M LINE HOLDINGS INC - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - M LINE HOLDINGS INC	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - M LINE HOLDINGS INC	v239563_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - M LINE HOLDINGS INC	v239563_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - M LINE HOLDINGS INC	v239563_ex31-1.htm
EX-10.22 - EXHIBIT 10.22 - M LINE HOLDINGS INC	v239563_ex10-22.htm
EX-10.23 - EXHIBIT 10.23 - M LINE HOLDINGS INC	v239563_ex10-23.htm
EX-32.2 - EXHIBIT 32.2 - M LINE HOLDINGS INC	v239563_ex32-2.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, 2011

¨	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)

(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 11, 2011, there were 46,608,345 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.	21

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.	25

ITEM 4.	Controls and Procedures.	25

PART II

ITEM 1.	Legal Proceedings.	28

ITEM 1A.	Risk Factors.	32

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	32

ITEM 3.	Defaults Upon Senior Securities.	33

ITEM 4.	(Removed and Reserved).	33

ITEM 5.	Other Information.	33

ITEM 6.	Exhibits.	34

PART I-FINANCIAL INFORMATION

M LINE HOLDINGS, INC. AND SUBSIDIARIES

(FORMERLY GATEWAY INTERNATIONAL HOLDINGS, INC.)

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	As of September 30			As of June 30
	2011			2011

Assets

Current Assets:
Cash and cash equivalents	$	67,783		$	221,036
Accounts receivable, net		1,179,646			894,197
Inventories, net		1,474,872			1,199,422
Due from related party		903,175			769,499
Prepaid and other current assets		-			14,148

Total current assets		3.625,476			3,098,302

Property and equipment, net		546,348			537,256
Intangible Assets, net		13,764			31,952
Deposits and other		85,652			80,653

Total Assets	$	4,271,241		$	3,748,163

Liabilities and Shareholders' Equity

Current Liabilities:
Line of Credit	$	586,600		$	627,045
Accounts Payable		929,166			901,230
Accrued Expenses and other		762,706			839,574
Notes payable – current		669,574			305,939
Capital Leases – current		100,943			44,998
Litigation payable		214,325			494,446

Total Current Liabilities		3,263,314			3,213,232

Notes Payable - long term		-			13,428
Capital Leases - long term		27,731			29,770
Deferred Income Taxes		16,710			16,710

Total liabilities		3,307,755			3,273,140

Commitments and Contingencies		-			-

Shareholders' Equity
Common Stock, $0.001: 100,000,000 shares
Authorized; 46,608,345 and 38,570,845 shares issued and outstanding
at September 30, 2011 and June 30, 2011, respectively		46,608			38,571
Additional paid in capital		10,174,028			9,813,315
Related party Receivable due to shares issuance		(94,000	)		(94,000	)
Accumulated deficit		(9,163,151	)		(9,282,863	)
Total stockholders' equity		963,485			475,023
Total Liabilities and Shareholders' Equity	$	4,271,241		$	3,748,163

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements

M LINE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

	Three month period(s) ended September 30,
	2011			2010
Net sales	$	2,409,893		$	1,656,599
Cost of sales		1,655,545			930,024
Gross Profit		754,348			726,575

Operating expenses:
Selling, general and administrative		663,266			716,485
Amortization of intangible assets		18,188			18,188
Total operating expense		681,454			734,673
Operating Profit (Loss)		72,894			(8,098	)

Other income (expense):
Interest expense		(48,564	)		(12,418	)
Interest income		12,598			6,182
Gain on debt Settlement		85,184			-
Total other income (expenses)		49,218			(6,236	)
Income (loss) before income tax		122,112			(14,334	)

Income tax provision		2,400			800

Net income (loss)	$	119,712		$	(15,134	)

Net income (loss) per share:

Basic and dilutive income (loss) per share:	$	0.00		$	(0.00	)

Weighted average number of common shares under in per share calculations (basic and diluted)		44,282,258			30,861,956

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements

M LINE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

	Three month period(s) ended September 30,
	2011			2010
Cash flows from operating activities:
Net income (loss)	$	119,712		$	(15,134	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Imputed Interest		(12,598	)		(6,182	)
Bad Debt expense		(65,947	)		-
Depreciation		58,189			104,410
Amortization of intangible assets		18,189			18,188
Issuance of shares for services		368,750			-
Gain on debt settlement		(85,184	)		-
Change in derivative liabilities		-			(4,801	)
Changes in operating assets and liabilities:
Account receivable		(219,502	)		(69,882	)
Inventory		(275,450	)		13,743
Prepaid expenses and other assets		9,149			(9,193	)
Account payable and accrued expenses		31,338			288,067

Deferred rent		-			(9,891	)

Cash provided by operating activities		(53,335	)		309,325
Cash used in operating activities of discontinued operations		-			300
Net cash provided by operating activities		(53,335	)		309,625

Cash flows from financing activities:
Net borrowings (repayments) on line of credit		(40,445	)		-
Due from related party		(121,078	)		(59,817	)
Proceeds from notes payable		75,000			-
Payments to notes payable		-			(43,702	)
Payments on capital leases		(13,375	)		(8,665	)

Net cash used in financing activities		(99,898	)		(112,184	)

Net increase (decrease) in cash and cash equivalent		(153,253	)		197,441

Cash and cash equivalents at beginning of period		221,036			50,410

Cash and cash equivalents at end of period		67,783		$	247,851

Supplemental disclosure of cash flow information:
Cash paid for interest	$	48,564		$	10,418

Cash paid for income taxes	$	-		$	-

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements

M LINE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(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).

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, 2011 and 2010 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, 2011.

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, 2011 and June 30, 2011, respectively.

Reclassification

Certain reclassification has been made to the previous year’s financial statements to conform to current year presentation with no effect on previously reported net loss.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update No. 2011-04,Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820)—Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements (as defined in Note 3 below). ASU 2011-04 is effective for us in our fourth quarter of fiscal 2012 and should be applied prospectively. We are currently evaluating the impact of our pending adoption of ASU 2011-04 on our consolidated financial statements.

In June 2011, the FASB issued new guidance ASU 2011-05 on the presentation of comprehensive income that will require a company to present components of net income and other comprehensive income in one continuous statement or in two separate, but consecutive statements. There are no changes to the components that are recognized in net income or other comprehensive income under current GAAP. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011, with early adoption permitted. The Company is currently evaluating this guidance, but does not expect its adoption will have a material effect on its consolidated financial statements.

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-08, Intangibles—Goodwill and Other (Topic 350)—Testing Goodwill for Impairment (ASU 2011-08), to allow entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for us in fiscal 2013 and earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2011-08 on our consolidated financial statements.

ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820)—Improving Disclosures about Fair Value Measurements (“ASU 2010-06”) was issued in January 2010. This ASU amends ASC Subtopic 820-10, Fair Value Measurements and Disclosures—Overall, to require new disclosures regarding transfers in and out of Level 1 and Level 2, as well as activity in Level 3, fair value measurements. This ASU also clarifies existing disclosures over the level of disaggregation in which a reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. This ASU further requires additional disclosures about valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The Company does not believe that the adoption will have a material impact on the Company’s consolidated

Inventories

Inventories consist of the following at:

	September
	30, 2011			June 30, 2011
Finished Goods and Components	$	807,725		$	740,078

CNC Machines held for sale		57,000			-
Work in Progress		649,080			505,108
Raw Materials and Parts		8,960			9,216
		1,522,765			1,254,402
Less: Reserve for inventories		(47,893	)		(54,980	)
Inventories, net.	$	1,474,872		$	1,199,422

Accrued Expenses

Accrued expenses consist of the following at:

	September 30,		June 30,
	2011		2011
Compensation and related benefits	$	624,744	$	738,650
Audit Fees		15,000		65,000
Other		122,962		35,924
	$	762,706	$	839,574

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, 2011 and June 30, 2011.

	September
	30, 2011		June 30, 2011
2011	$	105,320	$	70,058
2012		28,023		11,318
2013		0		0
2014		0		0
2015		0		0
Total minimum lease payments		133,343		81,376
Less amount representing interest		4,669		6,608
Present value of future minimum lease payments		128,674		74,768
Less current portion of capital lease obligations		100,943		44,998
Capital Lease obligations, net of current portion	$	27,731	$	29,770

Line of Credit and Notes Payable

As of September 30, 2011 the Company owed Pacific Western Bank $236,400, $218,889 at June 30, 2010).

On September 1, 2011, the Company settled the dispute with Pacific Western Bank that not only settles all outstanding legal disputes between the parties but agrees monthly payments that will pay off the balance due to Pacific Western Bank. The first payment of $15,000, due on September 30, 2011, and and the second payment also of $15,000 due October 30, 2011, have both been paid subsequent to quarter end. The monthly payments continue as follows:

November 30 through March 31, 2012	$	20,000
April 30 through May 31, 2012	$	25,000
June, 2012	Balance due in full

Interest accrues at 6% per annum. These payments will not only pay off the remainder of the Company’s line of credit but also the balance due from Eran Engineering on the remaining equipment loan with Pacific Western Bank.

Under the terms of the agreement the Company can pay off any balance due to Pacific Western bank at any time without penalty. If we fail to timely payoff the balance owed to Pacific Western Bank we will be in default and default penalties will apply.

Notes payable consist of the following as of September 30, 2011 and June 30, 2011.

	September 30, 2011		June 30, 2011
Notes payable to financial institutions, secured by the underlying equipment in aggregate monthly installments of $7,292 including interest rates between 7.2% and 9.75% per annum for a period of 50 months.	$	329,679	$	44,471

An unsecured note payable to a corporation in respect of accounting software payable in monthly installments of $ 1,922.82. This note is now due and payable and is being negotiated with the company.		27,061		27,061

An unsecured note payable to a corporation in respect of machines sold to us payable in monthly installments of $5,000.00 per month.. This agreement will expire in June 2012		56,070		66,070

An unsecured note payable to a corporation in monthly installments of $5,000.00 per month. This balance is due to be paid in six monthly payments ending December 31, 2011.		31,764		31,764

An secured note payable in the sum of $150,000.00 to a financial institution in full on November 2011. The company has negotiated an extension of the term to December 15, 2011 with an option to repay over four months in 2012, if necessary.		150,000		150,000

An secured note payable in the sum of $150,000.00 of which $75,000 was paid end September 2011, with the balance paid in October 2011 to a financial institution, payable in full on March 31, 2012.		75,000		-
TOTAL		669,574		319,366
Less Current Portion		669,574		305,938
Long Term Portion	$	-	$	13,428

2011		669,574		305,938
2012		-		13,428
2013		-		-
2014		-		-
Thereafter		-		-
		669,574		319,366

LEASES:
	AMOUNT
2012	$	577,213
2013		108,485
2014		111,740
2015		115,092
2016		118,545
Thereafter		0
	$	1,031,075

LITIGATION PAYABLE

	September 30, 2011		June 30, 2011
An unsecured note payable to a corporation in settlement of a lawsuit payable in full by		65,000		377,621

An unsecured note payable to a corporation in settlement of a lawsuit payable in 12 monthly payments of $5,000.00		60,000		60,000

An unsecured note payable to a corporation in settlement of a lawsuit payable in 12 monthly installments of $1,000.00		11,225		11,225

An unsecured note payable to an ex employee of the Company. Due to be paid in 10 monthly payments that commenced in March 2011		40,600		45,600

A Provision in the sum of $27,500.00 for an unsecured note payable, agreed verbally, subject to a formal agreement anticipated shortly.		27,500		-

A provision in the sum of $10,000.00 in settlement of a lawsuit, subject to agreement anticipated shortly		10,000		-

TOTAL		214,325		494,446

Litigation

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 and Cross-Complaint were dismissed approximately November 2010.

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.

No provision has been made as we feel that the litigation has no merit.

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 is expected to pay Elite Machine Tool Company $4,000 in full and final settlement.

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. This case was settled on September 12, 2011 in an amount of $27,500. This amount is to be paid in three monthly payments commencing on October 25, 2011.

A provision has been made in the September 30, 2011 financials in the amount of $27,750.00..

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 and M Line Holdings in the amount of $153,000.

A satisfaction of judgment agreement was entered into by the parties on January 25, 2010. The settlement amount was $152,802.49 to be paid by a Mori Seki MH-50 machine valued at $59,000, with the balance being paid in 13 monthly installments of $5,000.00 commencing February 15, 2010 with interest at the rate of approximately .44% per annum, the remaining balance being paid in March 2011.

A provision has been made in the March 31, 2011 financials in the amount of $31,174.

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. Default has been entered against All American CNC Sales, Inc.

In a hearing in the Superior Court of California Hwacheon filed an alter ego case against Eran Engineering, Inc., Elite Machine Too and M Line Holdings, Inc. The judge granted the summary judgment against all three defendants in the amount of $403,860.91 including interest through February 8, 2011. Post judgment proceedings have been initiated by Hwacheon. MLH and Eran Engineering filed an appeal. Motions have been filed to stay enforcement.

MLH and Hwacheon have negotiated a settlement. The settlement agreement has now been signed. Under the terms agreed M Line has paid the sum of $267,363.37 and has agreed to settle the balance in the amount of $65,000, which is due on or before December 7, 2011. This settlement will close all litigation between the parties.

M Line Holdings, Inc. v. Hwacheon Machinery, Orange County Superior Court, Orange County, California, Case No. 30-2010-00369532. The complaint was filed on May 4, 2010

The complaint against Hwacheon seeks declatory relief from the court relieving M Line Holdings from having to respond to Hwacheon’s harassing, burdensome and voluminous requests for documents relating to Hwacheon’s judgment against All American CNC Sales, Inc.

The Complaint was dismissed approximately October 2011.

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.

A settlement agreement in the amount of $60,000 was signed on May 31, 2011. This amount is to be paid in 12 monthly installments starting on January 1, 2012.

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 case against Elite Machine Tool has been settled and a settlement amount was paid by the insurance carrier. There are remaining issues of indemnity between the carrier and other parties but Elite is no longer involved in the case.

10.

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 estimated to be approximately $30,000. The Defendants filed an Answer on June 5, 2009.

Recently the parties agreed to settle but the final numbers have still to be finalized.

A provision has been made in the September 30, 2011 financials in the amount of $10,000.00.

11.

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.

The Company’s management believes that payment(s), if any, will be the responsibility of the Workers Compensation Board.

12.

C. William Kircher Jr. v. M Line Holdings, Inc. Orange County Superior Court Case No. 00397576

A former attorney for M Line Holdings, Inc. has sued us seeking damages for failure to pay legal fees in the amount of $120,166.30. The response is not due yet as of the date of this Annual Report but will be filed in a timely manner.

This case has settled. The terms of the settlement call for 12 payments of $5,000 per month commencing August 25, 2011 and the issuance of 150,000 shares of common stock.

13.

M Line Holdings, Inc. v. Pacific Western Bank Orange County Superior Court Case No BC448012. The case was filed on 10/21/2010.

The Complaint alleges causes of action for Declaratory Relief, Breach of Contract, Fraud, Common Counts, and Negligent Misrepresentation, claiming the Defendant failed to fund against the line of credit when funds were available and also failed to remove two of the personal guarantors after agreeing in writing to do so and MLH is seeking unspecified damages.

This case has settled based on payment terms as agreed between the parties.

14.

Pacific Western Bank v. M Line Holdings, Inc. Orange County Superior Court Case No BC448012. The case was filed as a cross-complaint on 11/12/2010.

The Cross-complaint alleges causes of action basically for breach of written agreement and related claims. Defendant failed to repay a credit line when it became due and is also claiming that defendant must repay two equipment loans even though these loans are current due to the terms of the credit line agreement. Cross-complaint is seeking damages of $300,616.

This case has settled based on payment terms as agreed between the parties.

15.

In re: Chapter 7 Bankruptcy of All American CNC Sales, Inc. United States Bankruptcy Court, Central District of California Case No 8:10-bk-26771-TA. Case was filed on 11/24/2010. The bankruptcy has been dismissed.

16.

Neal Kohlhaas v. M Line Holdings, INC. Orange County Superior Court Case No. 30-2011-00442075.

Plaintiff has filed suit against M Line alleging a breach of a consulting agreement and seeking damages in the amount of approximately $20,000. Company has decided to defend the action on the basis that services were not provided as agreed or expected. The case is currently in the discovery phase of litigation. We do not have sufficient information at this time to render an opinion regarding a potential outcome or possible financial impact on the company.

17.

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. The parties then reached a settlement in the principal sum of $40,000 to be documented in due course. Meanwhile a default was entered against MLH, which management believes was in error because a settlement was already reached by the principal parties involved. The default has since been vacated and Company has answered the complaint and has filed a motion for leave to file a cross complaint.

Recently a settlement of $50,000 has been reached in this case, requiring payments commencing on March 11, 2011 for ten months. The first two month’s payment have been made however the Company is currently in default of the terms of this settlement agreement. Mr. Consalvi has filed his stipulated judgment.

18.

Joe Gledhill v. M Line Holdings, Inc., et. al.- Los Angeles Superior Court Case No. BC 448012

Joseph Gledhill, a former officer and director of the company and its subsidiary Eran Engineering has filed suit within the Pacific Western case seeking indemnity of the Pacific Western claim and various other causes of action. Management has decided to vigorously defend these claims and believes Mr. Gledhill’s suit has no merit. We do not have sufficient information at this time to render an opinion regarding a potential outcome or possible financial impact on the company.

19.

M Line Holdings, Inc., v. Timothy Consalvi, et. al.- Orange County Superior Court Case No. 30-201100493329

M Line has recently filed suit against two of its former directors alleging that they breached their fiduciary duty to the company by mismanaging the corporate affairs of the company and its subsidiaries resulting in damages to the company and its subsidiaries. Defendants have not yet been served or have not answered the complaint at this time. We do not yet have sufficient information to render an opinion on potential outcome of this matter or the financial impact on the company.

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.

Income Taxes

Our effective tax rates were approximately 2% and (6%) for the three months ended September 30, 2011 and 2010, respectively. Our effective tax rate was lower than the U.S. federal statutory rate due to differences between financial and income tax basis amounts and the fact that we currently record a valuation allowance against our deferred tax assets.

Common Stock

The Company’s articles of incorporation authorize up to 100,000,000 shares of $0.001 par value preferred stock. Shares of preferred stock may be issued in one or more classes or series at such time as the Board of Directors determine. The Company had no shares of preferred stock issued and outstanding as of September 30, 2011 or June 30, 2011.

During the year ended June 30, 2011, the Company issued the following shares of common stock.

-	990,000 shares of common stock to its stock transfer agent and investor relations/financial advisor in payment of services to the Company. The Company valued the shares at the market price on the issuance date, in the sum of $28,000

3,538,889 shares of common stock to various note holders in part settlement of the outstanding loans due to them. The Company valued the shares at the market price on the issuance date, in the sum of $160,056. Of the 3,000,000 shares issued to one note holder, Spagus Capital Partners, 1,000,000 million shares were transferred to Spagus by another note holder, Asher Enterprises. The funds required to repay Asher were provided by Spagus. This transfer of stock to Spagus was a part of that loan transaction.

The Company also issued 2,800,000 shares of its common stock in lieu of salaries and expenses due to related parties, the shares were valued at $94,000 based on the market price, and the balance was recorded as a contra equity account in the Company’s financial statements as of June 30, 2011. (see Note 4)

During the quarter ended September 30, 2011, the Company issued the following shares of common stock:

-	The Company issued 4,387,500 shares of its common stock in lieu of salaries and expenses due. The shares were valued at $239,750, based on the market price prevailing on the issuance date, and recorded in the Company’s financial statements as of September 30, 2011.

The Company issued 3,650,000 shares of its common stock to various note holders and consultants in settlement of loans and services rendered to the company. The shares were valued at $129,000, based on the market price, prevailing on the issuance date and recorded in the Company’s financial statement as of September 30, 2011.

Non-Qualified Stock Option Plan

In November 2006, the Board of Directors approved a Non-Qualified Stock Option Plan for key managers, which, among other provisions, provides for the granting of options by the board at strike prices at or exceeding market value, and expiration periods of up to ten years. No stock options have been granted under this plan.

10.

Related Party Transactions

The related party transactions during the quarter ended September 30, 2011 were as follows:

Issue of shares for services	$	104,730
Recharge of telephone service costs	$	3,750
Imputed Interest re loan	$	12,598

11.

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.

Segment Information for the three month period ended September 30, 2011	Machine Sales			Precision Manufacturing		Corporate		Total

Revenue	$	993,270		$	1,416,623	$	0	$	2,409,893
Interest Income		-			-		12,598		12,598
Interest Expense		0			37,188		11,376		48,564
Depreciation and Amortization		18,938			51,084		6,355		76,377
Income (loss) before taxes		(205,532	)		294,561		33,083		122,112
Total Assets		473,082			2,812,183		985,975		4,271,240
Capital Expenditure	$	-		$	61,674	$	-	$	61,674

Segment Information for the three month period ended September 30, 2010	Machine Sales		Precision Manufacturing			Corporate			Total
Revenue	$	788,896	$	867,703		$	0		$	1,656,599
Interest Income		-		-			6,182			6,182
Interest Expense		74		12,382			(38	)		12,418
Depreciation and Amortization		18,938		97,799			5,861			122,598
Income (loss) before taxes		67,704		(92,950	)		10,112			(15,134	)
Total Assets		239,180		1,973,512			856,069			3,068,761
Capital Expenditure	$	-	$	-		$	-		$	-

	For the three month period ended September 30,		For the three month period ended September 30,
	2011		2010		Change			%

Sales by segment:
Machine Sales	$	993,270	$	788,896		204,374			26
Precision Engineering		1,416,623		867,703		548,920			63
		2,409,893		1,656,599		753,294			45

Gross Profit by segment:
Machine Sales		81,509		339,324		(257,815	)		(76	)
Precision Engineering		672,839		387,251		285,588			74
		754,348		726,575		27,773			4

12.

Going Concern and Management Plans

The Company's consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, the Company has an accumulated deficit of $9,163,151 as of September 30, 2011.

The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company recognizes that the very weak economy in 2009 and 2010 and the difficulty in raising new funds has impacted the working capital needs of the Company. The Company's continuation as a going concern is dependent upon its ability to retain its current short term financing and ultimately to generate sufficient cash flow to meet its obligations on a timely basis in order to attain profitability.

To date the Company has funded its operations from both internally generated cash flow and external sources. The Company will pursue additional external capitalization opportunities, as necessary, to fund its long-term goals and objectives.

The Company has taken significant steps to resolve these issues. The Company achieved profit in the fiscal year ended June 30, 2011 and has continued to make profit in the quarter ended September 30, 2011. Business continues to improve and we expect positive results to continue.

In addition the improved results are making refinancing the business an easier proposition. The first new inventory line of credit has been approved since the year end and we expect to complete a refinance of the equipment in November.

13.

Subsequent Events

The Company appointed Mr. Gary Augusta to its Board of Directors, effective November 8, 2011. Mr. Augusta is the President of Spagus Capital Partners the Company that has loaned the Company $300,000 at 8% interest per annum.

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, 2011, 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 our Annual Report on Form 10-K, 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 19 years and we believe our relationship is good.

Trends Affecting Our Business

Although The recent tightening of the capital markets has eased it may still 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. The credit markets have improved slightly but may have an impact on our customers’ ability to purchase machines which could negatively impact our business.

The primary components sold by our Precision Manufacturing segment during the quarters ended September 30, 2011 and, 2010, were parts sold to Panasonic, a leading provider of in-flight entertainment systems for commercial aircraft. Although the market for inflight entertainment systems has improved and is expected to continue to improve over the next two to three years business is still inconsistent and this may effect our business over the next several months. In addition, if there is a decrease in work this 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, 2011 Compared to the Three Months Ended September 30, 2010

	Three Months ended September 30,
	2011		2010		Change ($)			Change (%)
Sales by segment
Machine Sales	$	993,270	$	788,896	$	204,374			26	%
Precision Manufacturing		1,416,623		867,703		548,920			63	%
		2,409,893		1,656,599		753,294			45	%
Gross profit by segment
Machine Sales		81,509		339,324		(257,815	)		(76	)%
Precision Manufacturing		672,839		387,251		285,588			74	%
		754,348		726,575		27,773			4	%

Sales

Sales in the fiscal 2011 period increased 45% compared to the comparable period in fiscal 2010. The change is attributable to an increase in sales in the Machine Sales and Precision Manufacturing Group. Sales increased by 26% in the Machine Sales Group and by 63% in the Precision Manufacturing Group.

Gross Margin

Gross profit increased by 4% compared to the comparable period in fiscal 2010. The gross profit for the Machine Sales Group decreased by 76% due to a decrease in margins as a result of higher prices paid for product and higher freight costs. The increase within the Precision Manufacturing Group of 74% resulted from better margins and higher sales due to an increase in customer demand for product in the 2011 period.

Selling, General & Administrative

Selling, general and administrative costs decreased by $53,219 compared to the comparable period in fiscal 2010. The change is due to decreases in personnel costs.

Amortization of Intangible Assets

Amortization expense for intangible assets for the period ended September 2011 was $18,188, which was equal to the comparable period in fiscal 2010.

Interest Expense

Interest expense increased by $36,146 compared to the comparable period in fiscal 2010. The change is attributable to higher usage of our credit line for accounts receivable finance.

Gain on Sale of Assets

During the fiscal 2011 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 Main Credit, our accounts receivable funder. As of September 30, 2011, our working capital (current assets less current liabilities) totaled $362,162 compared to $(114,930) as of June 30, 2011, an increase of $477,092.

The main credit line for accounts receivable finance provides for borrowings of up to 80% of the line of credit up to the line provided in the sum of $1,000,000. This finance bears loan interest at the lender's rate at 2% per month with the loan being paid each month when our customers pay down on the receivables.

Cash Flows

The following table sets forth our cash flows for the three month period(s) ended September 30:

Provided by (used in)	2011			2010			Change

Operating activities		(53,355	)		309,625			(638,187	)
Investing activities		0			0			0
Financing activities		(99,898	)		(112,184	)		354,773
		(153,254	)		197,441			(350,695	)

Operating Activities

Operating cash flows during the fiscal 2011 and 2010 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 2011 period, non-cash expenses included in our net income and in operating activities totaled $281,398 compared to $111,615 in the 2010 period.

The increase (decrease) in operating assets and liabilities for the 2011 and 2010 periods were $(454,465) and an increase of $212,844, respectively. During the 2011 period, the decrease was primarily attributable to an increase in accounts receivable, inventory and an increase in accounts payable and accrued expenses.

The changes in operating assets for the 2011 period were primarily attributable to an increase in accounts receivable, inventory and a decrease in accounts payable and accrued expenses.

Investing Activities

We made capital expenditures of $0 and $0 during the first three months of the fiscal 2011 and 2010 periods, respectively.

Financing Activities

During the first three months of the fiscal 2011 and 2010 periods, our borrowings increased by (net of repayments) $99,898 and reduced our borrowings (net of repayments) by $(112,184) respectively of outstanding debt and capital lease obligations. During the 2011 and 2010 periods, we repaid $0 on our debt to Pacific Western Bank, our former line of credit.

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. 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 4. 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, 2011, 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, 2011, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in this 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, 2011. 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, 2011, 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. 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.

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.

1. 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 and Cross-Complaint were dismissed approximately November 2010.

2. 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.

No provision has been made as we feel that the litigation has no merit.

3. 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.

4. 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.

A provision has been made in the September 30, 2011 financials in the amount of $27,750.00.

5. 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.

A provision has been made in the September 30, 2011 financials in the amount of $31,174.

6. 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.

MLH and Hwacheon have negotiated a settlement. The settlement agreement has now been signed. Under the terms agreed M Line has paid the sum of $267,363.37 and has agreed to settle the balance in the amount of $65,000, which is due on December 7, 2011. This settlement will close all litigation between the parties.

7. M Line Holdings, Inc. v. Hwacheon Machinery, Orange County Superior Court, Orange County, California, Case No. 30-2010-00369532. The complaint was filed on May 4, 2010

The Complaint was dismissed approximately October 2011.

8. 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.

A settlement agreement in the amount of $60,000 was signed on May 31, 2011. This amount is to be paid in 12 monthly installments starting on January 1, 2012.

9. 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.

10. 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.

Recently the parties agreed to settle but the final numbers have still to be finalized.

A provision has been made in the September 30, 2011 financials in the amount of $10,000.00.

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

The Company’s management believes that payment(s), if any, will be the responsibility of the Workers Compensation Board.

12. C. William Kircher Jr. v. M Line Holdings, Inc. Orange County Superior Court Case No. 00397576

This case has settled. The terms of the settlement call for 12 payments of $5,000 per month commencing August 25, 2011 and the issuance of 150,000 shares of common stock.

13. M Line Holdings, Inc. v. Pacific Western Bank Orange County Superior Court Case No BC448012. The case was filed on 10/21/2010.

This case has settled based on payment terms as agreed between the parties.

14. Pacific Western Bank v. M Line Holdings, Inc. Orange County Superior Court Case No BC448012. The case was filed as a cross-complaint on 11/12/2010.

This case has settled based on payment terms as agreed between the parties.

15. In re: Chapter 7 Bankruptcy of All American CNC Sales, Inc. United States Bankruptcy Court, Central District of California Case No 8:10-bk-26771-TA. Case was filed on 11/24/2010. The bankruptcy has been dismissed.

16. Neal Kohlhaas v. M Line Holdings, INC. Orange County Superior Court Case No. 30-2011-00442075.

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

18. Joe Gledhill v. M Line Holdings, Inc., et. al.- Los Angeles Superior Court Case No. BC 448012

19. M Line Holdings, Inc., v. Timothy Consalvi, et. al.- Orange County Superior Court Case No. 30-201100493329

ITEM 1A. Risk Factors.

As a smaller reporting company we are not required to provide the information required by this Item. However, we did include risk factors in our Annual Report on Form 10-K for the year ended June 30, 2011, as filed with the Commission on October 13, 2011.

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

On July 27, 2011, we issued 1,000,000 shares to Anthony Anish, one of our officers and directors, in exchange for compensation equal to $99,000. The shares were restricted in accordance with Rule 144. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and Mr. Anish is a sophisticated investor and familiar with our operations.

On July 27, 2011, we issued 800,000 shares to Jitu Banker, one of our officers and directors, in exchange for compensation equal to $79,200. The shares were restricted in accordance with Rule 144. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and Mr. Banker is a sophisticated investor and familiar with our operations.

On July 27, 2011, we issued 500,000 shares to a four unrelated parties for various legal, financial and investor relations services rendered, which was valued at $49,500. The shares were restricted in accordance with Rule 144. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the investors are sophisticated investors and familiar with our operations.

On August 22, 2011, we issued 600,000 shares to Mass Media 77, Inc. in exchange for investor relations services and were valued at $35,400. The shares were restricted in accordance with Rule 144. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and Mass Media 77, Inc. is a sophisticated investor and familiar with our operations.

ITEM 3. Defaults upon Senior Securities.

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

ITEM 4. (Removed and Reserved).

ITEM 5. Other Information.

Money Line Capital Letter of Intent

As part of that strategy, on June 30, 2010, we entered into a binding Letter of Intent (the “LOI”) with Money Line Capital, Inc. (“MLCI”). MLCI is our largest shareholder and specializes in business financing transactions and holds equity in a number of operating subsidiaries in various fields, including financing, aerospace, real estate, media, beverage, and technology. Under the LOI the parties agreed to complete a transaction whereby all the MLCI shareholders will exchange their shares of MLCI stock for shares of our stock. No cash will be exchanged in this transaction. The parties had agreed to negotiate in good faith to close the transaction on or before January 29, 2010, however due to the downturn in the economy, MLCI’s inability to complete the required audits, and the desire of our Board of Directors to get as favorable a valuation for our common stock as possible, the parties have put the merger transaction on hold indefinitely. In order for us to finalize the transaction we must be current in our reporting obligations under the Securities and Exchange Act of 1934, as amended, and be publicly-traded at the time of the closing; and MLCI must have its financial statements (and its subsidiaries, as applicable) audited for the period ended June 30, 2011, as well as completing a valuation by a qualified third-party company. We have re-evaluated the acquisition of MLCI as a whole and we now plan on acquiring certain subsidiaries of MLCI one at a time in order to reduce the costs associated with this transaction.

ITEM 6. Exhibits.

(a) Exhibits

Item No.		Description

3.1 (1)		Articles of Incorporation of M Line Holdings, Inc., a Nevada corporation, as amended

3.2 (5)		Certificate of Amendment of Articles of Incorporation

3.3 (1)		Bylaws of M Line Holdings, Inc., a Nevada corporation

10.1 (1)		Asset Purchase Agreement with CNC Repos, Inc. and certain of its shareholders dated October 1, 2007

10.2 (1)		Commercial Real Estate Lease dated February 15, 2007 for the office space located in Tustin, CA

10.3 (1)		Commercial Real Estate Lease dated November 15, 2007 for the office space located in Anaheim, CA

10.4 (1)		Employment Agreement with Timothy D. Consalvi dated February 1, 2007

10.5 (1)		Employment Agreement with Joseph T.W. Gledhill dated February 5, 2007

10.6 (2)		Employment Agreement with Lawrence A. Consalvi dated February 5, 2007

10.7 (1)		Share Exchange Agreement with Gledhill/Lyons, Inc. dated March 26, 2007

10.8 (1)		Share Exchange Agreement with Nu-Tech Industrial Sales, Inc. dated March 19, 2007

10.9 (1)		Fee Agreement with Steve Kasprisin dated April 30, 2008

10.10 (3)		Separation Agreement by and between Gateway International Holdings, Inc., and Mr. Lawrence A. Consalvi dated September 26, 2008

10.11 (4)		Sales Agent Agreement by and between Gateway International Holdings, Inc., and Mr. Lawrence A. Consalvi dated September 30, 2008

10.12 (4)		Loan Agreements with Pacific Western Bank dated September 20, 2008

10.13 (5)		Assignment of Promissory Note and Consent Thereto by and between M Line Holdings, Inc. and Money Line Capital, Inc. dated March 24, 2009

10.14 (5)		M Line Holdings, Inc. Demand Note for up to $500,000 dated March 25, 2009

10.15 (6)		Letter of Intent by and between M Line Holdings, Inc. and Money Line Capital, Inc. dated June 30, 2010

10.16 (8)		Securities Purchase Agreement and Convertible Promissory Note with Asher Enterprises, Inc. dated April 26, 2010 (filed herewith)

10.17 (8)		Convertible Promissory Note with Asher Enterprises, Inc. dated May 25, 2010 (filed herewith)

10.18 (8)		Commercial Real Estate Lease with SG&H Partners, L.P. for Anaheim Property dated August 13, 2010 (filed herewith)

10.19 (8)		Business Loan Agreement with Pacific Western Bank dated June 7, 2010 (filed herewith)

10.20 (9)		Addendum No. 2 dated September 30, 2011 to Commercial Real Estate Lease dated February 15, 2007 for the office space located in Tustin, CA

10.21 (9)		Executive Employee Agreement with Barton Webb dated July 25, 2011

10.22		Executive Employee Agreement with Anthony L. Anish dated July 1, 2011

10.23		Executive Employee Agreement with Jitu Banker dated July 1, 2011

21 (7)		List of Subsidiaries

31.1		Rule 13a-14(a)/15d-14(a) Certification of George Colin (filed herewith).

31.2		Rule 13a-14(a)/15d-14(a) Certification of Jitu Banker (filed herewith).

32.1		Section 1350 Certification of George Colin (filed herewith).

32.2		Section 1350 Certification of Jitu Banker (filed herewith).

(1) Incorporated by reference from our Registration Statement on Form 10-12G filed with the Commission on May 16, 2008.

(2) Incorporated by reference from our Registration Statement on First Amended Form 10-12G/A filed with the Commission on July 16, 2008.

(3) Incorporated by reference from our First Amended Current Report on Form 8-K/A filed with the Commission on October 10, 2008.

(4) Incorporated by reference from our Quarterly Report on Form 10-Q for the period ended September 30, 2008, as filed with the Commission on November 13, 2008.

(5) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on April 24, 2009.

(6) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on July 6, 2009.

(7) Incorporated by reference from our Annual Report on Form 10-K for the period ended June 30, 2009, as filed with the Commission on October 13, 2009.

(8) Incorporated by reference from our Annual Report on Form 10-K for the period ended June 30, 2010, as filed with the Commission on November 12, 2010.

(9) Incorporated by reference from our Annual Report on Form 10-K for the period ended June 30, 2011, as filed with the Commission on October 13, 2011.

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 Line Holdings, Inc.

Dated: November 11, 2011		/s/ George Colin
	By:	George Colin
		President, Chief Executive
		Officer and a Director

Dated: November 11, 2011		/s/ Jitu Banker
	By:	Jitu Banker
		Chief Financial Officer,
		and a Director

Attached files

M LINE HOLDINGS INC Reports

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