M LINE HOLDINGS INC - FORM 10-Q

Attached files

file	filename
EX-31.2 - M LINE HOLDINGS INC	v166384_ex31-2.htm
EX-32.1 - M LINE HOLDINGS INC	v166384_ex32-1.htm
EX-32.2 - M LINE HOLDINGS INC	v166384_ex32-2.htm
EX-31.1 - M LINE HOLDINGS INC	v166384_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______________ to _______________.

Commission file number 0-32341

M Line Holdings, Inc.

(Exact Name of Company as Specified in its Charter)

Nevada (State or other jurisdiction of incorporation or organization)	88-0375818 (I.R.S. Employer Identification No.)

2672 Dow Avenue Tustin, CA (Address of principal executive offices)	92780 (Zip Code)

(714) 630-6253

(Registrant’s telephone number, including area code)

Gateway International Holdings, Inc.

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨	Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ¨ No x.

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

Yes ¨ No ¨.

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 6, 2009, there were 30,861,956 shares of common stock, par value $0.001, issued and outstanding.

M LINE HOLDINGS, INC.

TABLE OF CONTENTS

PART I

ITEM 1.	Financial Statements (unaudited).	3

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.	20

ITEM 4T.	Controls and Procedures.	20

PART II

ITEM 1.	Legal Proceedings.	23

ITEM 1A.	Risk Factors.	26

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	26

ITEM 3.	Defaults Upon Senior Securities.	26

ITEM 4.	Submission of Matters to a Vote of Security Holders.	26

ITEM 5.	Other Information.	26

ITEM 6.	Exhibits.	27

PART I-FINANCIAL INFORMATION

M LINE HOLDINGS, INC. AND SUBSIDIARIES

(FORMERLY GATEWAY INTERNATIONAL HOLDINGS, INC.)

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30, 2009			June 30, 2009
Assets

Current Assets:

Cash and cash equivalents	$	414,580		$	438,030
Accounts receivable, net		773,943			892,718
Inventories		1,120,440			1,301,421
Due from related party		49,001
Prepaid and other current assets		46,399			80,250
Deferred Income Taxes		95,617			95,617
Current Assets - Discontinued Operations		59,673			116,869
Total current assets		2,559,653			2,924,905

Property and equipment, net		1,059,334			1,160,318
Intangible Assets, net		337,747			348,192
Deposits and other		61,145			66,146
Deferred Income Taxes		182,505			182,505
Non Current Assets - Discontinued Operations		63,704			63,704
Total Assets	$	4,264,088		$	4,745,770

Liabilities and Shareholders' Equity

Current Liabilities:
Line of Credit	$	440,000		$	440,000
Accounts Payable		861,375			502,745
Accrued Expenses and other		278,730			486,951
Notes payable		238,974			265,969
Note payable, related party		69,400			-
Capital Leases - current		57,853			70,747
Current Liabilities - Discontinued Operations		720,439			717,899
Total Current Liabilities		2,666,771			2,484,311

Notes Payable		111,798			167,165
Capital Leases - long term		86,191			97,351
Deferred Income Taxes		168,373			168,373
Deferred Rent		59,278			65,849
Long Term Liabilities - discontinued operations		27,211			29,751
Total Liabilities		3,119,622			3,012,800

Shareholders' Equity
Common Stock, $0.001: 100,000,000 shares
Authorized; 30,861,956 shares issued and outstanding at September 30, 2009 and June 30, 2009		30,862			30,862
Additional paid in capital		9,505,812			9,505,812
Accumulated deficit		(8,392,208	)		(7,803,704	)
Total stockholders' equity		1,144,466			1,732,970
Total Liabilities and Shareholders' Equity	$	4,264,088		$	4,745,770

See accompanying Notes to Consolidated Financial Statements.

M LINE HOLDINGS, INC. AND SUBSIDIARIES

(FORMERLY GATEWAY INTERNATIONAL HOLDINGS, INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	September 30, 2009			September 30, 2008

Net sales	$	1,648,159		$	1,797,384
Cost of sales		1,345,434			911,009
Gross Profit		302,725			886,375

Operating expenses:
Selling, general and administrative		867,595			434,123
Amortization of intangible assets		10,445			-
Total operating expense		878,040			434,123

Operating income (loss)		(575,315	)		452,252

Other income (expense):
Interest Expense		(13,189	)		(33,251	)
Interest Income		-			2,375
Total other income (expense)		(13,189	)		(30,876	)
Income (Loss) from continuing operations before income tax		(588,504	)		421,376
Income tax provision		-			(35,496	)
Income/(loss) from continuing operations after income taxes		(588,504	)		385,880
Loss from discontinued operations , net of income taxes		-			(337,913	)
NET INCOME (LOSS)	$	(588,504	)	$	47,967

NET INCOME (LOSS) PER SHARE:
Basic net income (loss) per share:

		-			-
		-			-

Diluted net income (loss) per share:
Continuing operations	$	(0.02	)	$	0.01
Discontinued Operations		-			(0.01	)

Net income (loss)	$	(0.02	)	$	0.00

Weighted average number of common shares under in per share calculations
Basic		30,861,956			28,305,012
Diluted		30,861,956			28,311,313

See accompanying Notes to Consolidated Financial Statements.

M LINE HOLDINGS, INC. AND SUBSIDIARIES

(FORMERLY GATEWAY INTERNATIONAL HOLDINGS, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2009 AND 2008

(UNAUDITED)

	September 30, 2009			September 30, 2008
Cash flows from operating activities:
Net income(loss)	$	(588,504	)	$	47,967
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on disposition of assets		-			-
Depreciation		100,984			111,933
Amortization of intangible assets		10,445			10,445
Stock-based compensation		-			12,493
Changes in operating assets and liabilities:
Account receivable		69,774			457,813
Inventory		180,981			(184,961	)
Prepaid expenses and other assets		96,048			163,063
Account payable and accrued expenses		219,809			169,153
Customer deposit		-			23,340
Income taxes payable		-			(187,954	)
Deferred rent		(6,571	)		(3,322	)
Deferred income taxes		-			24,233
Net cash provided by operating activities		82,966			644,203

Cash flows from investing activities:
Deposits and other		-			(2,500	)
Net cash used in investing activities:		-			(2,500	)

Cash flows from financing activities:
Net borrowings (repayments) on line of credit		-			(83,000	)
Payments on notes payable		(82,362	)		(60,122	)
Payments on related party notes payable		-			(36,364	)
Payments on capital leases		(24,054	)		(16,190	)
Net cash used in financing activities		(106,416	)		(195,676	)

Net increase (decrease) in cash and cash equivalent		(23,450	)		446,027

Cash and cash equivalents at beginning of period		438,030			901,707
Cash and cash equivalents at end of period	$	414,580		$	1,347,734

Supplemental disclosure of cash flow information:
Cash paid for interest	$	13,189		$	23,389
Cash paid for income taxes	$	-		$	280,000

Supplemental disclosure of non-cash investing and financing activities:
Stock retired upon cancellation of note payable	$	-		$	417

See accompanying Notes to Consolidated Financial Statements.

M LINE HOLDINGS, INC. AND SUBSIDIARIES

(FORMERLY GATEWAY INTERNATIONAL HOLDINGS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

(UNAUDITED)

Business

M. Line Holdings, Inc. (the “Company”) was incorporated in Nevada on September 24, 1997, under the name Gourmet Gifts, Inc. (“Gourmet Gifts”). On December 11, 2001, Gourmet Gifts acquired 100% of the issued and outstanding capital stock of Elite Machine Tool Company (“Elite”). Immediately prior to the merger, the Company had 100,000,000 shares of stock authorized, of which 6,768,000 shares were outstanding. Pursuant to the merger, all of the outstanding shares of Elite, aggregating 21,262 shares, were exchanged for shares of common stock of Gourmet Gifts on a 1 to 1,274 basis or into 27,072,000 (net of 600,000 shares subsequently cancelled) shares of common stock leaving a total of 33,240,000 shares of common stock issued and outstanding after the merger. Immediately after the merger, the officers and directors of Gourmet Gifts resigned and the executive officers and directors of Elite the company elected and appointed to such positions, thereby effecting a change of control.

Due to the change in voting control and change in senior management in Gourmet Gift as a result of the merger, the transaction was recorded as a “reverse-merger” whereby Elite was considered to be the acquirer for accounting purposes. At the closing of the reverse merger, Elite became a wholly-owned subsidiary and the company changed its corporate name to Gateway International Holdings, Inc., effective January 28, 2002. After the merger, through Elite, the Company became engaged in the acquisition, refurbishment, distribution and sales of pre-owned Computer Numerically Controlled (“CNC”) machine tools to manufacturing customers across the United States of America. This was the Company’s sole business until the acquisition of the additional businesses described below.

Gateway International Holdings, Inc. changed its corporate name to M Line Holdings, Inc. effective March 25, 2009.

The Company and its subsidiaries are engaged in the following businesses which represent is business segments:



Acquiring, refurbishing and selling new and used CNC machine-tool equipment (Machine Sales segment).



Manufacturing precision metal component parts for the defense, automotive, aerospace and medical industries through its Eran Engineering, Inc. (“Eran”) subsidiary (Precision Manufacturing segment).

2.	Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The consolidated financial statements of M Line Holdings, Inc. are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations for the three month periods ended September 30, 2009 and 2008 are not necessarily indicative of the results to be expected for the full year. All accounts and intercompany transactions have been eliminated in consolidation. In the opinion of management, the consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary to present fairly the Company's financial position, results of operations and cash flows. These statements should be read in conjunction with the financial statements and related notes which are part of the Company's Annual Report on Form 10-K for the year ended June 30, 2009.

Net Income (Loss) per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average common shares outstanding during the period. Diluted net income (loss) per share reflects the potential dilution to basic EPS that could occur upon conversion or exercise of securities, options or other such items to common shares using the treasury stock method, based upon the weighted average fair value of our common shares during the period. There were no potentially dilutive securities as of September 30, 2009 and June 30, 2009, respectively.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, which replaces FAS No. 141. SFAS No. 141(R) (ASC 805) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is to be applied prospectively to business combinations. The company is evaluating this statement for the impact, if any, on its consolidated financial statements, however, the Company will be required to expense cost related to any acquisition after June 30, 2009

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (ASC 810-10-65-1). This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest (minority interest) in a subsidiary and for the deconsolidation of a subsidiary. Upon its adoption, effective for us in the fiscal year beginning July 1, 2009, noncontrolling interests will be classified as equity in the Company’s balance sheet and income and comprehensive income attributed to the noncontrolling interest will be included in the Company’s income and comprehensive income, respectively. The provisions of this standard must be applied prospectively upon adoption except for the presentation and disclosure requirements. We do not expect the adoption of SFAS No. 160 to have an impact on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133” (ASC 810-10-65-1). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 for derivative instruments and hedging activities. SFAS No. 161 requires qualitative disclosure about objectives and strategies for using derivative and hedging instruments, quantitative disclosures about fair value amounts of the instruments and gains and losses on such instruments, as well as disclosures about credit-risk features in derivative agreements. We do not expect the adoption of SFAS No. 161 to have a significant impact on our consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (ASC 105). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS will become effective 60 days following the Security and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. We do not expect the adoption of SFAS No. 162 to have a significant impact on our consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" (“SFAS 165”) (ASC 855). SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 will be effective for interim or annual period ending after June 15, 2009 and will be applied prospectively. The Company will adopt the requirements of this pronouncement for the year ended June 30, 2009. The Company does not anticipate the adoption of SFAS 165 will have an impact on its consolidated results of operations or consolidated financial position.

Inventories

Inventories consist of the following at:

	September 30, 2009		June 30, 2009

Finished Goods and components	$	838,617	$	843,305

CNC Machines held for sale		112,500		183,500

Work in progress		141,666		233,773

Raw Materials and Parts		27,657		40,843
	$	1,120,440	$	1,301,421

Accrued Expenses

Accrued expenses consist of the following at:

	September 30, 2009		June 30, 2009

Compensation and related benefits	$	170,738	$	170,518
Other		107,992		316,433
	$	278,730	$	486,951

Capital Leases

The Company leases certain equipment under capital leases with terms ranging from four to five years. Future annual minimum lease payments are as follows as of September 30, 2009 and June 30, 2009.

	September 30, 2009		June 30, 2009
2010	$	70,904	$	82,519
2011		52,953		53,830
2012		40,036		50,329
2013		1,769		3,038
2014		-		-
Total minimum lease payments		165,662		189,716
Less amount representing interest		21,618		21,618
Present value of future minimum lease payments		144,044		168,098
Less current portion of capital lease obligations		57,853		70,747
Capital Lease obligations, net of current portion		86,191		97,351

Line of Credit and Notes Payable

Pacific Western Bank Credit Agreement

On August 21, 2006, the Company entered into credit agreement with Pacific Western Bank (“PWB”). The credit agreement provides for borrowings of up to $1,500,000 through a line of credit which is secured by substantially all of the Company’s assets and personal guarantees by two of the executive officers, Joseph Gledhill and Larry Consalvi. On November 15, 2007, the credit agreement was amended to reduce the amount available under the line of credit to $1,000,000 and to convert $500,000 of outstanding principal into a term loan. On September 29, 2008, the credit agreement was renewed through September 21, 2009, and Timothy Consalvi replaced Larry Consalvi as a guarantor.

Pacific Western Bank has subsequently renewed the credit line through November 21, 2009. The Company is making arrangements to repay the line of credit to Pacific Western Bank.

The line of credit has a stated interest rate equal to the lender's referenced prime rate plus 1.5%, or 9.75% and 6.5% per annum at June 30, 2009 and September 30, 2009, respectively. Interest is payable monthly with the outstanding principal balance due on November, 2009. The amount available for borrowings is determined based on a monthly basis based on 80% of eligible accounts receivable, as defined. The Company also has an irrevocable letter of credit outstanding of $100,000. The proceeds are used for general working capital needs.

The term loan provides for borrowings of up to $500,000. The loan has a stated interest rate equal to the lender's referenced prime rate plus 1.5%, or 9.75% and 6.5% per annum at June 30, 2009 and 2008, respectively. Principal and interest payments are payable monthly.

The company is in the process of making arrangements to repay the line of credit to Pacific Western Bank.

Notes payable consist of the following at September 30 and June 30, 2009:

	September 30, 2009		June 30, 2009
Notes payable to financial institutions, secured by the underlying equipment payable in aggregate monthly installments of $7,292, including interest rates between 7.2% and 9.75% per annum for a period of 50 and 60 months	$	138,315	$	151,608

Unsecured Loan to an individual in respect of the acquisition of a former subsidiary	$	18,012	$	31,526

Term loan to PWB payable in monthly installments of $17,120 including interest at a rate of Prime plus 1.50% per annum due November 25, 2010		194,445	$	250,000

Total		350,772		433,134
Less current portion		238,974		265,949
Long Term portion	$	111,798	$	167,185

	2009
2009	$	-
2010	$	238,974
2011		111,978
2012		-
2013		-
Thereafter		-
	$	350,772

Litigation

1. Onofrio Saputo and Christopher Frisco v. Gateway International Holdings, Inc., Lawrence Consalvi, Timothy Consalvi and Joe Gledhill, Court of the State of California, County of Orange, Case No. 30-2008-00110905. Plaintiffs filed this action on August 21, 2008. A Dismissal with Prejudice was filed with the Court on or about April 24, 2009.

The Complaint, which had causes of action for securities fraud, breach of fiduciary duties, fraud and deceit, and rescission, alleged that the defendants intentionally misrepresented, or failed to disclose, certain facts regarding the company prior to the plaintiffs purchasing Gateway International Holdings, Inc. (now M Line Holdings, Inc.) common stock. The Complaint sought total monetary damages of approximately $188,415, plus interest, and punitive damages. We filed an Answer to the Complaint on October 17, 2008, denying the allegations of the Complaint, denying that plaintiffs are entitled to any relief whatsoever and asserting various affirmative defenses. On January 22, 2009, the parties signed a Settlement Agreement, whereby a party unrelated to the lawsuit, Money Line Capital, Inc., our largest shareholder, agreed to purchase the plaintiffs’ shares of our common stock for the purchase price, or $289,000. This settlement closed on April 22, 2009. Of the $289,000 settlement money, $189,000 was paid to plaintiffs and we received $100,000 in exchange for the cancellation of a promissory note for $100,000 owed to us by one of the plaintiffs. Per the settlement agreement, a Dismissal with Prejudice was filed by the plaintiffs with the Court on or about April 24, 2009, for the purpose of dismissing this lawsuit.

2. Voicu Belteu v. Mori Seiki Co., Ltd.; Mori Seiki U.S.A., Inc.; All American CNC Sales, Inc. dba Elite Machine Tool Company; Ellison Manufacturing Tech., Superior Court for the State of California, County of Orange, Case No. 30-2008-00103710. Plaintiff filed this action on March 7, 2008.

The Complaint, which has causes of action for strict products liability and negligence, alleges that a CNC machine manufactured by Mori Seiki and sold through our subsidiary, All American CNC Sales, Inc. dba Elite Machine Tool Company, was defective and injured the plaintiff. The Complaint seeks damages in excess of $6,300,000 for medical expenses, future medical expenses, lost wages, future lost wages and general damages. All American CNC Sales filed its Answer and Cross-complaint on July 1, 2008 against several individuals and entities involved in the machine purchase and sales transaction, seeking indemnity and contribution.

Plaintiff and All American CNC Sales have both responded to discovery requests and are engaged in the meet and confer process to resolve outstanding discovery issues. Several depositions have been taken and we anticipate more going forward. The Court has set a trial date for March 22, 2010. Management believes we have meritorious defenses to plaintiff’s claims and plan to vigorously defend against the lawsuit and pursue Mori Seiki, and possibly other entities or individuals, for any damages we incur. However, there can be no assurance as to the outcome of the lawsuit. No provision has been made in our financial statements as we believe that the responsibility for liability, if any, is with the manufacturer.

3. James M. Cassidy v. Gateway International Holdings, Inc., American Arbitration Association, Case No. 73-194-32755-08. We were served with a Demand for Arbitration and Statement of Claim, which was filed on September 16, 2008.

The Statement of Claim alleges that claimant is an attorney who performed services for us pursuant to an agreement dated April 2, 2007 between us and the claimant. The Statement of Claim alleges that we breached the agreement and seeks compensatory damages in the amount of $195,000 plus interest, attorneys’ fees and costs. We deny the allegations of the Statement of Claim and will vigorously defend against these allegations. An arbitrator has not yet been selected, and a trial date has not yet been scheduled.

The company has a provision in the sum of $5,000.00 at September 30, 2009. No further provision is necessary as we feel that the litigation has no merit.

4. Elite Machine Tool Company v. ARAM Precision Tool and Die, Avi Amichai, Superior Court for the State of California, County of Orange, Case No. 30-2008-00090891. Elite Machine filed this action on August 8, 2008.

The Complaint alleged breach of contract for the defendants failing to pay Elite Machine for a machine the defendants purchased from Elite Machine, and sought damages totaling $16,238. ARAM Precision Tool and Die filed its Answer and Cross-Complaint on October 1, 2008. The Cross-Complaint alleged that Elite Machine failed to deliver certain parts of the machine per the sales contract and seeks damages totaling $25,000. In late June 2009, the parties settled this matter and the lawsuits were dismissed on August 13, 2009. Under the terms of the settlement, Aram paid Elite Machine Tool Company $4,000 in full and final settlement.

5. CNC Manufacturing v. All American CNC Sales, Inc., Elite Machine Tool Company/Sales & Services, CNC Repos, Superior Court for the State of California, County of Riverside, Case No. RIC 509650. Plaintiff filed this Complaint on October 2, 2008.

The Complaint alleges causes of action for breach of contract and rescission and claims All American breached the agreement with CNC Manufacturing by failing to deliver a machine that conforms to the specifications requested by CNC Manufacturing, and requests damages totaling $138,750. Elite Machine filed an Answer timely, on January 15, 2009. Discovery has commenced in this matter but is not expected to be concluded for several months. The Court has set a Case Management Conference for March 29, 202010. Management intends to aggressively defend itself against this claim. No trial date has been set.

No provision has been made in the attached financial statements as we believe that the litigation has no merit.

6. Elite Machine Tool Co. v. Sunbelt Machine, Orange County Superior Court, Case No. 0-2008-00112502. All American filed the Complaint on September 25, 2008. No trial date has been set.

This case involves a dispute between Elite Machine and Sunbelt regarding the sale of a Mori Seiki MH-63 machine by Elite Machine to Sunbelt. Sunbelt has claimed that it received a machine that does not conform to the specifications it ordered. The amount at issue is approximately $140,000 at this stage. Subsequent to filing of the above-referenced suit, Sunbelt has filed a similar action in Federal District Court in Houston, Texas. As a result, this case was dismissed and the case is being heard in Federal District Court.

A provision has been made in the attached financial statements in the sum of $139,000 at September 30, 2009.

7. Sunbelt Machine Works Corp. v. All American CNC Sales, Inc., United States District Court, Southern District of Texas, Case No. 4:09-cv-108. Sunbelt filed the Complaint on January 16, 2009.

This case involved a dispute between All American and Sunbelt regarding the sale of a Mori Seiki MH-63 machine by All American to Sunbelt. Sunbelt claimed that it received a machine that does not conform to the specifications it ordered. The amount sought in the Complaint was approximately $139,000. All American filed its Answer on April 13, 2009. Sunbelt filed a Motion for Summary Judgment, which was granted by the Court. As a result a Judgment has been entered against All American in the amount of $153,000. Management for All American maintains the claim has no merit and intends to appeal the Judgment.

A provision has been made in the attached financial statements in the sum of $153,000 at September 30, 2009.

8. Hwacheon Machinery v. All American CNC Sales, Circuit Court of the 19th Judicial Circuit, Lake County, Illinois, Case No. 09L544. The Complaint was filed on June 8, 2009.

The Complaint alleges causes of action for account stated, and arises from a claim by Hwacheon that All American CNC has not paid it for machines sold to All American CNC. The Complaint seeks damages of approximately $362,000. All American filed an answer on or about July 15, 2009. We denied the allegations in the Complaint and plan to vigorously defend the Complaint. No trial date has been set.

A provision has been made in the financial statement of All American CNC Sales, Inc. in the sum of $362,328 at September 30, 2009.

9. Fadal Machining v. All American CNC Sales, et al., Los Angeles Superior Court, Los Angeles, California, Case No. BC415693. The Complaint was filed on June 12, 2009.

The Complaint alleges causes of action for breach of contract and common counts against All American CNC seeking damages in the amount of at least $163,578.88, and arises from a claim by Fadal that All American failed to pay amounts due. On June 26, 2009, Fadal amended the Complaint to include M Line Holdings, Inc. as a Defendant. On or about August 11, 2009, the Court heard oral argument on Fadal’s Motion for Right to Attach Order and Writ of Attachment. The Court granted this Motion in part, issuing a Right to Attach Order against All American CNC in the amount of approximately $164,000. The Court denied the Motion as to M Line Holdings, Inc. On August 12, 2009, All American CNC filed an Answer to the Complaint, and M Line Holdings, Inc., filed a demurrer to the Complaint. The Court has scheduled a hearing the demurrer for October 15, 2009. This hearing has been continued until November 24, 2009. Management intends to aggressively defend itself against this claim. No trial date has been set.

A provision has been made in the financial statement of All American CNC Sales, Inc. in the sum of $163,578.00 at September 30, 2009.

10. Do v. E.M. Tool Company, Orange County Superior Court, Orange County, California, Case No. 30-2009-00123879. The Complaint was filed on June 1, 2009.

The Complaint alleges causes of action for negligence, product liability and breach of warranty, and seeks damages to be determined at time of trial. This lawsuit was tendered by E.M. Tool Company to its insurance company, which is currently providing a defense. We filed an Answer and a Cross-complaint against the manufacturer of the equipment the Mori Seiki Company, Ltd. No trial date has been set.

No provision has been made in the financial statement at September 30, 2009 as we believe the litigation has no merit due manufacturer’s liability.

11. Fox Hills Machining v. CNC Repos, Orange County Superior Court, Orange County, California, Case No. 30-2009-00121514. The Complaint was filed on April 14, 2009.

The Complaint alleges causes of action for Declaratory Relief, Breach of Contract, Fraud, Common Counts, and Negligent Misrepresentation, claiming the Defendant failed to pay Fox Hills Machining for the sale of two machines from Fox Hills to CNC Repos. The damages sought in the Complaint are not less than $30,000. The Defendants filed an Answer on June 5, 2009. Management intends to aggressively defend itself against this claim. No trial date has been set.

A provision has been made in the financial statements at September 30, 2009 in the sum of $14,540.

12. Laureano v. Eran Engineering, State of California Worker’s Compensation Appeals Board, no case number.

Mr. Laureano has filed a claim with the Worker’s Compensation Appeals Board against Eran Engineering. At this time, Eran Engineering has only been served with a subpoena for business records, requesting Mr. Laureano’s employment file, personnel file, claim file, and payroll documents. Management intends to aggressively defend this claim.

No provision has been made in the financial statements of the company at September 30, 2009. The Company’s management believes that payment(s), if any, will be the responsibility of the Workers Compensation Board.

13. Timothy D. Consalvi v. M Line Holdings, Inc. et.al., Orange County Superior Court Case No, 00308489.

A former president of All American CNC Sales, Inc. has filed suit against the Company seeking payment on an alleged severance obligation by the Company. The Complaint does not specify the damages sought. However, the parties have reached a settlement in the principal sum of $40,000 to be documented in due course. Meanwhile a default was entered against the Company, which management believes was in error because a settlement was already reached by the principal parties involved.

Management intends to finalize the settlement and dispose of the claim in due course.

We are considering settling this case at this time. Therefore, no provision has been made in the financial statement for this sum as of September 30, 2009.

Litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur in any of the above matters, there could be a material adverse effect on our financial condition, results of operations or liquidity.

8.	Common Stock

During the quarter ended September 30, 2009, the Company did not have any transactions relating to common stock.

9.	Related Party Transaction

There was no related party transaction during the quarter ended September 30, 2009 as all related party notes were repaid or settled during the fiscal year ended June 30, 2009.

10. Segments and Geographic Information

The Company’s segments consist of individual companies managed separately with each manager reporting to the Board. “Other” represents corporate functions. Sales, and operating or segment profit, are reflected net of inter-segment sales and profits. Segment profit is comprised of net sales less operating expenses and interest. Income taxes are not allocated and reported by segment since they are excluded from the measure of segment performance reviewed by management.

	Machine Sales					Precision Manufacturing					Corporate				TOTAL
	2009			2008		2009			2008		2009		2008		2009			2008
Revenues $		876,045		$	-	$	772,114		$	1,797,384	$	-	$	-	$	1,650,674		$	1,797,384
Income (Loss) before taxes		(283,018	)		-		(338,824	)		421,376		33,338		-		(588,504	)		421,376

Sales are derived principally from customers located within the United States.

11.

Subsequent Events

None.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This quarterly report on Form 10-Q of M Line Holdings, Inc. (formerly known as Gateway International Holdings, Inc., and referred to herein as “MLH”, “we,” “us” or “Company”) for the three months ended September 30, 2009, contains forward-looking statements, principally in this Section and “Business.” Generally, you can identify these statements because they use words like “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These statements reflect only our current expectations. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen, including, among others, the risks we face as described in this filing. You should not place undue reliance on these forward-looking statements which apply only as of the date of this quarterly report. These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation of belief will be accomplished.

We believe it is important to communicate our expectations to our investors. There may be events in the future, however, that we are unable to predict accurately or over which we have no control. The risk factors listed in this filing, as well as any cautionary language in our annual report on Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results or events to differ materially from those anticipated, include, but are not limited to: our ability to successfully develop new products; the ability to obtain financing for product development; changes in product strategies; general economic, financial and business conditions; changes in and compliance with governmental healthcare and other regulations; changes in tax laws; and the availability of key management and other personnel.

Overview

Our business comprises of two segments, our Machine Sales Group and our Precision Manufacturing Group.

Our Machine Sales Group is in the business of acquiring and selling computer numerically controlled (“CNC”) machines, and related tools, to manufacturing customers. We specialize in the purchase, refurbishment and sales of used CNC machines. We also serve as a manufacturer sales representative firm selling new CNC machines we purchase from third party manufacturers into certain geographic territories.

Our Precision Manufacturing Group is a manufacturer of precision components used in equipment and machinery in the commercial aviation, medical, aerospace and defense industries. Sales within this segment are highly concentrated within one customer, Panasonic Avionics Corporation (“Panasonic”). The loss of all or a substantial portion of sales to this customer would cause us to lose a substantial portion of our sales within this segment and on a consolidated basis, and have a corresponding negative impact on our operating profit margin due to operation leverage this customer provides. This could lead to sales volumes not being high enough to cover our current cost structure or provide adequate operating cash flows. Panasonic has been a customer of ours for approximately 15 years and we believe our relationship is good.

Trends Affecting Our Business

The recent tightening of the capital markets may hurt our ability to sell used CNC machines. Historically, as capital markets tighten, companies that purchase large machines on credit, such as CNC machines, have more difficulty in obtaining credit and, therefore, are unable to purchase machines that they may be able to purchase in better financial times. Any impact on our customers’ ability to purchase machines could negatively impact our business.

The primary components sold by our Precision Manufacturing segment during the quarters ended September 30, 2009 and, 2008, were parts sold to Panasonic, a leading provider of in-flight entertainment systems for commercial aircraft. The decline in economic activity has an adverse effect on our business. This has had an effect on Panasonic’s orders to us, and, therefore, there has been an adverse effect on our business. In addition, any further decrease may have an impact with the Machine Tools Group, as many of our customers that buy machines from us do business with airline manufacturers.

Critical Accounting Policies

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 and the reported amounts of sales and expenses during the reporting period. Significant estimates made by management are, among others, realization of inventories, collectability of accounts receivable, litigation, impairment of goodwill, and long-lived assets other than goodwill. We regularly evaluate our estimates and assumptions based upon historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent actual results differ from these estimates; our future results of operations may be affected.

Inventories

Within our Precision Manufacturing segment, we seek to purchase and maintain raw materials at sufficient levels to meet lead times based on forecasted demand. We generally manufacture parts based on purchase orders. Within our Machine Tools segment, we purchase machines held for resale based upon management’s judgment of current market conditions and demand for both new and used machines. If forecasted demand exceeds actual demand, we may need to provide an allowance for excess or obsolete quantities on hand. We also review our inventories for changes demand patterns and in the market prices of machines held in inventory and provide reserves as deemed necessary. If actual market conditions are less favorable than those projected by management, additional inventory reserves for CNC machines and parts may be required. We state our inventories at the lower of cost, using the first-in, first-out method on an average costs basis, or market.

Results of Operations for the Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008

	Three Months ended September 30,
	2009		2008		Change ($)			Change (%)
Sales by segment
Machine Sales	$	876,045	$	-	$	876,045			100	%
Precision Manufacturing		772,114		1,797,384		1,025270			-57	%
		1,648,159		1,797,384		(149,225	)		-8	%
Gross profit by segment
Machine Sales		82,563		-		82,563			100	%
Precision Manufacturing		220,162		911,009		(690,847	)		-76	%
		302,725		886,375		(583,650	)		-66	%

Sales

Sales in the fiscal 2009 period decreased 8% compared to the comparable period in fiscal 2008. The change is attributable to a decrease in sales in the Precision Manufacturing Group. Sales declined by 57% in the Precision Manufacturing Group. Sales in the Machine Sales Group are not comparable to that of the prior period as all sales in the prior period were from a discontinued subsidiary.

Gross Margin

Gross profit decreased by 66% compared to the comparable period in fiscal 2008. The gross profit for the Machine Sales Group is not comparable to that of the prior period as all gross profit for this period was from the discontinued subsidiary. The decrease within the Precision Manufacturing Group resulted from lower customer demand for product in the 2009 period.

Selling, General & Administrative

Selling, general and administrative costs increased by $443,917 compared to the comparable period in fiscal 2008. The changes are due to increases in personnel costs and insurance. Personnel costs increased by approximately $97,000 or 32% primarily attributable to a higher head count, and insurance by approximately $26,000 or 23%, due to a cost increase during the fiscal 2009 period. In addition, the prior periods lower costs were attributable to a sum of $233,000 being contributed by the discontinued subsidiary.

Amortization of Intangible Assets

Amortization expense for intangible assets remained the same of $10,445 compared to the comparable period in fiscal 2009.

Interest Expense

Interest expense decreased by $20,062 compared to the comparable period in fiscal 2009. The change is attributable to lower average debt balances and decreases in the interest rates on our debt obligations.

Gain on Sale of Assets

During the fiscal 2009 period, there was no gain or loss as no assets were sold during the period.

Liquidity and Capital Resources

Our principal sources of liquidity consist of cash and cash equivalents, cash generated from operations and borrowing from various sources, including Pacific Western Bank. At September 30, 2009, our cash and cash equivalents and working capital decreased by $23,450 and $556,830, respectively to June 30, 2009 amounts.

The term loan provides for borrowings of up to $500,000. The loan bears interest at the lender's referenced prime rate plus 1.5% with principal and interest payments due monthly.

Cash Flows

The following table sets forth our cash flows for the three months ended September 30:

Provided by (used in)	2009			2008			Change

Operating activities	$	82,966		$	644,203		$	561,237
Investing activities		-			(2,500	)		(2,500	)
Financing activities		(106,416	)		(195,676 )			(89,260	)
	$	(23,450	)	$	446,027		$	469,477

Operating Activities

Operating cash flows during the fiscal 2009 and 2008 fiscal periods reflect our results of operations, offset by net cash provided by operating assets and liabilities and non-cash items (depreciation, amortization and stock-based compensation). During the 2009 period, non-cash expenses included in our net income and in operating activities totaled $111,429 compared to $134,871 in the 2008 period.

The increase in operating assets and liabilities for the 2009 and 2008 periods were $86,153 and $813,102, respectively. During the 2009 period, the increase was primarily attributable to collections of accounts receivable which resulted in a decrease of $69,774 from the June 30, 2009 balance.

The changes in operating assets for the 2008 period were primarily attributable a $573,431 reduction in accounts receivable. The reduction in accounts receivable was primarily attributable to a decline in sales in the 2008 period as a result of the relocation of our Precision Manufacturing facility.

Investing Activities

We made capital expenditures of $0 and $0 during the first three months of the fiscal 2009 and 2008 periods, respectively.

Financing Activities

During the first three months of the fiscal 2009 and 2008 periods, we repaid (net of borrowings) $106,416 and $195,676, respectively of outstanding debt and capital lease obligations. During the 2009 period, we repaid $0 on our line of credit in the 2009 period, as compared to $5,500 of net borrowings during the 2008 period.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.

As a smaller reporting company we are not required to provide the information required by this Item. However, we opted to include the following information.

The only financial instruments we hold are cash and cash equivalents. We also have a floating interest rate credit agreement with Pacific Western Bank. Changes in market interest rates will impact our interest costs.

We are currently billed by the majority of our vendors in U.S. dollars and we currently bill the majority of our customers in U.S. dollars. However, our financial results could be affected by factors such as changes in foreign currency rates or changes in economic conditions.

ITEM 4T. Controls and Procedures.

(a) Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2009, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2009, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in Item 4T.

(b) Management Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:

•	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and any disposition of our assets;

•

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, Management has identified the following two material weaknesses that have caused management to conclude that, as of September 30, 2009, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

1. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

2. We have not documented our internal controls. We have limited policies and procedures that cover the recording and reporting of financial transactions. Although providing this report in this Annual Report is optional for us at this time, written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. We will be required to provide written documentation of key internal controls over financial reporting beginning with our fiscal year ending June 30, 2009. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

3. Prior to Spring/Summer 2008, we did not have adequate internal controls, or policies and procedures, with respect to our travel and expense reports. As a result, it was discovered that certain expense reimbursements were paid to our officers and directors even though complete expense reimbursement paperwork had not been submitted with adequate documentation surrounding the nature of the expense. These expenses reimbursements were paid based on the incomplete paperwork. To the extent these expenses could not subsequently be substantiated we requested reimbursement from that officer and director.

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only our management’s report in this Quarterly Report.

Being aware of these material weaknesses our management will be vigilant about ensuring they do not affect our reporting obligations and will seek to remedy these issues when it is financially feasible to do so.

(d) Changes in Internal Control over Financial Reporting

There have been no changes to our internal control over financial reporting during our most recently completed fiscal quarter.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings.

The Complaint alleged breach of contract for the defendants failing to pay Elite Machine for a machine the defendants purchased from Elite Machine, and sought damages totaling $16,238. ARAM Precision Tool and Die filed its Answer and Cross-Complaint on October 1, 2008. The Cross-Complaint alleged that Elite Machine failed to deliver certain parts of the machine per the sales contract and seeks damages totaling $25,000. In late June, the parties settled this matter and the lawsuits were dismissed on August 13, 2009. Under the terms of the settlement, Aram paid Elite Machine Tool Company $4,000 in full and final settlement.

The Complaint alleges causes of action for breach of contract and rescission and claims All American breached the agreement with CNC Manufacturing by failing to deliver a machine that conforms to the specifications requested by CNC Manufacturing, and requests damages totaling $138,750. Elite Machine filed an Answer timely, on January 15, 2009. Discovery has commenced in this matter but is not expected to be concluded for several months. The Court has set a Case Management Conference for March 29, 2010. Management intends to aggressively defend itself against this claim. No trial date has been set.