M LINE HOLDINGS INC - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - M LINE HOLDINGS INC	Financial_Report.xls
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - M LINE HOLDINGS INC	ex311_ceocert.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - M LINE HOLDINGS INC	ex312cfocert.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - M LINE HOLDINGS INC	ex322_cfocert.htm
EX-21 - LIST OF SUBSIDIARIES - M LINE HOLDINGS INC	ex21_subsidiaries.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - M LINE HOLDINGS INC	ex321_ceocert.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 December 31, 2013

[ ]	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)

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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 [x] 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 February 11, 2014, there were 95,266,275 shares of common stock, par value $.001, issued and outstanding.

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M LINE HOLDINGS, INC.

TABLE OF CONTENTS

PART I		Page

Item 1.	Financial Statements (Unaudited)	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24

PART II

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	(Removed and Reserved)	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

	Signatures	32

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PART 1—FINANCIAL INFORMATION

References in this document to “us,” “we” or the “Company” refer to M LINE HOLDINGS, INC. and our subsidiaries, E.M. Tool Company, Inc. and Precision Aerospace & Technologies, Inc., formerly Eran Engineering, Inc.

Item 1. Financial Statements.

M LINE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

Assets
	As of December 31		As of June 30
	2013		2013

Current assets:
Cash and cash equivalents	$	86,716	$	182,305
Accounts receivable, net		1,346,412		990,010
Inventory, net		1,613,686		1,555,910
Due from related party		128,000		99,348
Deferred Financing Costs		80,000		199,516
Total current assets		3,254,814		3,027,089

Property and equipment, net		471,302		556,555
Deposits and other		115,922		113,445
Total assets	$	3,842,038	$	3,697,089

Liabilities and shareholders' deficit

Current liabilities:
Bank overdraft	$	37,450		85,542
Accounts payable		1,349,035		1,421,626
Accounts payable - related party		43,454		43,454
Accrued expenses and other		2,477,450		2,788,697
Litigation payable		137,500		137,500
Derivative liability		111,130		—
Line of credit		1,649,233		1,702,726
Notes payable - current, net of debt discount of $69,996		705,689		675,961
Current portion of capital lease obligations		53,901		54,501
Deferred income		—		10,000
Total current liabilities		6,564,842		6,920,007


Notes payable - net of current portion		257,010		318,903
Capital Lease obligation, net of current portion		59,901		90,742
Total liabilities		6,881,753		7,329,652

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Commitments and contingencies		—			—

Shareholders' deficit:
Preferential stock: $0.001 par value, 10,000,000 shares authorized, 200,000 shares issued and outstanding at December 31, 2013 and June 30, 2013 respectively		200			200

Common stock: $0.001 par, 100,000,000 shares authorized, 92,016,275 and 70,211,145 shares issued and outstanding at December 31, 2013 and June 30, 2013, respectively		92,016			70,211

Additional paid in capital		10,937,508			10,741,397
Accumulated deficit		(14,069,439	)		(14,444,371	)
Total shareholders' equity		(3,039,715	)		(3,632,563	)
Total liabilities and shareholders' deficit	$	3,842,038		$	3,697,089

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

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M LINE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2013 AND 2012 (UNAUDITED)

	Three months ended December 31,						Six months ended December 31,
	2013			2012			2013			2012
Net sales	$	3,306,380		$	2,440,883		$	6,033,574		$	4,421,473
Cost of sales		2,394,345			1,853,075			4,112,425			3,121,746
Gross profit		912,035			587,808			1,921,149			1,299,727

Operating expenses:
Selling, general and administrative		372,690			895,497			1,151,051			1,848,264
Operating income (loss)		539,345			(307,689	)		770,098			(548,537	)

Other income (expense):
Interest expense		(220,350	)		(92,375	)		(345,342	)		(191,465	)
Derivative loss		(48,130	)		—			(48,130	)		—
Total other income (expenses)		(268,480	)		(92,375	)		(393,472	)		(191,465	)
Income (loss) before income tax		270,865			(400,064	)		376,626			(740,002	)

Income tax provision		(1,694	)		(61	)		(1,694	)		(2,087	)
Net income (loss)	$	269,171		$	(400,125	)	$	374,932		$	(742,089	)

Net income (loss) per share:
Basic and diluted income (loss) per share:	$	0.00			(0.01	)	$	0.00		$	(0.01	)
Weighted average common shares outstanding Basic and diluted		83,972,797			57,731,879			78,632,746			56,325,357

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

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M LINE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
	Six months ended December 31,
	2013			2012
Cash flows from operating activities:
Net income (loss)	$	374,932		$	(742,089	)
Reconciliation of net income (loss) to net cash provided by operations:
Depreciation		85,253			94,187
Amortization of debt discount and deferred financing fees		155,027			—
Share based compensation		217,916			172,000
Derivative loss		48,130			—
Changes in operating assets and liabilities:
Accounts receivable		(356,402	)		357,625
Inventory		(57,776	)		(100,897	)
Prepaid expenses and other assets		(2,477	)		(27,757	)
Due from related party		(28,652	)		(16,624	)
Accounts payable, accrued expenses and other		(393,838	)		517,446
Litigation payable		—			69,093
Net cash provided by operating activities		42,113			322,984

Cash flows from investing activities:
Acquisition of property and equipment		—			(53,651	)
Net cash used in investing activities		—			(53,651	)

Cash flows from financing activities:
Bank overdraft		(48,092	)		—
Net borrowings (repayments) on line of credit		(53,493	)		(334,735	)
Proceeds from notes payable		202,195			519,835
Payments to notes payable		(206,871	)		(261,129	)
Payments on capital leases		(31,441	)		(37,911	)
Net cash used in financing activities		(137,702	)		(113,940	)

Net increase (decrease) in cash and cash equivalent		(95,589	)		155,393

Cash and cash equivalents at beginning of period		182,305			5,212
Cash and cash equivalents at end of period	$	86,716		$	160,605

Supplemental disclosure of cash flow information:
Cash paid for interest	$	158,815		$	191,465
Cash paid for income taxes	$	—		$	—
Supplemental disclosure of non cash financing activity Debt discount resulting from derivative liability	$	63,000		$	—


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

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M LINE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Business

M. Line Holdings, Inc. (the “Company”) and its subsidiaries currently are engaged in the following businesses, which also represent its business segments:

E.M. Tool Company, Inc. dba Elite Machine Tool Company (“Elite”), its wholly owned subsidiary, acquires, refurbishes and sells pre-owned CNC machine tool equipment. This is the machine sales group.

Precision Aerospace & Technologies, Inc., formerly Eran Engineering, Inc. (“Precision”), its wholly owned subsidiary, manufactures precision metal component parts and assemblies for the aerospace, medical and defense industries. This is the precision manufacturing group.

2. Significant Accounting Policies

Basis of presentation

In the opinion of management, the accompanying balance sheets and related interim statements of operations and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2013 filed with the U.S. Securities and Exchange Commission (the “Commission”) on January 2, 2014.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of M Line Holdings, Inc. and its wholly owned subsidiaries Elite and Precision. All Intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues 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. Actual results could materially differ from those estimates.

Recent accounting pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.

3. 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. The Company has an accumulated deficit of $14,069,439 as of December 31, 2013 and negative working capital.

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The Company recognizes that the very weak economy over the past few years and the difficulty in raising new funds has impacted the working capital needs of the Company.

The consolidated 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'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.

4. Inventories

Inventories are stated at the lower of cost or market, cost being determined using the first in first out (“FIFO”) method. The Company provides inventory reserves for obsolescence and other matters based on management’s review of current inventory levels. The Company includes inventory costs, labor and overhead costs directly associated with manufacturing its product.

Inventories consisted of the following:

	December 31, 2013			June 30, 2013
Finished goods and components	$	1,339,694		$	971,099
CNC machines held for sale		242,250			364,583
Work in progress		226,622			415,108
Raw materials and parts		5,120			5,120
		1,813,686			1,755,910
Less: Reserve for inventories		(200,000	)		(200,000	)
Inventories, net	$	1,613,686		$	1,555,910

5. Accrued Expenses

	December 31, 2013		June 30, 2013
Compensation and related benefits	$	1,959,413	$	1,934,314
Audit fees		46,000		72,500
Other		472,037		781,883
	$	2,477,450	$	2,788,697

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6. 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 December 31, 2013 and June 30, 2013.

	December 31, 2013			June 30, 2013
2014	$	53,901		$	54,501
2015		53,901			54,501
2016		6,000			36,241
2017		—			—
Total minimum lease payments		113,802			145,243
Less amount representing interest		—			—
Present value of future minimum lease payments		113,802			145,243
Less current portion of capital lease obligations		(53,901	)		(54,501	)
Capital lease obligations, net of current portion	$	59,901		$	90,742

7. Line of Credit

Main Credit:

As of December 31, 2013, the Company owed $0 principal as all outstanding sums were paid off in July 2013.

TCA Global Master Credit Fund LP (“TCA”):

The line of credit with Main Credit was replaced on April 30, 2013, with a line of credit from TCA up to the amount of $10 million. As of December 31, 2013, the Company has drawn $1,743,997 from the line of which $1,649,233 is outstanding as of December 31, 2013. Amounts drawn from the line of credit are subject to interest at 18% per annum. The loan matured on October 31, 2013, but was extended for a further period of six months through April 30, 2014.

The line of credit with TCA Global Credit Master Fund, LP is secured by the receivables and inventory of Precision Aerospace and Technologies, Inc., E. M. Tool Co. Inc., and a blanket lien over all of the group’s assets.

8. Notes Payable

Notes payable as of December 31, 2013 and June 30, 2013 consist of:

	December 31, 2013		June 30, 2013
Notes payable to a financial institution, secured by the underlying equipment in aggregate monthly installments of varying amounts, on a reducing balance method, with the balance due in October 2016.	$	361,047	$	422,940

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An unsecured note payable to a corporation in respect of accounting software payable in monthly installments of $ 1,923. This note has matured and is currently in default.		46,811		46,811

An unsecured convertible note payable to a financial institution payable in full on April 3, 2014, net of a discount of $63,000. The embedded conversion option is accounted for as a derivative due to the variable conversion price.		—		—

Two unsecured notes payable in the sum of $150,000, each, to a financial institution in full in November 2011 and March 31, 2012. The company is currently in default and has negotiated to pay the notes in monthly installments of $20,000 commencing November 2012.		354,459		354,459

An unsecured note payable to a corporation in weekday amounts of $700, increasing to $1,650, in September 2013 through December 2013, net of a discount of $17,291 ($38,976)		26,009		86,624

An unsecured note payable to a corporation in weekday amounts of $691 each, through December 2013, net of a discount of $18,687 ($31,020).		38,934		84,030

An unsecured note payable to a corporation in weekday amounts of $890 each, ending in January 2014, net of a discount of $23,940		59,195		—

An unsecured note payable to a corporation in weekday amounts of $841 each, ending in February 2014, net of a discount of $32,107		76,244		—

TOTAL		962,699		994,864
Less – current portion		705,689		675,961
Long - term portion	$	257,010	$	318,903

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2014	705,689	675,961
2015	143,230	123,780
2016	113,780	123,780
2017	—	71,343
Thereafter	—	—
	962,699	994,864

9. Commitments and Contingencies

Leases

The Company leased its manufacturing and office facilities under non-cancellable operating lease arrangements.

Rent expense under operating leases was $253,454 and $213,024 for the six months ended December 31, 2013 and 2012.

Litigations

Litigation payable consisted of the following at December 31, 2013 and June 30, 2013:

	December 31, 2013		June 30, 2013
An unsecured note payable to a corporation in settlement of a lawsuit payable in 12 monthly payments of $5,000.	$	60,000		60,000
Unsecured notes payable to various parties in settlement of lawsuits payable in full.		77,500		77,500
	$	137,500		137,500

The Company’s existing litigations are set forth below:

James M. Cassidy v. Gateway International Holdings, Inc., American Arbitration Association, Case No. 73-194-32755-08.

The Company was 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 the Company pursuant to an agreement dated April 2, 2007 between the Company and the claimant. The Statement of Claim alleges that the Company breached the agreement and seeks compensatory damages in the amount of $195,000 plus interest, attorneys’ fees and costs. Management denies 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 in the December 31, 2013 financial statements with respect to this matter, because the Company has assessed the litigation as having no merit and the likelihood of any liability pursuant to this litigation to be remote.

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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 that 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.

Abstract of Judgment and Writ were issued August 17, 2012.

A provision has been made in the December 31, 2013 financial statements in litigation payable with respect to this matter in the sum of $37,500.

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.

The Company has made a provision in the sum of $60,000 in the financial statements in accounts payable as of June 30, 2013 but no payments that are due under the settlement agreement have been made. Judgment was entered on June 16, 2011, and a Writ was issued on February 24, 2012.

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 $40,000. Court records show that a stipulated judgment was entered on August 27, 2012; a writ was issued on September 9, 2012.

However, an agreement has been entered into with Fox Hills Machinery to pay off the judgment in the sum of $48,673. A sum of $40,000 has been paid in installments of $10,000 each effective November 8, 2013 and the final payment was made on December 9, 2013.

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 seeking damages for failure to pay legal fees in the amount of $120,166.30.

The parties reached a settlement. 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. The company has issued the 150,000 shares of common stock and made two payments to date. The Company has a provision in the sum of $50,000 in the financial statements in accounts payable as of December 31, 2013.

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The Company currently is in default of its payment obligations under the settlement. Plaintiff currently is seeking to obtain a judgment as a result of the breach of the settlement agreement.

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 the Company, which management believes was in error because a settlement was already reached by the principal parties involved. The default has since been vacated, and the Company has answered the complaint and has filed a motion for leave to file a cross complaint.

A settlement of $50,000 was reached in this case, requiring payments commencing on March 11, 2011 for 10 months. The first two month’s payments were made; however, the Company currently is in default of the terms of this settlement agreement. Mr. Consalvi filed his stipulated judgment on March 5, 2012. Abstract of judgment and Writ were issued on March 13, 2012.

A provision in the sum of $40,000 has been made in the financial statements in litigation payable as of December 31, 2013.

To date, there has been no further action on this case, and the Company plans to resolve this matter as soon as possible.

All Direct Travel Services, Inc. v. Jitu Banker, M Line holdings, Inc., Airworks International, Inc., case number 30-2011-00472824-CL-CO-CJC

This case was settled as to Jitu Banker and the Company for $2,000 payable on February 25, 2013. We do not yet have sufficient information to determine what the potential outcome of this may be or whether or to what extent it would or could have a financial impact on the Company. A default judgment was entered on January 6, 2012.

Douglas Technologies Group, Inc. v Elite Machine Tool Company and Lawrence Consalvi, et al., case number 30-2013-00657906-CU-FR-CJC.

This suit was filed on June 20, 2013 in respect of an alleged deficiency in the machine supplied to Douglas Technologies. The Company decided to settle the lawsuit and thereby entered into a settlement agreement with the customer.

This case was settled on November 5, 2013 for $50,000 requiring a commencing payment of $10,000 on November 15, 2013 with the balance being paid in 8 monthly installments of $5,000 each.

A payment in the sum of $5,000 was made in the month of December 2013.

The balance of the provision in accounts payable is $45,000 at December 31, 2013.

Donald Yu. v M Line Holdings, Inc., Anthony L Anish and Jitu Banker, et al., case number 30-2012-005-740-19-CU-BC-CJC.

This suit was filed in respect of consulting services rendered to the Company. The Company decided to settle the lawsuit and thereby entered into a settlement agreement with Donald Yu.

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The case was settled on September 25, 2013 for $24,000 requiring two payments of $12,000 each, payable on September 30, 2013 and October 30, 2013.

The Company made the first payment of $12,000 on September 30, 2013 but has not made the second payment due on October 30, 2013.

A provision in the sum of $12,000 has been made in the financial statements in accrued expenses as of December 31, 2013

10.

Alu Forge, Inc., dba American Handforge . v Jitu Banker, Precision Aerospace & Technologies, Inc., and M Line Holdings, Inc., et al., case number 30-2013-00670772-CL-BC-CJC.

This suit was filed in respect of materials supplied to the Company. The Company decided to settle the lawsuit and thereby entered into a settlement agreement with the plaintiff.

The case was settled on October 31, 2013 for $19,500 with payments of $5,250 on October 31, 2013, $5,250 on November 30, 2013 and the balance of $9,000 on December 31, 2013.

The Company made the first and second payments of $5,250 on October 31, 2013 and December 24, 2013, and the final payment of $9,000 was made on December 31, 2013.

No provision is necessary as the liability has been settled in full.

11.

Yates, Fontenot, Smith & Brum, LLC v. M Line Holdings, Inc. (formerly Gateway International Holdings, Inc.), et al.; Case No. 30-2013-00630586

The above-referenced matter is an unlawful detainer action concerning certain real property located at 2672 Dow Avenue, Tustin, California. The unlawful detainer action was filed against the Company by its landlord Yates, Fontenot, et al. on February 15, 2013. The action is pending in Orange County Superior Court.

On or about September 2013, the parties settled the action for an agreed upon sum payable in installments through January 5, 2014. Assuming all payment obligations are made, plaintiff shall file a request for dismissal with prejudice of the entire action by or before March 14, 2014.

A provision in the amount of $76,487 has been made in the financial statements, $25,000 in accrued expenses and $51,487 in accounts payable as of December 31, 2013.

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 the Company’s financial condition, results of operations or liquidity.

The related provisions for these litigations are reported under litigation payable, accounts payable and accrued expenses and other in the consolidated balance sheets.

10. Shareholders’ Equity

During the six months ended December 31, 2013 the Company issued the following shares of common stock:

5,805,130 common shares were issued to financial advisors, consultants and other parties in payment of fees and services to the Company. The Company determined the fair value of these shares to be $57,916.

16,000,000 common shares were issued to officers in lieu of salaries. The Company determined the fair value of these shares to be $160,000.

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11. Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

●	Level 1 -	Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.
●	Level 2 -	Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.
●	Level 3 -	Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

The following table presents the derivative financial instrument, the Company’s only financial liability measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis and their level of hierarchy as of December 31, 2013:

	Amount		Level 1		Level 2		Level 3
Embedded conversion derivative liability	$	111,130	$	—	$	—	$	111,130
Total	$	111,130	$	—	$	—	$	111,130

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:

Balance at June 30, 2013	$	—
Fair value of warrant derivative liabilities at issuance, recorded as debt discount		63,000
Unrealized derivative loss included in other expense		48,130
Balance at December 31, 2013	$	111,130

The fair value of the derivative liability is calculated at the time of issuance and the Company records a derivative liability for the calculated value. Changes in the fair value of the derivative liability are recorded in other income (expense) in the consolidated statements of operations.

The following are the assumptions used for derivative instrument valued using the Black Scholes option pricing model:

	At Issuance			December 31, 2013
Market value of stock on measurement date	$	0.030		$	0.025
Risk-free interest rate		0.07	%		0.07	%
Dividend yield		0	%		0	%
Volatility factor		256	%		255	%
Term		0.26 year			0.25 year

12. Related Party Transactions

As of December 31, 2013, due from related party of $128,000 represents an amount due from an officer of Elite for funds advanced by the Company.

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13. 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 is as follows for the three and six months ended December 31, 2013 and 2012:

Segment Information for the three months ended December 31, 2013	Machine Sales		Precision Manufacturing		Corporate			Total
Revenue	$	2,447,201	$	859,179	$	—		$	3,306,380

Interest Expense		40,306		60,528		119,516			220,350
Depreciation and Amortization		750		40,118		—			40,868
Income (loss) before taxes		34,199		474,097		(300,431	)		207,865
Total Assets		1,076,182		2,746,680		19,176			3,842,038
Capital Expenditure	$	—	$	—	$	—		$	—

Segment Information for the three months ended December 31, 2012	Machine Sales		Precision Manufacturing			Corporate			Total
Revenue	$	1,557,598	$	883,285		$	—		$	2,440,883
Interest Expense		—		60,789			31,586			92,375
Depreciation and Amortization		750		42,172			545			43,467
Income (loss) before taxes		51,706		(387,777	)		(63,993	)		(400,064	)
Total Assets		409,214		2,543,267			1,247,439			4,199,920
Capital Expenditure	$	—	$	—		$	—		$	—

Segment Information for the six months ended December 31, 2013	Machine Sales		Precision Manufacturing		Corporate			Total
Revenue	$	4,206,759	$	1,826,815	$	—		$	6,033,574
Interest Income		—		—		—			—
Interest Expense		98,511		114,815		132,016			345,342
Depreciation and Amortization		1,500		83,753		—			85,253
Income (loss) before taxes		208,649		557,894		(389,917	)		376,626
Total Assets		1,076,182		2,746,680		19,176			3,842,038
Capital Expenditure	$	—	$	—	$	—		$	—

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Segment Information for the six months ended December 31, 2012	Machine Sales			Precision Manufacturing			Corporate			Total
Revenue	$	2,459,665		$	1,961,808		$	—		$	4,421,473
Interest Income		—			—			—			—
Interest Expense		17,151			132,603			41,711			191,465
Depreciation and Amortization		1,500			91,699			988			94,187
Income (loss) before taxes		(62,128	)		(388,288	)		(289,586	)		(740,002	)
Total Assets		409,214			2,543,267			1,247,439			4,199,920
Capital Expenditure	$	—		$	—		$	—		$	—

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

14. Subsequent Events

In January 2014, Asher Enterprises, Inc. converted $32,000 of the debt due into 3,250,000 shares of our common stock.

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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. (referred to herein as “us, “we” or the “Company”) for the six month period ended December 31, 2013 contains forward-looking statements, principally in this section and in the section herein titled “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 or 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

We currently conduct all of our operations through two of our two wholly-owned subsidiaries: E..M. Tool Company, Inc. dba Elite Machine Tool Company (“Elite”) and Precision Aerospace & Technologies, Inc. (“Precision”), (formerly Eran Engineering, Inc.). Through Elite we refurbish and sell pre-owned CNC (computer numerically controlled) machine tool equipment and service and rebuild CNC equipment for customers and Precision is a customer focused, industry leading aircraft and medical precision metal component manufacturer offering low cost build-to-print and assembly services for production and spare parts, with design, development and sustaining engineering support services for it’s customers.

Our services and products are primarily marketed and sold to the commercial aviation, defense, medical, and energy industries. Currently we manage the operations of these subsidiaries. In the future we hope to expand our business, both through the growing of our existing businesses and their client bases, as well as through acquisitions of companies that complement the products and services we currently offer.

Machine Sales Group

The Machine Sales Group is currently composed of one subsidiary, Elite, which is in the business of acquiring refurbishing and selling computer numerically controlled (“CNC”) machine tools, and providing service and machine rebuilds, to manufacturing customers.

CNC machines use commands from an onboard computer to control the movement of cutting tools and the rotation speeds in order to cut precision metal parts. The computer controls enable the operator to program specific operations, such as part rotation and tooling selection and movement for a particular part and then store that program in memory for future use. Because CNC machines can manufacture parts unattended and operate at speeds faster than similar manually-operated machines, they can generate higher profits with less rework and scrap. Elite Machine specializes in selling refurbished Mori Seiki and other high end Japanese manufactured machine Tools.

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Precision Manufacturing Group

The Precision Manufacturing Group is composed of Precision (formerly Eran Engineering), a wholly-owned subsidiary. Precision is a customer focused, industry leading aircraft and medical component manufacturer offering low cost build-to-print and assembly services for production and spare parts, with design, development and sustaining engineering support services for it’s customers. Precision, with an installed base of over forty CNC machines, manufactures parts and assemblies primarily for the aerospace and medical industries. Aerospace Customers include Panasonic Avionics Corporation (“Panasonic”), Rockwell Collins, UTC Aerospace, (formerly Goodrich Aerostructures), a division of the United Technologies Group and our largest medical customer, Beckman Coulter (part of the Danaher group).

Trends Affecting Our Business

Although the recent tightening of the capital markets has eased, customers’ limited access to capital still limits 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 Group during the six month period ended December 31, 2013 and 2012 were parts sold to Panasonic, a leading provider of in-flight entertainment systems for commercial aircraft. Although the market for in-flight 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 affect our business over the next several months. In addition, if there is a decrease in work, this may have an impact with the Machine Sales Group, as many of our customers that purchase machines from us do business with airline manufacturers.

Critical Accounting Policies

Use of Estimates

Our preparation, discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which are in conformity with and have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales and expenses during the reporting period. By their nature, these 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 on 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 Group, 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 Sales Group, we purchase machines held for resale based on 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 in 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.

Abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) are recognized as current-period charges. Fixed production overhead is allocated to the costs of conversion into inventories based on normal capacity of the production facilities. We utilize an expected normal level of production within the Precision manufacturing segment, based on our plant capacity. To the extent we do not achieve a normal expected productions levels, we charge such under-absorption of fixed overhead to operations.

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Results of Operations for the Three Months Ended December 31, 2013 compared to the Three Months Ended December 31, 2012.

	For the three months ended December 31,		For the three months ended December 31,
	2013		2012		Change

Sales by segment:
Machine Sales	$	2,447,201	$	1,557,598	$	889,603
Precision Engineering		859,179		883,285		(24,106	)
		3,306,380		2,440,883		865,497

Gross Profit by segment:
Machine Sales		399,314		348,335		50,979
Precision Engineering		512,721		239,473		273,248
	$	912,035	$	587,808	$	324,227

Gross Profit by segment: %
Machine Sales		43.78		59.26
Precision Engineering		56.22		40.74

Sales

Sales in the three month period ended December 31, 2013 increased 35.46% compared to the three month period ended December 31, 2012.

The change is attributable to an increase in sales in the Machine Sales Group. Sales increased by 57.11% in the Machine Sales Group and decreased by 2.73% in the Precision Manufacturing Group.

Our Machine Sales Group primarily sells pre-owned CNC machinery manufactured by Mori Seiki. The average sale price of the machinery changes based on the equipment that is available to purchase in the market place and the prevailing market conditions that affect the price that equipment can be sold for. The average sale price of the 47 pieces of equipment sold in the three months ended December 31, 2013 was $46,383 compared to the comparable period in fiscal 2012 of 22 pieces of equipment sold at an average sale price of $65,045. In addition, service work for the three months ended December 31, 2013 was $144,765 compared to the comparable period in fiscal 2012 of $3,676.

Market conditions reflect not only the price that equipment can be purchased for but also the price at which that equipment may be sold. During good economic times when the business climate is improving, particularly in areas such as aerospace, the demand for equipment can result in a change in the purchase price. However, the need for that equipment by customers is generally reflected in the sale price. Therefore, as a general rule margins are reasonably consistent even though average sale prices may change. As a result, we do not expect future results to be materially impacted by these conditions.

The decrease in sales in the Precision Manufacturing Group is the result of a net decrease of $24,106 in sales of precision metal component parts from Rockwell Collins in the three months ended December 31, 2013.

Gross Margin

Gross profit increased by 55.16% in fiscal period ended December 31, 2013 compared to the comparable period in fiscal 2012. The gross profit for the Machine Sales Group increased by 14.64% due to an increase in the volume of machines sold during this three month period.

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The increase within the Precision Manufacturing Group of 114.10% resulted from lower costs of goods sold as a result of an improvement in work flow in the scheduling of work in the factory. Management had recognized this weakness previously and has corrected it, thereby achieving greater productivity in the production area.

Selling, General & Administrative

Selling, general and administrative costs decreased by $522,807 to $372,690 for the three month period ended December 31, 2013 compared to $895,497 for the three months ended December 31, 2012. The change is primarily due to the write back of rent expense and a reduction of legal and professional expenses due to lower costs for investor relations and financing costs.

Interest Expense

Interest expense increased by $127,975 for the three months ended December 31, 2013 compared to the three months ended December 31, 2012. The change is attributable to carrying higher average debt balances and the increase in the average interest rate paid on our debt obligations as well as the recognition of amortization of deferred financing fees amounting to $119,516.

Derivative loss

The derivative loss for the three month period ended December 31, 2013 was $48,130 compared to that of the comparable period in 2012 amounting to $0.

The $48,130 cost in derivative liability arises as a result of a convertible loan from Asher Enterprises, Inc. in fiscal 2013. The loan was a convertible promissory note with the ability to convert to shares at a discount from the market price Until the loan is repaid a charge was included on our financial statements that reflected the possible derivative liability that could result if the loan was converted to shares in the Company. The derivative liability was calculated using the Black Scholes method.

Results of Operations for the Six Months Ended December 31, 2013 compared to the Six Months Ended December 31, 2012.

	For the six months ended December 31,		For the six months ended December 31,
	2013		2012		Change

Sales by segment:
Machine Sales	$	4,206,759	$	2,459,665		1,747,094
Precision Engineering		1,826,815		1,961,808		(134,993	)
		6,033,574		4,421,473		1,612,101

Gross Profit by segment:
Machine Sales		926,583		514,225		412,358
Precision Engineering		994,566		785,502		209,064
		1,921,149		1,299,727		621,422

Gross Profit by segment: %
Machine Sales		48.23		39.56
Precision Engineering		51.77		60.44

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Sales

Sales in the six month period ended December 31, 2013 increased 36.46% compared to the six month period ended December 31, 2012.

The change is attributable to an increase in sales in the Machine Sales Group. Sales increased by 71.03% in the Machine Sales Group and decreased by 6.88% in the Precision Manufacturing Group.

Our Machine Sales Group primarily sells pre-owned CNC machinery manufactured by Mori Seiki. The average sale price of the machinery changes based on the equipment that is available to purchase in the market place and the prevailing market conditions that affect the price that equipment can be sold for. The average sale price of the 75 pieces of equipment sold in the six months ended December 31, 2013 was $50,885 compared to the comparable period in fiscal 2012 of 38 pieces of equipment sold at an average sale price of $58,728. In addition, service work for the six months ended December 31, 2013 was $224,074 compared to the comparable period in fiscal 2012 of $14,766.

The decrease in sales in the Precision Manufacturing Group is the result of a net decrease of $134,993 in sales of precision metal component parts from Rockwell Collins in the six months ended December 31, 2013.

Gross Margin

Gross profit increased by 47.81% in fiscal period ended December 31, 2013 compared to the comparable period in fiscal 2012. The gross profit for the Machine Sales Group increased by 80.19% due to an increase in the volume of machines sold during this six month period. The increase within the Precision Manufacturing Group of 26.62% resulted from lower costs of goods sold as a result of an improvement in work flow in the scheduling of work in the factory. Management had recognized this weakness previously and has corrected it, thereby achieving greater productivity in the production area.

Selling, General & Administrative

Selling, general and administrative costs decreased by $697,213 to $1,151,051 for the six month period ended December 31, 2013 compared to $1,848,264 for the six months ended December 31, 2012. The change is primarily due to the write back of rent expense and a reduction of legal and professional expenses due to lower costs for investor relations and financing costs.

Interest Expense

Interest expense increased by $153,877 for the six months ended December 31, 2013 compared to the six months ended December 31, 2012. The change is attributable to carrying higher average debt balances and the increase in the average interest rate paid on our debt obligations as well as the recognition of amortization of deferred financing fees amounting to $119,516.

Derivative loss

The derivative loss for the six month period ended December 31, 2013 was $48,130 compared to that of the comparable period in 2012 amounting to $0.

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Liquidity and Capital Resources

Our principal sources of liquidity consist of cash and cash equivalents, cash generated from operations and borrowing from various sources. As of December 31, 2013, our working capital (current assets less current liabilities) totaled ($3,310,028) compared to $(3,892,918) as of June 30, 2013, a decrease of $582,890.

As of December 31, 2013 we had $1,649,233 in debt outstanding under our Accounts Receivable and Inventory line of Credit with TCA Global Credit Master Fund, LP.

Our existing sources of liquidity, along with cash expected to be generated from sales, may not be sufficient to fund our operations, anticipated capital expenditures, working capital and other financing requirements for the foreseeable future. If that is the case we may need to seek to obtain additional debt or equity financing, especially if we experience downturns or cyclical fluctuations in our business that are more severe or longer than anticipated, or if we fail to achieve anticipated revenue targets, or if we experience significant increases in the cost of raw material and equipment for resale, or lose a significant customer, or experience increases in our expense levels resulting from being a publicly traded company. If we attempt to obtain additional debt or equity financing, we cannot assure you that such financing will be available to us on favorable terms, or at all.

Cash Flows

The following table sets forth our cash flows for the six month periods ended December 31, 2013 and 2012

Provided by (used in)	2013			2012			Change

Operating activities	$	42,113		$	322,984		$	280,871
Investing activities		—			(53,651	)		(53,651	)
Financing activities		(137,702	)		(113,940	)		23,762
	$	(95,589	)	$	155,393		$	250,982

Operating Activities

Operating cash flows during the six month periods ended December 31, 2013 and 2012, respectively, 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 six month period ended December 31, 2013, non-cash expenses included in our net income and in operating activities totaled $506,326 compared to $266,187 in six month period ended December 31, 2012.

The increase (decrease) in operating assets and liabilities for the six month period ended December 31, 2013 and 2012 were $(839,145) and $798,886, respectively. During the six month period ended December 31, 2013, the decrease was primarily attributable to a decrease in accounts receivable, accounts payable and accrued expenses.

Investing Activities

We made capital expenditures of $0 and $(18,388) during the six month period of the fiscal 2013 and 2012 period, respectively.

Financing Activities

Net cash used in financing activities was $(137,702) for the six months ended December 31, 2013, compared to $(113,940) for the six months ended December 31, 2012.

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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 currently are 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.

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 December 31, 2012, 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 officer 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, 2013, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in this Item 4.

Changes in Internal Control over Financial Reporting

There have been no changes to our internal control over financial reporting during our six month period ended December 31, 2013.

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PART II—OTHER INFORMATION

Item 1. Litigation.

James M. Cassidy v. Gateway International Holdings, Inc., American Arbitration Association, Case No. 73-194-32755-08.

The Company was served with a Demand for Arbitration and Statement of Claim, which was filed on September 16, 2008.

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.

Abstract of Judgment and Writ were issued August 17, 2012.

A provision has been made in the December 31, 2013 financial statements in litigation payable with respect to this matter in the sum of $37,500.

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 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.

Fox Hills Machining v. CNC Repos, Orange County Superior Court, Orange County, California, Case No. 30-2009-00121514.

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The Complaint was filed on April 14, 2009.

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 seeking damages for failure to pay legal fees in the amount of $120,166.

The parties reached a settlement. 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. The company has issued the 150,000 shares of common stock and made two payments to date. The company has a provision in the sum of $50,000 in the financial statements in accounts payable as of December 31, 2013.

The Company currently is in default of its payment obligations under the settlement. Plaintiff currently is seeking to obtain a judgment as a result of the breach of the settlement agreement.

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

A provision in the sum of $40,000 has been made in the financial statements in litigation payable as of December 31, 2013.

To date there has been no further action on this case, and the Company plans to resolve this matter as soon as possible.

All Direct Travel Services, Inc. v. Jitu Banker, M Line holdings, Inc., Airworks International, Inc., case number 30-2011-00472824-CL-CO-CJC

Douglas Technologies Group, Inc. v Elite Machine Tool Company and Lawrence Consalvi, et al., case number 30-2013-00657906-CU-FR-CJC.

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This case was settled on November 5, 2013 for $50,000 requiring a commencing payment of $10,000 on November 15, 2013 with the balance being paid in 8 monthly installments of $5,000 each.

A payment in the sum of $5,000.00 was made in the month of December 2013.

The balance of the provision in accounts payable is $45,000 at December 31, 2013.

Donald Yu. v M Line Holdings, Inc., Anthony L Anish and Jitu Banker, et al., case number 30-2012-005-740-19-CU-BC-CJC.

This suit was filed in respect of consulting services rendered to the company. The Company decided to settle the lawsuit and thereby entered into a settlement agreement with Donald Yu.

The case was settled on September 25, 2013 for $24,000 requiring two payments of $12,000 each, payable on September 30, 2013 and October 30, 2013.

The Company made the first payment of $12,000 on September 30, 2013 but has not made the second payment due on October 30, 2013.

A provision in the sum of $12,000 has been made in the financial statements in accounts payable as of December 31, 2013.

10.

Alu Forge, Inc., dba American Handforge . v Jitu Banker, Precision Aerospace & Technologies, Inc., and M Line Holdings, Inc., et al., case number 30-2013-00670772-CL-BC-CJC.

This suit was filed in respect of materials supplied to the company. The company decided to settle the lawsuit and thereby entered into a settlement agreement with the plaintiff.

The case was settled on October 31, 2013 for $19,500 with payments of $5,250 on October 31, 2013, $5,250 on November 30, 2013 and the balance of $9,000 on December 31, 2013.

The Company made the first and second payments of $5,250 on October 31, 2013 and December 24, 2013, and the final payment of $9,000 was made on December 31, 2013.

No provision is necessary as the liability has been settled in full.

11.

Yates, Fontenot, Smith & Brum, LLC v. M Line Holdings, Inc. (formerly Gateway International Holdings, Inc.), et al.; Case No. 30-2013-00630586

A provision in the amount of $76,487 has been made in the financial statements, $25,000 in accrued expenses and $51,487 in accounts payable as of December 31, 2013.

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The related provisions for these litigations are reported under litigation payable, accounts payable and accrued expenses and other in the consolidated balance sheets.

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, 2012, as filed with the Commission on December 31, 2013.

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

The Company issued 5,805,130 shares of the Company's common stock to our investor relations and other consultants in payment of services to the Company. These shares were restricted in accordance with Rule 144. The issuance was exempt registration pursuant to Section 4 (2) of the Securities Act of 1933 and Mass Media, Newport Coast Securities, Bruce barren and American Capital Ventures are sophisticated investors and familiar with our operations.

The Company issued 16,000,000 shares of the Company's common stock to officers of the Company in lieu of salaries. These shares were restricted in accordance with Rule 144. The issuance was exempt registration pursuant to Section 4 (2) of the Securities Act of 1933 and Bruce Barren, our CEO, Anthony Anish and Jitu banker, are sophisticated investors 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. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

The following Exhibits required by Item 601 of Regulation S-K to be filed herewith are either filed herewith or incorporated by reference to previously filed documents, as indicated.

Item No.		Description

3.1		Articles of Incorporation

3.2⁽¹⁾		Bylaws

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

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

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

10.7⁽²⁾		Separation Agreement by and between Gateway International Holdings, Inc., and Mr. Lawrence A. Consalvi dated September 26, 2008

10.8⁽³⁾		Independent Contractor Agreement by and between Gateway International Holdings, Inc., and Mr. Lawrence A. Consalvi dated September 30, 2008

10.9⁽³⁾		Loan Agreements with Pacific Western Bank dated September 20, 2008 -

10.10⁽⁴⁾		Assignment of Promissory Note and Consent Thereto by and between M Line Holdings, Inc. and Money Line Capital, Inc. dated March 24, 2009

10.11⁽⁴⁾		M Line Holdings, Inc. Demand Note for up to $500,000 dated March 25, 2009 [Note: What is this pro note, and what is its status? Is this the first Note described in Note 7 (Notes Payable) in the financial statements?]

10.12⁽⁵⁾		Letter of Intent by and between M Line Holdings, Inc. and Money Line Capital, Inc. dated June 30, 2010

10.13⁽⁶⁾		Securities Purchase Agreement and Convertible Promissory Note with Asher Enterprises, Inc. dated April 26, 2010

10.14⁽⁶⁾		Convertible Promissory Note with Asher Enterprises, Inc. dated May 25, 2010

10.15⁽⁶⁾		Commercial Real Estate Lease with SG&H Partners, L.P. for Anaheim Property dated August 13, 2010

10.16⁽⁶⁾		Business Loan Agreement with Pacific Western Bank dated June 7, 2010

10.17⁽⁷⁾		Addendum No. 2 dated September 30, 2011 to Commercial Real Estate Lease dated February 15, 2007 for the office space located in Tustin, CA

10.18⁽⁷⁾		Executive Employee Agreement with Barton Webb dated July 25, 2011

10.19⁽⁸⁾		Loan and Security Agreement with Utica Leaseco, LLC dated as of October 8, 2012

10.19		Loan Agreements with TCA Global Credit master Fund, LP

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10.20⁽⁸⁾		Note and Stock Purchase Agreements with Spagus Capital Partners, LLC dated September 29, 2011

10.21		Executive Employee Agreement with Anthony L. Anish dated July 17, 2013

10.22		Executive Employee Agreement with Jitu Banker dated July 17, 2013

21		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)

Previously filed with Registration Statement on Form 10-12G filed with the Commission on May 16, 2008.

(2)

Previously filed with First Amended Current Report on Form 8-K/A filed with the Commission on October 10, 2008.

(3)

Previously filed with Quarterly Report on Form 10-Q for the period ended September 30, 2008 filed with the Commission on November 13, 2008.

(4)

Previously filed with Current Report on Form 8-K filed with the Commission on April 24, 2009.

(5)

Previously filed with Current Report on Form 8-K filed with the Commission on July 6, 2009.

(6)

Previously filed with Annual Report on Form 10-K for the period ended June 30, 2010 filed with the Commission on November 12, 2010.

(7)

Previously filed with Annual Report on Form 10-K for the period ended June 30, 2011 filed with the Commission on October 13, 2011.

(8)

Previously filed with Annual Report on Form 10-K for the period ended June 30, 2012 filed with the Commission on October 16, 2012.

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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: February 11, 2014		/s/ Bruce Barren
	By:	Bruce Barren
		President, Chief Executive
		Officer and a Director

Dated: February 11, 2014		/s/ Jitu Banker
	By:	Jitu Banker
		Chief Financial Officer,
		and a Director

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Attached files

M LINE HOLDINGS INC Reports

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