**SECURITIES
AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 
 **Form
10-KSB**
 
 [X]
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
 
 **For
the fiscal year ended December 31, 2004**
 
 [   ]
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
  
 For the
transition period from _______________ to _______________.
 
 
 **Commission
file number: 000-49687**
 
 **M-GAB
Development Corporation**
 (Name of
small business issuer in its charter)
 
 **Florida**
      (State or other jurisdiction of
      incorporation or organization)
    **33-0961490**
      (I.R.S. Employer
      Identification No.)**22342 Avenida Empresa, Suite 220**
      **Rancho Santa Margarita, CA**
      (Address of principal executive offices)
    **92688**
      (Zip Code)
 
 ****
 **Issuer’s
telephone number (949) 635-1240**
 
  
 **Common
stock, par value $0.001**
 (Title of
class)
  X
 
  
 State
issuer’s revenues for its most recent fiscal year.  The issuer had no
revenues for the year ended December 31, 2004.
 
  
  
 **DOCUMENTS
INCORPORATED BY REFERENCE**
 
  
  
 X __


****


****


**M-GAB
Development Corporation**




**TABLE
OF CONTENTS**


**PART I**
    
    3ITEM 1
    DESCRIPTION OF BUSINESS
    3ITEM 2
    DESCRIPTION OF PROPERTY
    7ITEM 3
    LEGAL PROCEEDINGS
    7ITEM 4
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    7**PART II**
    
    8ITEM 5
    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS
    8ITEM 6
    MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
    OPERATION
    9ITEM 7
    FINANCIAL STATEMENTS
    13ITEM 8
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE
    14ITEM 8A
    DISCLOSURE CONTROLS AND PROCEDURES
    14ITEM 8B
    OTHER INFORMATION
    14**PART III**
    
    15ITEM 9
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
    15ITEM 10
    EXECUTIVE COMPENSATION
    16ITEM 11
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT
    18ITEM 12
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    20ITEM 13
    EXHIBITS AND REPORTS ON FORM 8-K
    20ITEM 14
    PRINCIPAL ACCOUNTANTS FEES AND SERVICES
    21




2


**PART I**

This Annual Report includes forward-looking statements within the
meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These
statements are based on management's beliefs and assumptions, and on information
currently available to management. Forward-looking statements include the
information concerning possible or assumed future results of operations of the
Company set forth under the heading “Management's Discussion and Analysis of
Financial Condition or Plan of Operation.” Forward-looking statements also
include statements in which words such as “expect,” “anticipate,” “intend,”
“plan,” “believe,” “estimate,” “consider” or similar expressions are used.

Forward-looking statements are not guarantees of future
performance. They involve risks, uncertainties and assumptions. The Company's
future results and shareholder values may differ materially from those expressed
in these forward-looking statements. Readers are cautioned not to put undue
reliance on any forward-looking statements.

**ITEM 1 - DESCRIPTION OF BUSINESS**

**General**

M-GAB Development
Corporation, a Florida corporation (the “Company”) was incorporated in March
2001. From inception through early 2003, our business was the development,
marketing, and distribution of an interactive travel brochure. On May 16, 2003,
we filed an election to be treated as a business development company (“BDC”)
under the Investment Company Act of 1940 (the “1940 Act”), which became
effective on the date of filing.

Subsequent to the BDC election our principal business is to make
venture capital investments in early-stage and/or developing enterprises that
are principally engaged in the development or exploitation of inventions,
technological improvements, and new or unique products and services. Our
principal objective is long-term capital appreciation. We may invest in debt
securities of these companies, or may acquire an equity interest in the form of
common or preferred stock, warrants or options to acquire stock or the right to
convert the debt securities into stock. We may invest alone, or as part of a
larger investment group. Consistent with our status as a BDC and the purposes of
the regulatory framework for BDC’s under the 1940 Act, we will provide
managerial assistance, potentially in the form of a consulting agreement or in
the form of a board of director’s seat, to the developing companies in which we
invest.

In addition, we may
acquire either a minority or controlling interest in mature companies in a
roll-up strategy. It is anticipated that any acquisitions will be primarily for
our stock, or a combination of cash and stock. The principal objective of
acquisitions pursuant to a roll-up strategy would be to consolidate an industry
and either sell the acquired entities as a larger unit, or take the unit public
through an initial public offering, spin-off to our shareholders, or reverse
merger into a publicly traded shell corporation.

We operate as an internally managed investment company whereby our
officers and employees conduct our operations under the general supervision of
our Board of Directors. We have not elected to qualify to be taxed as a
regulated investment company as defined under Subchapter M of the Internal
Revenue Code, we do not have any intellectual property protections nor does our
management feel that any is necessary, and we have not spent any funds on
research and development or compliance with environmental laws during the last
two fiscal years.

3
**Regulation as a BDC**

Although the 1940 Act exempts a BDC from registration under that
Act, it contains significant limitations on the operations of BDC’s. Among other
things, the 1940 Act contains prohibitions and restrictions relating to
transactions between a BDC and its affiliates, principal underwriters and
affiliates of its affiliates or underwriters, and it requires that a majority of
the BDC’s directors be persons other than “interested persons,” as defined under
the 1940 Act. The 1940 Act also prohibits a BDC from changing the nature of its
business so as to cease to be, or to withdraw its election as, a BDC unless so
authorized by the vote of the holders of a majority of its outstanding voting
securities. BDC’s are not required to maintain fundamental investment policies
relating to diversification and concentration of investments within a single
industry.

Generally, a BDC must be primarily engaged in the business of
furnishing capital and providing managerial expertise to companies that do not
have ready access to capital through conventional financial channels. Such
portfolio companies are termed “eligible portfolio companies.” More
specifically, in order to qualify as a BDC, a company must (1) be a domestic
company; (2) have registered a class of its equity securities or have filed a
registration statement with the Securities and Exchange Commission pursuant to
Section 12 of the Securities Exchange Act of 1934; (3) operate for the purpose
of investing in the securities of certain types of portfolio companies, namely
immature or emerging companies and businesses suffering or just recovering from
financial distress; (4) extend significant managerial assistance to such
portfolio companies; and (5) have a majority of “disinterested” directors (as
defined in the 1940 Act).

An eligible portfolio company is, generally, a U.S. company that
is not an investment company and that (1) does not have a class of securities
registered on an exchange or included in the Federal Reserve Board’s
over-the-counter margin list; or (2) is actively controlled by a BDC and has an
affiliate of a BDC on its board of directors; or (3) meets such other criteria
as may be established by the Securities and Exchange Commission. Control under
the 1940 Act is generally presumed to exist where a BDC owns 25% of the
outstanding voting securities of the company.

The 1940 Act prohibits or restricts companies subject to the 1940
Act from investing in certain types of companies, such as brokerage firms,
insurance companies, investment banking firms and investment companies.
Moreover, the 1940 Act limits the type of assets that BDC’s may acquire to
“qualifying assets” and certain assets necessary for its operations (such as
office furniture, equipment and facilities) if, at the time of acquisition, less
than 70% of the value of the BDC’s assets consist of qualifying assets.
Qualifying assets include: (1) securities of companies that were eligible
portfolio companies at the time the BDC acquired their securities; (2)
securities of bankrupt or insolvent companies that were eligible at the time of
the BDC’s initial acquisition of their securities but are no longer eligible,
provided that the BDC has maintained a substantial portion of its initial
investment in those companies; (3) securities received in exchange for or
distributed in or with respect to any of the foregoing; and (4) cash items,
government securities and high-quality short-term debt. The 1940 Act also places
restrictions on the nature of the transactions in which, and the persons from
whom, securities can be purchased in order for the securities to be considered
qualifying assets. These restrictions include limiting purchases to transactions
not involving a public offering and acquiring securities from either the
portfolio company or its officers, directors, or affiliates.

A BDC is permitted to invest in the securities of public companies
and other investments that are not qualifying assets, but those kinds of
investments may not exceed 30% of the BDC’s total asset value at the time of the
investment.

4
A BDC must make significant managerial assistance available to the
issuers of eligible portfolio securities in which it invests. Making available
significant managerial assistance means, among other things, any arrangement
whereby the BDC, through its directors, officers or employees, offers to
provide, and, if accepted does provide, significant guidance and counsel
concerning the management, operations or business objectives and policies of a
portfolio company. The portfolio company does not have to accept the BDC’s offer
of managerial assistance, and if they do accept may be required to pay
prevailing market rates for the services.

We do not currently
have any investments in eligible portfolio companies.

**Employees**

Other than our
current sole officer, we do not have any employees, and do not anticipate having
any other employees other than administrative personnel in the future.

**Statement of Risk Factors and Other
Considerations**

On at least an
annual basis, we are required to provide our shareholders with a statement of
risk factors and other considerations for their review. These risk factors and
other considerations include:

***We have not made any investments into other
companies.*** We have not yet made any investments into other
companies, and thus we have virtually no assets. We need to raise capital before
we can make investments into, and offer managerial assistance to, other
companies. We may not be successful in raising capital. If we are successful in
raising capital, we may make investments that turn out to be worthless.

***We have never generated any revenue, and we are not
profitable****.*We were incorporated in March 2001 and have
generated no revenue to date. Our primary activity to date has been development
of our business plan, which has changed since our inception. Our success is
dependent upon the successful development of our business model as a business
development company, as to which there is no assurance. Unanticipated problems,
expenses and delays are frequently encountered in establishing a new business.
These include, but are not limited to, inadequate funding, competition, and
investment development. Our failure to meet any of these conditions would have a
materially adverse effect upon us and may force us to reduce or curtail
operations. We may not ever be profitable.

***We need to raise capital in order to fulfill our
business plan***. To date we have relied on private funding from our
founders and directors, short-term borrowing, and capital raised from the sale
of our common stock to fund operations. We have generated no revenues and have
extremely limited cash liquidity and capital resources. Any equity financings
could result in dilution to our stockholders. Debt financing may result in high
interest expense. Any financing, if available, may be on unfavorable terms. If
adequate funds are not obtained, we may be required to reduce or curtail
operations.

***Investing in our stock is highly speculative and you
could lose some or all of your investment*****.**The
value of our common stock may decline and may be affected by numerous market
conditions, which could result in the loss of some or the entire amount invested
in our stock. The securities markets frequently experience extreme price and
volume fluctuations that affect market prices for securities of companies
generally, and very small capitalization companies in particular.

5
***Investing in our stock may be inappropriate for your
risk tolerance*****.**Our planned investments into
other companies, in accordance with our investment objective and principal
strategies, result in a far above average amount of risk and volatility and may
well result in loss of principal.

***We will face a lot of competition, most of which is
better capitalized and more experienced than us*****.**We will face competition in our investing activities from private
venture capital funds, investment affiliates of large industrial, technology,
service and financial companies, small business investment companies, wealthy
individuals and foreign investors. As a regulated business development company
(“BDC”), we are required to disclose quarterly the name and business description
of portfolio companies and value of any portfolio securities. Most of our
competitors are not subject to this disclosure requirement. Our obligation to
disclose this information could hinder our ability to invest in certain
portfolio companies. Additionally, other regulations, current and future, may
make us less attractive as a potential investor to a given portfolio company
than a private venture capital fund.

***We are subject to regulatory risks as a business
development company*****.**We are subject to regulation
as a BDC. The loans and other investments that we expect to make in small
business concerns are extremely speculative. Many of these concerns will be
privately held. Even if a public market for their securities later develops, the
securities we purchase are likely to be restricted from sale or other transfer
for significant periods of time. These securities will be very illiquid.

***The services of our directors and officer are key to
our future success*****.** We are dependent for the
selection, structuring, closing and monitoring of its investments on the
diligence and skill of our officer, Carl M. Berg, and each of our directors. Our
future success depends to a significant extent on the continued service and
coordination of its senior management team.

***We plan to invest primarily in small, private
companies*****.** There are significant risks inherent
in our planned venture capital business. We intend to invest a substantial
portion of our assets in early stage or start-up companies. These private
businesses tend to be thinly capitalized, unproven small companies with risky
technologies that lack management depth and have not attained profitability or
have no history of operations. Because of the speculative nature and the lack of
a public market for these investments, there is significantly greater risk of
loss than is the case with traditional investment securities. We expect that
some of our investments will be a complete loss or will be unprofitable and that
some will appear to be likely to become successful but never realize their
potential. We intend to be risk seeking rather than risk averse in our approach
to venture capital and other investments. Neither our investments nor an
investment in our stock is intended to constitute a balanced investment program.
We intend to rely to a large extent upon proceeds from sales of investments
rather than investment income to defray a significant portion of our operating
expenses. Such sales are unpredictable and may not occur. The terrorist acts in
the United States of September 11, 2001 are the type of events that could
severely impact a small company that does not have as many resources to ride out
market downturns and would need immediate investment capital that might be
temporarily unavailable.

***There will be no liquid market for our portfolio
investments*****.**Most of our intended investments
will be either equity securities acquired directly from small companies or below
investment grade subordinated debt securities. Our portfolio of equity
securities will usually be subject to restrictions on resale or otherwise have
no established trading market. The illiquidity of most of our portfolio may
adversely affect our ability to dispose of such securities at times when it may
be advantageous for us.

Even if our portfolio companies are able to develop commercially
viable products, the market for new products and services is highly competitive
and rapidly changing. Commercial success is difficult to predict and the
marketing efforts of our expected portfolio companies may not be
successful.

6
***Our board of directors will value our portfolio
investments*****.**There is typically no public market
of equity securities of the small privately held companies in which we intend to
invest. As a result, the valuation of the equity securities in our portfolio are
likely to be stated at fair value as determined by the good faith estimate of
our Board of Directors. In the absence of a readily ascertainable market value,
the estimated value of our portfolio of securities may differ significantly,
favorably or unfavorably, from the values that would be placed on the portfolio
if a ready market for the equity securities existed.

***Our quarterly results will
fluctuate*****.**Our quarterly operating results could
fluctuate as a result of a number of factors. These factors include, among other
things, variations in and the timing of the recognition of realized and
unrealized gains or losses, the degree to which portfolio companies encounter
competition in their markets and general economic conditions. As a result of
these factors, results for any one quarter should not be relied upon as being
indicative of performance in future quarters.

**ITEM 2 - DESCRIPTION OF PROPERTY**

We utilize the
office of our legal counsel, The Lebrecht Group, APLC, under a verbal agreement
where we do not pay rent or reimburse him for the minimal expenses
incurred.

**ITEM 3 - LEGAL PROCEEDINGS**

We are not a party
to or otherwise involved in any legal proceedings.

**ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS**

No matters were submitted to a vote of the security holders during
the three month period ended December 31, 2004.
7**PART II**

**ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS**

Our securities are
not listed for trading on any exchange or quotation service. We are not required
to comply with the timely disclosure policies of any exchange or quotation
service. The requirements to which we would be subject if our securities were so
listed typically included the timely disclosure of a material change or fact
with respect to our affairs and the making of required filings. Although we are
not required to deliver an annual report to security holders, we intend to
provide an annual report to our security holders, which will include audited
financial statements.

There are currently
warrants outstanding to acquire 333,334 shares of our common stock at $0.15 per
share. Other than these warrants, there are no outstanding options or warrants
to purchase, or securities convertible into, shares of our common stock. If we
are successful in getting our common stock traded, of the 6,383,845 shares of
common stock outstanding, (i) 10,000 shares held by 20 shareholders of record
were sold pursuant to an effective registration statement and may be sold
without restriction, (ii) 13,000 shares held by 12 shareholders of record were
sold in a private placement over two years ago and the resale of those shares
was subsequently registered, and thus the shares may be sold either pursuant to
the effective registration statement or pursuant to Rule 144(k), (iii) 450,000
shares are held by one shareholder who may sell all of them pursuant to Rule
144(k), and (iv) 360,845 shares held by 42 shareholders were acquired pursuant
to an exemption from registration under Regulation E, promulgated under the
Securities Act, and may be sold without restriction. In addition to the above,
Mr. Carl Berg, our sole officer and director, is the holder of 5,550,000 shares
and may sell up to 63,838 shares every 90 days pursuant to Rule 144.

The number of holders of record of shares of our common stock is
seventy seven (77).

There have been no
cash dividends declared on our common stock. Dividends are declared at the sole
discretion of our Board of Directors.

The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure relating to the market for penny stocks in
connection with trades in any stock defined as a penny stock. The Commission has
adopted regulations that generally define a penny stock to be any equity
security that has a market price of less than $5.00 per share, subject to a few
exceptions which we do not meet. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated therewith.8**ITEM 6 - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION**

Our Management’s Discussion and Analysis contains not only
statements that are historical facts, but also statements that are
forward-looking (within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934). Forward-looking
statements are, by their very nature, uncertain and risky. These risks and
uncertainties include international, national and local general economic and
market conditions; demographic changes; our ability to sustain, manage, or
forecast growth; our ability to successfully make and integrate acquisitions;
existing government regulations and changes in, or the failure to comply with,
government regulations; adverse publicity; competition; fluctuations and
difficulty in forecasting operating results; changes in business strategy or
development plans; business disruptions; the ability to attract and retain
qualified personnel; the ability to protect technology; and other risks that
might be detailed from time to time in our filings with the Securities and
Exchange Commission.

Although the forward-looking statements in this Annual Report
reflect the good faith judgment of our management, such statements can only be
based on facts and factors currently known by them. Consequently, and because
forward-looking statements are inherently subject to risks and uncertainties,
the actual results and outcomes may differ materially from the results and
outcomes discussed in the forward-looking statements. You are urged to carefully
review and consider the various disclosures made by us in this report and in our
other reports as we attempt to advise interested parties of the risks and
factors that may affect our business, financial condition, and results of
operations and prospects.

**Plan of Operation**

We were incorporated in March 2001. On May 16, 2003, we filed an
election to be treated as a business development company (“BDC”) under the
Investment Company Act of 1940 (the “1940 Act”), which became effective on the
date of filing.

Subsequent to the BDC election our principal business is to make
venture capital investments in early-stage and/or developing enterprises that
are principally engaged in the development or exploitation of inventions,
technological improvements, and new or unique products and services. Our
principal objective is long-term capital appreciation. We may invest in debt
securities of these companies, or may acquire an equity interest in the form of
common or preferred stock, warrants or options to acquire stock or the right to
convert the debt securities into stock. We may invest alone, or as part of a
larger investment group. Consistent with our status as a BDC and the purposes of
the regulatory framework for BDC’s under the 1940 Act, we will provide
managerial assistance, potentially in the form of a consulting agreement or in
the form of a board of director’s seat, to the developing companies in which we
invest.

In addition, we may
acquire either a minority or controlling interest in mature companies in a
roll-up strategy. It is anticipated that any acquisitions will be primarily in
exchange for our common stock, or a combination of cash and stock. The principal
objective of acquisitions pursuant to a roll-up strategy would be to consolidate
an industry and either sell the acquired entities as a larger unit, or take the
unit public through an initial public offering, spin-off to our shareholders, or
reverse merger into a publicly traded shell corporation.

We operate as an internally managed investment company whereby our
officers and employees conduct our operations under the general supervision of
our Board of Directors. We have not elected to qualify to be taxed as a
regulated investment company as defined under Subchapter M of the Internal
Revenue Code.

9
We are currently in discussions with different market makers
regarding the possibility of them filing an application to list our securities
on the OTC Bulletin Board. We anticipate being listed for trading on the OTC
Bulletin Board during the second or third quarter of 2005.

Management does not
anticipate that we will engage in any material product research and development,
nor do we anticipate that we will purchase a plant or significant
equipment.

Our financial statements have been prepared assuming we will
continue as a going concern. Because we have not generated any revenues to date
and have minimal capital resources, our Certified Public Accountants included an
explanatory paragraph in their report raising substantial doubt about our
ability to continue as a going concern.

**Regulation as a BDC**

Although the 1940 Act exempts a BDC from registration under that
Act, it contains significant limitations on the operations of BDC’s. Among other
things, the 1940 Act contains prohibitions and restrictions relating to
transactions between a BDC and its affiliates, principal underwriters and
affiliates of its affiliates or underwriters, and it requires that a majority of
the BDC’s directors be persons other than “interested persons,” as defined under
the 1940 Act. The 1940 Act also prohibits a BDC from changing the nature of its
business so as to cease to be, or to withdraw its election as, a BDC unless so
authorized by the vote of the holders of a majority of its outstanding voting
securities. BDC’s are not required to maintain fundamental investment policies
relating to diversification and concentration of investments within a single
industry.

Generally, a BDC must be primarily engaged in the business of
furnishing capital and providing managerial expertise to companies that do not
have ready access to capital through conventional financial channels. Such
portfolio companies are termed “eligible portfolio companies.” More
specifically, in order to qualify as a BDC, a company must (1) be a domestic
company; (2) have registered a class of its equity securities or have filed a
registration statement with the Securities and Exchange Commission pursuant to
Section 12 of the Securities Exchange Act of 1934; (3) operate for the purpose
of investing in the securities of certain types of portfolio companies, namely
immature or emerging companies and businesses suffering or just recovering from
financial distress; (4) extend significant managerial assistance to such
portfolio companies; and (5) have a majority of “disinterested” directors (as
defined in the 1940 Act).

An eligible portfolio company is, generally, a U.S. company that
is not an investment company and that (1) does not have a class of securities
registered on an exchange or included in the Federal Reserve Board’s
over-the-counter margin list; or (2) is actively controlled by a BDC and has an
affiliate of a BDC on its board of directors; or (3) meets such other criteria
as may be established by the Securities and Exchange Commission. Control under
the 1940 Act is generally presumed to exist where a BDC owns 25% of the
outstanding voting securities of the company.

The 1940 Act prohibits or restricts companies subject to the 1940
Act from investing in certain types of companies, such as brokerage firms,
insurance companies, investment banking firms and investment companies.
Moreover, the 1940 Act limits the type of assets that BDC’s may acquire to
“qualifying assets” and certain assets necessary for its operations (such as
office furniture, equipment and facilities) if, at the time of acquisition, less
than 70% of the value of the BDC’s assets consist of qualifying assets.
Qualifying assets include: (1) securities of companies that were eligible
portfolio companies at the time the BDC acquired their securities; (2)
securities of bankrupt or insolvent companies that were eligible at the time of
the BDC’s initial acquisition of their securities but are no longer eligible,
provided that the BDC has maintained a substantial portion of its initial
investment in those companies; (3) securities received in exchange for or
distributed in or with respect to any of the foregoing; and (4) cash items,
government securities and high-quality short-term debt. The 1940 Act also places
restrictions on the nature of the transactions in which, and the persons from
whom, securities can be purchased in order for the securities to be considered
qualifying assets. These restrictions include limiting purchases to transactions
not involving a public offering and acquiring securities from either the
portfolio company or its officers, directors, or affiliates.

10
A BDC is permitted to invest in the securities of public companies
and other investments that are not qualifying assets, but those kinds of
investments may not exceed 30% of the BDC’s total asset value at the time of the
investment.

A BDC must make significant managerial assistance available to the
issuers of eligible portfolio securities in which it invests. Making available
significant managerial assistance means, among other things, any arrangement
whereby the BDC, through its directors, officers or employees, offers to
provide, and, if accepted does provide, significant guidance and counsel
concerning the management, operations or business objectives and policies of a
portfolio company. The portfolio company does not have to accept the BDC’s offer
of managerial assistance, and if they do accept may be required to pay
prevailing market rates for the services.

The Company does
not currently have any investments in eligible portfolio companies. However, we
are actively seeking quality eligible portfolio companies in which to make an
investment and provide managerial assistance.

**Year Ended December 31, 2004 Compared to the Year Ended
December 31, 2003**
****
**Results of Operations**

Introduction

We did not have any revenues for either period presented. We do
not anticipate having revenue until we begin making investments in eligible
portfolio companies and subsequently liquidate those investments. Because we are
actively seeking eligible portfolio companies we anticipate that our revenues
from quarter-to-quarter may differ significantly depending on when we realize a
return on those investments. Our operating expenses decreased when compared to
the prior year due, primarily, to the fact we incurred less costs related to
legal services. We recorded other income in the year ended December 31, 2004,
amounting to $83,355 related entirely to forgiveness of debt by two of our
shareholders. There was no other income recorded in the prior period. A
breakdown of our operating expenses and other expenses, as well as management’s
explanation of each, is outlined below.

Revenues and Income (Loss) from Operations


As stated above,
because we do not have any investments in eligible portfolio companies, we did
not have any revenues for the either period. We generated a net income of
$57,059 for the year ended December 31, 2004, compared to a net loss of
($63,253) for the prior year. Our expenses for the year’s ended December 31,
2004 and 2003 were made up entirely of general and administrative expenses. Our
general and administrative expenses for 2004 consisted of $23,480 in accounting
and other professional fees, $1,375 in transfer agent fees, and $1,441 in
miscellaneous expenses, such as postage, facsimiles, and copies. Our general and
administrative expenses for 2003 consisted of $17,620 in accounting and other
professional fees, $37,730 in legal fees, $6,000 in value attributed to services
provided by officer, $460 in transfer agent fees, and $1,443 in miscellaneous
expenses, such as postage, facsimiles, and copies.

11
Net Income

We had net income
for the year ended December 31, 2004 of $57,059, compared to a net loss of
($63,253) for the year ended December 31, 2003. The net income in the current
year is a direct result of the forgiveness of debt in the amount of $83,355
which was recorded as other income in the accompanying financial statements for
the twelve months ended December 31, 2004. Because we do not have any
investments in eligible portfolio companies, we anticipate that our net income
(loss) could differ significantly from period to period.

**Liquidity and Capital Resources**

Introduction

As of December 31,
2004, we had cash of $17,403, which was a result of financing activities during
the quarter ended March 31, 2004. This cash is our only asset. Our total current
liabilities as of December 31, 2004 were $9,324 consisting entirely of accrued
liabilities. Although our assets exceed our liabilities, given the lack of
investments in eligible portfolio companies, our financial results at the end of
future quarters could differ significantly. Until we begin to realize a return
from our investment in eligible portfolio companies, we will have to fund
operations from the sale of our stock and from loans. We have been successful in
obtaining the necessary funding in the past, and anticipate that we will be able
to continue to do so in the future.

Our cash, total current assets, total assets, total current
liabilities, and total liabilities as of December 31, 2004 and September 30,
2004 are as follows:

December
      31, 2004
    
    September
      30, 2004
    
    ChangeCash
    
    $
    17,403
    
    $
    18,653
    
    $
    (1,250
    )Total
      current assets
    
    
    17,403
    
    
    18,653
    
    
    (1,250
    )Total
      assets
    
    
    17,403
    
    
    18,653
    
    
    (1,250
    )Total
      current liabilities
    
    
    9,324
    
    
    5,900
    
    
    3,424Total
      liabilities
    
    
    9,324
    
    
    5,900
    
    
    3,424
Cash Requirements

Currently, our cash
requirements are minimal, related only to the cost of maintaining the Company in
good standing. During the past twelve months we raised a small amount of capital
through an offering under Regulation E, which we anticipate will cover our
expenses for at least the next twelve (12) months. Our two primary shareholders,
Mr. Berg and Mr. Lebrecht, have verbally agreed to advance funds to us to fund
our minimal cash requirements that cannot otherwise be covered by the proceeds
from the offering. For the year ended December 31, 2004 our net cash used in
operating activities was ($36,722). Due to our lack of substantial operations to
date we do not believe this is necessarily indicative of our cash flow needs for
future year periods when we may be actively providing managerial assistance to
eligible portfolio companies. We anticipate that our cash flow needs will
increase when we have active investments in eligible portfolio
companies.


12


Sources
and Uses of Cash





*Operations*





We did not receive any cash from
operations for the year ended December 31, 2004. As noted above, we used $36,722
in cash for operating activities during this period. We anticipate that both our
cash generated from operations and used for operations will increase as soon as
we have investments in eligible portfolio companies. Until that time we believe
this figure will be fairly indicative our cash generation and cash used for
operations in a twelve month period.





*Financing*





During the year ended December 31, 2004
we paid our operating expenses primarily with the $54,125 raised from the sale
of our stock. We anticipate that we will have to continue to pay our operating
expenses out of the proceeds from financing activities until we begin to realize
a return from our investments in eligible portfolio companies.





Debt
Instruments, Guarantees, and Related Covenants





Currently,
we do not have any debt instruments, guarantees or related covenants.





**Critical
Accounting Policies**





The discussion and analysis of the
Company’s financial condition and results of operations are based upon its
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses.





**Off-balance
Sheet Arrangements**





We have no off-balance sheet
arrangements that are reasonably likely to have a current or future effect on
our financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is deemed by our management to be material to investors.





**ITEM
7 - FINANCIAL STATEMENTS**





Index
      to Financial StatementsReport
      of Independent Certified Public Accountants
    F-1Balance
      Sheet
    F-2Statement
      of Operations
    F-3Statement
      of Stockholders Equity
    F-4Statement
      of Cash Flows
    F-5Notes
      to Financial Statements
    F-6







13


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





There have been no events required to
be reported by this Item 8.





**ITEM
8A - DISCLOSURE CONTROLS AND PROCEDURES**





The
Company's Chief Executive Officer and Chief Financial Officer (or those persons
performing similar functions), after evaluating the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) as of a date
within 90 days of the filing of this annual report (the “Evaluation Date”), have
concluded that, as of the Evaluation Date, the Company's disclosure controls and
procedures were effective to ensure the timely collection, evaluation and
disclosure of information relating to the Company that would potentially be
subject to disclosure under the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect the internal controls subsequent to the Evaluation
Date.





**ITEM
8B - OTHER INFORMATION**





All information required to be filed on
a Form 8-K during the three months ended December 31, 2004 was filed with the
Commission on a Form 8-K. For a description of our Form 8-Ks filed during this
three month period see Item 13(b), below.








14


**PART
III**





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





The
following table sets forth the names and ages of the current directors and
executive officers of the Company, the principal offices and positions with the
Company held by each person and the date such person became a director or
executive officer of the Company. The executive officers of the Company are
elected annually by the Board of Directors. The directors serve one-year terms
until their successors are elected. The executive officers serve terms of one
year or until their death, resignation or removal by the Board of Directors.
Unless described below, there are no family relationships among any of the
directors and officers.





Name
    
    Age
    
    Position(s)Carl
      M. Berg
    
    35
    
    Chairman
      of the Board, President, Secretary, and Treasurer
(2001)Kevin
      J. Gadawski
    
    37
    
    Director
      (2003)Mark
      Stewart
    
    37
    
    Director
      (2003)





**Carl M. Berg** has
served as our director and officer since our inception. He also currently serves
as a company executive with STSN, Inc., a provider of wired and wireless
broadband communications for business travelers, where he has served since 2003.
Prior to STSN, from 1999 to 2003, he was a company executive with Sandlot
Corporation, a startup subscription management software company. Sandlot is
involved in managing subscription-based e-commerce. Mr. Berg directed business
initiatives as the Business Development Manager, which resulted in growth of the
company from 10 to 75 employees worldwide with offices in the U.S. and Windsor,
United Kingdom. Prior to Sandlot Corporation, from 1992 to 1999, Mr. Berg served
in various management positions in the technology division of Ameritech
Corporation. His roles varied from the overall management of library automation
implementation projects to directing the implementation division of roughly 75
technical staff. Job titles included Project Coordinator, Project Manager and
Director of Implementation.





**Kevin J. Gadawski**
joined our Board of Directors in May 2003. He also serves as the President of
Worldwide Medical in Lake Forest, California, where he previously served as the
Chief Operating Officer and Chief Financial Officer for Worldwide Medical
Corporation from May of 2002. From May of 2001 to May of 2002, Mr. Gadawski
served as the Chief Financial Officer of California Software Corporation in
Irvine, California. From June of 2000 through May of 2001, Mr. Gadawski was the
Chief Financial Officer for e-net Financial.com in Costa Mesa, California. His
primary duties included financial reporting and financial management. For the
five years prior to that, Mr. Gadawski served in various capacities including
Director of Internal Audit and Divisional Controller with Huffy Corporation in
Miamisburg, Ohio. Mr. Gadawski began his career in the audit department of KMPG
Peat Marwick, LLP.





**Mark
Stewart** joined our Board of Directors in November 2003. Mr. Stewart has
been a principal with Mark Stewart Securities, Inc., a NASD broker-dealer, since
1996. Mr. Stewart started his career with American Express Financial Advisors
(IDS) in 1991, and served as head trader at numerous firms from 1991 to
1996.





15


Audit
Committee





On May 16, 2003, an Audit Committee of
the Board of Directors, established in accordance with section 3(a)(58)(A) of
the Exchange Act, was formed. The directors who are members of the Audit
Committee are Kevin J. Gadawski and Mark Stewart, with Mr. Gadawski considered
an audit committee financial expert and an independent director.





Compliance
with Section 16(a) of the Securities Exchange Act of 1934





Section
16(a) of the Securities Exchange Act of 1934 requires the Company's directors
and executive officers and persons who own more than ten percent of a registered
class of the Company's equity securities to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.





To the
Company’s knowledge, none of the required parties are delinquent in their 16(a)
filings.





Code
of Ethics





We have not adopted a written code of
ethics, primarily because we believe and understand that our officers and
directors adhere to and follow ethical standards without the necessity of a
written policy.





**ITEM
10 - EXECUTIVE COMPENSATION**





None of
our employees are subject to a written employment agreement. Our president
elected to forego a salary during the early developmental stages, and also
provided office space. We estimate the value of these services to be
$6,000 for each of the years ended December 31, 2004 and 2003. As of
December 31, 2004 we did not have any amounts owed to our president as he
elected to forgive any outstanding amounts he was owed and to forego a salary
until further notice.





On May
15, 2001, our directors and shareholders approved the M-GAB, Inc. 2001 Stock
Option Plan, effective June 1, 2001. The plan offers selected employees,
directors, and consultants an opportunity to acquire our common stock, and
serves to encourage such persons to remain employed by us and to attract new
employees. The plan allows for the award of stock and options, up to 600,000
shares of our common stock. In November 2003, we agreed to issue options to
acquire 600,000 shares under the Plan to our two independent directors; however,
these options will not be issued until such time as approved by the Commission
in accordance with rules and regulations applicable to BDC’s. Our Application
For an Order Pursuant to Section 61(a)(3)(B) of The Investment Company Act of
1940 to Permit the Issuance of Stock Options to Non-Interested Directors is
currently pending before the Commission. We hope to receive approval to issue
the options to our non-interested directors during the second quarter of our
fiscal year ended December 31, 2005.





The
Summary Compensation Table shows certain compensation information for services
rendered in all capacities for the fiscal years ended December 31, 2004 and
2003. Other than as set forth herein, no executive officer's salary and bonus
exceeded $100,000 in any of the applicable years. The following information
includes the dollar value of base salaries, bonus awards, the number of stock
options granted and certain other compensation, if any, whether paid or
deferred.




16





**Annual Compensation**
    
    **Long Term Compensation****Awards**
    
    **Payouts****Name and**
      **Principal Position**
    **Year**
    **Salary**
      **($)**
    **Bonus**
      **($)**
    **Other Annual**
      **Compensation**
      **($)**
    
    **Restricted Stock**
      **Awards**
      **($)**
    **Securities Underlying Options SARs**
      **(#)**
    
    **LTIP Payouts**
      **($)**
    **All Other**
      **Compensation**
      **($)**Carl M. Berg
    2004
    -0-
    -0-
    $-0-
    
    -0-
    -0-
    
    -0-
    -0-Chairman,
      President, Secretary, Treasurer
    2003
    -0-
    -0-
    $6,000 (1)
    
    -0-
    -0-
    
    -0-
    -0-Kevin J. Gadawski
    2004
    -0-
    -0-
    $5,000
      (2)
    
    -0-
    -0-
    
    -0-
    -0-Director
    2003
    -0-
    -0-
    $5,000
    
    -0-
    -0-
    
    -0-
    -0-Mark Stewart
    2004
    -0-
    -0-
    $-0-
    
    -0-
    -0-
    
    -0-
    -0-Director
    2003
    -0-
    -0-
    $-0-
    
    -0-
    -0-
    
    -0-
    -0-

(1)
    This
      amount was accrued until March 26, 2004, when Mr. Berg elected to
      forgive all amounts owed to him, as well as any future salary until
      further notice.
(2)
    As
      of December 31, 2004, Mr. Gadawski received $2,500 of this amount. The
      other $2,500 has been accrued.



**OPTION/SAR GRANTS IN LAST FISCAL YEAR**
      **(Individual Grants)****Name**
    **Number of Securities**
      **Underlying**
      **Options/SARs Granted**
      **(#)**
    **Percent of Total**
      **Options/SARs Granted**
      **to Employees In Fiscal**
      **Year**
    **Exercise or Base Price**
      **($/Sh)**
    **Expiration Date**Carl M. Berg
    -0-
    N/A
    N/A
    N/AKevin J. Gadawski
    -0-
    N/A
    N/A
    N/AMark Stewart
    -0-
    N/A
    N/A
    N/A


**AGGREGATED
      OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR**
      **AND
      FY-END OPTION/SAR VALUES****Name**
    **Shares
      Acquired On**
      **Exercise**
      **(#)**
    **Value
      Realized**
      **($)**
    **Number
      of Unexercised**
      **Securities
      Underlying**
      **Options/SARs
      at FY-End**
      **(#)**
      **Exercisable/Unexercisable**
    **Value
      of Unexercised**
      **In-The-Money**
      **Option/SARs**
      **at
      FY-End**
      **($)**
      **Exercisable/Unexercisable**Carl
      M. Berg
    N/A
    N/A
    N/A
    N/AKevin
      J. Gadawski
    N/A
    N/A
    N/A
    N/AMark
      Stewart
    N/A
    N/A
    N/A
    N/A
   **Compensation
of Directors**
 
 In
November 2003, we agreed to issue to each of Mr. Gadawski and Mr. Stewart
options to acquire 300,000 shares of our common stock for serving as directors
of the Corporation. The issuance of the options is subject to approval of the
SEC pursuant to provisions of the Investment Company Act of 1940, and will not
be issued until the issuance is approved by the SEC. The options are to be
exercisable for a period of ten years from their grant date, at an exercise
price equal to the fair market value on the grant date, and will expire upon
their resignation from the Board. Our Application For an Order Pursuant to
Section 61(a)(3)(B) of The Investment Company Act of 1940 to Permit the Issuance
of Stock Options to Non-Interested Directors is currently pending before the
Commission. We hope to receive approval to issue the options to our
non-interested directors during the second quarter of our fiscal year ended
December 31, 2005.
  17


In
addition, we have agreed to pay Mr. Gadawski $1,250 per quarter for additional
consulting services.
 
 Mr. Berg
has not received any compensation for serving as a director. Other than as set
forth herein no compensation has been given to any of the directors, although
they may be reimbursed for any pre-approved out-of-pocket expenses.
 
 **ITEM
11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT**
 
 The
following table sets forth, as of March 15, 2005, certain information with
respect to the Company’s equity securities owned of record or beneficially by
(i) each Officer and Director of the Company; (ii) each person who owns
beneficially more than 5% of each class of the Company’s outstanding equity
securities; and (iii) all Directors and Executive Officers as a
group.
  Percentage of CommonName and Address (1)
    
    Nature of Affiliation
    
    Common Stock Ownership
    
    Stock Ownership (2)Carl M. Berg
    
    Chairman of the Board, President, Secretary and
    Treasurer
    
    5,550,000 (3)
    
    86.9%Brian A. Lebrecht (4)
    
    5% Shareholder
    
    450,000
    
    7.0%Kevin J. Gadawski
    
    Independent Director
    
    300,500 (5)(6)
    
    4.4% (5)Mark Stewart
    
    Independent Director
    
    300,000
      (5)
    
    4.4% (5)All Officers and Directors as a Group
      (3 Persons)
    
    
    
    6,150,500 (3)(5)(6)
    
    88% (5)
 (1)
    Unless
      stated otherwise, the address of each affiliate is c/o M-GAB Development
      Corporation, 22342 Avenida Empresa, Suite 220, Rancho Santa Margarita, CA
      92688.


18
(2)
    Unless otherwise indicated, based on 6,383,845 shares of common
      stock issued and outstanding. Shares of common stock subject to options or
      warrants currently exercisable, or exercisable within 60 days, are deemed
      outstanding for purposes of computing the percentage of the person holding
      such options or warrants, but are not deemed outstanding for purposes
      of computing the percentage of any other person.

(3)
    Includes 3,000,000 shares held of record by Sadie, LLC, an entity
      wholly-owned and controlled by Mr. Berg. Mr. Berg is our sole
      officer.

(4)
    Mr. Lebrecht is President of The Lebrecht Group, APLC, which serves
      as our securities counsel.

(5)
    Includes options to acquire 300,000 shares of common stock
      which will be granted to each of Mr. Gadawski and Mr. Stewart upon
      approval  by the Commission in compliance with the Investment
      Company Act of 1940.

(6)
    Includes 500 shares held by Mr. Gadawski’s
  spouse.
 The
issuer is not aware of any person who owns of record, or is known to own
beneficially, five percent or more of the outstanding securities of any class of
the issuer, other than as set forth above. The issuer is not aware of any person
who controls the issuer as specified in section 2(a)(1) of the Investment
Company Act of 1940. There are no classes of stock other than common stock
issued or outstanding. There are currently warrants outstanding to acquire
333,334 shares of our common stock at $0.15 per share, and other than as set
forth herein, there are no options, warrants, or other rights to acquire common
stock outstanding. The Company does not have an investment advisor.
 
 There are no current arrangements which
will result in a change in control.
  19


**ITEM
12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**








****


**ITEM
13 - EXHIBITS AND REPORTS ON FORM 8-K**





**(a)** **Exhibits**





3.1(1)
    
    Articles
      of Incorporation of M-GAB Development Corporation3.2
      (1)
    
    Bylaws
      of M-GAB Development Corporation10.1
    
    M-GAB
      Development Corporation Amended and Restated 2001 Omnibus Securities
      Plan10.2
    
    M-GAB
      Development Corporation 2004 Omnibus Securities Plan31.1
    
    Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer31.2
    
    Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer32.1
    
    Chief
      Executive Officer Certification Pursuant to 18 USC, Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
    
    Chief
      Financial Officer Certification Pursuant to 18 USC, Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.


(1)
    Incorporated
      by reference from our Registration Statement on Form SB-2 filed with the
      Commission on August 31, 2001.


****


**(b)** **Reports
on Form 8-K**





We made no 8-K filings during the quarter ended
December 31, 2004.





20


**ITEM
14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES**





**Audit
Fees**





During
the fiscal years ended December 31, 2004 and 2003, Ramirez International billed
us $18,680 and $13,420, respectively, in fees for professional services for the
audit of our annual financial statements and review of financial statements
included in our Forms 10-KSB and 10-QSB.





**Audit
- Related Fees**





During
the fiscal years ended December 31, 2004 and 2003, Ramirez International billed
us $18,680 and $13,420, respectively, in fees for assurance and related services
related to the performance of the audit and review of the Company’s
financial statements.





**Tax
Fees**





During the fiscal years ended December
31, 2004 and 2003, Ramirez International billed us $175 and $200, respectively,
in fees for professional services for tax planning and preparation.





**All
Other Fees**





During the fiscal years ended December
31, 2004 and 2003, Ramirez International did not bill the Company for any other
fees.





Of the fees described above for the
fiscal year ended December 31, 2004, 100% were approved by the by the Audit
Committee of the Board of Directors of the Company. Of the fees described above
for the fiscal year ended December 31, 2003, 100% were either approved in
advance by the Audit Committee if it was in existence at the time of approval,
or subsequently ratified by the Audit Committee.














21


**SIGNATURES**





In accordance with Section 13 or 15(d)
of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.




**M-GAB
      Development Corporation**Date: March
      15, 2005
    By:
    /s/ Carl
      M. BergCarl M. BergIts: 
       President, Chief Executive Officer, 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.








Dated: March
      15, 2005
    /s/ Carl M.
      BergBy: Carl
      M. Berg, DirectorDated: March
      15, 2005
    /s/ Kevin J.
      GadawskiBy: Kevin
      J. Gadawski, DirectorDated: March
      15, 2005
    /s/ Mark
      StewartBy: Mark
      Stewart, Director






22




Financial Statements

M-GAB DEVELOPMENT CORPORATION
(A Development Stage Enterprise)

December 31, 2004 and 2003
**Report of Independent Certified Public
Accountants**




To:
    The Board of Directors  of
M-GAB DEVELOPMENT
CORPORATION

We have
audited the accompanying balance sheets of M-GAB DEVELOPMENT CORPORATION (the
“Company”) (a Development Stage Corporation) as of December 31, 2004 and 2003
and the related statements of operations, stockholders’ equity and cash flows
for each of the years then ended and the period from inception (March 27, 2001)
through December 31, 2004. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these
statements based on our audits.

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

In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2004
and 2003 and the results of its operations and its cash flows for each of the
years then ended and the period from inception (March 27, 2001) through December
31, 2004, in conformity with accounting principles generally accepted in the
United States of America.

The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 2 to the financial statements,
the Company has no established source of revenue and is dependent on its ability
to raise substantial amounts of capital. Management’s plans in regard to these
matters are also described in Note 2. These matters 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 outcome of
this uncertainty.


**RAMIREZ
INTERNATIONAL**
**Financial
& Accounting Services, Inc.**
****
**March 15,
2005
Irvine,
CA**
****

F -
2




**M-GAB Development Corporation**
**(A Development Stage Company)**

**Balance Sheet**

**December 31,**

2004
    
    2003ASSETSCurrent assetsCash
    
    $
    17,403
    
    $
    -Total assets
    
    $
    17,403
    
    $
    -LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    9,324
    
    $
    93,105Payable to stockholder
    
    
    -
    
    
    10,000Total current liabilities
    
    
    9,324
    
    
    103,105Commitments and contingencies
    
    
    -
    
    
    -Stockholders' equity:Preferred stock, $0.001 par value;5,000,000 shares authorized; No sharesissued or outstanding
    
    
    -
    
    
    -Common stock, $0.001 par value; 100,000,000shares
      authorized; 6,383,845 and 6,023,000 shares issuedand
      outstanding in 2004 and 2003, respectively
    
    
    6,384
    
    
    6,023Additional paid in capital
    
    
    64,840
    
    
    11,076Deficit accumulated during the development stage
    
    
    (63,145
    )
    
    (120,204
    )Total stockholders' equity
    
    
    8,079
    
    
    (103,105
    )Total liabilities and stockholders' equity
    
    $
    17,403
    
    $
    -


The accompanying notes are an integral part of these financial
statements.F -
3**M-GAB
DEVELOPMENT CORPORATION**
**(A
Development Stage Company)**

**Statement
of Operations**

Cumulative from inception (March 27, 2001) through December
      31, 2004
    
    
    Year
      ended December 31, 2004
    
    
    Year
      ended December 31, 2003Revenue
    
    $
    -
    
    $
    -
    
    $
    -General
      and administrative expenses
    
    
    146,500
    
    
    26,296
    
    
    63,253Other
      income (expense)
    
    
    83,355
    
    
    83,355
    
    
    -Net
      income (loss)
    
    $
    (63,145
    )
    $
    57,059
    
    $
    (63,253
    )Basic
      and diluted net income (loss) per share
    
    
    
    
    $
    0.01
    
    $
    (0.01
    )Weighted
      average shares outstanding
    
    
    
    
    
    6,321,699
    
    
    6,023,000


The
accompanying notes are an integral part of these financial
statements.

F -
4


**M-GAB
DEVELOPMENT CORPORATION**


**(A
Development Stage Company)**





**Statement
of Stockholders’ Equity**





Common Stock
    
    AdditionalPaid-in
    
    
    Deficit
      Accumulated During the DevelopmentShares
    
    
    Amount
    
    
    Capital
    
    
    Stage
    
    
    TotalIssuance of common stock tofounders on April 20, 2001
    
    6,000,000
    
    $
    6,000
    
    $
    (5,400
    )
    $
    -
    
    $
    600Issuance of common stock forcash in August 2001
    
    13,000
    
    
    13
    
    
    1,287
    
    
    -
    
    
    1,300Contributed capital-services
    
    -
    
    
    -
    
    
    14,199
    
    
    -
    
    
    14,199Net loss
    
    -
    
    
    -
    
    
    -
    
    
    (19,575
    )
    
    (19,575
    )Balance, December 31, 2001
    
    6,013,000
    
    
    6,013
    
    
    10,086
    
    
    (19,575
    )
    
    (3,476
    )Issuance of common stock forcash in September 2002
    
    10,000
    
    
    10
    
    
    990
    
    
    -
    
    
    1,000Net loss
    
    -
    
    
    -
    
    
    -
    
    
    (37,376
    )
    
    (37,376
    )Balance, December 31, 2002
    
    6,023,000
    
    
    6,023
    
    
    11,076
    
    
    (56,951
    )
    
    (39,852
    )Net loss
    
    -
    
    
    -
    
    
    -
    
    
    (63,253
    )
    
    (63,253
    )Balance, December 31, 2003
    
    6,023,000
    
    $
    6,023
    
    $
    11,076
    
    $
    (120,204
    )
    $
    (103,105
    )Issuance of common stock for cash in March 2004
    
    360,845
    
    
    361
    
    
    46,547
    
    
    -
    
    
    46,908Issuance of stock warrants inconnection with sale of stock
    
    -
    
    
    -
    
    
    7,217
    
    
    -
    
    
    7,217Net income
    
    -
    
    
    -
    
    
    -
    
    
    57,059
    
    
    57,059Balance, December 31, 2004
    
    6,383,845
    
    $
    6,384
    
    $
    64,840
    
    $
    (63,145
    )
    $
    8,079




The accompanying notes are an integral part of these financial
statements.

F -
5




**M-GAB
DEVELOPMENT CORPORATION**
 **(A
Development Stage Company)**
 
 **Statement
of Cash Flows**
 Cumulative
      from inception (March 27, 2001) to December 31, 2004
    
    Year
      ended December 31, 2004
    
    Year
      ended December 31, 2003Cash
      flows from operating activities:Net
      income (loss)
    
    $
    (63,145
    )
    $
    57,059
    
    $
    (63,253
    )Adjustments
      to reconcile net loss to cash used inoperating
      activities:Contributed
      capital for services rendered
    
    
    14,199
    
    
    -
    
    
    -Forgiveness
      of debt
    
    
    (83,355
    )
    
    (83,355
    )
    
    -Increase
      (decrease)  in accounts payable andaccrued
      liabilities
    
    
    82,679
    
    
    (10,426
    )
    
    56,816Net
      cash used by operating activities
    
    
    (49,622
    )
    
    (36,722
    )
    
    (6,437
    )Cash
      flows from financing activities:Proceeds
      from issuance of stock
    
    
    57,025
    
    
    54,125
    
    
    -Advance
      from shareholder
    
    
    10,000
    
    
    -
    
    
    -Net
      cash provided by financing activities
    
    
    67,025
    
    
    54,125
    
    
    -Net
      increase (decrease) in cash
    
    
    17,403
    
    
    17,403
    
    
    (6,437
    )Cash and cash equivalents, beginning of period
    
    
    -
    
    
    -
    
    
    6,437Cash
      and cash equivalents, end of period
    
    $
    17,403
    
    $
    17,403
    
    $
    -
  The
accompanying notes are an integral part of these financial
statements.
  F -
6
   **M-GAB
DEVELOPMENT CORPORATION**
 **(A
Development Stage Company)**
 Notes to Financial Statements
 Decemebr 31, 2004 and 2003
 1.
    NATURE OF OPERATIONS AND ACCOUNTING
  POLICIES
 
 *Nature
of Operations*. The Company incorporated in Florida on March 27, 2001. The
fiscal year end of the Company is December 31. Planned principal operations of
the Company have not yet commenced; activities to date have been limited to
forming the Company, developing its business plan, and obtaining initial
capitalization. On May 16, 2003, the Company filed an election to be treated as
a business development company (“BDC”) under the Investment Company Act of 1940
(the “1940 Act”), which became effective on the date of filing. Subsequent to
the BDC election the Company’s principal business is to make venture capital
investments in early-stage and/or developing enterprises that are principally
engaged in the development or exploitation of inventions, technological
improvements, and new or unique products and services.
 
 *Principles
of Accounting*. The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles.
 
 *Accounting
Estimates*. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
that affect the reported amounts of assets and liabilities and disclosures 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.
  *Shares
Issued in Exchange for Services.*******The fair
value of shares issued in exchange for services rendered to the Company is
determined by the Company's officers and directors, as there is currently no
market for the Company's stock.
 
 *Cash
and Cash Equivalents.* The Company includes cash on deposit and short-term
investments with original maturities less than ninety days as cash and cash
equivalents in the accompanying financial statements.
 
 *General
and Administrative Expenses.* The Company's general and administrative
expenses consisted primarily of legal and accounting fees for the years ended
December 31, 2004 and 2003.
 
 *Research
and Development.* Research and development costs are expensed as incurred as
required by Statement of Financial Accounting Standards No. 2, “Accounting for
Research and Development Costs.” As of December 31, 2004, no research and
development costs have been incurred.
 
 *Advertising.*Advertising costs are charged to operations when incurred. The Company has
not incurred any advertising costs.
 
 *Stock-Based
Compensation*. Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation, encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to account for stock-based
compensation using the intrinsic value method prescribed in previously issued
standards. Accordingly, compensation cost for stock options issued to employees
is measured as the excess, if any, of the fair market value of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock. Compensation is charged to expense over the shorter of the service or
vesting period. Stock options issued to non-employees are recorded at the fair
value of the services received or the fair value of the options issued,
whichever is more reliably measurable, and charged to expense over the service
period.
 
 F -
7
 
 **M-GAB
DEVELOPMENT CORPORATION**
 **(A
Development Stage Company)**
 Notes to Financial Statements
 Decemebr 31, 2004 and 2003
 1.
    NATURE OF OPERATIONS AND ACCOUNTING POLICIES -
      Continued
 
 *Income
Taxes.*******The Company has not made a provision
for income taxes because of its financial statement and tax losses since its
inception on March 27, 2001. A valuation allowance has been used to offset the
recognition of any deferred tax assets related to net operating loss
carryforwards due to the uncertainty of future realization. The use of any tax
loss carry-forward benefits may also be limited as a result of changes in
Company ownership.
 
 *Fair
Value of* *Financial Instruments.* The Company considers all
liquid interest-earning investments with a maturity of three months or less at
the date of purchase to be cash equivalents. Short-term investments generally
mature between three months and six months from the purchase date. All cash and
short-term investments are classified as available for sale and are recorded at
market using the specific identification method; unrealized gains and losses are
reflected in other comprehensive income. Cost approximates market for all
classifications of cash and short-term investments.
 
 *Net
Income (Loss) per Common Share*. Net loss per share is calculated in
accordance with Statement of Financial Accounting Standards No. 128, Earnings
Per Share. Basic net loss per share is based upon the weighted average number of
common shares outstanding. Diluted net loss per share is based on the assumption
that options are included in the calculation of diluted earnings per share,
except when their effect would be anti-dilutive. Dilution is computed by
applying the treasury stock method. Under this method, options and warrants are
assumed to be exercised at the beginning of the period (or at the time of
issuance, if later), and as if funds obtained thereby were used to purchase
common stock at the average market price during the period.
 
 *Recently
Enacted Accounting Standards*. Statement of Financial Accounting Standards
(“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal
Activities”, SFAS No. 147, “Acquisitions of Certain Financial Institutions - an
Amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9”, SFAS
No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure -
an Amendment of FASB Statement No. 123”, SFAS No. 149, “Amendment of Statement
133 on Derivative Instruments and Hedging Activities”, and SFAS No. 150,
“Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity”, were recently issued. SFAS No. 146, 147, 148, 149 and
150 have no current applicability to the Company or their effect on the
financial statements would not have been significant.
  2.
    
    GOING
      CONCERN
  The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As shown in the financial statements, the
Company has no established source of revenue, and as of December 31, 2004, the
Company had limited working capital of $8,079. In addition, the Company has been
in the development stage since its inception on March 27, 2001 and is dependent
on outside financing to fund its operations. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going
concern.
 
 Management's
plans in regard to these matters are to continue to raise additional capital
from selling the Company's stock. However, there is no assurance that the
Company will be able to obtain such financing. Management believes actions
currently being taken provide the opportunity for the Company to continue
 as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
 
 
 F -
8
  **M-GAB
DEVELOPMENT CORPORATION**
 **(A
Development Stage Company)**
 Notes to Financial Statements
 Decemebr 31, 2004 and 2003
 3.
    STOCKHOLDERS'
EQUITY
 
 *Founders'
Stock*. The Company issued 6,000,000 shares of common stock on April 20,
2001 for cash totaling $600.
 
 *2001
Private Placement Memorandum.*On June 1, 2001, the Company began an
offering to sell up to 100,000 shares of common stock at $0.10 per share
pursuant to a Private Placement Memorandum. In August 2001, the Company sold
13,000 shares of its common stock at $0.10 under this private placement. All
proceeds from this offering were used for pre-incorporation expenditures,
consulting fees and working capital.
 
 *Registered
Stock Offering*. During the quarter ended December 31, 2002, the Company
sold 10,000 shares of its common stock at $0.10 per share for total proceeds of
$1,000. The stock offering was pursuant to the Company's effective Form SB-2/A
registration statement dated November 15, 2001. The Company used the proceeds to
repay advances and general and administrative expenses. The Company's registered
offering expired on October 30, 2002.
 
 *2004
Private Placement Memorandum*. On March 2, 2004, the Company sold 360,845
stock units at $0.15 each for net proceeds of $54,125. Each stock unit consists
of one share of common stock and a warrant to purchase one share of common
stock. The stock warrants are exercisable at any time before March 8, 2007 at
$0.15 per share of common stock. The Company’s net proceeds of $54,125 from this
stock sale will be used to fund Company operations.
 
 The
Company has computed the fair value of the stock warrants issued to be $0.02 per
warrant. The Company recorded the total fair value of the warrants of $7,217 as
an increase to its additional paid in capital in the accompanying financial
statements. The Company used the Black-Sholes option pricing model to value the
warrants with the following assumptions: risk-free interest rate of 6.0%,
expected dividend yield of 0, expected life of 3 years, and expected volatility
of 1.0.
 
 *Amended
and Restated 2001 Stock Option Plan*. The Company's Board and shareholders
approved a Stock Option Plan, effective June 1, 2001. The plan was amended by
the Board and shareholders to the Company’s Amended and Restated 2001 Omnibus
Securities Plan, effective May 27, 2004 (“2001 Plan”). The 2001 Plan limits the
aggregate number of shares available to 600,000. Each award under the 2001 Plan
will be evidenced by a Stock Purchase Agreement; each agreement will establish
the vesting requirements and the maximum term of the options granted. On
November 4, 2003, the Company agreed to issue 600,000 stock options to two
directors under the 2001 Plan. In accordance with the Company’s status as a
business development company, the stock options will not be issued until the
Securities and Exchange Commission (“SEC”) approves the issuances, which the
Company believes will occur during the next quarter. If approved by the SEC, the
exercise price of the stock options will be at or above the fair market value of
the Company’s common stock on the issuance date.
 
 *2004
Omnibus Securities Plan*. The Company’s Board and shareholders approved the
Company’s 2004 Omnibus Securities Plan, effective May 27, 2004 (“2004 Plan”).
The 2004 Plan limits the aggregate number of shares that can issue under the
plan to 650,000 shares. Each award under the 2004 Plan will be evidenced by a
Stock Purchase Agreement; each agreement will establish the vesting requirements
and the maximum term of the options granted. The Company has not issued, or
agreed to issue, any stock or options under the 2004 Plan. In accordance with
the Company’s status as a business development company, no stock or options will
be issued under the Plan until the SEC approves the 2004 Plan. If approved by
the SEC, any stock or option issuances under the 2004 Plan will be at or above
the fair market value of the Company’s common stock on the date of
issuance.
 
 F -
9
 **M-GAB
DEVELOPMENT CORPORATION**
 **(A
Development Stage Company)**
 Notes to Financial Statements
 Decemebr 31, 2004 and 2003
  4.
    
    INCOME
      (LOSS) PER SHARE
 
 The
following data show the amounts used in computing net income (loss) per share
for the periods presented:
 
 For the Years Ended December 31,2004
    
    
    2003Income
      (loss) from continuing operations available to common shareholders
      (numerator)
    
    $
    57,059
    
    $
    (63,253
    )Weighted average number of common shares outstanding used in
      loss per share during the period (denominator)
    
    
    6,321,699
    
    
    6,023,000
 Dilutive
loss per share was not presented, as the Company had no common equivalent shares
for all periods presented that would effect the computation of diluted loss per
share.
 
 5.
    
    INCOME
      TAXES
 
 The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 “Accounting for Income Taxes” which requires the
liability approach for the effect of income taxes.
 
 The
Company has available at December 31, 2004, unused operating loss carryforwards
of approximately $63,000, which may be applied against future taxable income and
which expire in various years through 2025. If certain substantial changes in
the Company's ownership should occur, there could be an annual limitation on the
amount of net operating loss carryforward which can be utilized. The amount of
and ultimate realization of the benefits from the operating loss carryforwards
for income tax purposes is dependent, in part, upon the tax laws in effect, the
future earnings of the Company and other future events, the effects of which
cannot be determined. Because of the uncertainty surrounding the realization of
the loss carryforwards, the Company has established a valuation allowance equal
to the tax effect of the loss carryforwards, therefore, no deferred tax asset
has been recognized for the loss carryforwards. The net deferred tax
assets were approximately $21,000 and $48,000 at December 31, 2004 and
2003, respectively, with an offsetting valuation allowance of the same amount
resulting in a change in the valuation allowance of approximately $27,000 during
the year ended December 31, 2004.
 
 
 6.
    RELATED PARTY
TRANSACTIONS
 
 The
Company has engaged one of its shareholders, Mr. Lebrecht, as its corporate
counsel. For the years ended December 31, 2004 and 2003, the Company incurred
total legal services and out of pocket costs to Mr. Lebrecht’s firm of $324 and
$37,730, respectively. As of December 31, 2004 and 2003, the Company had amounts
due to Mr. Lebrecht of $24 and $32,889, respectively, which are recorded in
accounts payable and accrued liabilities in the accompanying financial
statements. In addition, the Company received an advance of $10,000 from Mr.
Lebrecht for organizational costs. The Company recorded this advance as a
payable to stockholder as of Decemebr 31, 2003. On March 26, 2004, The Lebrecht
Group, APLC, agreed to forgive amounts owed to them of $73,955, including the
$10,000 advance. The forgiveness of these amounts was recorded as other income
in the accompanying financial statements for the year ended December 31, 2004.
  F -
10
 **M-GAB
DEVELOPMENT CORPORATION**
**(A
Development Stage Company)**
**Notes to Financial Statements**
**Decemebr 31, 2004 and
2003**
  The
Company’s President, Mr. Berg, has elected to forego a salary during its early
development stages. Mr. Berg has also provided office space to the Company. In
prior years, the Company estimated the value of these services to be $6,000 for
the year ended December 31, 2004. As of December 31, 2003, the Company had
amounts due to Mr. Berg of $9,400, which were recorded in accounts payable and
accrued liabilities in the accompanying financial statements. On March 26, 2004,
the Company’s director and officer agreed to forgive $9,400 of the Company’s
debt owed to him. As of December 31, 2004, there were no amounts due Mr. Berg.
The forgiveness of debt was recorded as other income in the accompanying
financial statements for the year ended December 31, 2004.
 
 In
addition, one of the Company’s directors, Mr. Gadawski, provided consulting
services to the Company in in 2004 and 2003. As of December 31, 2004, the
Company had $2,500 due to Mr. Gadawski for services rendered during the year
ended December 31, 2004.
 
 In
November 2003, the Company agreed to issue to each of Mr. Gadawski and Mr.
Stewart options to acquire 300,000 shares of our common stock for serving as
directors of the Corporation. As of December 31, 2004, the Company has not
issued these options, as this issuance of options is subject to approval of the
SEC pursuant to provisions of the Investment Company Act of 1940.
  F -
11