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,  2005

[ ]  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)

             (Exact name of registrant as specified in its charter)

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

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

       Registrant's telephone number, including area code: (702) 317-2400

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

Securities registered under Section 12(g) of the Exchange Act:   COMMON STOCK,
                                                                PAR VALUE $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:  $769,759.

     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:  $2,165,000.

     Indicate  the  number  of  shares  outstanding  of each of the registrant's
classes  of  common  stock  as  of  April  7,  2006:  7,217,010,636.

Documents  incorporated by reference: Items 1, 2, 3, 4, 5, 8, 8A, 8B, 9, 10, 11,
12,  13,  and 14 of this Form 10-KSB/A, Amendment No. 2 incorporate by reference
the  registrant's Form 10-KSB for the fiscal year ended December 31, 2005, filed
on  April  17,  2006.

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


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

<S>       <C>                                                                                    <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 . . . . . . . . . . . . . . .   3
Item 6.   Management's Discussion and Analysis or Plan of Operation. . . . . . . . . . . . . . .   3
Item 7.   Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
Item 8.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .  16
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 17, 2006, we filed with the Securities and Exchange Commission our
Annual  Report  on Form 10-KSB for the annual period ended December 31, 2005. On
July  21,  2006,  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,  2005, 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. Management became aware of an accounting error on
October  18,  2006  pertaining to the annual financial statements issued for the
year  ended  December  31,  2004.

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

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

     The  liabilities  could  not  be  confirmed  and so the company relied upon
Nevada  state  law which states that after three years, indebtedness is forgiven
if  there  have  been  no  lawsuits  filed.  This  would  be  consistent  with


                                        1
<PAGE>
paragraph  16 B of SFAS 140, however, the adjustment pertains to prior years and
therefore  will  be  treated as a prior period adjustment and a correction of an
error  even  though  the  liabilities  were  determined to be not valid in 2004.

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

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

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

     This  restatement  of  the  2004  financial  statements  effected  the 2004
financial statements presented in 2005 including the balance sheet, statement of
operations,  statement  of  cash  flows,  and  statement  of stockholders equity
(deficiency).  The  effect of the 2004 restatement also changed the 2005 balance
sheet  and  statement of stockholders equity (deficiency). Note 13 has also been
changed  to  reflect  the  above.

                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.


                                     PART I

ITEM 1.  BUSINESS.

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  17,  2006.

ITEM 2. DESCRIPTION OF PROPERTY.

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  17,  2006.

ITEM 3. LEGAL PROCEEDINGS.

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  17,  2006.

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

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  17,  2006.


                                        2
<PAGE>
                                     PART II

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

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  17,  2006.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

FORWARD-LOOKING INFORMATION

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

     There  are  several  factors  that  could cause actual results or events to
differ  materially  from  those anticipated, and include, but are not limited to
general  economic,  financial and business conditions, changes in and compliance
with  governmental  laws  and  regulations,  including various state and federal
environmental  regulations,  the  ability  to  obtain  additional financing from
outside  investors and/or bank and mezzanine lenders and the ability to generate
sufficient  revenues  to  cover operating losses and position Gateway 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. Management
believes  the information contained in this Form 10-KSB to be accurate as of the
date  hereof.  Changes  may  occur after that date. Gateway 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

     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,  main  subsidiary  of  Gateway  Distributors, Ltd., 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 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 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 the Company 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 2006 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


                                        3
<PAGE>
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.

     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. The starting kits have training material along with
product which will allow the new distributor to get started quicker. The Company
continues  to  spend  a  significant  amount  of  money and time on the internet
website.  Management  feels  that  the  support  of the 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 of 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  which  hasn't  received  the desired marketing
response.  The  product  is  being  offered  to  the distributors in the network
marketing  arena,  and plans for the future are to wholesale the product through
retail  chains  under  the  G-H-3 lines. We hope to expand the customer base and
increase sales. Gateway, through the licensing agreement it has with the Chelsea
Collection,  is  opening  clinics  offering  G-H-3 Internal Rejuvenation Therapy
currently.  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 has received its first shipment of product that has been signatured
and  licensed  by  Pete  Rose  and  affiliates  and  is  available  for  sale.

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


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<PAGE>
-    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 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.


                                        5
<PAGE>
     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 downline.

     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 $100 to $150 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.

     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  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.


                                        6
<PAGE>
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.

     The  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 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:

     "The  Right  Solution will distribute the finest life-enhancing products in
the  world.  Through  effective  leadership,  management  and  entrepreneurial
marketing,  together will provide an opportunity to all Team Members, customers,
employees and Stockholders to earn a fair profit on their investment of time and
or  money."

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 the 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.


                                        7
<PAGE>
     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 an employee of Gateway, its Medical Advisory Board,
outside  advisor,  and  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 the
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 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
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


                                        8
<PAGE>
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
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-


                                        9
<PAGE>
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 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, 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


                                       10
<PAGE>
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  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.


                                       11
<PAGE>
     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  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 2005 COSTS AND CHANGES IN FINANCIAL CONDITION

     Sales  for the year ended December 31, 2005 decreased $384,000 to $770,000,
from  sales  of $1,154,000 for the year ended December 31, 2004. The decrease in
sales  was  a result of Quality Distribution Services (QDS) sales being included
during  2004,  but  excluded in 2005. Quality Distribution Services is now being
recognized  as  an  investment.

     Gross  profit  of  $599,000  for  the  year  ended  December  31, 2005, was
$211,000,  or  26%  lower  than  the gross profit of $810,000 for the year ended
December  31,  2004. As a percentage of sales, gross profit for 2005 as compared
to the same period in the prior year increased approximately 8% from 70% to 78%.
The increase in gross profit as a percentage of sales primarily resulted from an
decrease  in  costs  of goods sold. The decrease in costs of goods sold reflects
that  the  percentage  of  cost of goods on the products of Quality Distribution
services  was  higher  than  that  paid  by  The  Right  Solution  Gateway.

SALES, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling,  general,  and  administrative expenses, as a percentage of sales,
were  373%  for  2005  as compared to 805% for the same period in 2004. Selling,
general,  and  administrative  expenses  for the period ended December 31, 2005,
decreased  $6,389,000  ,  379%, to $2,915,000 from $9,305,000 in the year ending
December  31,  2004.  The  decrease  in  these  expenses resulted primarily from
reduction  in  the  amount  of  outside  consulting  paid  with  stock  to


                                       12
<PAGE>
certain  consultants  hired  to  assist  Gateway  with  acquiring  additional
operations,  real  estate,  product  research  and  marketing  plans.

LOSSES

     Gateway  had  a  net loss of $904,000 for the year ended December 31, 2005,
compared to a net loss of $7,394,000 in 2004. Gateway had a loss from operations
of  $2,316,000 in 2005 compared to a loss from operations of $8,495,000 in 2004.
Gateway's  substantial  decrease  in  losses from operations and net losses were
attributable  to  a significant decrease in payments to consultants both in cash
and  in  stock  for  services as reported in selling, general and administrative
expenses  and  also  to  the  sale  of  real  estate  at  a  gain.

LIQUIDITY AND CAPITAL RESOURCES

     Gateway's  working  capital needs and capital expenditure requirements have
decreased  as  a  result  of  decreased  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 2005, Gateway's working capital decreased $647,000, or 224% deficit
decrease to a positive $289,000 at December 31, 2005 from a negative $358,000 at
December  31,  2004.  This  decrease  was  primarily attributable to real estate
sales,  an  Employee  Stock  Incentive  Program  and  sale of equity securities.

     For  fiscal  year  2005, Gateway's operations used cash flow of $-1,123,000
compared to net cash used of $4,479,000 for the previous fiscal year, a decrease
in  cash  used  of  $5,602,000.

     Gateway  had a cash flow from investing activities of $-179,000 in 2005, as
compared  to  a  negative  cash  flow  of  $4,960,000  in  2004.

     Gateways  stockholders  equity (deficiency) improved $405,000 to a positive
stockholders  equity  of  $763,000  in  2005  from  $358,000  in  2004.

     Cash,  cash  equivalents  and  marketable  securities  totaled  $93,000  at
December  31,  2005  compared  to  $37,000  at December 31, 2004, an increase of
$56,000.

     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  2004 and 2005. 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 $6,907,000 in
2004,  $237,000 in 2005 and $0 to date in 2006 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  2006.


                                       13
<PAGE>
CRITICAL ACCOUNTING POLICIES

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

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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


                                       14
<PAGE>
     In  April  2002,  the  FASB  issued  Statement No. 145, "Rescission of FASB
Statements  No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses  from  Extinguishment  of Debt," and an amendment of that Statement, FASB
Statement  No.  64,  "Extinguishments  of  Debt  Made  to  Satisfy  Sinking-Fund
Requirements"  and  FASB  Statement No. 44, "Accounting for Intangible Assets of
Motor  Carriers."  This  Statement amends FASB Statement No. 13, "Accounting for
Leases,"  to  eliminate  an  inconsistency  between  the required accounting for
sale-leaseback  transactions  and  the  required  accounting  for  certain lease
modifications  that  have  economic  effects  that are similar to sale-leaseback
transactions. The Company does not expect the adoption to have a material impact
to  the  financial  position  or  results  of  operations.

     In  June  2002,  the  FASB  issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting  and  reporting for costs associated with exit or disposal activities
and  nullifies  Emerging  Issues  Task  Force  (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity  (including Certain Costs Incurred in a Restructuring)." The provisions
of  this  statement  are  effective  for  exit  or  disposal activities that are
initiated  after  December  31,  2002,  with  early  application encouraged. The
Company  does not expect the adoption to have a material impact to the financial
position  or  results  of  operations.

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

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

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


                                       15
<PAGE>
     In  April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS)  No.  149,  Amendment  of Statement No. 133 on Derivative Instruments and
Hedging Activities. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial  accounting  and  reporting  of  derivative  instruments  and  hedging
activities and requires that contracts with similar characteristics be accounted
for  on  a  comparable  basis.  The  provisions  of  SFAS  149 are effective for
contracts  entered  into  or  modified  after  June  30,  2003,  and for hedging
relationships  designated  after June 30, 2003. The adoption of SFAS 149 did not
have  a  material  impact  on  the  results of operations or financial position.

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

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-25.

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

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  17,  2006.

ITEM 8A. CONTROLS AND PROCEDURES.

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  17,  2006.

ITEM 8B. OTHER INFORMATION.

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  17,  2006.

                                    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, dated
April  17,  2006.

ITEM 10. EXECUTIVE COMPENSATION.

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  17,  2006.

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, dated
April  17,  2006.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  17,  2006.


                                       16
<PAGE>
ITEM 13. EXHIBITS.

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  17,  2006,  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.
         Certification of Richard A. Bailey, Chief Executive Officer of Gateway Distributors, Ltd., pursuant to 18
 31.1**  U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
         Certification of Richard A. Bailey, Chief Financial Officer of Gateway Distributors, Ltd., pursuant to 18
 31.2**  U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
         Certification of Richard A. Bailey, Chief Executive Officer of Gateway Distributors, Ltd., pursuant to 18
 32.1**  U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
         Certification of Richard A. Bailey, Chief Financial Officer of Gateway Distributors, Ltd., pursuant to 18
 32.2**  U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
</TABLE>
____________
*     Previously filed
**     Filed herewith


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

     Incorporated  by  reference  of  Registrant's  report on Form 10-KSB, dated
April  17,  2006.

                                   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.

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.

<TABLE>
<CAPTION>
      Signature                     Title                        Date
      ---------                     -----                        ----
<S>                    <C>                                <C>

/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
</TABLE>


                                       17
<PAGE>
        GATEWAY DISTRIBUTORS, STOCKTICKERLTD. STOCKTICKERAND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2005


<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>
<TABLE>
<CAPTION>
LAWRENCE SCHARFMAN & CO., CPA PC
<S>                                           <C>
                                              CERTIFIED PUBLIC ACCOUNTS
18 E SUNRISE HIGHWAY,#203                         9608 HONEY BELL CIRCLE
FREEPORT, NY11520                                 BOYNTON BEACH FL,33437
TELEPHONE:(516) 771-5900                          TELEPHONE:(561) 733-0296
FACSIMILE:   (516) 771-2598                       FACSIMILE:   (561) 470-0613

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


<PAGE>
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 dateMonth12Day31Year2005December
31,2005, 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 audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial presentation. We believe that our audit
provided a reasonable basis for our opinion.

The Company has restated its financial statements for the year ended December
31, 2005 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 13 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 31,2005, and the results of
its consolidated operations and cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.

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

LAWRENCE SCHARFMAN CPA PC
OCTOBER 26, 2006


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

                                                      (Restated)
                                                     December 31,
                                                         2005
                                                    --------------
<S>                                                 <C>
                         ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                         $      93,305
  Accounts Receivable                                      23,756
  Inventories                                             373,276
  Due From Chelsea Collection                              90,000
  Property Held for Short Term Investment                       -
  Prepaids                                                      -
                                                    --------------
                              Total Current Assets        580,337
                                                    --------------

PROPERTY & EQUIPMENT
  Property and Equipment, at cost                         410,979
  (Less) accumulated depreciation and amortization       (327,818)
                                                    --------------
                        Total Property & Equipment         83,161
                                                    --------------

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

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

Total Assets                                            3,615,993
                                                    ==============
</TABLE>

               See Notes to Financial Statements

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


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

                                                  (Restated)
                                                 December 31,
                                                     2005
                                                --------------
<S>                                             <C>
                    LIABILITIES

CURRENT LIABILITIES:

Accounts payable:
  Trade Regular                                 $     200,808
  Commissions                                               0

Accrued expenses:
  Payroll and employee benefits                       167,103
  Payroll taxes                                       142,925
  Interest                                            420,944
  Other                                                48,257
Stock Investors                                        94,078
Current maturities of long-term debt                1,378,615
                                                --------------
Total current liabilities                           2,452,730
                                                --------------

LONG-TERM DEBT                                              -

                                                --------------
Total Liabilities                                   2,452,730
                                                --------------

                STOCKHOLDERS' EQUITY

Preferred stock - $.001 par value
  Authorized - 400,000,000 shares
    Series A Preferred
      Authorized - 100,000,000 shares
      14,972,125 issued and outstanding                14,972
    Series B Preferred
      Authorized - 100,000,000 shares
      15,000,000 issued and outstanding                15,000
    No Series Designated Preferred
      Authorized - 200,000,000 shares
      Issued and outstanding - none
Common stock, - $.001 par value
  Authorized - 25,000,000,000 shares
  Issued and outstanding - 2,967,010,636            2,967,010
  Additional paid-in capital                       17,542,204
  Accumulated (deficit)                           (19,375,923)

                                                --------------
Net Stockholders' Equity                            1,163,263
                                                --------------

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

                See Notes to Financial Statements

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


                                      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,
                                                                             2005            2004
                                                                        --------------  --------------
<S>                                                                     <C>             <C>
SALES                                                                   $     769,759   $   1,153,893

COST OF SALES                                                                 170,580         343,744
                                                                        --------------  --------------

GROSS PROFIT                                                                  599,179         810,149
                                                                        --------------  --------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
  Depreciation Expense                                                         47,132         265,668
  Professional Services Not Classified Elsewhere                              783,556       1,545,671
  Development of Jeunesse by Francois Product Line                            497,863         655,757
  Product Development                                                         263,255       4,198,326
  All Other Selling, General and Administrative                             1,323,551       2,639,434
                                                                        --------------  --------------

TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                          2,915,357       9,304,856
                                                                        --------------  --------------

INCOME (LOSS) FROM OPERATIONS                                              (2,316,178)     (8,494,707)
                                                                        --------------  --------------
OTHER INCOME (EXPENSE):
  Gain on Sale of Property held for short term investment                      37,139               -
  Gain on Sale of Property                                                  1,629,871               -
  Gain on Sale of Polar WearZ, Inc. (n.k.a. Chelsea Collection) Stock          50,000               -

  (Loss) on Sale of Equipment                                                       -          (1,774)
  Additional (Loss) Incurred on 2002 Sale of Subsidiary                             -         (40,000)
  (Loss) on Grandma Hammans in Exchange for 51% of Los Cabos                        -         (31,144)
  (Loss) on Sale of Subsidiary - Los Cabos Beverage                            (8,256)              -
  (Loss) change in reporting QDS of Arizona as an investment                  (68,535)              -
  (Impairment)  reporting Subsidiary QDS of Arizona as an investment           (9,101)              -
  (Loss) on Sale of Valley Dr House                                           (26,024)              -
  (Loss) on Stock Investment                                                        -         (25,000)
  (Loss) on Auction Resale Items                                                    -         (13,228)
  Interest Expense                                                           (192,644)       (236,719)
   Other Income                                                                     -          93,243
                                                                        --------------  --------------
TOTAL OTHER INCOME (EXPENSE):                                               1,412,450        (254,622)
                                                                        --------------  --------------

NET INCOME (LOSS) BEFORE MINORITY INTEREST                                   (903,728)     (8,749,329)

MINORITY INTEREST                                                                   -          72,364
                                                                        --------------  --------------
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAX                            (903,728)     (8,676,965)
PROVISION FOR INCOME TAX                                                            -               -
                                                                        --------------  --------------

NET INCOME (LOSS)                                                       $    (903,728)  $  (8,676,965)
                                                                        ==============  ==============

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE                             $       (0.00)  $   (2,965.47)
                                                                        --------------  --------------

BASIC & DILUTED WEIGHTED AVERAGE SHARES OF                                732,728,516           2,926
COMMON STOCK                                                            ==============  ==============
</TABLE>

                       See Notes to Financial Statements.

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


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                            GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                  FOR THE PERIODS ENDED SEPTEMBER 30, 2004 AND DECEMBER 31, 2005

                                        Preferred Stock           Common Stock
                                        Par Value $0.001        Par Value $0.001          Paid in       Restated      Restated
                                     ---------------------  -------------------------     Excess      Accumulated    Net Equity
                                       Shares     Amount       Shares        Amount       of Par       (Deficit)    (Deficiency)
                                     ----------  ---------  -------------  ----------  ------------  -------------  -------------
<S>                                  <C>         <C>        <C>            <C>         <C>           <C>            <C>
Balance - December 31, 2003             726,125  $     726              1  $        1  $ 7,737,264   $ (9,795,231)  $ (2,057,240)

Common Stock Issued:
  For Services - Restricted Stock                                  48,010          48       36,642                        36,690
  For Services - Unrestricted Stock                                15,673          16    4,729,272                     4,729,288
  For Debt - Unrestricted Stock                                         -           -       25,000                        25,000
  For Cash                                                         34,906          34    6,696,802                     6,696,836

Preferred Stock Issued
  For Services - Restricted "A"
  Series                              4,246,000      4,246                                                                 4,246

(Loss) for the Period                                                                                  (8,676,965)    (8,676,965)

                                     ----------  ---------  -------------  ----------  ------------  -------------  -------------
Balance - December 31, 2004           4,972,125      4,972         98,590          99   19,224,980    (18,472,196)       757,855

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

                                     ----------  ---------  -------------  ----------  ------------  -------------  -------------
Balance for December 31, 2005        29,972,125     29,972  2,967,010,636   2,967,009   17,542,205    (19,375,923)     1,163,263
</TABLE>

                        See Notes to Financial Statements

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


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                   GATEWAY DISTRIBUTORS, LTD AND SUBSIDIARIES
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                    (CONDENSED INTERIM FINANCIAL STATEMENTS)

                                                                   (Restated)
                                                   Year Ended      Year Ended
                                                  December 31,    December 31,
                                                      2005            2004
                                                 --------------  --------------
<S>                                              <C>             <C>
OPERATING ACTIVITIES:
Net Income (loss)                                $    (903,728)  $  (8,676,965)
Adjustments to reconcile Net Income
  to net cash provided by operating activities:
  ACCOUNTS RECEIVABLE                                 (178,122)        (40,829)
  INVENTORY                                            120,923        (292,974)
  PREPAIDS                                              25,500         (25,500)
  ACCUMULATED DEPRECIATION                             (47,132)        276,979
  ACCOUNTS PAYABLE                                    (128,533)       (540,100)
  ACCRUED EXPENSES                                     (11,968)        225,534
                                                 --------------  --------------
Net cash provided by operating activities           (1,123,060)     (9,073,855)
                                                 --------------  --------------

INVESTING ACTIVITIES:
  DUE FROM CALBAY                                   (1,361,005)              -
  DUE FROM CHELSEA                                     (90,000)              -
  INVEST PINK SHEET SHELL                             (400,000)              -
  INVESTMENT PROPERTY                                  179,741        (179,741)
  STOCK SOLD RECEIVABLE                                 23,640         160,906
  DUE TO OTHER PARTY                                    (7,544)          7,544
  GENERAL                                                 (394)        (16,011)
  PRODUCTS PENDING                                       4,000        (418,222)
  GOODWILL & FORMULAS                                        -         129,996
  STOCK INVESTORS                                       94,078               -
  MINORITY INTEREST                                     72,364         (72,364)
  COMMON STOCK                                       2,917,715        (569,898)
  PAID IN CAPITAL                                   (1,636,575)     12,060,708
  PREF A STOCK                                          10,000           4,246
  PREF B STOCK                                          15,000               -
                                                 --------------  --------------
Net cash provided by investing activities             (178,980)     11,107,164
                                                 --------------  --------------

FINANCING ACTIVITIES:
  PROPERTY AND EQUIPMENT                             4,230,344      (4,483,586)
  CURRENT PORTION LONG TERM DEBT                       (55,121)       (286,266)
  LONG TERM DEBT                                    (2,820,033)      2,613,508
  ACCUMULATED DEFICIT                                    2,996          (2,996)
                                                 --------------  --------------
Net cash provided BY financing activities            1,358,186      (2,159,340)
                                                 --------------  --------------

Net cash Increase for period                            56,146        (126,031)

Cash at beginning of period                             37,159         163,190
                                                 --------------  --------------

Cash at end of period                            $      93,305   $      37,159
                                                 ==============  ==============
</TABLE>

                        See Notes to Financial Statements

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


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

                                                            Year Ended    Year Ended
                                                           December 31,  December 31,
                                                               2005          2004
                                                           ------------  ------------
<S>                                                        <C>           <C>
SUPPLEMENTAL DISCLOSURE

CASH PAID FOR:
  Interest                                                      192,645       236,719
  Taxes                                                               0             0

NON CASH INVESTING AND FINANCING ACTIVITIES

STOCK ISSUED FOR:
  Services                                                      862,022     4,770,224
  Debt                                                                0        25,000
  Investors                                                     338,009             0

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

                        See Notes to Financial Statements

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


                                      F-7
<PAGE>
                           GATEWAY DISTRIBUTORS, LTD.

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2005

NOTE 1 - ORGANIZATION, HISTORY AND BUSINESS ACTIVITY:

The Company incorporated on May 26th, 1993 as a Nevada corporation under the
name of Gateway Distributors, Ltd. ("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.

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

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

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

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

On April 30, 2004, 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.


                                      F-8
<PAGE>
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 ("Los Cabos") to handle the operations of the sale of private label water.

On February 28, 2005, the sales of Los Cabos did not meet expectations and the
Company entered into an agreement with Blaine Wendtland wherein he assumed all
ownership and obligations and the Company terminated its commitments and
relationships with Los Cabos and Blaine Wendtland.

During 2005 and forward, the Company does not report the operations of Quality
Distribution Services of Arizona ("QDS') in the financial statements, but
recognizes it as an investment, not an equity position. Management has
determined it to be in the best interest of the Company not to continue funding
this joint venture. Negotiations are in process wherein the Company would
dispose of its 51% interest.

On June 2, 2005, the Company sold its wholly owned subsidiary, Aspen Cove Resort
Incorporated ("ACR"), in combination with selling the property on which the
property is located.

On September 30, 2005, the Company sold its property which housed the corporate
offices and warehouse located at 3220 Pepper Lane, Las Vegas, Nevada 89120. The
Company has been utilizing space in that building while waiting for the new
building to be ready for occupancy.

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 through the sale date of June 2, 2005, Quality Distribution
Services of Arizona incorporated June 7, 2004 for the year 2004, and Los Cabos
Beverage from December 21, 2004 its incorporation date, to February 28, 2005
when all commitments and obligations were terminated. All significant
Intercompany transactions and balances have been eliminated in consolidation.


                                      F-9
<PAGE>
(b) - CASH AND CASH EQUIVALENTS
-------------------------------

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

(c) - 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, 2005 and 2004 was $47,132
and $265,668, respectively.


                                      F-10
<PAGE>
(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 days after year end. There were no funds due at year end.

(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 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) - ADVERTISING COSTS.
------------------------

The Company conducts nondirect response advertising for which the costs are
expensed when incurred. Total advertising costs of $XXX,XXX and $339,873 were
incurred for the years ended December 31, 2005 and 2004, respectively.


                                      F-11
<PAGE>
(n) - REVENUE RECOGNITION
-------------------------

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

(o) - RECLASSIFICATIONS
-----------------------

Certain amounts in 2004 have been reclassified and represented to conform to the
current financial statement presentation.

(p) - 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.

(q) - CONCENTRATIONS
--------------------

The Company reports no significant concentrations.

(r) - 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 Freedom"). 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 Freedom into Grandma Hammans. The asset purchase
was reported on the purchase method of accounting and has been consolidated with
the Company.

When the Company purchased the assets of Grandma Hamman's Specialty Foods, LLC
on August 15, 2002, the formulas and trademark were recognized. On June 2, 2003,
the Company signed an agreement renegotiating the value of the asset purchase
and the method of payment.

Also as a condition of the renegotiation, the owner of Los Cabos Freedom
relinquished his claim to 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 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.


                                      F-12
<PAGE>
On December 21, 2004 all assets and liabilities of Grandma Hammans, other than
some minor residual receivables and payables, passed to Blaine Wendtland in
exchange for a 51% interest in the sale of private label water that Blaine
Wendtland had developed. To date the subsidiary, Grandma Hammans, remains
inactive.

NOTE 4 - 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 Wendtland received all rights
to Grandma Hammans GHF product and assumed and settled the debts of $193,833
that Grandma Hammans 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 ("Los Cabos Beverage") to handle the operations of the sale of private label
water. Operations actually began in 2005.

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

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

NOTE 5 - 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 now being traded on pink sheets as a public entity. Chelsea
Collection is majority owned by the officers of the Company and Francois
Vautour, an unrelated third party of the Company. Chelsea Collection in an
agreement dated November 25, 2003 acquired among other things from Francois
Vautour and assigns, except for Romania, all United States and Canada rights,
trademarks, formulas and licenses of the Jeunesse by Francois Vautour and the
GH3 skin care line.


                                      F-13
<PAGE>
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 of $10,000. Once the purchase
price is paid, then a royalty of up to 15% of the gross sales less cost of goods
sold steps into place and continues thereafter. The cost outlays have been
charged to the statement of operations as a selling, general and administrative
expense which were $487,863 for 2005 and $655,757 for 2004.

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

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

During third quarter 2005, the Company sold to Chelsea Collection its
controlling block of preferred restricted stock in Polar BearZ, Inc. (refer to
note "Real Estate Sales") for $250,000. Chelsea Collection name changed the
corporation to "The Chelsea Collection, Inc." As of December 31, 2005, Chelsea
Collection had paid off all but approximately $90,000 of the $250,000 sales
price.

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") 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.

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


                                      F-14
<PAGE>
The consolidated financial statements include the financial information of QDS
for 2004, summarized in condensed form here, rounded to the nearest $1,000::

<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, 2005, the Company has purchased and sold various real estate
properties. Some of these properties were held for investment while others were
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 owned 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.


                                      F-15
<PAGE>
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.

The Company had originally purchased a 50% ownership interest in the commercial
property the Company used as its office and warehouse facilities, at 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 were in conjunction with the purchase of some of the real estate
purchases and were 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 office and warehouse of the Company
at 3220 Pepper Lane. As mentioned previously, the Company also assumed the full
debt obligation against these two properties.

All of these assets are reported at cost. No gain or loss are recognized on
property exchanges made during the year.

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

<TABLE>
<CAPTION>
    2004 ONLY                                       Cost     Debt Owed
<S>                                              <C>         <C>
CURRENT ASSETS
    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>
During 2005, the Company sold all of its real estate properties with the
exception of one minor property that had cost $31,583. The Company retained most
of its transportation equipment valued at $187,797. There is no debt currently
owed on these assets.

The Company has no off-balance sheet arrangements.

NOTE 8 - TERM DEBT:

Term debt consisted of the following at December 31,2005:

<TABLE>
<CAPTION>
<S>                                                     <C>
Convertible notes payable                                  1,014,734

Notes payable - investors, no specific monthly
payables, interest from 0% to 10%, unsecured                149,000

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                168,121
                                                        ------------

Total term debt                                           1,378,615

(Less) current portion                                   (1,378,615)
                                                        ------------

Long term portion                                       $         0
                                                        ------------
</TABLE>

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, 2005, is also convertible into the Company's common stock. At December 31,
2005 the approximate total of common shares available through conversion of the
aforementioned debt is 3,382,000,000.

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,
2005 the convertible notes issued during the year ended December 31, 2004 and
prior have not been converted to common stock as the initial public offering has
not transpired.


                                      F-17
<PAGE>
NOTE 9 - INCOME TAXES:

No provision was made for income taxes in 2005 and 2004 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,
2005, 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
2024.

NOTE 10 - EQUITY:

(a) - REVERSE STOCK SPLITS
--------------------------

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.

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 year 2004, the total number of shares approved to issue in these
plans was 8,500,000,000 (8 billion 500 million). There wee no additional plans
issued in 2005. 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, 2005 and 2004, the
remaining shares approved to issue under the RSP plans are 1,093,000,000 and
1,756,000,000 respectively.

During 2005 and 2004, the Company issued 663,000,000 and 6,196,680,000 shares
respectively out of the RSP plan before stock splits. The number of shares after
stock splits is recognized on the statement of stockholders equity.

(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 2005 and 2004, no stock was issued for accounts payable debt
relief.


                                      F-18
<PAGE>
(d) - NOTES CONVERTIBLE INTO STOCK
----------------------------------

There are $1,014,734 of convertible notes payable as of December 31, 2005.

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, 2005, is also convertible into the Company's common stock. At December 31,
2005, the approximate total of common shares available through conversion of the
aforementioned debt is 3,382,000,000 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 was converted in 2005.

(e) - 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

(f) - 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 year 2004, the total number of shares approved to issue in these
plans was 18,200,000,000 (18 billion, 200 million). Stock issued to employees
through the plan is not affected by reverse splits until 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, 2005 and 2004, the remaining shares approved to issue under the
ESIP plans are 5,101,150,000 and 6,534,400,000 respectively.

During 2005 and 2004, the Company issued 1,433,250,000 and 13,680,245,400 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 2005 and 2004 are
$227,783 and $6,857,743 respectively.


                                      F-19
<PAGE>
(g) - OTHER STOCK ISSUED FOR SERVICES PROVIDED
----------------------------------------------

During 2005 and 2004, the Company issued to officers 23,000,000 and 48,010
shares of restricted common stock, after reverse stock splits, respectively.
Restricted stock is not marketable. Consequently, no value can be determined for
this restricted stock issued. However a nominal amount of $10,000 and $33,142
has been assigned as the value for this non-marketable stock issued.

During 2005 and 2004, the Company issued to officers 10,000,000 and 4,246,000
shares of restricted preferred stock respectively. Restricted stock is not
marketable. Consequently, no value can be determined for this restricted stock
issued. However a nominal amount of $10,000 and $4,246 has been assigned as the
value for this non-marketable stock issued. Preferred stock was not affected by
the reverse stock splits.

(h) - RESTRICTED STOCK ISSUED TO CONSULTANTS
--------------------------------------------

During 2005 and 2004, the Company issued 400,600,000 and 1 restricted shares
respectively, after reverse stock splits, to consultants for services rendered.
Restricted stock has no measurable value. However, $154,180 and $3,500 were
assigned as value for this stock.

(i) - RESTRICTED STOCK ISSUED TOEMPLOYEES
-----------------------------------------

During 2005, the Company issued 2,500,000 restricted shares to consultants for
services rendered. Restricted stock has no measurable value. However, $750 was
assigned as value for this stock.

(j) - RESTRICTED STOCK ISSUED TOINVESTORS
-----------------------------------------

During 2005, the Company issued 1,975,000,000 restricted shares to consultants
for services rendered. Restricted stock has no measurable value. However,
$1,975,000 was received for this stock.

NOTE 11 - 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 $168,121 and $118,474 for December 31, 2005 and 2004 respectively
(Refer to Note on Term Debt). No amounts are due from related parties.

During 2005 and 2004, the daughter of the Chief Executive Officer worked as
Marketing Representative (reassigned in 2005 to non-managerial responsibilities,
shortly thereafter, left the Company) and the son of the Chief Operations
Officer serves as Vice President of Operations with additional responsibilities
in Information Technology. Two other children of the officers work for the
Company in non-managerial positions.


                                      F-20
<PAGE>
NOTE 12 - OPERATING LEASES:

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

                 Year ending December 31:
                 2006                          1,506
                                              ------
                 Total payments               $1,506
                                              ======

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 year ended December 31, 2004,
was $82,002. There was no rent expense in 2005.

NOTE 13 - 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 for 2004 and 2005are 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                 6,132,161                  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>

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

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

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

NOTE 14 - SEARCH FOR AND DEVELOPMENT OF PRODUCTS, PRODUCT LINES AND JOINT
VENTURES:

During 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.

Among those investments include the down payments made on the building the
Company had as 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 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.


                                      F-21
<PAGE>
As of December 31, 2005 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.

The most significant projects the Company had invested in last 2 years through
December 31, 2005 were:

<TABLE>
<CAPTION>
                                                  Product Developed               Expensed as Part of
                                                 Awaiting  Production          General & Administrative
                                                  (All Paid in Cash)            (Paid in Cash & Stock)
                                                 --------------------  ------------------------------------------
                                                      2004 Only                2005                  2004
<S>                                              <C>                   <C>                   <C>
Jeuness by Francois - initial development costs               230,573               497,863               655,757

Finders Fees for real estate transactions                                           192,000                83,700

IGIA Product                                                                              0               691,200

Pete Rose Product Line                                        187,650                 7,200             1,530,238

Zufelt Marketing Strategies                                                          56,940                42,840

Distributor Recruitment                                                              11,060               338,922

All other projects - future or abandoned                                            418,152             1,415,131
                                                 --------------------  ------------------------------------------

Total                                                         418,223             1,183,215             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.

The projects listed above

NOTE 15 - 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


                                      F-22
<PAGE>
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 2004 and 2005 stock sales provided cash to the company. Cash
received was approximately $6,900,000 for 2004 and $237,000 through 2005 with a
total received to date of $8,900,000.

NOTE 16 - 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.


                                      F-23
<PAGE>
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 attorneys have been instructed to both vigorously defend the claims made
against Gateway and Bailey and to prosecute the claims made against Suburban.

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 continued until discovery
was scheduled to close 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


                                      F-24
<PAGE>
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 costs associated with this matter could range from $0 to
$220,000. No enforcement action has been filed against the Company to date.

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 made payment on the
uncontested amount while negotiations with the plaintiff continued. Settlement
was made in March 2006 for $50,000. Payable in monthly installments of $5,000
with an initial payment of $10,000.

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.

$626,042 was paid in 2004 and $497,863 in 2005, 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 this year.

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. Management
has also signed another agreement, dated December 19, 2005 with an additional
consultant for additional training and recruitment services.

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

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

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 2004 and 2005, Management is continuing negotiations with the Internal
Revenue Service ("IRS") to settle back payroll taxes due and anticipates a
settlement before year-end.

NOTE 17 - SUBSEQUENT EVENTS:

The Company purchased a new building in March 2006 to house its offices and
warehouse at 2555 E Washburn Ave, North Las Vegas, Nevada 89081. Operations
including shipping have been moved to this building.


                                      F-25