SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

              ----------------------------------------------------

                                  FORM 10-KSB/A
                                 AMENDMENT NO. 2
(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, 2004


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


                          COMMISSION FILE NO. 000-27879

                           GATEWAY DISTRIBUTORS, LTD.
               (Exact name of issuer as specified in its charter)

                   NEVADA                                   88-0301278
        (State or other jurisdiction                    (I.R.S. Employer
       of incorporation or organization)                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) 317-2400

Securities  registered under Section 12(b)         NONE.
of  the  Exchange  Act:

Securities registered under Section 12(g)          COMMON STOCK, PAR  VALUE
of the Exchange Act:                               $0.001  PER  SHARE.
                                                   (Title of class)

     Indicate  by  check  mark  whether the registrant (1) has filed all reports
required  to  be  filed by Section 13 or 15(d) of the Securities Exchange Act of
1934  during  the  preceding  twelve  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  [X]  No  [ ]

     Indicate  by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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:  $1,153,893.

     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  7,  2006:  $239,000.

     Indicate  the  number  of  shares  outstanding  of each of the registrant's
classes  of  common  stock  as  of  April  7,  2006:  30,980,590.

     Documents incorporated by reference: Items 1, 2, 3, 4, 5, 8, 8A, 8B, 9, 10,
11, 12, and 14 of this Form 10-KSB/A Amendment No.2 incorporate by reference the
registrant's  Form  10-KSB/A  No. 1 for the fiscal year ended December 31, 2004,
filed  on  July  26,  2005.  Item  13  of  this  Form  10-KSB/A, Amendment No. 2
incorporates by reference the registrant's Form 10-KSB for the fiscal year ended
December  31,  2004,  filed  on  April  15,  2005.

     Transitional  Small Business Disclosure Format (Check One):  Yes [ ] No [X]


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

<S>                                                                                                           <C>
Item 1.   Business.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
Item 2.   Description of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
Item 3.   Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
Item 4.   Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . .   2
Item 5.   Market for Common Equity and Related Stockholder Matters.. . . . . . . . . . . . . . . . . . . . .   2
Item 6.   Management's Discussion and Analysis or Plan of Operation. . . . . . . . . . . . . . . . . . . . .   2
Item 7.   Financial Statements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
Item 8.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. . . . . . .  15
Item 8A.  Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
Item 8B.  Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
Item 9.   Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(A) of the
          Exchange Act.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
Item 10.  Executive Compensation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
Item 11.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.. .  16
Item 12.  Certain Relationships and Related Transactions.. . . . . . . . . . . . . . . . . . . . . . . . . .  16
Item 13.  Exhibits.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
Item 14.  Principal Accountant Fees and Services.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
</TABLE>

                                EXPLANATORY NOTE

     On April 15, 2005, we filed with the Securities and Exchange Commission our
Annual  Report on Form 10-KSB for the annual period ended December 31, 2004.  On
July  26,  2005,  we filed with the Securities and Exchange Commission Amendment
No. 1 to our Annual Report on Form 10-KSB/A.  This Amendment No. 2 to our Annual
Report  on Form 10-KSB/A is being filed to correct information for Items 6 and 7
contained  in Amendment No. 1 to our Annual Report on Form 10-KSB/A.  The filing
of this Form 10-KSB/A, Amendment No. 2, is not an admission that our Form 10-KSB
for  the  year  ended  December  31,  2004, or our Amendment No. 1 to our Annual
Report  on Form 10-KSB/A, 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  or  our  Amendment  No. 1 to our Annual Report on Form
10-KSB/A.  We  have not updated the disclosures in this Form 10-KSB/A, Amendment
No.  2,  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.


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<PAGE>
                                     PART I

ITEM  1.     BUSINESS.

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.

ITEM  2.     DESCRIPTION  OF  PROPERTY.

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.

ITEM  3.     LEGAL  PROCEEDINGS.

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.

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

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.

                                    PART II

ITEM  5.     MARKET  FOR  COMMON  EQUITY  AND  RELATED  STOCKHOLDER  MATTERS.

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.

ITEM  6.     MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR PLAN OF OPERATION.
             FORWARD-LOOKING  INFORMATION

     Much  of  the  discussion in this Item is "forward looking" as that term is
used  in  Section 27A of the Securities Act and Section 21E of the Exchange Act.
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  our 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,  our  ability  to  obtain  additional financing from
outside  investors and/or bank and mezzanine lenders and our ability to generate
sufficient  revenues  to  cover  operating  losses  and  position  us 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. We believe
the  information  contained  in  this  Form 10-KSB to be accurate as of the date
hereof.  Changes  may occur after that date. We will not update that information
except  as  required  by  law  in  the  normal  course  of its public disclosure
practices.

MANAGEMENT'S  PLAN  OF  OPERATION

STRATEGY

     The  Right  Solution  Gateway  plans to continue capitalizing on its strong
operating  platform  and  intends  to  pursue a growth strategy comprised of the
following  four  principal  elements:

     Expansion  of  Product  Offerings and Development of New Product Lines. The
Right  Solution Gateway is committed to expanding its product line by developing
and  offering  new products and introducing existing products into markets where
they  are  not  currently  offered. The timely introduction of new, high quality
products  creates  sales  opportunities  for  distributors,  and  also serves to
generate  enthusiasm  among  distributors  and  provide  them  with


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<PAGE>
additional  promotional  opportunities to sell other Company products. The Right
Solution  Gateway  has  made  the  decision  to  concentrate  on its top selling
products  that  focus  on  three  things:  1) cleansing the body from toxins; 2)
feeding  the body on a cellular level; and 3) living ones dreams. With more than
70%  of  the  food  that  is  consumed  in  the world being genetically altered,
management believes that the market for its whole food products will continue to
grow.

     Mergers  and  Acquisitions. Gateway's business plan includes growth through
mergers  and acquisitions. Gateway intends to continue to look for opportunities
to  merge  or purchase smaller companies that have active distributors and sales
volumes,  or  purchase  new  products  to  diversify our sales market. The Right
Solution  Gateway  has  two  strategies  for  growth. 1) The continuation of the
existing  strategy  to target companies that are in trouble financially, lacking
product  inventories,  but which have active distributors and sales. 2) Purchase
the rights to existing products that have either a recognized brand name or have
been  successfully  marketed in the past with continued need in the marketplace,
requiring  only  market  exposure  to  generate  new  sales.

     Expansion Into New Markets. Gateway's business plan for 2005 is to focus on
growth  in  the  USA  and  placing  less emphasis on international expansion. If
international  clients desire to purchase products on a wholesale basis, Gateway
will  gladly  provide  these  products.  Gateway  believes  there  are  numerous
additional markets in which its products may prove successful. Gateway evaluates
new markets based, in part, on Gateway's ability to create a distributor base in
the  potential markets or markets for the product wholesale. In determining when
and  where  to  open  new markets, Gateway will continue to seek to minimize the
impact  on  distributor  focus  in  existing markets and to ensure that adequate
distributor  support  services and other Company systems are in place to support
the growth. Although Gateway intends to expand into new markets, there can be no
assurance  that  Gateway  can  open  markets  on a timely basis or that such new
markets  will  prove to be profitable. Significant regulatory and legal barriers
must  be  overcome  before  marketing  can begin in any new market. In addition,
expansion  of Gateway's operations into new markets requires substantial working
capital  and capital expenditures associated with both the regulatory compliance
and  operations  phases  of the process. The lead-time and costs associated with
opening  anticipated  new markets may significantly exceed those of entering new
markets  in  the  past  due  to  greater  regulatory  barriers, the necessity of
adapting  to  entirely  new regulatory systems, and problems related to entering
new  markets  with  different  cultural  bases  and political systems from those
encountered  in  the  past.  Gateway is informed that the lead-time necessary to
open  a  new  market  is  generally  up  to  one  year,  but  may  be  more.

     Gateway  has  expanded into wholesale distribution services, in addition to
its  multi-level marketing retail sales. On May 20, 2004 Gateway entered into an
agreement  for  the  distribution  of  beverages  in the Phoenix Arizona area. A
Nevada  corporation,  Quality  Distribution Services of Arizona, Inc ("QDS") was
formed June 7, 2004 to handle the operations, with Gateway having 51% ownership.
In December of 2004 Gateway added sales of private label water through Los Cabos
Beverage,  also  at  51% ownership, while removing debt owed by Grandma Hamman's
and  its  principal  product  GHF,  by  an  asset  purchase  agreement.

     The  Company  has  a  51%  interest  in  Los Cabos, a corporation set up to
operate  as  a water distribution facility. The acquisition of its investment in
Los  Cabos  came  through  the  agreement  exchanging a formula owned by Grandma
Hammans,  a subsidiary of the Company, for the 51% interest in Los Cabos and the
assumption  and payoff of approximately $193,000 of debt Grandma Hammans assumed
from  buying  the formulas initially. Currently the Company is in the process of
evaluating  the  continued  operation  of  Los Cabos water distribution with the
object  to  decide  whether  or  not  to withdraw from the joint venture and any
future  financial  commitments.

     Management  has  determined  to  refocus  its  time,  energy, and financial
investments  into  its  core  business  going  forward  and believes that QDS of
Arizona  will  detract  from that emphasis. Therefore, the Company is evaluating
whether  to  sell  its  interests  in  QDS  of  Arizona.

     Enhancement  of  Sales  and Motivational Training. Gateway will continue to
seek  increased  sales  opportunities  through  its  network marketing system by
utilizing  extensive  training  and  motivational  programs.  The Right Solution
Gateway  will  also hold regional meetings throughout the United States. Gateway
has hired Jack Zufelt and other network marketing leaders in the industry to run
the training of the company. Our starting kits have training material along with
product which will allow the new distributor to get started quicker. The company
has  spent  a  significant  amount  of  money  and time on the internet website.
Managements  feel  is  that  the  support  of  the


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<PAGE>
world  wide  web is a core competency to the success of its business, unlike ten
years  ago. In addition, Gateway will continue to conduct conferences, seminars,
and  one  on  one  training.

     Gateway  has acquired the licensing rights to Jeunesse by Francois from the
Chelsea  Collection.  Jeunesse  by Francois is a seventy five year old skin care
formula  from  Romania  which was originally derived from the G-H-3 formula from
Dr.  Anna Aslan. Mr. Francois Vautour brought the formula to America and updated
the  product  based  upon  newer  technologies  in skin care. An infomercial was
produced  to  introduce  the new product without receiving the desired marketing
response.  The  product is being offered in the network marketing, and plans for
the  future  are  to wholesale the product through retail chains under the G-H-3
lines.  We  hope  to  expand iour customer base and increase our sales. Gateway,
through the licensing agreement it has with the Chelsea Collection, is expecting
to  open  clinics  offering  G-H-3 Internal Rejuvenation Therapy within the next
year.  Two thirds of The Chelsea Collection is owned by the officers of Gateway.
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.

     Gateway  extended  its  agreement with PT. Mahakam Beta Farma in Indonesia.
They  are  purchasing  the  Body  Gard  product  and have it in their pharmacies
throughout  the  country.  PT.  Mahakam Beta Farma is working on approval by the
Indonesian  government  for  the  future  distribution  of  SuperFood.

     Gateway is expecting on track to receive its first shipment of product that
has  been  signatured  and  licensed  by  Pete Rose and affiliates and should be
available  for  sale  at  the  start  of  the  regular  baseball  season.

PRODUCTS

     The  Right  Solution  Gateway markets and distributes different nutritional
and/or health and skin care products. The nutritional/health products, which The
Right  Solution  Gateway  sells,  are  intended  to  provide  nutritional
supplementation  to the users; the products are not intended to diagnose, treat,
cure  or  prevent  any  disease.

TOP  SELLING  PRODUCTS  ARE:

-  Body  Gard  with  Lactoferrin

-  Femme

-  Fulvic  Factor

-  Lifetonic

-  LifeZymePlus

-  Master  Formula  (Powder  and  Capsules)

-  Natural  Immunity

-  New  Life  Corrective  A,  B  and  C

-  Superfood  (Powder  and  Capsules)

-  Vibrant  9  Skin  Care/Jeunesse  by  Francois  Products

SERVICES

     Product  Return Policy for Retail Customers. Services Product Return Policy
for Retail Customers. The Right Solution Gateway has a 100% money-back guarantee
on  all  of  its products for retail customers. It is the responsibility of each
Team  Member  to  refund  the  purchase  price  to any unsatisfied customer. The
customer's  request  must  be  made  within  30  days of the date of the product
purchase  to  be  valid.  If  the  product  was  used,  the


                                        4
<PAGE>
empty  or  partially  filled  container  must  be returned to The Right Solution
Gateway. Upon receipt of the container and a copy of the customer's retail sales
receipt  with  their  name,  address  and  telephone  number, The Right Solution
Gateway  will promptly send a replacement to the Team Member. The Right Solution
Gateway  does not make cash refunds. The Right Solution Gateway's product return
policy  for retail customers has been approved by the Direct Selling Association
(the  "DSA"),  a  national  industry  trade  organization  of  network marketing
companies whose objective is to provide aid, support and guidance to the network
marketing  industry.

     Product  Return  Policy for Team Members. A Team Member who is dissatisfied
with  a product may request a refund or credit within 30 days of the date of the
product's  purchase.  Full,  partially  full, and empty bottles are eligible for
refund.  However,  only  one  partially filled or empty container per individual
product  will  be honored. Unused products purchased during this same period are
eligible for a refund if they are in the original packaging, factory sealed, and
in resalable condition. Shipping expenses are not eligible for refund. The Right
Solution  Gateway's  product return policy for Team Members has been approved by
the  DSA.

     Product  Market.  The  nutritional  supplement  industry  is  growing  and
management  believes  it  is due primarily to heightened public awareness of the
positive effects of vitamins and other nutritional supplements. Many individuals
are  now  using  nutritional  supplements  as a means of preventive health care.
Retail  sales  of  nutritional  supplements  increased  from  approximately $3.5
billion  in  1991  to  approximately  $4.2  billion  in 1993, as reported by The
Overview  of  Nutritional  Supplement  Market  prepared  by  the  Council  for
Responsible  Nutrition.  Furthermore,  industry  trade  sources  estimated  that
worldwide  sales  of  nutritional supplements were $4.7 billion in 1994 and $5.3
billion  in  1995,  respectively.

DISTRIBUTION  AND  MARKETING

     The  Right  Solution Gateway's products are distributed primarily through a
network  marketing  system,  consisting of an extensive network of distributors.
Distributors  are  generally  independent  contractors  who  purchase  products
directly  from  network  marketing  companies.  The Right Solution Gateway calls
their distributors "Team Leaders". For this document they will be referred to as
distributors. The distributors purchase products from The Right Solution Gateway
for  personal  use  or  for  resale  to  consumers  within  the  United  States.
Distributors  may  elect  to  work  on a full-time or part-time basis. The Right
Solution  Gateway  believes that its network marketing system appeals to a broad
cross-section  of  people  worldwide,  particularly  those seeking to supplement
family  income,  start  a home-based business or pursue employment opportunities
other  than  conventional,  full-time  employment  and  that  a  majority of its
distributors work on a part-time basis. The Right Solution Gateway believes that
its network marketing system is ideally suited to marketing its products because
ongoing personal contact between consumers and distributors strengthens sales of
such  products.

     Within  the  United States, distributors may earn profits by purchasing The
Right  Solution Gateway's products at wholesale prices (which are discounted 40%
from  suggested retail prices) and selling The Right Solution Gateway's products
to  customers  at  suggested  retail  prices.  All distributors, both inside and
outside  the United States, who sponsor new distributors and establish their own
downline  organizations  may  earn  commissions on product sales on their entire
downline.  There  is  no  limit  on  the  number of downline levels from which a
distributor  can  generate  commissions.

     To  become  a  distributor,  a  person  must  be  enrolled  by  an existing
distributor,  pay  an  annual  fee  (which  is  currently  $15.00  or first time
enrollees  may  join  over  the world wide web at no cost), and be placed into a
Tracking Center, which is a point from which The Right Solution Gateway "tracks"
the  sales  volume  of  the  distributor and the sales volume of a distributor's
downline  organization.  Each  distributor  can  have  three  legs  in  their
organization and commissions are based on volume requirements of these legs. The
strongest performing leg is the 1st leg, the second strongest is the 2nd leg and
all  other  legs  make  up the third leg. In order to receive any commissions or
bonuses a distributor must make an initial purchase of $100 in personal purchase
volume.  To maintain qualification for any commissions or bonuses, a distributor
must  purchase  a minimum of $40 to $120 depending on total qualifying volume of
The  Right Solution Gateway's products every month. All distributors are allowed
to  participate  in  The  Right  Solution  Gateway's  growth  by  sponsoring new
distributors.

     Management  believes  that the more new enrollees use the internet, overall
costs  will  be  substantially  reduced.


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     The  Right Solution Gateway computes the wholesale volumes purchased at the
close  of each business day during the month. Commissions are paid monthly based
on the qualifying level.  Additional bonus money can be earned then paid weekly,
through  the  Right  Start  Program.  A distributor may sign up for an "Autoship
Program"  which  helps  protect  distributors  from  losing  qualification  by
automatically  shipping  them  a  qualifying  order monthly. In addition, when a
distributor signs up for the Autoship Program, the distributor becomes qualified
to  receive  a  bonus (the "Right Start Bonus") for each new personally enrolled
distributor.  The  amount  of  the  Right  Start  Bonus  will  be 50% of the new
distributor's  first  order.

     The  Right  Solution Gateway maintains a computerized system for processing
distributor  orders  and  calculating distributor commission and bonus payments,
which  enables  it  to  remit  such payments to distributors. The Right Solution
Gateway  believes that prompt remittance of commission is vital to maintaining a
motivated  network  of  distributors  and  that its distributors' loyalty to The
Right Solution Gateway has been enhanced by The Right Solution Gateway's history
of  consistently  making  commission  and  bonus  payments on a scheduled basis.

     Internet. The Right Solution Gateway maintains a site on the World Wide Web
at  "www.rightsolution.com."  The Right Solution Gateway has enhanced the system
to  allow  new  distributor  signups,  on-line ordering and volume checks by the
distributors.

     Marketing.  Each distributor is responsible for sales of The Right Solution
Gateway's  product within his or her downline. The Right Solution Gateway relies
on  word  of  mouth and testimonials from previous or existing customers for its
primary  advertising.  The Right Solution Gateway has developed sales materials,
which  have  been professionally prepared by a graphic designer and reviewed for
regulatory  compliance. These sales materials include product descriptions. Most
of  the  information  that  a distributor needs to do his or her business can be
found  on  the  website.

     Sponsoring.  The  Right  Solution  Gateway has established a system for the
enrolling of new distributors. The Right Solution Gateway prepares communication
and  educational  training materials for distributors to assist in the enrolling
of  new  distributors.  The  Right  Solution  Gateway  also  engages  in  weekly
conference  calls  with  distributors  and  sends newsletter email blasts to its
distributors.  The  Right Solution Gateway has an established advisory board for
assistance  and  consultation  in  connection  with  enrollment  matters.

     Product  Distribution.  Gateway's  products  are distributed to all markets
from  Gateway's  warehouse  located  in  Las  Vegas,  Nevada.

COMPETITION

     The  Right  Solution  Gateway is subject to significant competition for the
recruitment  of  distributors  from  other  network  marketing  organizations,
including those that market nutritional, health and dietary supplements, as well
as  those,  which  market  other  types  of products. Some of The Right Solution
Gateway's  competitors  are substantially larger and have available considerably
greater  financial  resources than Gateway. The Right Solution Gateway's ability
to  remain  competitive  depends,  in  significant  part,  on The Right Solution
Gateway's  success in enrolling and retaining distributors through an attractive
compensation plan and other incentives. The Right Solution Gateway believes that
its  bonus  availability  program,  recognition  and  rewards program, and other
compensation  and  incentive  programs provide its distributors with significant
earning  potential.  However,  there can be no assurance that The Right Solution
Gateway's  programs  for  recruitment  and  retention  of  distributors  will be
successful.

     Our  multilevel marketing plan "Every One Wins" is designed to expedite the
possibility  of earning monthly incomes while the distributor builds a business,
where  most  companies  take months for their distributors to realize comparable
incomes.  The average person in this industry can start as a distributor for The
Right  Solution  Gateway  and  realize  incomes  rather  quickly.

     The  market  for  nutritional,  health,  and  dietary  supplements  is
characterized  by  extensive  competition,  frequent  new product introductions,
short product life cycles, rapid price declines, and eroding profit margins, and
changing  customer  preferences.  This  market  segment  includes  numerous
manufacturers,  distributors, marketers, retailers, and physicians that actively
compete for the business of consumers, both in the United States and Canada. The
market  is highly sensitive to the introduction of new products that may rapidly
capture  a  significant  share  of  the


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<PAGE>
market.  The  Right  Solution  Gateway  expects  to continue to face substantial
competition  in  its  efforts to successfully capture a significant share of the
market. There are a number of companies that currently offer competing products,
and  it can be expected that other companies will introduce additional competing
products  in  the  future.  In  addition,  there  are  a  variety of channels of
distribution  for  nutritional  supplements other than through network marketing
and  distribution systems, including direct response marketing, specialty retail
health  and  nutrition  stores, drug stores, and supermarkets. Many of The Right
Solution  Gateway's  existing  and potential competitors have greater financial,
marketing, distribution, and research capabilities than Gateway. The performance
of  Gateway  will  depend on its ability to develop and market new products that
can  gain  customer  acceptance and loyalty, as well as its ability to adapt its
product  offerings  to  meet  changing  pricing  considerations and other market
factors.  The  Right  Solution  Gateway  attempts  to  differentiate itself from
competitors  by  adhering  to  its  "mission  statement" which reads as follows:

PRODUCT  MANUFACTURING  AND  DEVELOPMENT

     Gateway  anticipates  continuing  to  expand  its  product line through the
development  of  new  products.  New  product ideas are derived from a number of
sources, including trade publications, scientific and health journals, Gateway's
executives,  staffs, consultants, and outside parties. In advance of introducing
products  into  its  markets,  Gateway  consults  its  Medical  Advisory  Board,
comprised  of  Dr.  Herbert  Pardell,  M.D.,  D.O.,  Betty Kamen, Ph.D., and Dr.
Michael Hartman for advice. In addition, local counsel and other representatives
are  retained  by  Gateway  to  investigate  product formulation matters as they
relate  to  regulatory  compliance  and  other  issues.

     The  Company  brought  on  a full time Compliance Officer in 2004 to assure
that  all  of  its  correspondence,  marketing  material,  and  website meet all
regulations  and  compliance  requirements.

     All  of  Gateway's  products are provided by outside companies. Gateway has
agreements  in  place  with  all  of  its  current  manufactures  that  assure
availability  for  it  anticipated  growth.  Gateway's  ownership  of  product
formulations  and  trademarks  for  substantially  all  of Gateway's nutritional
products  gives  Gateway  a  great  deal  of  protection  from  competition.

     Gateway's  ability  to enter new markets and sustain satisfactory levels of
sales  in  each  market  has  been  in  the past and is likely to continue to be
dependent  in  significant  part  upon  its  own  ability and the ability of its
manufacturers  to  develop  new  products  and reformulate existing products for
introduction  into  Gateway's  markets.  Since  1998,  Gateway has significantly
expanded  its  in-house product research and development and product formulation
staff,  which now consists of several employees of Gateway, its Medical Advisory
Board,  and our manufacturers, who are increasingly involved in such activities.

     Gateway  owns the proprietary rights to substantially all of its health and
nutritional supplements, formulations and trademarks. Gateway has formed several
alliances  with  its  manufacturers to assure, among other things, that products
are  organically  grown  and  that  inventory  levels  will  remain  constant.

INSURANCE

     Although  Gateway does not engage in the manufacture of any of the products
it  markets  and  sells,  Gateway  could be exposed to product liability claims.
Gateway  has  not  had  any  such  claims  to date. Although Gateway maintains a
limited  amount of liability insurance, each of Gateway's manufacturers provides
additional  insurance  of  at least two million dollars covering products, which
Gateway  sells.  There  can,  however,  be no assurance that Gateway will not be
subject  to  claims  in  the future or that available insurance coverage will be
adequate.  A  partially  or  completely  uninsured  claim  against  Gateway,  if
successful  and of sufficient magnitude, would have a material adverse effect on
Gateway.

TRADEMARKS

     Gateway  has  received  federal  trademark  registration  for  THE  RIGHT
SOLUTION(R).  Gateway  intends  to  continue  to seek trademark protection for a
number  of  the  products  and  brand  names  under which Gateway's products are
marketed,  where applicable. There can be no assurance that such protection will
be  obtained.  Gateway  will  be  required  to  rely upon common law concepts of
confidentiality  and  trade  secret  laws  to  protect  its  product


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<PAGE>
formulations.  There  can  be  no  assurance that the foregoing will protect the
formulations  or  provide  adequate  remedies  for  Gateway  in  the  event  of
unauthorized  use or disclosure of such formulations, or that others will not be
able  to independently develop such formulations. Gateway's product formulations
are  not  protected by patents and are generally not patentable. Gateway intends
to obtain international trademarks, particularly Japanese trademarks, as Gateway
enters  foreign markets. Trademark registrations are either issued or pending in
the United States Patent and Trademark Office and in comparable agencies in many
other  countries.  Gateway  considers  its  trademarks  and trade names to be an
important  factor  in  its  business.

GOVERNMENT  REGULATION

     Gateway  is  subject  to  and  affected  by  extensive  laws,  governmental
regulations,  administrative  determinations,  court  decisions,  and  similar
constraints  (as  applicable, at the federal, state and local levels) including,
among  other  things,  regulations  pertaining  to  (I)  the  formulation,
manufacturing,  packaging, labeling, distribution, importation, sale and storage
of  Gateway's  products,  (ii)  product claims and advertising (including direct
claims  and  advertising  by  Gateway  as  well  as  claims  and  advertising by
distributors,  for  which  Gateway  may  be  held  responsible), (iii) Gateway's
network  marketing  system,  (iv)  transfer pricing and similar regulations that
affect the personal import laws, and (v) taxation of distributors, which in some
instances  may impose an obligation on Gateway to collect the taxes and maintain
appropriate  records.

PRODUCTS

     The  formulation, manufacturing, packaging, storing, labeling, advertising,
distribution, and sale of Gateway's products are subject to regulation by one or
more  governmental agencies, including the Food and Drug Administration ("FDA"),
the  Federal  Trade  Commission  ("FTC"), the Consumer Product Safety Commission
("CPSC"),  the  United  States  Department  of  Agriculture  ("USDA"),  the
Environmental  Protection  Agency  ("EPA") and the United States Postal Service.
Gateway's  activities  are  also regulated by various agencies of the states and
localities.  The FDA, in particular, regulates the formulation, manufacture, and
labeling of foods and dietary supplements, such as those distributed by Gateway.
FDA  regulations  require  manufacturers and distributors of certain products to
meet  relevant  good  manufacturing  practice  ("GMP")  regulations  for  the
preparation,  packing  and  storage  of  these  products.  GMP's  for  dietary
supplements have yet to be promulgated, but are expected to be proposed. Gateway
does  not  anticipate that the promulgation of any GMP's for dietary supplements
would  have  a  material  impact  on  Gateway.

     The  1994 Dietary Supplement Health and Education Act ("DSHEA") revised the
provisions  of  the Federal Food, Drug and Cosmetic Act ("FFDCA") concerning the
composition  and  labeling  of  dietary  supplements  and,  Gateway believes, is
generally  favorable to the dietary supplement industry. The legislation creates
a  new  statutory  class  of  "dietary  supplements."  This  new  class includes
vitamins,  minerals,  herbs, amino acids, and other dietary substances for human
use  to  supplement  the  diet,  and  the legislation grandfathers, with certain
limitations,  dietary  ingredients  that  were  on the market before October 15,
1994.  A  dietary  supplement which contains a new dietary ingredient (i.e., one
not on the market before October 15, 1994) will require evidence of a history of
use  or  other evidence of safety establishing that it is reasonably expected to
be  safe.  Manufacturers  of  dietary  supplements  that  make  certain types of
statements on dietary supplements, including certain product performance claims,
must  have  substantiation that such statements are truthful and not misleading.

     The  majority of the products marketed by Gateway are classified as dietary
supplements under the FFDCA. In addition, the adoption of new regulations in any
of  Gateway's markets, or changes in the interpretation of existing regulations,
could  have  a  material  adverse  effect on Gateway. In September 1997, the FDA
issued  regulations  governing  the labeling and marketing of dietary supplement
products. The regulations cover the following: (1) the identification of dietary
supplements  and their nutrition and ingredient labeling; (2) the terminology to
be  used  for  nutrient content claims, health content claims, and statements of
nutritional support; (3) labeling requirements for dietary supplements for which
"high  potency"  and  "antioxidant" claims are made; (4) notification procedures
for  statements  on  dietary  supplements;  and  (5)  pre-market  notification
requirements  for  new  dietary  ingredients  in  dietary  supplements.  The
notification  procedures  became  effective  in  November  1997,  while  the new
labeling  requirements  became  effective in March 1999. Gateway was required to
revise  a  substantial  number  of  its product labels by the effective date. In
addition,  Gateway  is  required  to  continue  its  ongoing program of securing


                                        8
<PAGE>
substantiation  of  its  product  performance claims and of notifying the FDA of
certain  types  of  performance  claims  made  for  its  products.

     In  addition,  in certain markets, including the United States, claims made
with  respect to dietary supplements or other products of Gateway may change the
regulatory status of the products. In the U.S., for example, it is possible that
the  FDA  could  take  the  position  that  claims made for certain of Gateway's
products  place  those  products  within  the scope of an FDA "over-the-counter"
("OTC")  drug  monograph.  OTC  monographs prescribe permissible ingredients and
appropriate  labeling  language,  and  require  the  marketer or supplier of the
products  to  register and file annual drug listing information with the FDA. In
the  event  that  the  FDA  asserted  that  product claims for some of Gateway's
products  caused  them to fall within the scope of OTC monographs, Gateway would
be required either to comply with the applicable monographs or change the claims
made  in  connection  with  the products. There can be no assurance that Gateway
could  do  so  effectively,  or that any such changes would not adversely affect
sales  and  marketing  of  an affected product. Gateway's substantiation program
involves  compiling  and  reviewing  the  scientific literature pertinent to the
ingredients  contained  in  Gateway's  products.

     As  a  marketer of food and dietary supplements and other products that are
ingested  by  consumers,  Gateway is subject to the risk that one or more of the
ingredients in its products may become the subject of adverse regulatory action.
For example, on April 10, 1996, the FDA issued a statement warning consumers not
to  purchase  or  ingest  dietary supplements containing ephedrine (found in the
ingredient  Ma  Huang)  that  are  claimed  to produce such effects as euphoria,
heightened  awareness, increased sexual sensations, or increased energy, because
these  products  pose  significant  adverse  health  risks, including dizziness,
headache,  gastrointestinal  distress,  irregular heartbeat, heart palpitations,
heart  attack,  strokes, seizures, psychosis, and death. Gateway does not market
either  of  its products containing Ma Huang (Trim Easy Trim Easy Plus) with any
of  these  claims.  On  June  4,  1997, the FDA issued a proposed regulation for
dietary  supplements  containing  ephedrine  alkaloids.  The proposed regulation
would  prohibit  dietary  supplements  containing  eight  milligrams  or more of
ephedrine  alkaloids  per serving, and would not permit such products to contain
any other stimulant, diuretic, or laxative ingredients. In addition, labeling of
supplements  would  be  prohibited from suggesting or recommending conditions of
use  that  would  result  in  an intake of eight milligrams or more of ephedrine
alkaloids  within a six-hour period, or a total daily intake of 24 milligrams or
more.  The FDA proposal would also require a warning not to take the product for
more than seven days, and would prohibit the supplements from being represented,
either  expressly  or  implicitly, as being suitable for long-term uses, such as
for  weight  loss  or  body  building.  Similarly,  claims for increased energy,
increased  mental  concentration,  or  enhanced  well-  being that encourage the
consumer  to  take  more  of the product to achieve more of the purported effect
would  be  required to be accompanied by a warning stating that taking more than
the  recommended  serving  may  cause a heart attack, stroke, seizure, or death.

     Gateway  has  discontinued  its  products  containing  Ma  Huang  with  the
restrictions  on  this  ingredient.  While  Gateway  believes  that its products
containing  Ma  Huang  could  be  reformulated  and  re-labeled, there can be no
assurance in that regard or that reformulation and/or re-labeling would not have
an  adverse  effect  on  sales  of  such  product.

     Gateway  has  also discontinued its product containing Natural Progesterone
with  the  restrictions  on  this  ingredient.  While  Gateway believes that its
product  containing  Natural  Progesterone could be reformulated and re-labeled,
there  can  be  no  assurance  in  that  regard  or  that  reformulation  and/or
re-labeling  would  not  have  an  adverse  effect  on  sales  of  such product.

     Some  of the products marketed by Gateway are considered conventional foods
and  are  currently  labeled as such. Both this category of products and dietary
supplements  are  subject  to the Nutrition Labeling and Education Act ("NLEA"),
and  regulations  promulgated  thereunder,  which  regulates  health  claims,
ingredient  labeling,  and nutrient content claims characterizing the level of a
nutrient  in  the  product.

     The FTC, which exercises jurisdiction over the advertising of all Gateway's
products,  has in the past several years; instituted enforcement actions against
several  dietary  supplement  companies  for false and misleading advertising of
certain products. These enforcement actions have resulted in consent decrees and
monetary  payments by the companies involved. In addition, the FTC has increased
its  scrutiny  of  the use of testimonials, such as those, which are utilized by
Gateway. While Gateway has not been the target of FTC enforcement action for the
advertising  of  its  products,  there can be no assurance that the FTC will not
question  Gateway's  advertising  or  other


                                        9
<PAGE>
operations  in  the  future. In November of 1998, the FTC issued a guide for the
dietary  supplement  industry,  describing how the FTC applies the law, which it
administers to dietary supplements advertisements. It is unclear whether the FTC
will  subject  such  advertisements,  including  those  of Gateway, to increased
surveillance  to  ensure  compliance  with the principles set forth in the guide

     The  Right  Solution Gateway's principal suppliers are American Nutritional
Corporation,  Best Formulations, Botanical Blessings, Filpak, Inc., Nutranomics,
Paragon  Labs  and Robinson Pharma. Lead times for product delivery range from 4
to  10  weeks.

     Gateway  has  the exclusive licensing agreement with The Chelsea Collection
for  Jeunesse  by  Francois  Products  as  well  as  G-H-3.

     Through  its  manuals, seminars, and other training materials and programs,
Gateway  attempts to educate its distributors as to the scope of permissible and
impermissible  activities  in each market. Gateway also investigates allegations
of  distributor  misconduct.  However,  Gateway's  distributors  are independent
contractors,  and  Gateway  is  not  able  to  directly  monitor all distributor
activities.  As  a  consequence,  there  can  be  no  assurance  that  Gateway's
distributors will comply with applicable regulations. Misconduct by distributors
could  have  a  material  adverse effect on Gateway in a particular market or in
general.

     In  markets outside the United States, including Japan, prior to commencing
operations  or  marketing  its  products,  Gateway  may  be  required  to obtain
approvals,  licenses,  or  certifications from a country's ministry of health or
comparable agency. Approvals or licensing may be conditioned on reformulation of
Gateway's  products for the market or may be unavailable with respect to certain
products  or  product  ingredients.  Gateway must also comply with local product
labeling  and  packaging  regulations  that  vary  from  country  to  country.

     Gateway  is  unable  to predict the nature of any future laws, regulations,
interpretations,  or  applications,  nor  can  it predict what effect additional
governmental  regulations  or  administrative  orders,  when and if promulgated,
would  have  on  its  business  in  the future. They could, however, require the
reformulation  of  certain  products  not able to be reformulated, imposition of
additional record keeping requirements, expanded documentation of the properties
of  certain  products,  expanded or different labeling and additional scientific
substantiation  regarding  product ingredients, safety or usefulness. Any or all
such  requirements  could have a material adverse effect on Gateway's results of
operations  and  financial  condition.

NETWORK  MARKETING  SYSTEM

     Gateway's  network  marketing  system is subject to a number of federal and
state  regulations  administered  by  the  FTC  and  various  state  agencies.
Regulations applicable to network marketing organizations are generally directed
at  ensuring  that  product  sales  are  ultimately  made  to consumers and that
advancement  within  such  organizations be based on sales of the organizations'
products  rather than investments in the organizations or other non-retail sales
related  criteria.  For  instance,  in  certain  markets there are limits on the
extent  to  which  distributors  may  earn  commissions  on  sales  generated by
distributors that were not directly sponsored by the distributor. Where required
by  law, Gateway obtains regulatory approval of its network marketing system or,
where such approval is not required the favorable opinion of local counsel as to
regulatory compliance. However, Gateway remains subject to the risk that, in one
or  more  of  its  markets,  its  marketing  system  could be found not to be in
compliance  with applicable regulations. Failure by Gateway to comply with these
regulations  could  have  a  material  adverse effect on Gateway in a particular
market  or  in  general.

     Gateway  is  also  subject  to  the risk of private party challenges to the
legality of its network marketing system. For example, in Webster v. Omnitrition
International,  Inc.,  79  F.3d 776 (9th Cir. 1996), the "multi-level marketing"
program  of  Omnitrition International, Inc. ("Omnitrition") was challenged in a
class  action  by  certain Omnitrition distributors who alleged that Omnitrition
was  operating  an  illegal  "pyramid  scheme" in violation of federal and state
laws. Gateway believes that its network marketing system satisfies the standards
set  forth  in  the  Omnitrition case and other applicable statutes and case law
defining  a  legal  marketing system, in part based upon significant differences
between  Gateway's  marketing system and that described in the Omnitrition case.
Further,  it  is an ongoing part of Gateway's business to monitor and respond to
regulatory  and  legal developments, including those that may affect its network
marketing  system.  However,  the  regulatory  requirements  concerning
network-marketing


                                       10
<PAGE>
systems  do  not  include  "bright line" rules and are inherently fact-based. An
adverse  judicial  determination  with  respect  to  Gateway's network marketing
system could have a material adverse effect on Gateway. Among other things, such
a  determination  could  require  Gateway  to  make modifications to its network
marketing  system,  result  in  negative  publicity or have a negative impact on
distributor  morale.  In  addition, adverse rulings by courts in any proceedings
challenging  the  legality  of  multi-level marketing systems, even in those not
involving  Gateway,  could  have  a  material  adverse  effect  on  Gateway.

     The  Right  Solution Gateway has had correspondence with the State of South
Dakota  which  indicates  that the multilevel marketing program does not violate
any  portion  the  South Dakota Business Opportunity Act. The company is free to
offer  and  sell its business opportunity in South Dakota and is not required to
register  with  the  state.

COMPLIANCE  PROCEDURES

     As  indicated above, Gateway, its products and its network marketing system
are  subject,  both  directly  and  indirectly through distributors' conduct, to
numerous  federal,  state, and local laws and regulations in all its markets. In
order  to  assist  Gateway  in  achieving  and maintaining compliance with these
numerous  laws  and  regulations,  Gateway  has  hired a local Las Vegas firm to
handle  all  compliance issues. This firm has expertise in rules and regulations
governing  our  industry.

     In  1996,  Gateway began to institute formal regulatory compliance measures
by  developing a system to identify specific complaints against distributors and
to  remedy  any  violations  by  distributors  through  appropriate  sanctions,
including  warnings,  suspensions  and,  when  necessary,  terminations.  In its
manuals,  seminars and other training programs and materials, Gateway emphasizes
that  distributors  are  prohibited from making therapeutic claims for Gateway's
products.

     Gateway's  general  policy regarding acceptance of distributor applications
from  individuals  who do not reside in one of Gateway's markets is to refuse to
accept  such  individual's  distributor  application.

     In  order  to  comply  with  regulations that apply to both Gateway and its
distributors,  Gateway  conducts  considerable  research  into  the  applicable
regulatory  framework prior to entering any new market to identify all necessary
licenses  and  approvals  and  applicable limitations on Gateway's operations in
that  market.  Gateway  devotes substantial resources to obtaining such licenses
and approvals and bringing its operations into compliance with such limitations.
Gateway also researches laws applicable to distributor operations and revises or
alters  its  distributor  manuals  and  other training materials and programs to
provide  distributors  with  guidelines for operating a business, marketing, and
distributing  Gateway's  products and similar matters, as required by applicable
regulations  in  each  market.  Gateway,  however,  is  unable  to  monitor  its
supervisors  and  distributors  effectively  to  ensure  that  they refrain from
distributing  Gateway's  products  in  countries where Gateway has not commenced
operations,  and  Gateway  does  not  devote  significant  resources  to  such
monitoring.  In  the  event  that  Gateway  discovers distributor misconduct, it
imposes  disciplinary measures against the distributor ranging from probation to
expulsion.

     In  addition,  regulations  in existing and new markets are often ambiguous
and  subject  to  considerable  interpretive  and  enforcement discretion by the
responsible  regulators.  Moreover,  even  when Gateway believes that it and its
distributors  are  initially  in compliance with all applicable regulations, new
regulations  are  regularly  being  added  and  the  interpretation  of existing
regulations is subject to change. Further, the content and impact of regulations
to  which  Gateway  is subject may be influenced by public attention directed at
Gateway, its products or its network marketing system, so that extensive adverse
publicity about Gateway, its products or its network marketing system may result
in  increased  regulatory  scrutiny.

     It  is  an  ongoing part of Gateway's business to anticipate and respond to
such  new  and  changing regulations and make corresponding changes in Gateway's
operations  to  the  extent  practicable.  However,  while  Gateway  devotes
considerable resources to maintaining its compliance with regulatory constraints
in each of its markets, there can be no assurance that Gateway would be found to
be  in  full compliance with applicable regulations in all of its markets at any
given  time  or  that the regulatory authorities in one or more markets will not
assert, either retroactively or prospectively or both, that Gateway's operations
are not in full compliance. Such assertions or the effect of adverse regulations
in  one  market  could  negatively  affect  Gateway  in other markets as well by
causing


                                       11
<PAGE>
increased  regulatory  scrutiny  in  those  other  markets or as a result of the
negative  publicity generated in those other markets. Such assertions could have
a  material  adverse  effect  on  Gateway  in a particular market or in general.
Furthermore,  depending  upon the severity of regulatory changes in a particular
market  and  the  changes  in Gateway's operations that would be necessitated to
maintain  compliance,  such  changes  could  result  in  Gateway  experiencing a
material  reduction  in  sales in such market or determining to exit such market
altogether.  In  such  event,  Gateway  would  attempt  to  devote the resources
previously  devoted  to such market to a new market or markets or other existing
markets,  but  there  can be no assurance that such transition would not have an
adverse  effect  on  Gateway's  business and results of operations either in the
short  or  long  term.

YEAR  2004  COSTS  AND  CHANGES  IN  FINANCIAL  CONDITION

     Sales for the year ended December 31, 2004 increased $31,000 to $1,154,000,
from  sales  of $1,123,000 for the year ended December 31, 2003. The increase in
sales  was  a  result  of Quality Distribution Services (QDS) sales during 2004.

     Gross profit of $810,000 for the year ended December 31, 2004, was $20,000,
or  2.4% lower than the gross profit of $830,000 for the year ended December 31,
2003.  As  a  percentage of sales, gross profit for 2004 as compared to the same
period  in  the  prior  year  decreased  approximately  4%  from 74% to 70%. The
decrease  in  gross  profit  as a percentage of sales primarily resulted from an
increase  in  costs  of goods sold. The increase in costs of goods sold reflects
higher  prices  paid  for  certain  goods.

SALES,  GENERAL  AND  ADMINISTRATIVE  EXPENSES

     Selling,  general,  and  administrative expenses, as a percentage of sales,
were  805%  for  2004  as compared to 211% for the same period in 2003. Selling,
general,  and  administrative  expenses  for the period ended December 31, 2004,
increased  $6,933,000,  292%,  to  $9,305,000 from $2,372,000 in the year ending
December  31,  2003.  The  increase  in  these  expenses resulted primarily from
outside  consulting  paid  with  stock  to  certain  consultants hired to assist
Gateway  with acquiring additional operations, real estate, product research and
marketing  plans.

LOSSES

     Gateway  had a net loss of $7,394,000 for the year ended December 31, 2004,
compared to a net loss of $1,723,000 in 2003. Gateway had a loss from operations
of  $8,495,000 in 2004 compared to a loss from operations of $1,542,000 in 2003.
Gateway's  substantial  increase  in  losses from operations and net losses were
attributable  to  a significant increase in payments to consultants both in cash
and  in  stock  for  services as reported in selling, general and administrative
expenses.

LIQUIDITY  AND  CAPITAL  RESOURCES

     Gateway's  working  capital needs and capital expenditure requirements have
increased  as  a  result  of  increased  cost  associated  with  hiring  outside
consultants.  Required  working capital and capital expenditure requirements are
expected  to  be  met  from  cash  flows  from  operations,  potential  future
acquisitions,  borrowings,  and  the  sale  of  Gateway's equity securities. For
fiscal year 2004, Gateway's working capital remained a negative (deficit) with a
deficit of $3,148,000, compared to a deficit of $4,284,000 at December 31, 2003.
This  is a deficit decrease of $1,136,000 or a 27% decrease in the deficit. This
improvement  in  our  working  capital  deficit was primarily attributable to an
Employee  Stock  Incentive  Program  and  sale of equity securities as well as a
reduction  in  recorded  debt  by  vendors  of  $1,300,000.

     For  fiscal  year  2004,  Gateway's operations used cash flow of $4,479,000
compared  to  net  cash  used  of  $1,095,000  for  the previous fiscal year, an
increase  in  cash  used  of  $3,384,000.

     Gateway had a negative cash flow from investing activities of $4,802,000 in
2004,  as  compared  to  a  negative  cash  flow  of  $139,000  in  2003.


                                       12
<PAGE>
     Net  increase of term debt, Non-Employee Directors and Consultants Retainer
Stock  Plan  for  the  Year 2004 provided $9,155,000 in cash flow from financing
activities  in  2004  compared  to $1,397,000 in 2003 an increase of $7,758,000.

     Gateways stockholders equity (deficiency) improved $4,098,000 to a positive
stockholders  equity  of  $358,000  in  2004  from  a stockholders deficiency of
$3,740,000  in  2003.

     Cash,  cash  equivalents  and  marketable  securities  totaled  $37,000  at
December  31,  2004  compared  to  $163,000  at December 31, 2003, a decrease of
$126,000.

     Management anticipates that its expansion strategy will require significant
expenditures  for the investment in the Chelsea Collection, as well as increased
general  and  administrative  expenses primarily due to the hiring of additional
personnel and advertising expenses related to operations. These expenditures are
expected to be funded by revenues from operations. The Company continues selling
equity  securities  to  fund  expansion  activities.  Selling,  general  and
administrative  expenses  are also expected to increase in future periods due to
the  increased legal and accounting expenses incurred by the Company in order to
establish  and  maintain  its  reporting status with the Securities and Exchange
Commission.  In addition, the Company intends to pursue, as part of its business
strategy,  future  growth through acquisitions which may involve the expenditure
of  significant  funds.  Depending  upon  the  nature, size and timing of future
acquisitions,  the  Company  may be required to obtain additional debt or equity
financing  in  connection  with  such  future  acquisitions.  There  can  be  no
assurance,  however, that additional financing will be available to the Company,
when  and  if  needed,  on  acceptable terms or at all. Management believes that
future  cash  flow  from  operations and equity sales will be sufficient to fund
these  expenditures.

     Gateway  relied  heavily  on  the  issuance  of  its  common  stock  to pay
consultants and other professionals pursuant to Form S-8 registration statements
during  2003 and 2004. The result of such issuances was a massive dilution and a
precipitous  decline  in  the  price of Gateway's common stock resulting in five
reverse  stock  splits, one in the first half of 2003 for 3,000 to 1, one in the
second  quarter of 2004 for 900 to 1, one in the third quarter of 2004 for 1,000
to  1,  one  in  the  last  quarter  of 2004 for 1,000 to 1 and one in the first
quarter  of  2005  for 500 to 1. In 2003 an Employee Stock Incentive Plan (ESIP)
was  set up and through stock issues to the public, Gateway raised $1,889,000 in
2003  and  $6,907,000  in  2004  in  cash  to  provide  the  vehicle  to finance
activities.  Based  upon  Gateway's current financial situation and intention of
procuring and marketing new products, it is likely that Gateway may rely heavily
on  the issuance of its shares to pay consultants and other professionals during
2005.

CRITICAL  ACCOUNTING  POLICIES

     The preparation of our consolidated financial statements in conformity with
accounting  principles  generally  accepted  in the United States requires us to
make  estimates  and  judgments  that  affect  our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We  base  our  estimates  and  judgments on historical experience and on various
other  assumptions  we  believe to be reasonable under the circumstances. Future
events,  however,  may  differ  markedly  from  our  current  expectations  and
assumptions.  While  there  are  a  number  of  significant  accounting policies
affecting  our  consolidated  financial  statements,  we  believe  the following
critical  accounting  policy  involve the most complex, difficult and subjective
estimates  and  judgments.

STOCK-BASED  COMPENSATION

     In December 2002, the FASB issued SFAS No. 148 - Accounting for Stock-Based
Compensation  -  Transition and Disclosure. This statement amends SFAS No. 123 -
Accounting  for  Stock-Based  Compensation,  providing  alternative  methods  of
voluntarily  transitioning  to  the fair market value based method of accounting
for  stock based employee compensation. SFAS 148 also requires disclosure of the
method  used  to account for stock-based employee compensation and the effect of
the  method  in both the annual and interim financial statements. The provisions
of  this  statement related to transition methods are effective for fiscal years
ending  after  December  15,  2002,  while  provisions  related  to  disclosure
requirements  are  effective  in financial reports for interim periods beginning
after  December  31,  2002.  We  elected  to continue to account for stock-based
compensation  plans  using  the  intrinsic  value-based  method  of  accounting
prescribed  by  APB  No.  25,  "Accounting  for  Stock Issued to Employees," and
related  interpretations.  Under  the  provisions  of  APB  No. 25, compensation
expense  is measured at the grant date for the difference between the fair value
of  the  stock  and  the  exercise  price  for  all  but  ESIP  stock


                                       13
<PAGE>
issued.  ESIP  stock is recorded as sales of stock for the net proceeds received
by  the  Company  with  nothing  recognized  on  the  statement  of  operations.

RECENT  ACCOUNTING  PRONOUNCEMENTS

     We  adopted  SFAS  No. 142. Under the new rules, we 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.  We  adopted  SFAS  No.  142  in  2002.

     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 our 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.  We  expect  that  the  provisions  of  SFAS  No. 143 will not have a
material impact on our consolidated results of operations and financial position
upon  adoption.  We  plan  to  adopt  SFAS  No.  143  effective January 1, 2003.

     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." We adopted SFAS No.
144  effective  January  1,  2002.  The adoption of SFAS No. 144 had no material
impact  on  our  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  adoption  of  FASB  46 did not have a material impact to our
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 provisions
of  this  statement  are  effective  for  exit  or  disposal activities that are
initiated  after December 31, 2002, with early application encouraged. We do not
expect  the  adoption  to  have  a  material impact to our 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


                                       14
<PAGE>
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 our financial position or results of
operations  as  we  have  not  engaged  in  either  of  these  activities.

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

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

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

OFF-BALANCE  SHEET  ARRANGEMENTS

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

ITEM  7.     FINANCIAL  STATEMENTS.

     The  financial  statements  and  related notes are included as part of this
report  as  indexed  in  the  appendix  on  pages  F-1  through  F-30.

ITEM  8.     CHANGES  IN  AND  DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL  DISCLOSURE.

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.


                                       15
<PAGE>
ITEM  8A.    CONTROLS  AND  PROCEDURES.

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.

ITEM  8B.    OTHER  INFORMATION.

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.

PART  III

ITEM  9.     DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL  PERSONS;
             COMPLIANCE  WITH  SECTION  16(A)  OF  THE  EXCHANGE  ACT.

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.

ITEM  10.    EXECUTIVE  COMPENSATION.

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.

ITEM  11.    SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
             RELATED  STOCKHOLDER  MATTERS.

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.

ITEM  12.    CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS.

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.


                                       16
<PAGE>
ITEM  13.    EXHIBITS.

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  15,  2005,  with  the  exception  of  Exhibit 23.1 Consent of Independent
Auditors.

<TABLE>
<CAPTION>
Exhibit No.                                          Identification of Exhibit
-----------  ---------------------------------------------------------------------------------------------------------
<S>          <C>
23.1**       Consent of Independent Auditors.
31.1**       Certification of Richard A. Bailey, Chief Executive Officer of Gateway Distributors, Ltd., pursuant to 18
             U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
31.2**       Certification of Richard A. Bailey, Chief Financial Officer of Gateway Distributors, Ltd., pursuant to 18
             U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
32.1**       Certification of Richard A. Bailey, Chief Executive Officer of Gateway Distributors, Ltd., pursuant to 18
             U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
32.2**       Certification of Richard A. Bailey, Chief Financial Officer of Gateway Distributors, Ltd., pursuant to 18
             U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
</TABLE>

---------------
*     Previously filed
**    Filed herewith

ITEM  14.     PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES.

     Incorporated  by  reference  of Registrant's report on Form 10-KSB/A No. 1,
dated  July  26,  2005.


                                   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.
                                        GATEWAY DISTRIBUTORS, LTD.

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


     In  accordance  with the Exchange Act, this report has been signed below 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     Chief Executive Officer, Director     November 1, 2006
---------------------        and Chief Financial Officer
  Richard A. Bailey


/s/ Florian R. Ternes         Secretary and Director            November 1, 2006
---------------------
  Florian R. Ternes


                                       17
<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                       FINANCIAL STATEMENTS AND SCHEDULES


<PAGE>
                   GATEWAY DISTRIBUTORS, LTD. AND SUBSIDIARIES

                              FINANCIAL STATEMENTS
                                DECEMBER 31, 2004


<PAGE>
                   GATEWAY DISTRIBUTORS, LTD. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004


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


                                  - CONTENTS -


                                                             PAGE NUMBER
                                                             -----------
<S>                                                          <C>
Report of Independent Registered Public Accounting Firm          F-1

Financial Statements:

  Balance Sheet                                                  F-2
  Statement of Operations                                        F-4
  Statement of Changes in Stockholders' Equity (Deficiency)      F-5

  Statement of Cash Flows                                        F-6

  Notes to Financial Statements                                  F-8
</TABLE>


<PAGE>
MADSEN & ASSOCIATES CPAS', INC.                              684 East Vine St #3
-------------------------------
CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS         Murray, Utah 84107
                                    Telephone 801-268-2632      Fax 801-262-3978

Board of Directors & Audit Committee
Gateway Distributors, Ltd., and Subsidiaries
Las Vegas, Nevada

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheets of Gateway
Distributors, Ltd. and Subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years 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 audits 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 statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

The Company has restated its financial statements for the year ended December
31, 2004 to correct an accounting error related to the reporting of income from
the reduction of previously reported liabilities and to write down additional
previously reported liabilities as an adjustment to a prior period. This
restatement is disclosed is footnote 14 to the financial statements.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Gateway
Distributors, Ltd. and Subsidiaries as of December 31, 2004 and 2003, 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.

/s/  Madsen & Associates CPAs, Inc.

March 28, 2005
Murray, Utah


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


                                                      (Restated)
                                                     December 31,
                                                         2004
                                                    --------------
<S>                                                 <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                         $      37,159
  Accounts Receivable                                      45,634
  Receivable from Stock Sales                              23,639
  Inventories                                             494,199
  Property Held for Short Term Investment                 179,741
  Prepaids                                                 25,500
                                                    --------------
                              Total Current Assets  $     805,872
                                                    --------------
PROPERTY & EQUIPMENT
  Property and Equipment, at cost                       4,638,288
  (Less) accumulated depreciation and amortization       (371,915)
                                                    --------------
                        Total Property & Equipment  $   4,266,373
                                                    --------------

MINORITY INTEREST IN SUBSIDIARY                            72,364
                                                    --------------
OTHER ASSETS
  Products Pending Production                             418,223
  Formulas                                                536,500
  Other Assets                                             32,829
                                                    --------------
                                Total Other Assets  $     987,552
                                                    --------------

Total Assets                                        $   6,132,161
                                                    ==============
</TABLE>


                                     F-2
<PAGE>
<TABLE>
<CAPTION>
                   GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES
                       AUDITED CONSOLIDATED BALANCE SHEET
                        (CONDENSED FINANCIAL STATEMENTS)


                                          (Restated)
                                         December 31,
                                             2004
                                         -------------
<S>                                      <C>
                LIABILITIES
CURRENT LIABILITIES:
Current maturities of long-term debt        1,433,736
Accounts payable:
  Trade                                       315,494
  Commissions                                  13,847
Accrued expenses:
  Payroll and employee benefits               179,617
  Payroll taxes                               152,385
  Interest                                    424,364
  Other                                        34,830
                                         -------------
Total current liabilities                   2,554,273
                                         -------------

LONG-TERM DEBT                              2,820,033
                                         -------------

Total Liabilities                           5,374,306
                                         -------------
          STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value
  Authorized - 400,000,000 shares
    Series A Preferred
      Authorized - 100,000,000 shares
      4,972,125 issued and outstanding          4,972
    No Series Designated Preferred
      Authorized - 300,000,000 shares
      None issued and outstanding
Common stock, - $.001 par value
  Authorized - 25,000,000,000 shares
  Issued and outstanding - 98,590                  99
  Additional paid-in capital               19,224,980
  Accumulated (deficit)                   (18,472,196)

                                         -------------
Net Stockholders' Equity                      757.855
                                         -------------

Total Liabilities & Equity                  6,132,161
                                         =============
</TABLE>


                                     F-3
<PAGE>
<TABLE>
<CAPTION>
                           GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES
                          AUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                                (CONDENSED FINANCIAL STATEMENTS)

                                                                  (Restated)
                                                                  Year Ended       Year Ended
                                                                 December 31,     December 31,
                                                                     2004             2003
                                                                --------------  ----------------
<S>                                                             <C>             <C>

SALES                                                           $   1,153,893   $     1,123,373

COST OF SALES                                                         343,744           293,179
                                                                --------------  ----------------

GROSS PROFIT                                                          810,149           830,194
                                                                --------------  ----------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
  Depreciation Expense                                                265,668            12,045
  Professional Services Not Classified Elsewhere                    1,545,671           694,895
  Development of Jeunesse by Francois Product Line                    655,757                 0
  Product Development                                               4,198,326
  All Other Selling, General and Administrative                     2,639,434         1,664,931
                                                                --------------  ----------------

TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                  9,304,856         2,371,871
                                                                --------------  ----------------
OTHER INCOME (EXPENSE):
  Loss on Sale of Assets                                               (1,774)                0
  Additional Loss Incurred on 12-31-01 Sale of Subsidiary             (40,000)                0
  Loss on Formulas, Trademark, Goodwill, and Debt Elimination
    Of Grandma Hammans in Exchange for 51% of Los Cabos               (31,144)                0
  Loss on Stock Investment                                            (25,000)                0
  Loss on Auction Resale Items                                        (13,228)                0
  Interest Expense                                                   (236,719)         (186,369)
  Other Income                                                         93,243             4,583
                                                                --------------  ----------------

TOTAL OTHER INCOME (EXPENSE)                                         (254,622)         (181,786)
                                                                --------------  ----------------

NET INCOME (LOSS) BEFORE MINORITY INTEREST                         (8,749,329)       (1,723,463)

MINORITY INTEREST                                                      72,364                 0
                                                                --------------  ----------------

NET INCOME (LOSS) BEFORE PROVISION FOR INCOME                      (8,676,965)       (1,723,463)

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

NET INCOME (LOSS)                                                 ($8,676,965)      ($1,723,463)
                                                                ==============  ================

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE                        ($2,965.47)   ($1,723,463.00)
                                                                --------------  ----------------
BASIC & DILUTED WEIGHTED AVERAGE SHARES OF COMMON STOCK                 2,926                 1
                                                                ==============  ================
</TABLE>


                                     F-4
<PAGE>
<TABLE>
<CAPTION>
                                           GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                        FOR THE PERIODS ENDED DECEMBER 31, 2004 AND 2003

                                                                                          Paid In      (Restated)    (Restated)
                                            Preferred Stock          Common Stock         Excess        Retained     Net Equity
                                           Par Value $0.001        Par Value $0.001       of Par        Earnings    (Deficiency)
                                         Shares       Amount      Shares     Amount                    (Deficit)
                                       ----------  -----------  ---------  ----------  ------------  -------------  ------------
<S>                                    <C>         <C>          <C>        <C>         <C>           <C>            <C>
BALANCE - December 31, 2002                  125   $        1           0  $        -  $ 4,521,592   $ (9,754,654)  $(5,233,061)
                                       ----------  -----------  ---------  ----------  ------------  -------------  ------------

Common Stock Issued:
  For Services - Restricted                                             0           0        5,600                        5,600
  For Services - Unrestricted                                           0           0      473,888                      473,888
  For Cash - Unrestricted                                               1           1    1,888,506                    1,888,507
  For Debt - Accounts Payable                                           0           0        2,022                        2,022
  For Debt - Note Payable - Suburban                                    0           0      273,781                      273,781

Note Payable - Suburban Paid Off
  Via Stock Sold In 2002 By Suburban
  At a Value Greater In 2003 Than
  Was Estimated In 2002                                                 0           0      500,000                      500,000
Renegotiation Acquisition Grandma
  Hammans acquired 2002                                                 0           0            0                            0
Preferred Stock Issued
  For Services - Restricted              726,000          725                               71,875                       72,600

(Loss) for the Period                                                                                  (1,723,463)   (1,723,463)
                                       ----------  -----------  ---------  ----------  ------------  -------------  ------------
BALANCE - December 31, 2003              726,125          726           1           1    7,737,264    (11,478,117)   (3,740,126)
(As previously reported)

Adjustment for overstatement of
Reported liabilities                                                                                    1,682,886     1,682,886

Balance - December 31, 2003

As restated                              726,125          726           1           1    7,737,264     (9,795,231)   (2,057,240)

Common Stock Issued:
  For Services - Restricted                                            10           0       36,666                       36,666
  For Services - Unrestricted                                      15,673          16    4,729,272                    4,729,288
  For Debt - Unrestricted                                               0           0       25,000                       25,000
  For Cash - Unrestricted                                          34,906          34    6,696,802                    6,696,836

Preferred Stock Issued
  For Services - Restricted            4,270,000        4,270                                                             4,270
P
referred Stock Converted
to Common Stock - Restricted             (24,000)         (24)     48,000          48          (24)                           0

Loss for the period-as restated                                                                        (8.676,965)   (8,676,965)
                                       ----------  -----------  ---------  ----------  ------------  -------------  ------------

Balance for December 31, 2004          4,972,125   $    4,972      98,590  $       99  $19,224,980   $(18,472,196)  $   757,855
                                       ==========  ===========  =========  ==========  ============  =============  ============
</TABLE>


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

                                                                    (Restated)
                                                                    Year Ended      Year Ended
                                                                   December 31,    December 31,
                                                                       2004            2003
                                                                  --------------  --------------
<S>                                                               <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)                                                        $  (8,676,965)  $  (1,723,463)
Adjustments to reconcile net (loss)
  to net cash from (to) operating activities:
  Stock issued for Services                                           4,770,224         552,088
  Stock issued for Debt                                                  25,000         275,803
  Depreciation & Amortization Prop & Equip                              265,668          25,667
  Loss on Sale of Fixed Assets                                            1,774
  Minority Interest                                                     (72,364)
                                                                  --------------

  Loss on Formulas, Trademark, Goodwill, and Debt Elimination
    of Grandma Hammans in Exchange for 51% of Los Cabos                  31,144
Changes in operating assets and liabilities which
  increase (decrease) cash flow:
  Accounts Receivable                                                   (40,829)         (1,234)
  Inventories                                                          (292,974)        (73,648)
  Properties Held for Short Term Investment                            (179,741)
  Prepaid Expenses and Other Current Assets                             (25,500)
  Accounts Payable and Commissions                                      149,901        (237,977)
  Accrued Liabilities                                                  (434,467)         87,675
                                                                  --------------  --------------
Net cash provided (used) from operating activities                   (4,479,129)     (1,095,089)
                                                                  --------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Product Development Awaiting Production                              (418,223)
  Capital (Outlays)/Disposals                                        (4,499,049)         (6,174)
  (Purchase) of Formulas                                                (61,500)
  Renegotiation of Purchase of Grandma Hammans                                         (137,182)
  Other Assets                                                           16,533           4,759
                                                                  --------------  --------------
Net cash provided (used) from investing activities                   (4,962,239)       (138,597)
                                                                  --------------  --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from Term Debt after Principal Payments                  2,457,594
Principle Payment on Debts (over) net proceeds Term Debt                      0        (307,300)
Stock Sales for Cash; Net                                             6,857,743       1,703,961
                                                                  --------------  --------------
Net cash provided (used) from financing activities                    9,315,337       1,396,661
                                                                  --------------  --------------

NET INCREASE (DECREASE) IN CASH EQUIVALENTS                            (126,031)        162,975

CASH AND CASH EQUIVALENTS - Beginning of Period                         163,190             215
                                                                  --------------  --------------

CASH AND CASH EQUIVALENTS - End of Period                         $      37,159   $     163,190
                                                                  ==============  ==============
</TABLE>


                                     F-6
<PAGE>
<TABLE>
<CAPTION>
                       GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                                                            Year Ended     Year Ended
                                                           December 31,   December 31,
                                                               2004           2003
                                                           -------------  -------------
<S>                                                        <C>            <C>
SUPPLEMENTAL DISCLOSURE

CASH PAID FOR:
  Interest                                                 $     236,719  $      29,437
  Taxes                                                                0              0

NON CASH INVESTING AND FINANCING ACTIVITIES

STOCK ISSUED FOR:
  Services                                                 $   4,770,224  $     552,088
  Debt                                                            25,000        275,803

FORMULA EXCHANGED FOR DEBT PAYOFF
  Payoff of Grandma Hamman's debt in exchange for formula        193,833              0
</TABLE>


                                     F-7
<PAGE>
                           GATEWAY DISTRIBUTORS, LTD.

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

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. ("the Company").

The Company is a distributor of vitamin, 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.

As of December 31, 2004, the Company has two classes of stock - Common and
Preferred. Common stock has authorized 25,000,000,000 shares with a par value of
$0.001 per share. Preferred stock has authorized 400,000,000 shares. Within
Preferred stock, Series A Preferred has authorized 100,000,000 shares with a par
value of $0.001 per share. Series A Preferred shareholders can convert each
share of Series A Preferred for 1,000 shares of Common stock without any
additional consideration. Series A Preferred has voting rights equal to Common
stock, computed at the conversion rights of the Series A Preferred stock, with
1,000 votes for each Series A Preferred stock while Common stock receives one
vote per share. As of December 31, 2004, the remaining 300,000,000 shares of
Preferred stock had no series designated and no shares were issued. Effective
January 18, 2005, 100,000,000 shares of preferred stock was designated as Series
B Preferred Stock. Each share of Series B Preferred Stock has no voting rights
and is convertible into one share of common stock. The first Series B Stock
issued was February 3, 2005.

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.

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.

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.


                                     F-8
<PAGE>
On April 30, 2004, Gateway formed a wholly owned subsidiary, Gateway Venture
Holdings, Inc. ("GVH") to house the hard assets of Gateway.

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 resides as real estate under 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 is 51% owned by
Gateway. QDS is a wholesale beverage distributor in the Phoenix, Arizona area.

On November 30, 2004, Gateway formed a wholly owned subsidiary, Gateway
Corporate Administration, Inc ("GCA") which has not been utilized at this time.

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

On December 21, 2004 entered an Asset Purchase Agreement for 51% of Los Cabos
Beverage then owned by Blaine Wendtland ("Wendtland"). The 51% interest in Los
Cabos Beverage and its assets were acquired by the Company in exchange that
Wendtland received all rights to Grandma Hamman's GHF product and assumed and
paid off the debts of $193,833 Grandma Hamman owed to Los Cabos Freedom Movement
LLC and to Ed Wendtland. On December 30, 2004, Gateway formed a 51% owned
subsidiary, Los Cabos Beverage Inc ("LCB") to handle the operations of the sale
of private label water. Operations began in 2005.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(a) - PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, Grandma Hammans since August 15, 2002; the date of
acquisition, The Right Solution Gateway incorporated January 7, 2003, Gateway
Venture Holdings incorporated April 30, 2004, Aspen Cove Resort incorporated
April 30, 2004, Quality Distribution Services of Arizona incorporated June 7,
2004, and Los Cabos Beverage since December 21, 2004. All significant
Intercompany transactions and balances have been eliminated in consolidation.

(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.


                                     F-9
<PAGE>
(c) - 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.

(d) - 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.

(e) - 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. No recognition of stock
options and warrants and other dilutive stock interests are recognized in the
computation as there are net operating losses and it would be antidilutive.

(f) - 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.

(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:

<TABLE>
<CAPTION>
<S>                       <C>
Property - Real Estate       39 years
Leasehold improvements       39 years
Furniture and fixtures    5 - 7 years
Machinery and equipment   3 - 5 years
Transportation equipment  5 - 7 years
</TABLE>

Depreciation expense for the years ended December 31, 2004 and 2003 was $265,668
and $25,667, respectively.

(h) - 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


                                      F-10
<PAGE>
days after year end. Funds to be received from the ESIP Plan were reported as
"Receivable ESIP Stock Plan" as a current asset in the amount of $23,639. These
are for stock issued by December 31, 2004, the sale proceeds of which were
received by the Company during January 2005.

(i) - ACCOUNTS RECEIVABLE

Management has elected to record bad debts using the direct write-off method.
Generally accepted accounting principles require that the allowance method be
used to reflect bad debts. However, the effect of the use of the direct
write-off method is not significantly different from the results that would have
been obtained had the allowance method been followed.

(j) - 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.

(k) - NET (LOSS) PER SHARE OF COMMON STOCK

The basic and diluted net income (loss) per common share in the accompanying
statements of operations are based upon the net income (loss) divided by the
weighted average number of shares outstanding during the periods presented.
Diluted net (loss) per common share is the same as basic net (loss) per share
because including any pending shares to issued would be anti-dilutive.

(l) - 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, 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.

(m) - INTANGIBLES

The Financial Accounting Standards Board has issued FASB 142 "Goodwill and Other
Intangible Assets," effective for fiscal years beginning after December 15,
2001. According to this FASB, goodwill and other intangible assets should not be
amortized, but instead they should be reviewed for impairment at least annually
and charged to earnings only when its recorded value exceeds its implied fair
value.


                                      F-11
<PAGE>
The Company reviews its intangible assets for impairment yearly. In the event
management determines impairment exists, then the Company will recognize
impairment by reducing the intangible assets on the balance sheet and charging
the difference to the statement of operations.

(n) - ADVERTISING COSTS.

The Company conducts nondirect response advertising for which the costs are
expensed when incurred. Total advertising costs of $339,873 and $163,529 were
incurred for the years ended December 31, 2004 and 2003, respectively.

(o) - REVENUE RECOGNITION

Revenue is recognized in the period in which the products are shipped.

(p) - RECLASSIFICATIONS

Certain amounts in 2003 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) - CONCENTRATIONS

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 - ASSET PURCHASE OF GRANDMA HAMMANS AND SUBSEQUENT SALE OF FORMULA:

On August 15, 2002, the Company purchased all the assets, tangible and
intangible, and operations of Los Cabos Freedom Movement, d.b.a. Grandma Hammans
Specialty Foods, a Wisconsin LLC ("Los Cabos"). The Company organized a Nevada
Corporation on June 4, 2003 named Grandma Hammans Specialty Foods ("Grandma
Hamman") and moved all of the assets and operations coming from the asset
purchase from Los Cabos into Grandma Hamman. The asset purchase was reported on
the purchase method of accounting and has been consolidated with the Company.


                                      F-12
<PAGE>
When the Company purchased the assets of Grandma Hamman's Specialty Foods, LLC
on August 15, 2002, formulas and trademark were recognized at $48,314. On June
2, 2003, the Company signed an agreement renegotiating the value of the asset
purchase and the method of payment. The net result was formulas and trademarks
then cost $185,496, or a $137,182 increase over 2002.

Also as a condition of the renegotiation, the owner of Los Cabos relinquished
his claim to 1,000,000 shares of stock as referenced in the original purchase
agreement. The stock had not been actually issued even though it had been
reported in the December 31, 2002 financial statements as if it had. The
unissued shares and the value of it was in question and had been compromised by
the passage of time and with reverse stock splits. The Company accepted payment
of reasonable legal costs of a lawsuit between Los Cabos and a third party as
part of the renegotiation.

On December 21, 2004 all assets and liabilities of Grandma Hammans, other than
some minor residual receivables and payables, were passed to Blaine Wendtland as
part of the 51% asset purchase agreement of Los Cabos Beverage. The Company
determined the sale of the one formula of Grandma Hamman's left the subsidiary
with no remaining value in goodwill and in the other formulas. Accordingly, the
Company included all of the goodwill and formulas as part of the sale of the one
formula, leaving a loss of $31,144 after taking into account $193,833 reduction
in debt that passed to Wendtland as part of the agreement. Grandma Hamman's
presently is an inactive subsidiary of the Company.

NOTE 4 - LICENSING / PURCHASE AGREEMENT WITH THE CHELSEA COLLECTION INC.

The Company entered into a verbal agreement December 12, 2003 with The Chelsea
Collection Inc, a Nevada corporation ("Chelsea Collection") which was finalized
on March 15, 2004 and later clarified on a few points May 4, 2004. Chelsea
Collection is a corporation owned equally by two 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 worldwide rights, trademarks,
formulas and licenses of the Jeunesse by Fran ois 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 on15% of the gross sales less
cost of goods sold with a minimum weekly payment. The minimum weekly payment
presently is $7,500 and continues at $7,500 through November 2004 when it
increases an additional $2,500 per week, or $10,000 a week. 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 $655,757 for 2004.


                                      F-13
<PAGE>
No title or ownership passes to the Company or to Chelsea Collection until the
November 25, 2003 agreement between Chelsea Collection and Fran ois Vautour is
paid in full, the payment of which is described in the prior paragraph. The
Company has opted not to capitalize the purchase price.

The Company is responsible for all product research and development for current
and future marketing as well as carrying inventory. A portion of the cost
outlays have been charged to the balance sheet as an asset under product
development awaiting production for $230,573.

NOTE 5 - ASSET PURCHASE OF LOS CABOS:

As stated in the history of the Company, 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 Los Cabos Beverage and its
assets were acquired by the Company in exchange that Wendtland received all
rights to Grandma Hamman's GHF product and assumed and settled the debts of
$193,833 that Grandma Hamman owed to Los Cabos Freedom Movement LLC and to Ed
Wendtland. On December 30, 2004, Gateway formed a 51% owned subsidiary, Los
Cabos Beverage, Inc ("LCB") to handle the operations of the sale of private
label water. Operations began in 2005.

The Company recognizes no goodwill or other intangibles in this business
venture. Management of Los Cabos is handled by Blaine Wendtland. The Company
invested no initial money for this joint venture, but it does provide a place of
operation in its warehouse and limited funding for payroll and selected other
expenses. Operations began the end of 2004, but it had no operating activity
during the remaining days of 2004.

NOTE 6 - INVESTMENT IN QUALITY DISTRIBUTION SERVICES OF ARIZONA ("QDS"):

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

The Company invested $282,700 during 2004 and another $50,000 through March 28,
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.

The consolidated financial statements include the financial information of QDS
for 2004, summarized in condensed form here, rounded to the nearest $1,000::


                                      F-14
<PAGE>
<TABLE>
<CAPTION>
<S>                                            <C>
Balance  Sheet

Current Assets                                 $ 141,000
Minority Interest                                 72,000
                                               ----------
Net Assets                                     $ 213,000

Current Liabilities                            $  54,000
Investment by the Company                        283,000
Accumulated (Deficit)                           (124,000)
                                               ----------
Total Liabilities and Equity                   $ 213,000

Statement of Operation
----------------------
December 31, 2004
-----------------

Sales                                          $ 224,000
Cost of Sales                                   (128,000)
                                               ----------
Gross Profit                                      96,000
Selling, General and Administrative Expenses     292,000
Minority Interest                                 72,000
                                               ----------
Net (Loss)                                     $(124,000)
</TABLE>

The Investment by the Company reflected in the condensed Balance Sheet above is
eliminated in the consolidation of QDS into the consolidated financial
statements.of the Company.

NOTE 7 - PURCHASE OF REAL ESTATE AND TRANSPORTATION EQUIPMENT:

As of December 31, 2004, the Company has purchased various real estate
properties. Some of these properties are held for investment while others are
held and used by the Company in its operations. The Company created Gateway
Venture Holdings, Inc ("Gateway Ventures"), a wholly owned subsidiary, designed
to own the real estate properties of the Company.

On or about April 15, 2004 the Company acquired Aspen Cove Resort, located in a
pristine area of southwestern Utah. Aspen Cove Resort was originally owned with
a 50% interest held by the Company and a 50% interest held by a third party. On
or around September 29, 2004 in an agreement with the third party, the Company
bought out the interest of the third party in the properties of Aspen Cove
Resort in an exchange of properties owned at the time by the Company. The
Company also currently owns 100% of the commercial properties in the
southeastern part of Las Vegas, Nevada, which had previously been owned at 50%
as discussed later in this note.

The Company created Aspen Cove Inc. ("Resort"), a wholly owned subsidiary, to
manage the operations of Aspen Cove Resort. The Company and a third party shared
equally the operating losses of the Resort up to on or about September 29, 2004,
when the Company took over full ownership of the properties of Aspen Cove
Resort, along with the full obligation on the mortgage.


                                      F-15
<PAGE>
The Company had originally purchased a 50% ownership interest in the commercial
property the Company now uses as its office and warehouse facilities, which is
3220 Pepper Lane, Las Vegas, Nevada. Like Aspen Cove Resort, the Company
originally owned 50% interest in this property with a third party owning the
other 50%. In the same property exchange of Aspen Cove Resort, this commercial
property also became the full ownership of the Company, along with the full
obligation of the mortgage.

The Company has also purchased vehicles and other transportation equipment, some
of which are in conjunction with the purchase of some of the real estate
purchases and are held in ownership by Gateway Ventures.

On September 29, 2004 the Company negotiated an exchange of real estate whereby
the Company deeded over a real estate property held for short term investment on
the books for a cost of $326,483, but with a fair market value of approximately
$400,000, and one boat held as property and equipment valued at $66,348 for the
50% ownership of Aspen Cove Resort and the present office and warehouse of the
Company. As mentioned previously, the Company has also assumed the full debt
obligation against these two properties.

All of these assets are reported at cost. There are no losses to recognize on
the two property exchanges made during the year. Any possible gains were not
recognized because of the assumption of significant inherent negative cash flows
acquired as a result of the property exchanges. The Company has assumed more
cash requirement risks to pay 100% rather than 50% of the mortgage debt as well
as bearing 100% instead of 50% responsibility to pay for the continued loss in
operations of Aspen Cove Resort. The unrecognized inherent gains in the combined
transactions amount to approximately $100,000, which is less than the estimated
additional cash flows, as discounted, that the Company expects to absorb within
the next eighteen months.

As of December 31, 2004 the Company held the following real estate properties
and transportation equipment:

<TABLE>
<CAPTION>
                                                                Debt
                                                    Cost        Owed
CURRENT ASSETS
<S>                                              <C>         <C>
  Property Held for Short Term Investment        $  179,741  $  219,000
  Estimated Fair Value - $350,000

PROPERTY & EQUIPMENT
  Aspen Cove Resort                               1,221,645     912,160
  Appraisal Pending - Estimated Fair Value is
    in Excess of Cost

  Offices and Warehouse of the Company            2,640,089   1,806,629
  Appraisal Value - $3,100,000

  All Other Real Estate                             370,236     123,000

  Vehicle & Other Transportation Equipment          190,297           0

  Total                                           4,602,008   3,060,789
</TABLE>


                                      F-16
<PAGE>
The Company has no off-balance sheet arrangements.

NOTE 8 - INCOME TAXES:

No provision was made for income taxes in 2004 and 2003 as a result of the net
loss for each year and a net operating loss carryforward. A valuation reserve on
the deferred tax assets of approximately $2,300,000 offsets deferred tax benefit
of equal amount as no assurance can be given it can be used. As of December 31,
2004, the Company has available net operating loss carryforwards of in excess of
$10,000,000. Expiration dates on these carryforwards begin in 2010 and end in
2023.

NOTE 9 - TERM DEBT:

Term debt consisted of the following at December 31,2004:

<TABLE>
<CAPTION>
<S>                                                          <C>
Mortgage payable - $1,830,000 original loan payable
to an Individual, interest 6%, 30 year monthly
installments of $20,000 through May 2030, secured
by Aspen Cove Resort real estate properties                      912,160

Mortgage payable - $1,000,000 original loan payable
to a financial institution, interest 6.25%, 20 year monthly
installments of $13,376 through May 2020, secured by
the Company office and warehouse real estate property          1,806,629

Mortgages payable - $342,000 original loans payable
to a financial institution, interest 12%, 30 year monthly
installments of $3,514 through January 2030, secured by
the real estate in Clark county, Nevada                          342,000

Convertible notes payable                                      1,027,746

Notes payable - stockholders, payable in monthly
installments ranging from $25 to $1,278, plus interest
at 7% - 14%, due at various dates, unsecured                      46,760

Notes payable - related parties, no specific monthly
payables, interest from 0% to 10%, unsecured                     118,474
                                                             ------------

Total term debt                                                4,253,769

(Less) current portion                                        (1,433,736)
                                                             ------------

Long term portion                                            $ 2,820,033
                                                             ------------
</TABLE>


                                      F-17
<PAGE>
Convertible notes payable are to individuals and bear interest at 12% per annum.
Principal and accrued interest is due twelve months from the date of issuance.
These notes are convertible at the option of the holder into shares of the
Company's common stock, at an initial conversion price of $.80 per share.
Approximately $169,000 of accrued interest relating to these notes at December
31, 2004, is also convertible into the Company's common stock. At December 31,
2004 the approximate total of common shares available through conversion of the
aforementioned debt is 332,000,000.

The notes may be called for conversion when the average of the bid and asked
prices of the common stock exceeds $1.00 per share for ten consecutive days.
Although the notes issued will be freely tradable under federal securities laws,
there is currently only a small public market for the notes. As of December 31,
2004 the convertible notes issued during the year ended December 31, 2003 and
prior have not been converted to common stock as the initial public offering has
not transpired.

Maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
Year ending December 31:
<S>                       <C>
  2005                    $1,433,736
  2006                       255,815
  2007                       271,822
  2008                       288,836
  2009                       141,462
  2010 and thereafter      1,862,098
                          ----------

                           4,253,769
                          ==========
</TABLE>

NOTE 10 - INTANGIBLE ASSETS:

As previously discussed in Note "Asset Purchase of Grandma Hammans and
Subsequent Sale of Formula,"" all goodwill and formulas of Grandma Hammans were
included as part of the sale of the formula in the 'agreement between Grandma
Hammans, Blaine Wendtland, and Los Cabos dated December 21, 2004. As a result of
this transaction, the Company in its annual review for impairment of intangible
assets had no intangibles left other than formulas. As discussed later in this
Note, management concluded there was no impairment.

The Company acquired in the purchase of assets from TRSG on December 31, 2002,
formulas valued at $475,000. During 2004 the Company acquired additional
formulas for $61,500 and added them to Formulas for a total of $536,500 on the
balance sheet as of December 31, 2004

In addition, during 2004, the Company identified products pending production in
the amount of $418,223. Refer to Note "Search for and Development of Products,
Product Lines, and Joint Ventures" as to how management determines what to
recognize as an asset. Management considers all intangible assets are
indefinite-lived intangibles.


                                      F-18
<PAGE>
Management reviewed intangibles for impairment as of December 31, 2004. In its
review, management took into consideration the marketing dynamics and the
quality of its intangibles. Management has negotiated with third parties from
time to time to sell or joint venture its formulas and product development
awaiting production. Management recognizes that the Company continues to suffer
with net operating losses and lack of sufficient revenues generated from its
present marketing approach. Management also considered that sales outside of the
United States have expanded and appear to be growing. Upon completion of its
review, management concluded there is no impairment of intangibles as of
December 31, 2004.

NOTE 11 - EQUITY:

(a) - REVERSE STOCK SPLITS

On April 16, 2003,Gateway effected a 1 for 900 reverse-split of its common
stock. On June 28, 2004,Gateway effected a 1 for 900 reverse-split of its common
stock. On September 3, 2004,Gateway effected a 1 for 1,000 reverse-split of its
common stock. On December 20, 2004,Gateway effected a 1 for 1,000 reverse-split
of its common stock. The financial statements have reflected these reverse stock
splits retroactive to inception.

On March 28, 2005 Gateway effected a 1 for 500 reverse split of its common
stock. The financial statements have reflected this reverse stock split
retroactive to inception.

(b) - STOCK ISSUED FOR SERVICES PROVIDED

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.

During the years 2004 and 2003, the total number of shares approved to issue in
these plans were 8,500,000,000 (8 billion 500 million) and 1,000,000,000 (1
billion) respectively. Stock issued to consultants through the plan is not
affected by reverse splits until 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, 2004 and
2003, the remaining shares approved to issue under the RSP plans are
1,756,200,000 and 990,448,916 respectively.

During 2004 and 2003, the Company issued 6,196,680,046 and 9,551,084 shares
respectively out of the ESIP plan before stock splits. The number of shares
after stock splits is recognized on the statement of stockholders equity.


                                      F-19
<PAGE>
(c) - STOCK ISSUED FOR DEBT - ACCOUNTS PAYABLE

From time to time a creditor has agreed to exchange debt for stock in the agreed
amount. During 2004 and 2003, 0 and 0 shares, after all reverse stock splits are
taken into account, were issued for a total value of accounts payable debt
relief of $0 and $2,022 respectively.

(d) - CONSULTING SERVICES SECURED BY STOCK IN 2002 AND PAID OFF
---------------------------------------------------------------

                                    IN 2003
                                    -------

On November 27, 2002, the Company entered into an agreement with Suburban
Capital Corporation ("Suburban") and its assigns. The terms of the agreement
call for Suburban to perform consulting services for the Company, the value of
which is not to exceed $1,500,000. It is computed based on the stock issued to
Suburban and what sale proceeds Suburban receives. Once Suburban has received
$1,500,000 in proceeds from stock sales, or on or about April 15, 2003, which
ever comes first, then the Company has no further obligation to issue Suburban
additional stock.

On January 14, 2003, this agreement was modified. Among the modifications is a
change in the amount owed to Suburban. The amount was changed to $550,000.
However, Suburban has not made an adequate and proper accounting to the Company
as to the proceeds Suburban has received nor the stock Suburban still had on
hand as of December 31, 2002. It is management's best estimate that the maximum
amount owed to Suburban at December 31, 2002, is $500,000 out of the $550,000
and the Company reported such as of December 31, 2002.

In 2003, Management has received third party information identifying Suburban
has received all or most all of the $550,000. Management has taken the position
that all of the $550,000 has been received by Suburban and that no further
obligation of stock issuances is due Suburban. The remaining $500,000 of debt
due Suburban as of December 31, 2003 has been recognized as paid off in stock
sold for and proceeds received by Suburban greater than was estimated in 2002.
This difference is recognized in 2003 in the consolidated statement of
stockholders equity.

The same agreement also paid off $273,781 in notes payable owed to Suburban in
exchange for 0 shares of common stock, after reverse stock splits, and
Suburban's release of stock it held as security. However, the stock Suburban
held as security has not been released by Suburban and returned to the Company
and to the officer who pledged his own stock in the Company as security on the
loan.

(e) - NOTES CONVERTIBLE INTO STOCK

There are $1,027,746 of convertible notes payable as of December 31, 2004.

Convertible notes payable are to individuals and bear interest at 12% per annum.
Principal and accrued interest is due twelve months from the date of issuance.
These notes are convertible at the option of the holder into shares of the
Company's common stock, at an initial conversion price of $.80 per share.
Approximately $169,000 of accrued interest relating to these notes at December
31, 2004, is also convertible into the Company's common stock. At December 31,
2004, the approximate total of common shares available


                                      F-20
<PAGE>
through conversion of the aforementioned debt is 332,000,000 freely tradable
stock. In addition refer to the Note on Term Debt.

The notes may be called for conversion when the average of the bid and asked
prices of the common stock exceeds $1.00 per share for ten consecutive days.

During 2004, under a separate agreement management negotiated $25,000 of notes
to be converted to stock, while $0 were converted in 2003.

(f) - STOCK OPTIONS

There are stock options granted before 2002. Because of the stock splits
management is of the opinion the stock options in place are of no measurable
value and are anticipating terminating the existing stock option plan.
Therefore, in computing earnings per share all stock options have been ignored

(g) - STOCK ISSUED FOR ASSET PURCHASE

In 2002, The Company acquired the assets of Grandma Hammans Specialty Foods,
LLC. Payment included 0 shares of Company stock (1,000,000 shares before the
reverse stock splits). In 2003 the agreement to acquire Grandma Hammans was
renegotiated and no stock will be involved in the acquisition. The financial
statements recognize the issue of the stock as of December 31, 2002 and the
return of the stock as of December 31, 2003.

(h) - 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.

During the years 2004 and 2003, the total number of shares approved to issue in
these plans were 18,200,000,000 (18 billion, 200 million) and 1,000,000,000 (1
billion) respectively. Stock issued to employees through the plan is not
affected by reverse splits until 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, 2004 and
2003, the remaining shares approved to issue under the ESIP plans are
6,534,400,000 and 447,745,400 respectively.

During 2004 and 2003, the Company issued 13,680,245,400 and 552,254,600 shares
respectively out of the ESIP plan before stock splits. The number of shares
after stock splits is recognized on the statement of stockholders equity. The
total net proceeds received from these stock issued during 2004 and 2003 are
$6,857,743and $1,703,961 respectively.


                                      F-21
<PAGE>
(i) - OTHER STOCK ISSUED FOR SERVICES PROVIDED

The Company follows the guidelines of APB 25 in valuing non cash transactions to
be either the value of the assets given up or the value of the services
received, which ever is more reliably measured. In the case of restricted stock,
the holder cannot sell it, and it has no market when issued. The value of the
unrestricted common stock of the Company is unstable and is not a reliable point
of reference. The Company continues with the question as to whether it is a
going concern. As a result, management has taken the position that restricted
stock has no measurable value. Therefore, the Company values non cash
transactions involving restricted stock using the measurable value of the
service received.

During 2004 and 2003, the Company issued to its officers 9 and 0 shares of
restricted common stock, after reverse stock splits, valued at $4,166 and $0
respectively. Services provided by officers are for the efforts and risks they
took relating to the Chelsea Collection by Francois Vautour ("Chelsea
Collection") (Refer to Note "Licensing/Purchase Agreement with the Chelsea
Collection, Inc.). The service involved a means for the Company to have a stop
loss on the commitment to invest in the Chelsea Collection, but in doing so, it
would lose all of its investment in the Chelsea Collection if it stopped
investing in it. Since the Company went into the arrangement with no intention
to stop its commitment, then the value of this service may be of no value to the
Company. Only future events, unknown at the time, would give this service any
value to the Company. Therefore, the value of this non cash transaction has no
reliable means of measurement and should be valued on the financial statements
for a value of $0. However, the Company concluded something should be
recognized, so a token amount of $4,166 was assigned as the value of the
issuance of the restricted common stock. The Company charged the $4,166 to the
statement of operations.

In addition, during 2004 and 2003, the Company issued to an outside consultant 1
and 0 shares of restricted common stock, after reverse stock splits, for an
agreed value of $32,500 and 0 respectively. Since then, the same outside
consultant has provided additional services in exchange for unrestricted common
stock only. The Company charged the $32,500 to the statement of operations.

(j) - SERIES A PREFERRED STOCK ISSUES

The Company follows the guidelines of APB 25 in valuing non cash transactions to
be either the value of the assets given up or the value of the services
received, which ever is more reliably measured. In the case of restricted stock,
the holder cannot sell it, and it has no market when issued. Series A Preferred
stock is all restricted stock when issued and can only be converted to common
stock. Its only reliable point of reference is restricted common stock, which
the Company has determined is of no value. As a result, management has taken the
position that Series A Preferred stock has no measurable value when issued.
Therefore, the Company values non cash transactions involving restricted stock
using only the measurable value of the service received.


                                      F-22
<PAGE>
During 2004 and 2003, the Company issued to its officers 270,000 and 0 shares of
restricted Series A Preferred stock valued at $270 and $0 respectively for
services provided by officers for the efforts and risks they took relating to
the Chelsea Collection by Francois Vautour ("Chelsea Collection") (Refer to Note
"Licensing / Purchase Agreement with the Chelsea Collection, Inc.). The service
involves a means for the Company to have a stop loss on its commitment to invest
in the Chelsea Collection, but in so doing, the Company would lose all of its
investment in the Chelsea Collection if it stopped its monthly commitment. Since
the Company went into the arrangement with no intention to stop its commitment,
then the value of this service may be of no value to the Company. Only future
events, unknown at the time, would give this service any value to the Company.
Therefore, the value of this non cash transaction has no reliable means of
measurement and should be valued on the financial statements for a value of $0.
However, the Company concluded something should be recognized, so the par value
of Series A Preferred Stock, or $270, was assigned and was charged to the
statement of operations.

In addition, during 2004 and 2003, the Company issued 4,000,000 and 726,000
restricted shares of Series A Preferred stock for services provided by the
officers relating to the initial efforts and preliminary stage of projects, a
few of which the Company has since determined to exploit. When the Company
granted these awards for services provided, the projects had research and
feasibility studies to do before the Company would be ready to exploit or not.
The Company considered any possible results contingent on unknown and future
events, the measurement of which the Company determined it could not reliably
measure. Consequently, these non cash transactions were left with no value.
However, the Company believed some value needed to be recognized, so $4,000 (par
value of Series A Preferred stock) and $72,600 (par value of Series A Preferred
stock times the conversion equivalent to common stock of 1,000) were recognized
as of December 31, 2004 and 2003 respectively and charged to the corresponding
statements of operations.

(k) - SERIES A PREFERRED STOCK CONVERTED TO COMMON STOCK
--------------------------------------------------------

On December 21, 2004 two of the holders of Series A Preferred stock converted a
total of 24,000 shares of Series A Preferred stock for 48,000 (24,000,000 pre-
reverse stock split) shares of common stock. The conversion requires no
consideration be made by the Series A Preferred stockholders, so this conversion
has no monetary affect in the financial statements. It merely reports a shift in
the kinds of ownership and the par value presentation of the changes in
ownership within the equity section of the balance sheet, and as reported in the
statement of equity.

NOTE 12 - RELATED PARTY TRANSACTIONS NOT DISCLOSED ELSEWHERE:

From time to time, Officers and directors will advance to the Company or receive
advances from the Company. Amounts due to related parties are included in notes
payable of $118,474 and $115,174 for December 31, 2004 and 2003 respectively
(Refer to Note on Term Debt). No amounts are due from related parties.

During 2004 and 2003, the daughter of the Chief Executive Officer works as
Marketing


                                      F-23
<PAGE>
Representative (reassigned in 2005 to non-managerial responsibilities) and the
son of the Chief Operations Officer serves as Vice President of Operations with
additional responsibilities in Information Technology. Other children of the
officers work part time for the Company in non-managerial positions.

NOTE 13 - OPERATING LEASES:

The Company leases certain office equipment items under operating leases which
expire during 2006. Future equipment rental payments are:

<TABLE>
<CAPTION>
Year ending December 31:
<S>                       <C>
2005                       3,012
2006                       1,506
                          ------
Total payments            $4,518
                          ======
</TABLE>

The Company rented a building under an expired operating lease through early
December, 2004 until the Company moved into its own building.

Total rent expense charged to operations for the years ended December 31, 2004
and 2003, was $82,002 and $96,172 respectively.

NOTE 14 - 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 and the statement of
operations and net (loss) per share are illustrated below:

<TABLE>
<CAPTION>
                         BALANCE SHEET-DECEMBER 31, 2004
                         -------------------------------

                               Restated                  Originally
                                Amount     Adjustment     Reported
                             ------------  -----------  ------------
<S>                          <C>           <C>          <C>
Accounts payable                 315,494     (400,000)      715,494
Current liabilities            2,554,273      400,000     2,954,273
Accumulated (deficit)        (18,472,196)     400,000   (18,872,196)
Total liabilities & Equity     6,532,161      400,000     6,132,861
</TABLE>

<TABLE>
<CAPTION>
              STATEMENT OF OPERATIONS-YEAR ENDED DECEMBER 31, 2004
              ----------------------------------------------------

                            Restated                 Originally
                             Amount     Adjustment    Reported
                           -----------  -----------  -----------
<S>                        <C>          <C>          <C>
Reduction of reported
  Liabilities                       -   (1,282,886)   1,282,886
Net income (loss)          (8,676,965)  (1,282,886)  (7,394,079)
                           -----------  -----------  -----------

Basic & Diluted Earnings
  (Loss) per share          (2,390.23)      136.71    (2,527.03)
                           ===========  ===========  ===========
</TABLE>

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

NOTE 15 - SEARCH FOR AND DEVELOPMENT OF PRODUCTS, PRODUCT LINES AND JOINT
VENTURES:

During 2003 and continuing through 2004 the Company acquired sizeable capital
investments. Management in an effort to use wisely and prudently the funds
received looked at many different alternatives to invest cash received.


                                      F-24
<PAGE>
The types of costs we incur for product development include direct costs
associated with the search, evaluation and market study for the product
development involved. These costs include:

1) outside business consultants, 2) travel, 3) testing and analysis, and 4) any
other direct cost that may arise. In accounting for these costs, we charge to
operations all preliminary and research costs as well as all costs stemming from
all issuances of stock. We only recognize as an asset those direct costs
associated with those projects we consider are beyond research and that we have
concluded are viable for the future benefit of the Company

Among those investments includes the down payments made on the building the
Company now has its office and warehouse. It also invested in Aspen Cove Resort
where it anticipated it would suffer losses through 2004 and 2005 as it would
attempt to turn around an operation and facility in a location thought to be
highly developable and productive. In addition, the Company invested in selected
pieces of real estate in the Clark County Nevada area where rapid appraisal
increases were being experienced.

The Company also looked into several product and line ventures. Two product
lines that the Company has chosen to invest significantly in are the Chelsea
Collection - Jeunesse by Francois beauty products now being offered primarily
through multi-level marketing and the Pete Rose product line which is now
developed awaiting marketing. Other product development searches after
sufficient time, energy and investment were set aside as not feasible at this
time.

The Company also invested in joint ventures dealing with beverage distribution
in Arizona as well as expanding marketing for the multi-level marketing area of
the Company.

As of December 31, 2004 the Company has invested in various projects, as listed
above. Some of these projects the Company has determined are worth pursuing and
are expected to be profitable while others the Company has determined to set
aside and to pursue no further. Many of these projects involved finders' fees
and other consulting fees that were paid with free trading common stock of the
Company. This common stock is issued by the Company under its Non-Employee,
Directors and Consultants Retainer Stock Plan ("Plan").

As discussed in a prior footnote, the stock issued under the Plan is
unrestricted and is issued as "S-8" stock as defined by the Securities and
Exchange Commission ("SEC"), and has been charged to operations.


                                      F-25
<PAGE>
The most significant projects the Company has invested in this year through
December 31, 2004 are:

<TABLE>
<CAPTION>
                                               Products Pending          Expensed as Part of
                                                  Production          General & Administrative
                                              (All Paid in Cash)       (Paid in Cash & Stock)
                                           -------------------------  -------------------------
<S>                                        <C>                        <C>
Chelsea Collection - Jeuness by Francois                     230,573                    655,757
Finders Fees for real estate transactions                                                83,700
IGIA Product                                                                            691,200
Pete Rose Product Line                                       187,650                  1,530,238
Zufelt Marketing Strategies                                                              42,840
Distributor Recruitment                                                                 338,922
All other projects - future or abandoned                                              1,415,131
                                           -------------------------  -------------------------

  Total                                                      418,223                  4,757,788
                                           -------------------------  -------------------------
</TABLE>

When the costs capitalized here are put into production, then they will be
reclassified to inventory and such costs will be amortized using the
unit-of-production of accounting.

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

There have been significant recurring losses and negative cash flows from
operations for the past years, which have resulted in a severe working capital
deficiency. In the event the Company is unable to raise sufficient 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 is taking steps to stop
funding certain phases of its operations in an order to conserve as well as to
preserve its working capital.

In 2003, the Company implemented and still uses an Employee Stock Incentive Plan
("ESIP"). During 2003 through March 2005 stock sales provided cash to the
company. Cash received was approximately $1,700,000 for 2003, $6,900,000 for
2004 and $200,000 through March 28, 2005 for a total received to date of
$8,800,000.


                                      F-26
<PAGE>
NOTE 17 - LITIGATION, COMMITMENTS AND CONTINGENCIES:

                                  LITIGATION:
                                  -----------

                          SUBURBAN CAPITAL VS GATEWAY:

On August 13, 2003, Suburban Capital Corporation filed a civil action in the
Circuit Court of DuPage County, Illinois against Gateway Distributors and two of
its officers, Richard Bailey and Florian Ternes. On December 15, 2003, U.S.
District Judge Charles

R. Norgle, Sr., granted Gateway's Notice of Removal and removed the case to the
United States District Court for the Northern District of Illinois.
The action is styled Suburban Capital Corporation v Gateway

          DISTRIBUTORS, LTD., RICK BAILEY AND FLO TERNES, AND NEPTUNE
          -----------------------------------------------------------

Communications, Case No. 03-CV-7559 (Norgle, J.) and as to

                   GATEWAY, RICHARD BAILEY AND FLORIAN TERNES:

Suburban Capital's complaint alleges breach of contract and fraud claims.
Suburban Capital seeks a declaratory judgment regarding the validity of an
alleged advisor agreement with Gateway, specific performance of that agreement
and injunctive relief, including temporary restraining order as well as
preliminary and permanent injunctions. The complaint seeks $550,000 together
with its costs of enforcement including reasonable attorney's fees as well as
punitive damages in the amount of $500,000.

On November 17, 2003, Gateway filed an answer and affirmative defenses which
asserted that the Plaintiff's claims are barred by the principles of undue
influence, duress, in pari delicto, estoppel, and illegality. On January 24,
2004, Judge Gottschall granted the Securities and Exchange Commission's motion
for an order appointing a receiver over Suburban Capital Corporation in
Securities and Exchange Commission v. Frank J. Custable, Jr., Sara Wetzel,
               -----------------------------------------------------------

              SUBURBAN CAPITAL CORP., FRANCIS SCOTT WIDEN, WASATCH
              ----------------------------------------------------

          Pharmaceutical, Inc., David Giles, Gary Heesch, Pacel Corp.,
          ------------------------------------------------------------

         DAVID CALKINS, GATEWAY DISTRIBUTORS, LTD., RICHARD BAILEY AND
         -------------------------------------------------------------

ThermoElastic Technologies, Inc, Case No. 03-C-2182. The court-appointed
Receiver, Mark Toljanic, controls this claim. On March 12, 2004 the Parties
agreed to a Scheduling Order and commenced discovery.

On January 10, 2005, Gateway filed a counterclaim against Suburban for breach of
a Stock Purchase Agreement dated November 27, 2002. Gateway's claims include
breach of contract and, in the alternative, unjust enrichment. The counterclaim
seeks a judgment from the court which orders Suburban to assume the debts and
obligations - currently valued at more than $306,667 as contained in the
November 27, 2002 Stock Purchase Agreement.

The parties are scheduled to appear before Judge Norgle on April 13, 2005 for a
status hearing and the attorneys have been instructed to both vigorously defend
the claims made against Gateway and Bailey and to prosecute the claims made
against Suburban.


                                      F-27
<PAGE>
At this juncture, legal counsel is unable to predict what the possible outcome
of these matters will be. Management has taken the position that this is an
ongoing legal matter and has opted to expense the costs of defending the Company
and its officer as it occurs as well as any subsequent cost for penalties and
fines if the Company should lose its defense or make a settlement. The Company
therefore has not recognized any contingent liability for this legal matter.

        SECURITIES AND EXCHANGE COMMISSION PROPOSED DISCIPLINARY ACTION:

In conjunction with the lawsuit activity described above with Suburban Capital,
the Security Exchange Commission ("SEC") filed charges against Suburban Capital
and related parties. Included in the claims are claims charged against Gateway
Distributors, Ltd.("Gateway") and Richard Bailey ("Bailey"), CEO of the Company.
On November 18, 2004, the SEC filed an additional complaint in the United States
District Court for the Northern District of Illinois (Case # 03-C-2182) against
Gateway and Bailey which incorporates all of the allegations in the March 28,
2003 civil action referenced above.

The SEC seeks an order barring Bailey from serving as an officer or director of
a public company. Bailey and Florian Ternes COO of the Company have given prior
depositions relating to these matters and depositions will continue until
discovery is scheduled to close on June 21, 2005.

At this juncture, legal counsel is unable to predict what the possible outcome
of these matters will be. Management has taken the position that this is an
ongoing legal matter and has opted to expense the costs of defending the Company
and its officer as it occurs as well as any subsequent cost for penalties and
fines if the Company should lose its defense or make a settlement. The Company
therefore has not recognized any contingent liability.

                         HUDSON CONSULTING VS GATEWAY:

Hudson Consulting performed consulting services for a former subsidiary of
Gateway (TRSG, Inc.). On December 31, 2002 the Company disposed of this
subsidiary and accepted selected liabilities of such company, Hudson Consulting
("Hudson") not one of them. Hudson filed a lawsuit in a Utah District Court
which has been overturned because it should have been filed in the Federal
Court. Legal opinion believes that there may ultimately be some liability on the
part of the Company, but is mitigated by and large by faulty filing of the
lawsuit by Hudson and the costs associated with it by the Company.

Management has determined not to recognize any contingent liability relative to
this lawsuit because it has concluded the Company is not responsible in this
matter.

                          OTHER PENDING LEGAL MATTERS

In the normal course of business the Company experienced a change in accepted
product sold to the public by the Bureaus of Consumer Protection of Nevada and
Maryland over the selling of "Y-motion". Negotiations are still in process, the
proposed penalties and


                                      F-28
<PAGE>
costs associated with this matter could range from $0 to $220,000. No
enforcement action has been filed against the Company to date.

Presently 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 contests the amount claimed and is making
payment on the uncontested amount while negotiations with the plaintiff
continue. The litigation is in the discovery phase with no trial date set at
this time. Management believes the exposure on this claim ranges between $50,000
and $80,000, less future payments.

The Company has recognized an obligation in the financial statements of
approximately $90,000, which is recognized as an accounts payable to cover the
potential liability exposure of these other pending legal matters.

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

On or about November 27, 2003 the Company entered into an arrangement to invest
in the development and marketing of a cosmetic line for the Company 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.

A total of $75,000 was paid in 2003 and $626,042 in 2004, all of which has been
expensed. Monthly outgoes to the project will continue at around $50,000 per
month at the present rate of expenditures. Management anticipates the marketing
program being developed should launch in 2005.

On a separate matter, dealing with a marketing consultant the Company signed in
August of 2003 a consulting agreement was signed 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.

                                 CONTINGINCIES:
                                 --------------

The Company has no errors or omissions insurance for Directors and Officers. The
Company is currently looking into this.


                                      F-29
<PAGE>
On December 31, 2002, the Company acquired all assets and selected liabilities
of TRSG Corporation ("TRSG"). Under the terms of the agreement, TRSG chooses
which creditors it continues to owe and all others are passed to the Company.
This agreement has not been agreed upon by the creditors of TRSG. There are
ongoing legal matters going on with TRSG that may or may not implicate the
Company.

In July of 2001, the Company's subsidiary, TRSG acquired the business of A and A
Medical ("A&A"), located in Salt Lake City, Utah. In February 2002, TRSG sold
the business to an unrelated party. The transactions dealing with the activity
of A&A for 2002 have not been audited and was determined not to be auditable
because it is out of business and records are unattainable. The net amount
received and dispersed has been reported in the statement of operations as part
of selling, general and administrative expense. Matters dealing with this issue
may not have been completely resolved, that may or may not affect the Company.
Management is unable to estimate the possible loss exposure, but believes the
ultimate outcome to be minimal for the Company, and has therefore not recognized
any contingent liability on these matters.

                                     OTHER:
                                     ------

During 2003 and 2004, Management is continuing negotiations with the Internal
Revenue Service ("IRS") to settle back payroll taxes due and anticipates a
settlement by year-end.

NOTE 18 - SUBSEQUENT EVENTS:

The Company made a reverse stock split effective March 28, 2005 wherein 500
shares of old stock were exchanged for one share of new stock. This reverse
stock split is recognized in these financial statements retroactive to
inception.


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