponentially from over one
hundred and fifty natural product manufacturers. The Distribution facility is
capable of servicing customers world wide and provides many opportunities and
capacity for growth.

CURRENT BUSINESS PLAN

Gateway Distributors Ltd. is a public trading company that acquires or creates
companies that have potential to grow in revenue to provide an opportunity in
the field of Distribution of products or services that enhance the lives of
individuals through modern technology.

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.



                                        4
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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. The company will continue to
seek out potential merger candidates, acquisitions or business opportunities
that enable expansion of market channels for distribution and sales of product
to benefit and enhance the lives of individuals around the world

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
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.


                                        5
<PAGE>
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

THIRD 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 $2,295,000 at September 30, 2006, an increase of
$1,715,000. The balance of current liabilities was $2,453,000 and $10,159,000
respectively, for the same periods, an increase of $7,706,000. The resulting
current ratio at December 31, 2005 was 0.24 to 1. The current ratio at September
30, 2006 is 0.23 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 SEPTEMBER 30, 2006 COMPARED TO THE THREE MONTHS ENDED
------------------------------------------------------------------------
SEPTEMBER 30, 2005
------------------

Total net sales and revenues were at approximately $1,638,000 for the three
months ended September 30, 2006 compared to $188,000 for the prior period a year
earlier, an increase of over 770% percent. This increase was a primary result of
the acquired operations of Marshall Distributing wholesale natural products
distributor.

The Company's gross profit for the three months ended September 30, 2006
compared to 2005 Increased to $1,123,000 from $154,000. Gross profit as a
percentage of sales decreased to 69 percent in 2006 from 81 percent in 2005.
This is a result of lower margins in the wholesale distribution business.

Total operating expenses (selling, general and administrative expenses) for the
three months ended September 30, 2006 compared to 2005 increased by $813,000 to
$1,814,000 from $1,001,000 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 September 30, 2006 decreased to
a loss of $ 691,000 from a loss of $847,000 compared to the same period 2005, a
decrease of $ 156,000. The Company's decrease in the operating loss was
primarily the result of the increase in gross profit from the acquisition of
Marshall Distributing Operations adding contribution margin to help service the
general and administrative expenses of the company. Sales still remain
insufficient to cover the Company's operating needs.

Net interest expense for the three months ended September 30, 2006 was $110,000
as compared to the same period in 2005 of $81,000, up 29,000. The interest
expense increased as a result of the acquisition of Marshall Distributing assets
and operations.


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Net loss increased $963,000 from a gain of $120,000 to a loss of $ 842,000 for
the three months ended September 30, 2005 and 2006 respectively. This net
increase is primarily attributable to the increase of professional services paid
with stock.

NINE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
--------------------------------------------------------------------------------
30, 2005
--------

Total net sales and revenues were at approximately $1,998,000 for the nine
months ended September 30, 2006 compared to $580,000 for the prior period a year
earlier, an increase of 244 percent. This increase reflects the additional sales
of Marshall Distributing operations in the third quarter.

The Company's gross profit for the nine months ended September 30, 2006 compared
to 2005 increased  to $1,422,000 from $458,000. Gross profit as a percentage of
sales decreased to 71 percent in 2006 from 79 percent in 2005.

Total operating expenses (selling, general and administrative expenses) for the
nine months ended September 30, 2006 compared to 2005 increased by $2,891,000 to
$4,958,000 from $2,067,000 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 nine months ended September 30, 2006 increased to a
loss of $3,536,000 from a loss of $1,609,000 compared to the same period 2005,
an increase of $1,927,000. 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 nine months ended September 30, 2006 was $144,000
as compared to the same period in 2005 of $192,000, down $48,000. 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 $3,721,000 from a loss of $159,000 to a loss of $3,879,000
for the nine months ended September 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 September 30, 2006, the Company had a deficiency in working capital of
$7,864,000.

Net cash used for the first nine months operating activities came to
approximately $1,665,000, up $1,046,000 from this period last year of $619,000.
This was primarily due to the increase in accounts receivable increase as a
result of the Marshall Distributing acquisition of assets and operations.

Cash used for investing activities during the first nine months of this year was
approximately $6,784,000, of which the majority was for the financing of the new
warehouse building and the acquisition of Marshall Distributing assets and
operations.

During the first nine months of 2006, the Company's financing activities
provided the Company with $8,409,000 from the purchase of the office and
warehouse building and acquisition of Marshall Distributing assets and
operations. The result was adding a significant amount of assets, but, acquiring
mortgage debt and other related short term 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.


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STOCK-BASED COMPENSATION

In December 2004, the FASB issued SFAS No. 123R - Share -Based Payment. This
statement applies to all awards after the required effective date and to awards
modified, repurchased, or cancelled after that date. The effective date for
public entities that file as small business issuers is as of the beginning of
the first interim or annual reporting period that begins after December 15,
2005.

This statement requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements. This statement
establishes fair value as the measurement objective in accounting for share
based payment arrangements and requires all entities to apply a fair value based
measurement method in accounting for share-based payment transactions with
employees except for equity instruments held by employee ownership plans.

The Company has appropriately adopted SFAS No.123R and applies the principles
and guidance therein by recognizing all share based compensation in the
financial statements using the fair market value at the grant date to determine
the expense associated with the services rendered.

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


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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 2004, the FASB issued SFAS No. 123R - Share -Based Payment. This
statement applies to all awards after the required effective date and to awards
modified, repurchased, or cancelled after that date. The effective date for
public entities that file as small business issuers is as of the beginning of
the first interim or annual reporting period that begins after December 15,
2005.  This statement requires that the cost resulting from all share-based
payment transactions be recognized in the financial statements. This statement
establishes fair value as the measurement objective in accounting for share
based payment arrangements and requires all entities to apply a fair value based
measurement method in accounting for share-based payment transactions with
employees except for equity instruments held by employee ownership plans.

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.


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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.  The Chief Financial Officer has changed from Richard A.
Bailey to Jamie Plante.  Mr. Plante accepted the position/title in addition to
his responsibilities with Marshall Distributing, Inc.


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                           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 $5,000 owing as
of September 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 September 18, 2006, Management finalized negotiations, initiated in 2003,
with the Internal Revenue Service ("IRS") to settle past taxes due. An agreement
was reached that the compromise previously submitted to the IRS was withdrawn on
July 24, 2006.  The offer deposit of $250,000 was to be credited as the initial
installment payment.  A second installment payment of $75,000 is to be paid
within 90 days of the agreement acceptance date, September 18, 2006.  Payments
of $50,000 per month will begin in the fourth month after the acceptance date
and will continue each month until the liability is paid in full, approximately
10 months.  The payments will be due by the 20th day of the month.

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.

      DATE         NAME      LOCATION    # SHARES     CONSIDERATION
    5/09/2006  Roger Pawson  USA       1,000,000,000  $      100,000


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.


                                       11
<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.


                                       12
<PAGE>
ITEM  6.     EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
  NO.                                    IDENTIFICATION OF EXHIBIT
--------                                 -------------------------
<S>       <C>
  10.9*   Marshall Distributors, Inc. Assignment and Bill of Sale.
  10.10*  Marshall Distributors, Inc. Contract for Sale of Business Assets.
  10.11*  Marshall Distributors, Inc. Liability Undertaking Agreement.
  10.12*  Marshall Distributors, Inc. Operations & Assets Note.
  10.13*  Marshall Distributors, Inc. Security Agreement.
  10.14*  Kozmary Consulting Agreement, dated August 10, 2006.
  10.15*  Guarnera Consulting Agreement, dated August 14, 2006
  10.16*  American Bath Binding Letter of Intent, dated July 1, 2006.
  10.17*  American Bath Agreement, dated September 1, 2006.
  31.1*   Certification of Richard A. Bailey, Chief Executive Officer of Gateway Distributors,
          Ltd., pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
  31.2*   Certification of W. Jamie Plante, Chief Financial Officer of Gateway Distributors, Ltd.,
          pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
  32.1*   Certification of Richard A. Bailey, Chief Executive Officer of Gateway Distributors,
          Ltd., pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
  32.2*   Certification of W. Jamie Plante, Chief Financial Officer of Gateway Distributors, Ltd.,
          pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
</TABLE>

* Filed Herewith ** Previously Filed

                                   SIGNATURES

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


                                        Gateway Distributors, Ltd.
Dated: November 20, 2006.
                                        By /s/ Richard A. Bailey
                                           ----------------------
                                           Richard A. Bailey, Chief Executive
                                           Officer


                                        By /s/ W. Jamie Plante
                                           --------------------
                                           W. Jamie Plante, Chief Financial
                                           Officer


                                       13
<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>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT

THE BOARD OF DIRECTORS AND STOCKHOLDERS
GATEWAY DISTRIBUTORS LTD
3220 PEPPER LANE LAS VEGAS NEVADA 89120


We have reviewed the Comparative Balance Sheets as of 09/30/06 and 12/31/2005
for Gateway Distributors Ltd and the Statements of Income (losses) and cash
flows for the three months ended 09/30/06 and 09/30/05 in accordance with
statements on standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of Gateway Distributors Ltd.

A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly we do not express such an opinion.

Based upon our review, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements in order
for them to be in conformity with generally accepted accounting principles.


/s/illegible
Boynton Beach Florida

                                 November 17, 2006      Lawrence Scharfman CPA P


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


                                                                 September 30,    December 31,
                                                                     2006             2005
                                                                ---------------  --------------
<S>                                                             <C>              <C>
                            ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                   $       53,992   $      93,305
    Accounts Receivable                                              1,078,652          23,756
    Inventories                                                      1,029,513         373,276
    Due From Chelsea Collection                                              -          90,000
    Notes Receivable                                                   118,125               -
    Prepaids                                                            15,153               -
                                                                ---------------  --------------
                                          Total Current Assets       2,295,435         580,337
                                                                ---------------  --------------
PROPERTY & EQUIPMENT
    Property and Equipment, at cost                                  3,161,821         410,979
    (Less) accumulated depreciation and amortization                  (377,898)       (327,818)
                                                                ---------------  --------------
                                    Total Property & Equipment       2,783,923          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            317,200         400,000
    Customer Lists                                                     500,000               -
    Distributor Rights                                               1,789,500               -
    Websites and e-Commerce Channels                                 2,150,000               -
    Other Assets                                                         7,271          40,768
                                                                ---------------  --------------
                                            Total Other Assets       6,985,698       2,952,495
                                                                ---------------  --------------
Total Assets                                                        12,065,056       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)


                                             September 30,    December 31,
                                                 2006             2005
                                            ---------------  --------------
<S>                                         <C>              <C>
                   LIABILITIES

CURRENT LIABILITIES:
Accounts payable:
  Trade Regular                             $      922,535   $     201,308

Accrued expenses:
  Payroll and employee benefits                    369,195         167,103
  Payroll taxes                                    215,221         142,925
  Interest                                         420,944         420,944
  Other                                            131,668          47,757
Stock Investors                                    188,078          94,078
Current maturities of long-term debt             7,911,644       1,378,615
                                            ---------------  --------------
Total current liabilities                       10,159,285       2,452,730
                                            ---------------  --------------
LONG-TERM DEBT                                   1,776,355               -

Total Liabilities                               11,935,640       2,452,730
                                            ---------------  --------------
              STOCKHOLDERS' EQUITY

Preferred stock - $.001 par value
  Authorized - 400,000,000 shares
    Series A Preferred
      Authorized - 100,000,000 shares
      34,972,125 issued and outstanding             34,972          14,972
    Series B Preferred
      Authorized - 100,000,000 shares
      185,000,000 issued and outstanding           185,000          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 - 15,067,010,636       15,067,010       2,967,010
  Additional paid-in capital                     8,098,204      17,542,204
  Accumulated (deficit)                        (23,255,770)    (19,375,923)
                                            ---------------  --------------
Net Stockholders' Equity                           129,416       1,163,263
                                            ---------------  --------------
Total Liabilities & Stockholders' Equity    $   12,065,056   $   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         9 Months         9 Months
                                                                    Ended             Ended            Ended            Ended
                                                                September 30,     September 30,    September 30,    September 30,
                                                                     2006             2005             2006             2005
                                                               ----------------  ---------------  ---------------  ---------------
<S>                                                            <C>               <C>              <C>              <C>
SALES                                                          $     1,638,199   $      188,307   $    1,997,536   $      580,073
COST OF SALES                                                          515,477           33,927          575,765          122,409
                                                               ----------------  ---------------  ---------------  ---------------
GROSS PROFIT                                                         1,122,722          154,380        1,421,771          457,664
                                                               ----------------  ---------------  ---------------  ---------------

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
  Depreciation Expense                                                  27,113           12,000           50,080           61,418
  Professional Services Not Classified Elsewhere                       844,359          267,347        2,953,695          564,631
  Development of Jeunesse by Francois Product Line                      34,252          269,563          163,971          389,723
  Product Development                                                   10,500          315,013           38,285          632,478
  All Other Selling, General and Administrative                        897,707          137,491        1,751,902          418,261
                                                               ----------------  ---------------  ---------------  ---------------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                   1,813,931        1,001,414        4,957,933        2,066,511
                                                               ----------------  ---------------  ---------------  ---------------
OTHER INCOME (EXPENSE):
  Gain on Sale of Property held for short term investment                    0                0                0           37,139
  Gain on Sale of Property                                                   0        1,014,494                0        1,667,040
  Debt Forgiveness Income                                              (40,465)               0                0                0
  Gain on Sale of Polar WearZ, Inc.                                                      50,000                            50,000
  (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          (15,644)               0          (26,024)
  Interest Expense                                                    (110,283)         (81,302)        (143,685)        (192,173)
  Other Income                                                               0                0                0                0
                                                               ----------------  ---------------  ---------------  ---------------
TOTAL OTHER INCOME (EXPENSE):                                         (150,748)         967,548         (343,685)       1,450,090
                                                               ----------------  ---------------  ---------------  ---------------
NET INCOME (LOSS) BEFORE MINORITY INTEREST                            (841,957)         120,514       (3,879,847)        (158,757)
MINORITY INTEREST                                                            0                0                0                0
                                                               ----------------  ---------------  ---------------  ---------------
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAX                    ((841,957)         120,514       (3,879,847)        (158,757)
PROVISION FOR INCOME TAX                                                     0                0                0                0
                                                               ================  ===============  ===============  ===============
NET INCOME (LOSS)                                              $      (841,957)  $      120,514   $   (3,879,847)  $     (158,757)
                                                               ----------------  ---------------  ---------------  ---------------
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE                    $         (0.00)  $         0.00   $        (0.00)  $        (0.00)
                                                               ----------------  ---------------  ---------------  ---------------
BASIC & DILUTED WEIGHTED AVERAGE SHARES OF COMMON STOCK         12,671,901,940      274,168,188    8,678,182,797      256,743,335
                                                               ================  ===============  ===============  ===============
</TABLE>

                      SEE NOTES TO THE FINANCIAL STATEMENTS

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


                              Preferred Stock              Common Stock           Paid in     (Restated)    (Restated)
                              Par Value $0.001          Par Value $0.001          Excess     Accumulated    Net Equity
                            ---------------------  ---------------------------
                              Shares      Amount       Shares        Amount       of Par      (Deficit)    (Deficiency)
                            -----------  --------  --------------  -----------  -----------  ------------  ------------
<S>                         <C>          <C>       <C>             <C>          <C>          <C>           <C>
Balance for
December 31, 2005            29,972,125    29,972   2,967,010,636    2,967,009  17,542,205   (19,375,923)    1,163,263

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

Loss for the Period                                                                           (1,922,086)   (1,922,086)
                            -----------  --------  --------------  -----------  -----------  ------------  ------------
Balance for March 31, 2006   29,972,125    29,972   6,817,010,636    6,817,009  15,022,205   (21,298,009)      571,177

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

Loss for the Period                                                                           (1,115,804)   (1,115,804)
                            -----------  --------  --------------  -----------  -----------  ------------  ------------
Balance for June 30, 2006    29,972,125    29,972  10,117,010,636   10,117,009  12,452,205   (22,413,813)      185,373

Common Stock Issued:
  For Services -
  Restricted Stock
  For Services -
  Unrestricted Stock                                4,950,000,000    4,950,000  (4,185,000)                    765,000
  Preferred Stock A          20,000,000    20,000                                  (18,000)                      2,000
  Preferred Stock B         170,000,000   170,000                                 (151,000)                     19,000
Loss for the Period                                                                             (841,957)     (841,957)
                            -----------  --------  --------------  -----------  -----------  ------------  ------------
Balance for                 219,972,125   219,972  15,067,010,636   15,067,009   8,098,205   (23,255,770)      129,416
September 30, 2006
</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)



                                                                                  9 Months Ended     Year Ended
                                                                                  September 30,     December 31,
                                                                                       2006             2005
                                                                                 ----------------  --------------
<S>                                                                              <C>               <C>
OPERATING ACTIVITIES:
Net (loss)                                                                       $    (3,879,847)  $    (903,728)
Adjustments to reconcile Net (loss)
    to net cash from (to) operating activities:
    Stock issued for Services                                                          2,746,000         862,022
    Depreci. & Amortization Prop & Equip                                                  50,080          47,132
    Minority Interest                                                                          -          72,364

Changes in operating assets & liabilities which increase (decrease) cash flow:
    Accounts Receivable                                                               (1,054,896)       (178,122)
    Inventories                                                                         (656,237)        120,923
    Properties Held for Short Term Investments                                                 -         179,741
    Prepaid Expenses & Other Current Assets                                              (43,278)         25,500
    Accounts Payable and Commissions                                                     721,227        (128,532)
    Accrued Liabilities                                                                  452,299          26,989
                                                                                 ----------------  --------------
Net cash provided by operating activities                                             (1,664,652)        124,289
                                                                                 ----------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Product Development Awaiting Production                                                    -          (4,000)
    Capital (Outlays)  / Disposals                                                             -       4,237,309
    Purchase of Property                                                              (2,750,842)              -
    Other Assets                                                                      (4,033,203)          7,938
                                                                                 ----------------  --------------
Net cash provided (used) from investing activities                                    (6,784,045)      4,241,247
                                                                                 ----------------  --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net Proceeds from Term Debt After Principal Payments                               8,309,384               -
    Principal Payment on Debts (over) net proceeds Term Debt                                   -      (2,820,033)
    Stock Sales for Cash; Net                                                            100,000         338,009
    Investments                                                                                -      (1,827,366)
                                                                                 ----------------  --------------
Net cash provided (used) from financing activities                                     8,409,384      (4,309,390)
                                                                                 ----------------  --------------

NET INCREASE (DECREASE) IN CASH EQUIVALENTS                                              (39,313)         56,146

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

Cash at end of period                                                            $        53,992   $      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


                                             9 Months Ended   Year Ended
                                             September 30,   December 31,
                                                  2006           2005
                                             --------------  ------------
<S>                                          <C>             <C>
SUPPLEMENTAL DISCLOSURE
CASH PAID FOR:
  Interest                                          110,283       192,645
  Taxes                                                   0             0
NON CASH INVESTING AND FINANCING ACTIVITIES
STOCK ISSUED FOR:
  Services                                        2,746,000       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
                                SEPTEMBER 30, 2006

NOTE 1 - BASIS OF PRESENTATION:

The consolidated interim condensed financial statements at September 30, 2006
and for the periods ended September 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 September 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 September 30, 2006, the Company has the following wholly owned
subsidiaries:

  -  The  Right  Solution  Gateway  (multilevel  marketing  and retail sales)
     - Marshall Distributing, Inc. formerly Grandma Hammans Specialty Foods,
     (wholesale distribution)
     - Gateway Venture Holdings, Inc. (house and manage the real estate,
     vehicles and equipment of the Company)
     - Marshall Corporate Administration formerly Gateway Corporate
     Administration, Inc. (Marketing and Management)
     - Mountain West Holdings, Inc. (website and e-commerce sales)

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 completed the acquisition of the business assets and operations
of Marshall Distributing, LLC, a Utah limited liability company and a portion of
EMS Business Development, Inc., a California corporation. These assets have been
assigned to the previously inactive subsidiary Grandma Hammans Specialty Foods
and the subsidiary has appropriately changed it's name to Marshall Distributing,
Inc. ("Marshall Dist"). The asset purchase includes the operations and warehouse
facility.

The Company created a new subsidiary corporation, Mountain West Holdings, Inc.
which includes some of the assets acquired from EMS Business Development, Inc. a
California corporation. The operation includes website and e-commerce channels
of distributions and retail sales.

The Company has utilized and appropriately changed the name of Gateway Corporate
Administration to  Marshall Corporate Administration ("MCA"). MCA is a marketing
and management company that utilizes new technology and personnel to facilitate
market penetration directly to the end consumer and to provide management
services directly related to the facilitation of rapid growth.


                                     F-7
<PAGE>
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 - MARSHALL DISTRIBUTING ACQUISITION OF OPERATIONS AND ASSETS :

The Company completed the acquisition of 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 have been
assigned to the currently inactive subsidiary Grandma Hammans Specialty Foods
and the subsidiary has had an appropriate name change to Marshall Distributing,
Inc. The asset purchase includes the operations and warehouse facility. The date
in which all of the final terms and conditions were met was on or about August
6, 2006. The effective close date was June 30, 2006. Material Definitive
Agreement, was filed on July 24, 2006. The Form 8-K is included below.


                                     F-8
<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-9
<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.

See NOTE 17 - Proforma Statement of Operations of Gateway Distributors., Ltd and
Subsidiaries including Marshall Distributing, Inc

NOTE 4 - GRANDMA HAMMANS AND LOS CABOS BEVERAGE:


                                      F-10
<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 5 - 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 $163,971 for the period, ended
September 30, 2006.

No title or ownership passes to the Company or to Chelsea Collection until the
November 25, 2003 agreement between Chelsea Collection and Francois 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-11
<PAGE>
NOTE 6 - 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 7- 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-12
<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) 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.

The Company acquired the existing offices and warehouse of Marshall Distributing
on approximately July 1, 2006 in the purchase agreement.

NOTE 8 - 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 9 - 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 September 30, 2006 no stock was issued out of the ESIP
plan. There are currently no shares issued and unsold under the ESIP plan.


                                      F-13
<PAGE>
NOTE 10 - 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 11 - 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 September 30, 2006,
the total remaining shares approved to issue under the RSP plans are
2,050,000,000. 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 September 30, 2006, the Company issued 11,100,000,000
shares out of the RSP plan.

NOTE 12 - 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 September 30, 2006, the Company issued 170,000,00
shares of Series B preferred stock

NOTE 13 - 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 September 30, 2006, the Company issued 20,000,000
restricted preferred A stock to officers.

NOTE 14 - NEPOTISM DISCLOSURE (RELATED PARTY TRANSACTIONS):


                                      F-14
<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 15 - RECLASSIFICATION AND RESTATEMENTS:

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

The Company has no off-balance sheet arrangements.

NOTE 16 - 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.



                                      F-15
<PAGE>
NOTE 17 - PROFORMA STATEMENT OF OPERATIONS OF GATEWAY DISTRIBUTORS., LTD AND
SUBSIDIARIES INCLUDING MARSHALL DISTRIBUTING, INC.

<TABLE>
<CAPTION>
                  GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES AND MARSHALL DISTRIBUTING
                        PROFORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                                (CONDENSED INTERIM FINANCIAL STATEMENTS)


                                                                          9 Months         9 Months
                                                                            Ended            Ended
                                                                        September 30,    September 30,
                                                                            2006             2005
                                                                       ---------------  ---------------
<S>                                                                    <C>              <C>
SALES                                                                  $    3,356,047   $    2,490,737
COST OF SALES                                                               1,636,919        1,588,855
                                                                       ---------------  ---------------
GROSS PROFIT                                                                1,719,128          901,882
                                                                       ---------------  ---------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
  Depreciation Expense                                                         72,904           88,912
  Professional Services Not Classified Elsewhere                            2,964,418          571,914
  Development of Jeunesse by Francois Product Line                            163,971          389,723
  Product Development                                                          38,285          632,478
  All Other Selling, General and Administrative                             2,470,961        1,232,492
                                                                       ---------------  ---------------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                          5,710,539        2,915,520
                                                                       ---------------  ---------------
OTHER INCOME (EXPENSE):
  Gain on Sale of Property held for short term investment                           0           37,139
  Gain on Sale of Property                                                          0        1,667,040
  Debt Forgiveness Income                                                           0                0
  Gain on Sale of Polar WearZ, Inc.                                                 0           50,000
(Loss) on Sale of Subsidiary - Los Cabos Beverage                                   0           (8,256)
  (Loss) change in reporting QDS of Arizona as an investment                        0          (68,535)
  (Impairment)  reporting Subsidiary QDS of Arizona as an investment                0           (9,101)
  (Loss) on Investment in QDS                                                (200,000)               0
  (Loss) on Sale of Valley Dr House                                                 0          (26,024)
  Interest Expense                                                           (171,944)        (236,308)
  Other Income                                                                      0                0
                                                                       ---------------  ---------------
TOTAL OTHER INCOME (EXPENSE):                                                (371,944)       1,253,330
                                                                       ---------------  ---------------
NET INCOME (LOSS) BEFORE MINORITY INTEREST                                 (4,363,355)        (760,308)
MINORITY INTEREST                                                                   0                0
                                                                       ---------------  ---------------
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAX                          (4,363,355)        (760,308)
PROVISION FOR INCOME TAX                                                            0                0
                                                                       ---------------  ---------------
NET INCOME (LOSS)                                                      $   (4,363,355)  $     (760,308)
                                                                       ===============  ===============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE                            $        (0.00)  $        (0.00)
                                                                       ---------------  ---------------
BASIC & DILUTED WEIGHTED AVERAGE SHARES OF COMMON STOCK                 6,648,226,106      110,200,657
                                                                       ===============  ===============
</TABLE>

NOTE 18 - 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-16
<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 19 - 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.

On or about August 6, 2006 the Company finalized the acquisition of the
operations and  assets of Marshall Distributing Co. LLC a Utah limited liability
company and select assets from EMS Business Development, Inc. a California
corporation. In doing so, the Company has signed a note payable in the amount of
$6,000,000.00 due and payable within twelve months and assumed operational
liabilities of Marshall Distributing.

                             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 $5,000 owing as of
September 30, 2006.


                                      F-17
<PAGE>
The Company has recognized, in the financial statements, part of the "accounts
payable" in the liabilities of the balance sheet to cover these contingencies.

                                     OTHER:
                                     ------

The Company originally acquired TRSG Corporation ("TRSG"), effective January 11,
2001, by passing all of its assets and selected debt to TRSG in exchange for
approximately 78% of the stock ownership of TRSG. When the Company later sold
its approximately 76% interest in TRSG, effective December 31, 2002, it received
$15,000 for the stock. It also acquired all of the assets of TRSG, its
operations, and selected debt from TRSG. The disposal of TRSG December 31, 2002
effectively brought back into the Company what it had before it acquired TRSG in
the first place, effective January 11, 2001. These transactions, both the
original acquisition as well as the subsequent disposal, are reported under the
purchase method of accounting, with reported costs recognized as it was in the
hands of the predecessor. Under the terms of the agreement, TRSG chooses which
creditors it continues to owe for $200,000 in debt, and all others are passed to
the Company. The creditors of TRSG have not agreed upon this agreement. TRSG has
ongoing legal matters that may or may not implicate the Company. Management is
unable to estimate the possible loss exposure, but believes the ultimate outcome
to be minimal for the Company because the debts of TRSG paid by the Company are
debts of TRSG and not the Company.

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

As of September 18, 2006, Management finalized negotiations, initiated in 2003,
with the Internal Revenue Service ("IRS") to settle past taxes due. An agreement
was reached that the compromise previously submitted to the IRS was withdrawn on
July 24, 2006.  The offer deposit of $250,000 was to be credited as the initial
installment payment.  A second installment payment of $75,000 is to be paid
within 90 days of the agreement acceptance date, September 18, 2006.  Payments
of $50,000 per month will begin in the fourth month after the acceptance date
and will continue each month until the liability is paid in full, approximately
10 months.  The payments will be due by the 20th day of the month.

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

NOTE 20 - RESTATEMENT OF FINANCIAL STATEMENTS TO CORRECT AN ACCOUNTING ERROR

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

The effects of the restatement on the balance sheet are illustrated below:

<TABLE>
<CAPTION>
                           BALANCE SHEET-DECEMBER 31, 2005
                           -------------------------------

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


                                      F-18
<PAGE>
<TABLE>
<CAPTION>
                             BALANCE SHEET-JUNE 30, 2006
                             ---------------------------

                         Restated                  Originally
                          Amount     Adjustment     Reported
                       ------------  -----------  ------------
<S>                    <C>           <C>          <C>
Accounts payable           351,882     (400,000)      751,882
Current liabilities      4,115,232     (400,000)    4,515,232
Accumulated (deficit)  (21,298,009)     400,000   (21,698,009)
Total liabilities &
  Equity                 4,300,605                  4,300,605
</TABLE>

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


NOTE 21 - 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 SEC has no further comments as of
November 13, 2006.


                                      F-18