SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





____________________________________________________





FORM
10-KSB/A


Amendment
No. 1


(Mark
One)





x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
  2006.





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE TRANSITION PERIOD FROM





Commission
File No. 000-27879





MARSHALL
      HOLDINGS INTERNATIONAL, INC.(Exact
      name of issuer as specified in its charter)Nevada
            88-0301278(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)2555
      East Washburn Road, North Las Vegas, Nevada
            89081(Address
      of principal executive offices)
            (Zip
      Code)






Registrant’s
      telephone number, including area code: (702)
      317-2400Securities
      registered under Section 12(b) of the Exchange Act:
            NoneSecurities
      registered under Section 12(g) of the Exchange Act:
            Common
      stock, par value $0.001 per share(Title
      of class)






Check
whether the issuer is not required to file reports pursuant to Sections 13 or
15(d) of the Exchange Act.   ̈





Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or 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 xNo  ̈





Check if
no disclosure of delinquent filers in response to Item 405 of Regulation S-B is
contained in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.   ̈





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
issuer’s revenues for its most recent fiscal year: $3,757,181.





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of April
5, 2007: $34,325,717
















Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock as of April 5, 2007: 2,145,357,320.





Documents
incorporated by reference: None.





Transitional
Small Business Disclosure Format (Check one): Yes ̈Nox











TABLE OF CONTENTS





Item
      1.
            Description of Business.
            2Item
      2.
            Description of Property.
            2Item
      3.
            Legal Proceedings.
            2Item
      4.
            Submission of Matters to a Vote of Security
      Holders.
            2Item
      5.
            Market for Common Equity and Related Stockholder
      Matters.
            2Item
      6.
            Management's Discussion and Analysis or Plan of
      Operation.
            2Item
      7.
            Financial Statements.
            2Item
      8.
            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure.
            2Item
      8a.
            Controls and Procedures.
            2Item
      8b.
            Other Information.
            2Item
      9.
            Directors, Executive Officers, Promoters and Control Persons;
      Compliance with Section 16(A) of the Exchange Act.
            2Item
      10.
            Executive Compensation.
            3Item
      11.
            Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters.
            3Item
      12.
            Certain Relationships and Related
      Transactions.
            3Item
      13.
            Exhibits.
            4Item
      14.
            Principal Accountant Fees and Services.
            5




i
 Table of Contents





EXPLANATORY
NOTE





On April
16, 2007, we filed with the Securities and Exchange Commission our Annual Report
on Form 10-KSB for the period ended December 31, 2006.  This Amendment
No. 1 to our Annual Report on Form 10-KSB/A is being filed to correct
information for Item 7 contained in our Annual Report on Form
10-KSB.





Management
is issuing this amended report in an effort to further clarify and properly
reflect the acquisition of the assets and operations of Marshall Distributing
LLC effective July 1, 2006 and to provide additional disclosures of debt
regarding notes payable.





The
changes in this report include:





·A
restated statement of cashflows with a reclassification and additional
disclosure of investing activities and financing
activities.  Increases in the property, plant and equipment were
reflected in the body of the statement of cashflows that were acquired with debt
and therefore the increases to both the property, plant and equipment and the
debt have been subsequently broken out and disclosed separately as a non-cash
investing and financing activities;





·             
The balance sheet liabilities section has been restated for notes payable
classification and current maturities of long term debt;





·             
The footnote number 3 regarding the acquisition of the assets and operations of
Marshall Distributing has been expanded to satisfy all of the required
disclosures pertaining to business combinations under SFAS 141; and





·             
An additional footnote 8 on Notes Payable has been added to clarify the terms
and obligations for the registrant’s debt.





The
filing of this Form 10-KSB/A, Amendment No. 1, is not an admission that our Form
10-KSB for the year ended December 31, 2006, when filed, knowingly included any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements made therein not misleading.





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





SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





In light
of the risks and uncertainties inherent in all projected operational matters,
the inclusion of forward-looking statements in this Form 10-KSB/A should not be
regarded as a representation by us or any other person that any of our
objectives or plans will be achieved or that any of our operating expectations
will be realized.  Our revenues and results of operations are
difficult to forecast and could differ materially from those projected in the
forward-looking statements contained in this Form 10-KSB/A as a result of
certain risks and uncertainties including, but not limited to, our business
reliance on third parties to provide us with technology, our ability to
integrate and manage acquired technology, assets, companies and personnel,
changes in market condition, the volatile and intensely competitive environment
in the business sectors in which we operate, rapid technological change, and our
dependence on key and scarce employees in a competitive market for skilled
personnel.  These factors should not be considered exhaustive; we
undertake no obligation to release publicly the results of any future revisions
we may make to forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated
events.





1
 Table of Contents





PART
I





Item
      1.
            Description
      of Business.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.





Item
      2.
            Description ofProperty.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.





Item
      3.
            LegalProceedings.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.





Item
      4.
            Submission of Matters to a Vote of Security
    Holders.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.





PART
II





Item
      5.
            Market
      forCommonEquity and Related Stockholder
      Matters.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.




Item
      6.
            Management's Discussion and Analysis or Plan of
      Operation.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.





Item
      7.
            Financial Statements.





The
financial statements and related notes are included as part of this report as
indexed in the appendix on page F-1 through F-19.





Item
      8.
            Changes
      in andDisagreementswith Accountants on Accounting and
      Financial Disclosure.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.





Item
      8a.
            Controls
      and Procedures.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.





Item
      8b.
            Other
      Information.





None.





PART
III





Item
      9.
            Directors,Executive Officers, Promoters and Control Persons;
      Compliance with Section 16(A) of the Exchange
  Act.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.





2
 Table of Contents





Item
      10.
            Executive
      Compensation.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.





Item
      11.
            Security Ownershipof Certain Beneficial Owners and
      Management and Related Stockholder
Matters.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.





Item
      12.
            Certain
      Relationships and RelatedTransactions.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.





3
 Table of Contents





Item
      13.
            Exhibits.







Exhibit
      No.
            Identification of
      Exhibit3.1**
            Articles
      of Incorporation.3.2**
            Amended
      and Restated Articles of Incorporation.3.3**
            Articles
      of Amendment to the Articles of Incorporation, filed effective on June 28,
      2004.3.4**
            Certificate
      of Change, filed effective on September 3, 2004.3.5**
            Articles
      of Amendment to the Articles of Incorporation, filed effective on October
      4, 2004.3.6**
            Certificate
      of Amendment to the Certificate of Designation for the Series A Preferred
      Stock, filed effective on November 9, 2004.3.7**
            Certificate
      of Designation for the Series B Preferred Stock, filed effective on
      January 18, 2005.3.8**
            Amended
      By-laws.10.01**
            Donald
      Hansen Settlement Agreement effective February 2004.10.02**
            Donald
      Hansen Stock Option Agreement.10.03**
            Steve
      Owens Stock Option Agreement, dated February 01, 2006.10.04**
            Steve
      Hayden Consulting Agreement, dated March 01, 2006.10.05**
            Maryland
      Attorney General Assurance of Voluntary Compliance, dated May 04,
      2006.10.06**
            Allan
      Gold Consulting Agreement, dated March 16, 2006.10.07**
            Employment
      Agreement Peter Hammer, dated May 08, 2006.10.08**
            Marshall
      Distributing Binding Letter, dated June 19, 2006.10.09**
            Marshall
      Distributors Assignment and Bill of Sale, dated June 30,
    2006.10.10**
            Marshall
      Distributors Contract for Sale of Business Assets, dated June 30,
      2006.10.11**
            Marshall
      Distributor Liability Undertaking Agreement, dated June 30,
      2006.10.12**
            Marshall
      Distributors Operations & Assets Note, dated June 30,
      2006.10.13**
            Marshall
      Distributors Security Agreement, dated June 30, 2006.10.14**
            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 01, 2006.10.17**
            American
      Bath Agreement, dated September 01, 2006.10.18**
            Botanicals
      Confidentiality and Restricted Use Agreement, dated November 16,
      2006.10.19**
            Janssen
      Consulting Agreement, dated February 08, 2007.10.20**
            Janssen
      Secured Promissory Note, dated February 09, 2007.10.21**
            Wanda
      Boone Consignment Agreement between Marshall Distributing and Wanda Boone,
      dated March 15, 2007.10.22**
            Wanda
      Boone Consignment Agreement between The Right Solution Gateway and Wanda
      Boone, dated March 15, 2007.10.23**
            Gary
      Heath Stock Option Agreement, dated February 03, 2006.10.24**
            American
      Bath Intellectual Property Agreement, dated October 01,
    2006.10.25**
            American
      Bath Inventory and Equipment Loan Agreement, dated October 01,
      2006.14**
            Code
      of Ethics.21**
            Subsidiaries
      of the Registrant.23.1*
            Consent
      of Auditors.23.2*
            Consent
      of Auditors.31.1*
            Certification
      of Richard A. Bailey, Chief Executive Officer of Marshall Holdings
      International, Inc., pursuant to 18 U.S.C. §1350, as adopted pursuant to
      §302 of the Sarbanes-Oxley Act of 2002.31.2*
            Certification
      of W. Jamie Plante, Chief Financial Officer of Marshall Holdings
      International, Inc., pursuant to 18 U.S.C. §1350, as adopted pursuant to
      §302 of the Sarbanes-Oxley Act of 2002.32.1*
            Certification
      of Richard A. Bailey, Chief Executive Officer of Marshall Holdings
      International, Inc., pursuant to 18 U.S.C. §1350, as adopted pursuant to
      §906 of the Sarbanes-Oxley Act of 2002.32.2*
            Certification
      of W. Jamie Plante, Chief Financial Officer of Marshall Holdings
      International, Inc., pursuant to 18 U.S.C. §1350, as adopted pursuant to
      §906 of the Sarbanes-Oxley Act of
2002.




**      Previously
Filed


*      Filed
Herewith





4
 Table of Contents





Item
      14.
            Principal
      Accountant Fees andServices.





Incorporated
by reference from the registrant’s report on Form 10-KSB dated April 16,
2007.





SIGNATURES





In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.








MARSHALL
      HOLDINGS INTERNATIONAL, INC.Date:
      April 16, 2008.By
            /s/ Richard A. BaileyRichard
      A. Bailey,Chief
      Executive OfficerBy
            /s/ W. Jamie PlanteW.
      Jamie Plante,Chief
      Financial Officer








Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
Annual report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.





Signature
            
            Title
            
            Date/s/ Richard A.
      Bailey
            
            President,
      Chief Executive Officer and Chairman of the Board of
    Directors
            
            April
      16, 2008/s/ Florian R.
      Ternes
            
            Director,
      Chief Operating Officer and Secretary
            
            April
      16, 2008/s/ W. Jamie
      Plante
            
            Chief
      Financial Officer
            
            April
      16, 2008




5
 Table of Contents





SECURITIES
AND EXCHANGE COMMISSION




WASHINGTON,
D.C. 20549




FINANCIAL
STATEMENTS AND SCHEDULES




MARSHALL
HOLDINGS INTERNATIONAL, INC. AND SUBSIDIARIES






FINANCIAL
STATEMENTS







DECEMBER
31, 2006







MARSHALL
HOLDINGS INTERNATIONAL, INC. AND SUBSIDIARIES







CONSOLIDATED
FINANCIAL STATEMENTS







December
31, 2006







MARSHALL
HOLDINGS INTERNATIONAL, INC. AND SUBSIDIARIES


-
CONTENTS -








PAGE
      NUMBERReport
      of Independent Registered Public Accounting Firm
            F-1Financial
      Statements:Balance
      Sheet
            F-3Statement
      of Operations
            F-5Statement
      of Changes in Stockholders' Equity (Deficiency)
            F-6Statement
      of Cash Flows
            F-7Notes
      to Financial Statements
            F-8





Table of Contents








MADSEN &
      ASSOCIATES, CPA’s Inc.
            
            684
      East Vine St #3Certified
      Public Accountants and Business Consultants
            
            Murray,
      UT 84107Telephone
      801-268-2632Fax
      801-262-3978





Board of
Directors


Marshall
Holdings International, Inc.








Report of Independent
Registered Accounting Firm








We have
audited the accompanying consolidated balance sheets of Marshall Holdings
International, Inc. (formerly Gateway Distributors, Ltd.) and Subsidiaries as of
December 31, 2006, and the related consolidated statements of operations,
stockholders’ equity, and cash flows for the year then ended.  These
financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used, significant estimates made by
management and evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material aspects, the financial position of Marshall Holdings
International, Inc. (formerly Gateway Distributors, Ltd.) and Subsidiaries as of
December 31, 2006, and the results of its consolidated operations and cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.





As noted
in Notes 3, 8, and reported in Note 14 to the financial statements, the Company
is restating its financial statements for the year ended December 31, 2006, to
provide additional disclosures related to the Company’s long-term debt and the
acquisition of Marshall Distributing LLC, and to correct an error on the cash
flows statement.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As disclosed in the consolidated
financial statements and notes to the consolidated financial statements, the
Company will need additional working capital for its planned activity and to
service its debt. This raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans regarding these matters are
described in the notes to the consolidated financial statements. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.








Madsen
& Associates CPA’s, Inc.


April 6,
2007, except for restated footnotes and adjustments which are dated November 30,
2007


Salt Lake
City, Utah





F-1
 Table of Contents




LAWRENCE
      SCHARFMAN & CO., CPA PCCERTIFIED
      PUBLIC ACCOUNTS18
      E SUNRISE HIGHWAY,#203
            9608
      HONEY BELL CIRCLEFREEPORT,
      NY11520
            BOYNTON
      BEACH FL,33437TELEPHONE:(516)
      771-5900
            TELEPHONE:(561)
      733-0296FACSIMILE:   (516)
      771-2598
            FACSIMILE:   (561)
      470-0613





Board of
Directors & Audit Committee


Marshall
Holdings International, Inc., and Subsidiaries


Las Vegas
Nevada








REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





We have
audited the accompanying consolidated balance sheets of Marshall Holdings
International, Inc. (formerly Gateway Distributors, Ltd.) And Subsidiaries as of
December 31,2005 and the Related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.





We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial presentation. We believe that our audit
provided a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Marshall Holdings
International, Inc. (formerly Gateway Distributors, Ltd.) and Subsidiaries as of
December 31, 2005 and the results of its consolidated operations and cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As disclosed in the consolidated financial
statements and notes to the consolidated financial statements, the Company will
need additional working capital for its planned activity and to service its
debt. This raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are described in the
notes to the consolidated financial statements. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





LAWRENCE
      SCHARFMAN & CO., CPA PCAPRIL
      12, 2006





F-2
 Table of Contents




MARSHALL
HOLDINGS INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEET


(CONDENSED
FINANCIAL STATEMENTS)





December
      31,
            
            
            December
      31,2006
            
            
            2005ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
            
            $
            61,083
            
            
            
            93,305Accounts
      Receivable (net allowance of 11,075)
            
            
            193,071
            
            
            
            23,756Inventories
            
            
            991,337
            
            
            
            373,276Note
      Receivable
            
            
            1,709,122
            
            
            
            90,000Prepaids
            
            
            12,962Total
      Current Assets
            
            
            2,967,575
            
            
            
            580,337PROPERTY
      & EQUIPMENTProperty
      and Equipment, at cost
            
            
            3,627,972
            
            
            
            410,979(Less)
      accumulated depreciation and amortization
            
            
            (477,296
            )
            
            
            (327,818
            )Total
      Property & Equipment
            
            
            3,150,676
            
            
            
            83,161OTHER
      ASSETSCustomer
      Lists
            
            
            500,000
            
            
            
            -Distributor
      Rights
            
            
            1,779,500
            
            
            
            -Websites
      and e-commerce Programs
            
            
            1,750,000
            
            
            
            -Other
      Assets
            
            
            2,286,016
            
            
            
            2,952,495Total
      Other Assets
            
            
            6,315,516
            
            
            
            2,952,495Total
      Assets
            
            
            12,433,767
            
            
            
            3,615,933





See Notes
to Financial Statements





The
accompanying notes are an integral part of the audited financial
statements.








F-3
 Table of Contents




MARSHALL
HOLDINGSINTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEET


(CONDENSED
FINANCIAL STATEMENTS)





December
      31,
            
            
            December
      312006
            
            
            2005LIABILITIESCURRENT
      LIABILITIES:Accounts
      payable:Trade
      Regular
            
            $
            784,977
            
            
            
            201,308Accrued
      expenses:Payroll
      and employee benefits
            
            
            402,105
            
            
            
            167,103Payroll
      taxes
            
            
            233,435
            
            
            
            142,925Interest
            
            
            442,944
            
            
            
            420,944Other
            
            
            213,503
            
            
            
            48,257Notes
      Payable
            
            
            7,827,933Current
      maturities of long-term debt
            
            
            125,984
            
            
            
            1,378,615Total
      current liabilities
            
            
            10,030,881
            
            
            
            2,852,730LONG-TERM
      DEBT
            
            
            2,016,001
            
            
            
            -Total
      Liabilities
            
            
            12,046,882
            
            
            
            2,852,730STOCKHOLDERS'
      EQUITYSeries
      A Preferred stock - $.001 par value;Authorized
      - 100,000,000 shares;Issued
      and outstanding at December 31 2006 and 2005 32,972,125 and 14,972,125,
      respectively 32,972
            
            
            14,972Series
      B Preferred stock - $.001 par value;Authorized
      at December 31, 2006 and 2005 1,000,000,000 and 100,000,000
      respectively;Issued
      and outstanding at December 31, 2006 and  2005 185,000,000 and
      15,000,000, respectively
            
            
            185,000
            
            
            
            15,000Common
      stock, - $.001 par valueAuthorized
      - 25,000,000,000 sharesIssued
      and outstanding at December 31,2006 and 2005 2,117,957,320 and
      2,967,010,636 respectively
            
            
            2,117,957
            
            
            
            2,967,010Additional
      paid-in capital
            
            
            21,162,117
            
            
            
            17,542,204Accumulated
      (deficit)
            
            
            (23,111,161
            )
            
            
            (19,775,923
            )Net
      Stockholders' Equity
            
            
            386,885
            
            
            
            763,263Total
      Liabilities & Stockholders' Equity
            
            $
            12,433,767
            
            
            
            3,615,993





See Notes
to Financial Statements





The
accompanying notes are an integral part of the audited financial
statements.





F-4
 Table of Contents




MARSHALL
HOLDINGS INTERNATIONAL, INC.AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(CONDENSED
FINANCIAL STATEMENTS)





Year
      Ended
            
            
            Year
      EndedDecember
      31,
            
            
            December
      31,2006
            
            
            2005SALES
            
            $
            3,757,181
            
            
            $
            769,759COST
      OF SALES
            
            
            1,044,400
            
            
            
            170,580GROSS
      PROFIT
            
            
            2,712,781
            
            
            
            599,179SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES:Depreciation
      Expense
            
            
            82,035
            
            
            
            47,132Professional
      Services Not Classified Elsewhere
            
            
            3,083,881
            
            
            
            783,556Product
      Development
            
            
            228,527
            
            
            
            761,118All
      Other Selling, General and Administrative
            
            
            2,468,156
            
            
            
            1,323,551TOTAL
      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            5,862,599
            
            
            
            2,915,357INCOME
      (LOSS) FROM OPERATIONS
            
            
            (3,149,818
            )
            
            
            (2,316,178
            )OTHER
      INCOME (EXPENSE):Gain
      on Sale of Property
            
            
            
            
            
            
            1,667,010Gain
      on Sale of Polar WearZ, Inc. (n.k.a. Chelsea Collection)
    Stock
            
            
            
            
            
            
            50,000(Loss)
      on Sale of Subsidiary - Los Cabos Beverage
            
            
            
            
            
            
            (8,256
            )(Loss)
      change in reporting QDS of Arizona as an investment
            
            
            
            
            
            
            (77,636
            )(Loss)
      on Sale of Valley Dr House
            
            
            
            
            
            
            (26,024
            )(Loss)
      on QDS Investment
            
            
            (200,000
            )
            
            
            -Interest
      Expense
            
            
            (419,704
            )
            
            
            (192,644
            )Other
      Income
            
            
            34,285
            
            
            
            -TOTAL
      OTHER INCOME (EXPENSE):
            
            
            (585,419
            )
            
            
            1,412,450NET
      INCOME (LOSS) BEFORE MINORITY INTEREST
            
            
            (3,735,237
            )
            
            
            (903,728
            )MINORITY
      INTEREST
            
            
            -NET
      INCOME (LOSS) BEFORE PROVISION FOR INCOME TAX
            
            
            (3,735,237
            )
            
            
            (903,728
            )PROVISION
      FOR INCOME TAX
            
            
            -
            
            
            
            -NET
      INCOME (LOSS)
            
            $
            (3,735,237
            )
            
            $
            (903,728
            )BASIC
      AND DILUTED EARNINGS (LOSS) PER SHARE
            
            $
            (0.03
            )
            
            $
            (1.23
            )BASIC
      & DILUTED WEIGHTED AVERAGE SHARES OF COMMON STOCK
            
            
            108,246,279
            
            
            
            732,729





See Notes
to Financial Statements





F-5
 Table of Contents





MARSHALL
HOLDINGS INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY


FOR THE
PERIODS ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2005





Preferred
      Stock
            
            
            Common
      Stock
            
            
            Paid
      inPar
      Value $0.001
            
            
            Par
      Value $0.001
            
            
            Excess
      of
            
            
            Accumulated
            
            
            Net
      EquityShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Par
            
            
            (Deficit)
            
            
            (Deficiency)Balance
      - December 31, 2004
            
            
            4,972,125
            
            
            $
            4,972
            
            
            
            99
            
            
            $
            0
            
            
            $
            19,225,078
            
            
            $
            (18,472,196
            )
            
            $
            757,855Common
      Stock Issued:For
      Services - Restricted Stock
            
            
            
            
            
            
            1,975,100
            
            
            
            1,975
            
            
            
            710,926
            
            
            
            
            
            
            
            712,901Cancelled
      Not Sold
            
            
            
            
            
            
            
            
            
            
            (242,750
            )
            
            
            (243
            )
            
            
            (219,757
            )
            
            
            
            
            
            
            (220,000
            )For
      Services - Unrestricted Stock
            
            
            
            
            
            
            
            
            
            
            853,400
            
            
            
            853
            
            
            
            477,374
            
            
            
            
            
            
            
            478,227For
      Cash - Restricted
            
            
            
            
            
            
            
            
            
            
            381,162
            
            
            
            381
            
            
            
            312,628
            
            
            
            
            
            
            
            313,007Preferred
      Stock IssuedPreferred
      Stock B
            
            
            15,000,000
            
            
            
            15,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            15,000Preferred
      Stock A
            
            
            10,000,000
            
            
            
            10,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10,000Loss
      for the Period
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (903,728
            )
            
            
            (903,728
            )Balance
      for December 31, 2005
            
            
            29,972,125
            
            
            
            29,972
            
            
            
            2,967,011
            
            
            
            2,967
            
            
            
            20,506,249
            
            
            
            (19,375,924
            )
            
            
            1,163,263Common
      Stock Issued:For
      Services - Restricted Stock
            
            
            
            
            
            
            
            
            
            
            340,309
            
            
            
            340
            
            
            
            12,238
            
            
            
            
            
            
            
            12,580For
      Services - Unrestricted Stock
            
            
            
            
            
            
            
            
            
            
            13,650,000
            
            
            
            13,650
            
            
            
            2,772,550
            
            
            
            
            
            
            
            2,786,200For
      Cash - Restricted
            
            
            
            
            
            
            
            
            
            
            101,000,000
            
            
            
            101,000
            
            
            
            38,080
            
            
            
            
            
            
            
            139,080Preferred
      Stock IssuedPreferred
      Stock B
            
            
            170,000,000
            
            
            
            170,000
            
            
            
            
            
            
            
            
            
            
            
            (151,000
            )
            
            
            
            
            
            
            19,000Preferred
      Stock A
            
            
            18,000,000
            
            
            
            18,000
            
            
            
            2,000,000,000
            
            
            
            2,000,000
            
            
            
            (2,016,000
            )
            
            
            
            
            
            
            2,000Loss
      for the Period
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,735,238
            )
            
            
            (3,735,238
            )Balance
      for December 31, 2006
            
            
            217,972,125
            
            
            
            217,972
            
            
            
            2,117,957,320
            
            
            
            2,117,957
            
            
            
            21,162,117
            
            
            
            (23,111,161
            )
            
            
            386,885





See Notes
to Financial Statements





The
accompanying notes are an integral part of the audited financial
statements.





F-6
 Table of Contents





MARSHALL
HOLDINGS INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


CONDENSED
FINANCIAL STATEMENTS





(RESTATED)Year
      Ended
            
            
            Year
      EndedDecember
      31,
            
            
            December
      31,2006
            
            
            2005CASH
      FLOW FROM OPERATING ACTIVITIES:Net
      Income
            
            $
            (3,735,237
            )
            
            $
            (903,728
            )Adjustments
      to reconcile Net Income to net cash provided by operating
      activities:Stock
      Issued for Services
            
            
            2,819,780
            
            
            
            862,022Depreciation
            
            
            82,035
            
            
            
            47,132Changes
      in operating assets and liabilities:(Increase)
      in Accounts Receivable
            
            
            (169,314
            )
            
            
            (178,122
            )(Increase)
      Decrease in Inventory
            
            
            (618,061
            )
            
            
            120,923(Increase)
      Decrease in Other Current Assets
            
            
            (1,291,510
            )
            
            
            277,605Increase
      (Decrease in Accounts Payable
            
            
            583,669
            
            
            
            (128,532
            )Increase
      in Other Current Liabilities
            
            
            994,481
            
            
            
            26,989Net
      cash (used)provided by operating activities
            
            
            (1,334,156
            )
            
            
            124,289CASH
      FLOWS FROM INVESTING ACTIVITIES:(Purchase)
      of Prop., Plant & Equipment
            
            
            (12,573
            )Sale
      of Prop., Plant & Equipment
            
            
            
            
            
            
            4,237,309(Increase)
      in Other Assets
            
            
            
            
            
            
            (1,823,428
            )Net
      cash (used)provided by investing activities
            
            
            (12,573
            )
            
            
            2,413,881CASH FLOWS FROM FINANCING
      ACTIVITIES:Proceeds
      provided by increase Long Term Debt
            
            
            1,175,427(Decrease)
      in Long Term Debt
            
            
            
            
            
            
            (2,820,033
            )Stock
      Sales for Cash; Net
            
            
            139,080
            
            
            
            338,009Net
      cash provided (used)by financing activities
            
            
            1,314,507
            
            
            
            (2,482,024
            )Net
      cash Increase ((Decrease) for period
            
            
            (32,222
            )
            
            
            56,146Cash
      at beginning of period
            
            
            93,305
            
            
            
            37,159Cash
      at end of period
            
            $
            61,083
            
            
            $
            93,305NON-CASH
      INVESTING AND FINANCING ACTIVITIESPurchase
      of Other Assets
            
            
            (3,703,595
            )Purchase
      of Prop., Plant & Equip.
            
            
            (3,136,979
            )Increase
      in Notes Payable
            
            
            6,840,574





See
Notes to Financial Statements




The
accompanying notes are an integral part of the audited financial
statements.





F-7
 Table of Contents




MARSHALL
HOLDINGS INTERNATIONAL, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




December
31, 2006 and 2005





NOTE
1 - ORGANIZATION, HISTORY AND BUSINESS ACTIVITY:





The
Company incorporated on May 26th, 1993 as a Nevada corporation under the name of
Gateway Distributors, Ltd. It has subsequently changed its name to Marshall
Holdings International, Inc.("the Company").





The
Company is a distributor of vitamins, nutritional supplements, whole health
foods and skin care products mainly in the United States of America and Canada,
with some sales in Russia and Indonesia. Many of the formulas used in the
products the Company sells and distributes are made from its own
formulas.





On August
15th, 2002, the Company purchased all of the operations and assets including
formulas and trademark of Grandma Hammans Specialty Foods LLC. On June 4, 2003,
the Company incorporated in Nevada Grandma Hammans Specialty Foods ("GH") and
moved the operations, assets and liabilities related to this purchase into
GH.





On
December 31, 2002, the Company sold its ownership interest in TRSG Corporation
("TRSG") previously a majority owned subsidiary. TRSG is recognized in these
consolidated financial statements to the point of sale, which is December 31,
2002.





On
December 31, 2002, the Company bought all of the assets and assumed a
significant portion of the debts of TRSG. This transaction is reported on the
purchase method of accounting using the carrying value on the books of TRSG as
the cost basis on the books of the Company.





On
January 7, 2003, the Company organized The Right Solution Gateway, a wholly
owned subsidiary ("TRS Gateway"). All operations of the Company that were
previously handled via TRSG were transferred into TRS Gateway.





On April
30, 2004, Marshall formed a wholly owned subsidiary, Gateway Venture Holdings,
Inc. ("GVH"). The Las Vegas property and fixed assets of Marshall are recorded
in the financial statements of this subsidiary.





Also on
April 30, 2004, Gateway formed a wholly owned subsidiary, Aspen Cove Resort
Incorporated ("ACR") to run the operations of Aspen Cove Resort (formerly Beaver
Dam Lodge) located in Panguitch Utah. The lodge had been purchased on April 15,
2004 and is listed as real estate in the financial statements of
GVH.





On May
30, 2004, an agreement was signed with Quality Distribution Services of Nevada
to create a new corporation, Quality Distribution Services of Arizona, Inc
(“QDS”).  QDS was incorporated in Nevada on June 7, 2004 and was 51%
owned by Marshall. QDS was a wholesale beverage distributor in the Phoenix,
Arizona area.  The corporation has since been revoked and not in
business and as such, the remaining carrying value was written down and taken as
a loss in the first quarter of 2006.





On
November 30, 2004, Gateway formed a wholly owned subsidiary, Gateway Corporate
Administration, Inc ("GCA"). On August 31, 2006 the name of the corporation was
changed to Marshall Corporate Administration. The company is engaged in
marketing and management services.





In
December, 2004 Marshall moved its corporate office and warehouse location to
3220 Pepper Lane, Las Vegas, Nevada 89120.





On
December 21, 2004 the Company entered an Asset Purchase Agreement for 51% of Los
Cabos Beverage, then owned by Blaine Wendtland (“Wendtland”).  The 51%
interest in Loc Cabos Beverage and its assets were acquired by the Company in
exchange for Wendtland receiving all rights to Grandma Hamman’s GHF product and
Wendtland assuming and paying off the debts of $193,833 Grandma Hamman owed to
Los Cabos Freedom Movement LLC and to Ed Wendtland.





F-8
 Table of Contents





On
December 30, 2004, Marshall formed a 51% owned subsidiary, Los Cabos Beverage
Inc ("Los Cabos") to handle the operations of the sale of private label
water.





On
February 28, 2005, the sales of Los Cabos did not meet expectations and 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 Blaine Wendtland.





On June
2, 2005, the Company sold its wholly owned subsidiary, Aspen Cove Resort
Incorporated ("ACR"), in combination with selling the building and real estate
on which the resort. The gain was reported as Gain on Sale of Property under
Other Income on the 2005 financials.





On
September 30, 2005, the Company sold its property which housed the corporate
offices and warehouse located at 3220 Pepper Lane, Las Vegas, Nevada 89120. The
gain was reported as Gain on Sale of Property under Other Income on the 2005
financials.





In March,
2006 Gateway purchased warehouse property and moved its corporate warehouse
location to 2555 East Washburn Road, North Las Vegas,
Nevada 89081.  The corporate offices are housed temporarily
offsite, until the offices can be built out in the building.





On June
30, 2006, The Company purchased all of the operations and assets of Marshall
Distributing Company in Salt Lake City, UT. Marshall Distributing distributes
over 150 different manufacturers lines and over 6000 natural health
products.





On August
31, 2006, Marshall formed a wholly owned subsidiary Mountain West Holdings, Inc.
to facilitate the website and e-commerce operations.





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:





(a)-PRINCIPLES OF
CONSOLIDATION





As of
December 31, 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 owned 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
corporate entity was revoked and out of business as of July 1,
2006.





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.





F-9
 Table of Contents





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.





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





(b) - CASH AND CASH
EQUIVALENTS





For
purposes of the statement of cash flows, cash equivalents include cash in banks
and all highly liquid investments with original maturities of three months or
less.





(c) - ACCOUNTS
RECEIVABLE





Management
uses the allowance for bad debt method in accordance with the generally accepted
accounting principles to account for bad debts.





(d) - RECEIVABLE ESIP STOCK
PLAN





Stock
sales through the Employee Stock Incentive Plan (ESIP) sold at year end are
reported as a receivable rather than negative equity provided they are received
within 60 days after year end. There were no funds due at year end.





(e) -
INVENTORIES





Inventories,
consisting primarily of nutritional, health, beauty products, and beverages, are
stated at cost computed by the first-in, first-out (FIFO) method of
accounting.





(f) - PROPERTY AND
EQUIPMENT





Property
and equipment are stated at cost. Major replacements and refurbishings are
capitalized while replacements, maintenance and repairs which do not improve or
extend the life of the respective assets are expensed.





(g) - DEPRECIATION AND
AMORTIZATION





The
Company provides for depreciation of property, plant and equipment principally
by use of declining balance and straight-line methods for financial reporting
purposes. Property and equipment are depreciated over the following estimated
useful lives:








Property
      - Real Estate
            39
      yearsLeasehold
      improvements
            39
      yearsFurniture
      and fixtures
            5 -
      7 yearsMachinery
      and equipment
            3 -
      5 yearsTransportation
      equipment
            5 -
      7 years





F-10
 Table of Contents





Depreciation
expense for the years ended December 31, 2006 and 2005 was $82,035 and $47,132,
respectively.





(h) – INTANGIBLE
ASSETS





Through
the Company’s acquisition activities, intangible assets have been recorded in
the financial statements. The Company performs annual impairment testing of its
intangible assets under the provisions of statement of Financial Accounting
Standards No. 142, using the expected present value technique as provided for by
FASB Concepts Statement No. 7 “Using Cash Flow Information and Present Value In
Accounting Measurements”.





(i) – OTHER
ASSETS





The
amount in other assets is condensed and includes distributor rights, customer
lists, website and e-commerce sites and programs, products pending production,
formulas, and other various assets.





(j) - INCOME
TAXES





The
Company has adopted the provisions of statements of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which incorporates the use of
the asset and liability approach of accounting for income taxes. The asset and
liability approach requires the recognition of deferred tax assets and
liabilities for the expected future consequences of temporary differences
between the financial reporting basis and the income tax basis of assets and
liabilities.





(k) - FAIR VALUES OF
FINANCIAL INSTRUMENTS





The
carrying amounts of the Company's cash, accounts receivable, accounts payable
and accrued expenses approximate fair value because of the short maturity of
these items. Term debt secured by various properties have interest rates
attached to them commensurate with the finance market at the time and management
believes approximate fair values in the short as well as the long term. It is
currently not practicable to estimate the fair value of the other debt
obligations because these note agreements contain unique terms, conditions,
covenants and restrictions which were negotiated at arm's length with the
Company's lenders, and there is no readily determinable similar instrument on
which to base an estimate of fair value. Accordingly, no computation or
adjustment to fair value has been determined.





(l) -COMPREHENSIVE
INCOME





The
Company has adopted SFAS No. 130 Reporting Comprehensive Income. The Company has
no reportable differences between net income and comprehensive income, therefore
a statement of comprehensive income has not been presented.





(m) - REVENUE
RECOGNITION





Revenue
is recognized in the period in which the products are shipped or services are
performed.





(n) - EARNINGS (LOSS) PER
SHARE





Basic and
diluted earnings (loss) per share are computed on a weighted average of shares
issued and outstanding through the year. The only common stock equivalents
relate to outstanding stock options (which have been measured to have immaterial
fair value at December 31, 2006 and 2005); however, since the Company has net
operating losses for the periods ending December 31, 2006 and 2005, the common
stock equivalents would be anti-dilutive. Therefore, basic and diluted EPS are
the same.





(o) - ADVERTISING
COSTS.





The
Company conducts non-direct response advertising for which the costs are
expensed when incurred. Total advertising costs of $19,273 and $55,404 were
incurred for the years ended December 31, 2006 and 2005,
respectively.





F-11
 Table of Contents





The
Company has capitalized the advertising costs associated with the production of
an infomercial and will begin amortizing those costs in the period in which the
infomercial is first used. This is in accordance with the Statement of Position 93-7 Reporting
on Advertising Costs.





(p) -
RECLASSIFICATIONS





Certain
amounts in 2005 have been reclassified and represented to conform to the current
financial statement presentation.





(q) - USE OF
ESTIMATES





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





(r) – CONCENTRATION
RISK





The
Company reports no significant concentrations.





(s) - OTHER RECENT
ACCOUNTING PRONOUNCEMENTS





The
Company does not expect that the adoption of other recent accounting
pronouncements to have any material impact on its financial
statements.





NOTE
3 – MARSHALL DISTRIBUTING ACQUISITION OF OPERATIONS AND ASSETS
(RESTATED)





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.





The
Company acquired the assets and operations of Marshall Distributing for a total
purchase price of $7,241,301. The assets and operations included a fully
integrated 27,000 square foot distribution facility, equipment and fixed assets,
website and e-commerce platforms, distribution rights, customer lists,
inventory, accounts receivable and other related business assets.





The
assets and operations of Marshall Distributing were acquired for strategic
business purposes. Marshall International Inc. desired to expand it’s current
business operations into the wholesale distribution channels enabling further
market penetration into the wellness market. Both Marshall Distributing and The
right solution sell similar products but through different channels. Furthermore
the technology and integration into the e-commerce website platform allowed yet
another retail channel to reach customers and increase sales of it’s nutritional
based products. The acquisition brought another 6,000 products and over 150
manufacturers for product sourcing and expansion. The acquisition was a natural
fit in the evolution of Marshall Holdings International, Inc. diversification
into the wellness market that continues to grow and expand.





F-12
 Table of Contents




MARSHALL
DISTIBUTING


CONDENSED
BALANCE SHEET


(STATEMENT
OF ACQUIRED ASSETS AND LIABILITIES)





June
      30,2006ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
            
            $
            386,967Accounts
      Receivable
            
            
            225,919Inventories
            
            
            689,803Prepaids
            
            
            18,571Total
      Current Assets
            
            
            1,321,260PROPERTY
      & EQUIPMENTProperty
      and Equipment, at cost
            
            
            1,947,984(Less)
      accumulated depreciation and amortization
            
            
            (67,443
            )Total
      Property & Equipment
            
            
            1,880,541OTHER
      ASSETSCustomer
      Lists
            
            
            500,000Distributor
      Rights
            
            
            1,779,500Websites
      and e-commerce Programs
            
            
            1,750,000Total
      Other Assets
            
            
            4,039,500Total
      Assets
            
            
            7,241,301LIABILITIES


CURRENT
      LIABILITIES:Accounts
      payable:Trade
      Regular
              
              $
              297,623Accrued
      expenses:Accrued
      Liabilities
              
              
              94,247Total
      current liabilities
              
              
              391,870LONG-TERM
      DEBT
              
              
              6,849,431Total
      Liabilities
              
              
              7,241,301


F-13
 Table of Contents




NOTE
4 - GRANDMA HAMMANS AND LOS CABOS BEVERAGE:





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. The Company incurred a loss from operations during 2005 of $8,256,
and the loss on sale of the business was immaterial to these financial
statements.





NOTE
5 -RELATED PARTIES:





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 on May 4, 2004. Chelsea Collection is
majority owned by the officers of the Company and Francois Vautour, an unrelated
third party. Chelsea Collection, in an agreement dated November 25, 2003,
acquired among other things from Francois Vautour and others 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
December 31, 2006.





F-14
 Table of Contents





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 Marshall Holding’s
products. An infomercial developed late in 2004 has been recorded as an asset
under "Prepaid Advertising" in the amount of $230,573. This remains unchanged
during 2005 and 2006.





During
the third quarter 2005, the Company sold to the Chelsea Collection its
controlling block of preferred stock in PolarWearZ, Inc. (refer to note "Real
Estate Sales") for $250,000. Chelsea Collection changed the name of the
corporation to "The Chelsea Collection, Inc." As of June 30, 2006, the company
recognized a gain on sale of stock in the amount of $50,000.





The
Company also sold an additional block of common stock in Polar Wear Z, Inc. of
8,520,000 shares during the third quarter of 2005 to Chelsea Collection, Inc.
for $400,000. The company reported no gain or loss on the transaction. During
2005, the Chelsea Collection paid $311,700, leaving a balance owed of
$88,300.





On
September 29, 2006, The Chelsea Collection, Inc. changed its name to G-H-3
International Inc.





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% was 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. Due to lack of operations and no
identifiable future cash flows, for the period ended December 31, 2005, the
Company determined this investment was impaired to a carrying value of
$200,000.





During
2006, management has determined it is in the best interest of the Company not to
continue funding this joint venture. Accordingly, the Company recorded an
impairment loss during the period ended December 31, 2006 for the remaining
investment balance of $200,000.





NOTE
7- REAL ESTATE ACQUISITIONS AND 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. The purchase price was paid with
(1) 32,000,000 million shares of restricted Preferred Series B stock of Cal-Bay,
valued at $1,600,000, (2) the controlling block of stock (restricted preferred
stock) in PolarWearZ, Inc., an inactive no asset corporation, valued at
$200,000, (3) 8,520,000 free trading shares of common stock in PolarWearZ, Inc.
(approximately 15% of the common stock outstanding) valued at $400,000, (4)
mortgage debt assumption, and (5) cash paid to the mortgage holder catching up
the past due mortgage payments. 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.





F-15
 Table of Contents





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 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."





During
the second quarter of 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 price was paid by (1) 2,800,000, shares of Cal-Bay International
non-dilutable Preferred "B" stock, guaranteed value at $0.05 per share,
for$140,000 (2) debt assumption of the underlying mortgage, and, (3) cash paid
to the mortgage holder catching up the past due mortgage payments. The loss on
this sale has been recognized in the 2005 Statement of Operations as "Loss on
Sale of Valley Dr House" in the amount of $26,024.





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 this 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
July 1, 2006 in the purchase agreement.





NOTE
8 – NOTES PAYABLE (RESTATED)





The
Company acquired the assets of Marshall Distributing LLC and EMS Business
Development on July 1, 2006 and included in the consideration were three
separate notes payable totaling $6,840,574. The first note payable was in the
amount of $5, 230,000 due and payable on September 1, 2007 at a variable rate of
interest based on prime plus. The second note payable was for $770,000 due and
payable on September 1, 2007 with an interest rate of 9.74%. The third note
payable was in the amount of $840,574 payable over the next 18 years at 0%
interest. The notes were properly classified between notes payable, current
maturities of long term debt and long term for the year ending December 31,
2006.





The
Company also acquired a building in 2006 in the amount of $1,200,000 with an
original mortgage of $956,250 at an interest rate of 8.25% due on April 1, 2013.
The Company has taken a second mortgage out with an original amount of $330,000
with an interest rate of 16%.  The second mortgage is due and payable
on September 14, 2008.





The
Company also has historical notes payable totaling $1,827,933 including accrued
interest and principal due and payable before December 31,
2007.   These notes payable consist of various amounts of
principal and interest ranging from 9% to 14%.





The
summary of notes payable is as follows:





Notes
      Payable
            
            $
            7,827,933Current
      Maturities of Long Term Debt
            
            $
            125,984Long
      Term Debt
            
            $
            2,016,001





We have
reclassified amounts on the balance sheet to correspond with these additional
disclosures.





F-16
 Table of Contents





NOTE
9– EQUITY





(a)
REVERSE STOCK SPLITS:





On March
28, 2005, the Company enacted a 500 for 1 reverse stock split. The financial
statements have reflected this reverse stock split retroactively to the
beginning of the reporting period of these financial statements.





On
December 4, 2006, the Company enacted a 1000 for 1 reverse stock split. The
financial statements have reflected this reverse stock split retroactively to
the beginning of the reporting period of these financial
statements.





(b)
EMPLOYEE STOCK INCENTIVE PLAN ("ESIP"):





Since
2003, the Company has filed with the Security and Exchange Commission ("SEC")
several 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 December 31, 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 net proceeds to the Company from employee stock sales during 2005
were approximately $228,000.





During
January 1 through December 31, 2006 no stock was issued out of the ESIP plan.
There are currently no shares issued and unsold under the ESIP
plan.





(c)
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")
several 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). As of December 31, 2006, the total
remaining unissued shares under the RSP plans are 2,047,450,000. During 2005,
the Company issued 1,093,000,000 shares out of the RSP plan before stock
splits.





During
January 1 through December 31, 2006, the Company issued 11,102,550,000 shares
out of the RSP plan.





(d)
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.





F-17
 Table of Contents





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.





On August
29, 2006, the Company authorized an increase of Series B Preferred Stock with a
par value of 0.001 per share to 1,000,000,000 shares.





During
January 1 through December 31, 2006, the Company issued 170,000,000 shares of
Series B preferred stock The value of these issuances was recorded at
$19,000.





(e)
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 December 31, 2006, the Company issued 20,000,000 restricted
preferred A stock to officers.





NOTE
10 OTHER ASSETS:





Other
Assets consist of costs incurred to develop an infomercial which is completed
and ready for release. Amortization of this prepaid advertising will begin when
the advertising campaigns begin, expected to be sometime in 2007 and will be
amortized over an estimated useful life yet to be determined.





Other
assets also include costs incurred to develop a new product line. These costs
will not be recognized as inventory until a marketing plan has been developed
and implemented. Management is of the opinion that the estimated fair value of
product awaiting marketing exceeds the cost recognized on the Balance
Sheet.





NOTE
11– PROFORMA STATEMENT OF OPERATIONS OF MARSHALL HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARIES INCLUDING MARSHALL DISTRIBUTING, INC.





On August
6, 2006, the Company acquired Marshall Distributing, LLC. Accordingly, pro forma
information is disclosed below to show the effects of the transaction as if it
had occurred on January 1, 2005 in accordance with Regulation S-X Article
11§210.11-01.





F-18
 Table of Contents








MARSHALL
HOLDINGS INTERNATIONAL, INC.AND SUBSIDIARIES AND MARSHALL DISTRIBUTING,
INC.


PROFORMA
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


(CONDENSED
FINANCIAL STATEMENTS)





12
      Months
            
            
            12
      MonthsEnded
            
            
            EndedDecember
      31,
            
            
            December
      31,2006
            
            
            2005SALES
            
            $
            5,115,692
            
            
            $
            3,337,910COST
      OF SALES
            
            
            2,105,553
            
            
            
            1,984,763GROSS
      PROFIT
            
            
            3,010,139
            
            
            
            1,353,147SELLING,
      GENERAL ANDADMINISTRATIVE EXPENSES:Depreciation
      Expense
            
            
            104,859
            
            
            
            83,791Professional
      Services Not Classified Elsewhere
            
            
            3,093,881
            
            
            
            783,556Development
      of Jeunesse by Francois Product Line
            
            
            163,971
            
            
            
            497,863Product
      Development
            
            
            64,556
            
            
            
            263,255All
      Other Selling, General and Administrative
            
            
            3,209,939
            
            
            
            2,541,110TOTAL
      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            6,637,206
            
            
            
            4,169,575OTHER
      INCOME (EXPENSE):Gain
      on Sale of Property held for short term investment
            
            
            0
            
            
            
            37,139Gain
      on Sale of Property
            
            
            0
            
            
            
            1,477,246Gain
      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
            
            
            (326,496
            )
            
            
            (242,461
            )Other
      Income
            
            
            34,285
            
            
            
            0TOTAL
      OTHER INCOME (EXPENSE):
            
            
            (492,211
            )
            
            
            1,210,008NET
      INCOME (LOSS) BEFORE MINORITY INTEREST
            
            
            (4,119,278
            )
            
            
            (1,606,420
            )MINORITY
      INTEREST
            
            
            0
            
            
            
            0NET
      INCOME (LOSS) BEFORE PROVISION FOR INCOME TAX
            
            
            (4,119,278
            )
            
            
            (1,606,420
            )PROVISION
      FOR INCOME TAX
            
            
            0
            
            
            
            0NET
      INCOME (LOSS)
            
            $
            (4,119,278
            )
            
            $
            (1,606,420
            )BASIC
      AND DILUTED EARNINGS (LOSS) PER SHARE
            
            $
            (0.00
            )
            
            $
            (0.00
            )BASIC
      & DILUTED WEIGHTED AVERAGE SHARES OF COMMON STOCK
            
            
            108,246,279
            
            
            
            2,967,020





F-19
 Table of Contents





NOTE
12- GOING CONCERN:





There
have been significant recurring losses and negative cash flows from operations,
which have resulted in a 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 plans to raise the working capital it needs through equity financing and
other debt funding.





NOTE
13- COMMITMENTS AND CONTINGENCIES:





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.  The Company
has accrued a liability as of December 31, 2006 and 2005 in the amount of
$125,000 for the above contingency.





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 have been made and the debt is paid in
full.  The Company has recognized, in the financial statements, part
of the "accounts payable" in the liabilities of the balance sheet to cover these
contingencies.




On
January 11, 2001, the Company acquired approximately 76% of the outstanding
shares of common stock of TRSG Corporation (“TRSG”). The Company sold its
interests in TRSG as of December 31, 2002 for $15,000. At this time the Company
also acquired all of the assets and accrued certain liabilities of TRSG. The
creditors of TRSG continue to assert claims against the Company. Management is
unable to estimate the possible loss exposure, but believes the ultimate losses
would be minimal for the Company because the debts of TRSG paid by the Company
are debts of TRSG and not the Company.





The
Securities and Exchange Commission has filed complaints against Suburban Capital
and the Company and its CEO. 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 was 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 accrued a contingent liability for the above in the
amounts of $562,913 and $587,336 for the years ended December 31, 2005 and 2006
respectively.





F-20
 Table of Contents





NOTE
14– RESTATEMENT OF FINANCIAL STATEMENTS TO PROVIDE CLARIFICATION AND ADDITIONAL
DISCLOSURE





Management
is issuing restated financial statements in an effort to further clarify and
properly reflect the acquisition of the assets and operations of Marshall
Distributing LLC effective July 1, 2006 and to provide additional disclosures of
debt regarding notes payable.





The
changes in this report include:





A
restated statement of cashflows with a reclassification and additional
disclosure of investing activities and financing
activities.  Increases in the property, plant and equipment were
reflected in the body of the statement of cashflows that were acquired with debt
and therefore the increases to both the property, plant and equipment and the
debt have been subsequently broken out and disclosed separately as a non-cash
investing and financing activities.





The
balance sheet liabilities section has been restated for notes payable
classification and current maturities of long term debt.





The
footnote number 3 regarding the acquisition of the assets and operations of
Marshall Distributing has been expanded to satisfy all of the required
disclosures pertaining to business combinations under SFAS 141.





An
additional footnote 8 on Notes Payable has been added to clarify the terms and
obligations for the Company’s debt.





NOTE
15- SUBSEQUENT EVENTS:





The
Company has entered into an agreement with the American Bath Factory to source
tools dies and various equipment needed for expansion and growth of its business
as well as additional marketing distribution services.





There has
been a breech of contract suit filed by Global Media Corp., a company located in
New York City, that alleges that a single meeting held on January 28, 2004
resulted in a series of agreements entered into by four entities for licensing
and marketing of hair removal product known as “Forever Gone”. Among those
agreements, Plaintiff alleges that defendant Gateway Distributors, Ltd. agreed
to pay $2,000,000 in Gateway stock for marketing and materials and services.
Plaintiff thus claims that it assembled a team of consultants, provided
materials, work, labor and services to defendant Gateway Distributors and that
Gateway has failed to issue the stock. The plaintiff has not yet identified the
so-called agreements, consultants, nominees and the work and materials allegedly
delivered. The Plaintiff has confirmed that the so-called agreement with Gateway
has never been reduced to writing. Rather, counsel represented that its claim of
an agreement with Gateway is based upon a combination of verbal statements and
miscellaneous albeit unidentified, writings.





Gateway
asserts that it did not receive the consulting services and materials and
expects the suit to be dismissed and is contemplating a counter suit against
Global Media Inc.