U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

     |X| Quarterly Report pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934

                  For the quarterly period ended: June 30, 2004

         |_| Transition Report pursuant to 13 or 15(d) of the Securities
                              Exchange Act of 1934

                 For the transition period __________to_________

                        Commission File Number: 000-26017

                      GATEWAY INTERNATIONAL HOLDINGS, INC.
        (Exact name of small Business Issuer as specified in its charter)

             Nevada                                      95-3819300
             ------                                      ----------
  (State or other jurisdiction                  IRS Employer Identification No.)
of incorporation or organization)

        3840 East Eagle Drive
         Anaheim, California                                      92807
  -------------------------------------                           -----
(Address of principal executive offices)                       (Zip Code)

          Issuer's telephone number, including area code: 714-630-6253
       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:
                    Common Stock, par value $0.001 per share

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act of 1934  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

As of October 7, 2005, there were 40,307,254  shares of the registrant's  Common
Stock issued and outstanding.

Transitional Small Business Disclosure Format (check one): Yes |_|  No |X|


<PAGE>

                      GATEWAY INTERNATIONAL HOLDINGS, INC.
                                   Form 10-QSB

         For the three month and nine month periods ended June 30, 2004

                                TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION.................................................3

   ITEM 1.   FINANCIAL STATEMENTS (UNAUDITED)..................................3

   ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS.............................20

   ITEM 3.   CONTROLS AND PROCEDURES..........................................46

PART II - OTHER INFORMATION...................................................47

   ITEM 1.   LEGAL PROCEEDINGS................................................47

   ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS......48

   ITEM 3.   DEFAULTS UPON SENIOR SECURITIES..................................48

   ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............48

   ITEM 5.   OTHER INFORMATION................................................48

   ITEM 6.   EXHIBITS.........................................................49


<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM  1. FINANCIAL STATEMENTS (UNAUDITED)

                 GATEWAY INTERNATIONAL HOLDINGS AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEET
                                   (Unaudited)

                                                                  June 30, 2004
                                                                 --------------
Assets
Current Assets:
Cash and cash equivalents                                        $      104,085
Accounts receivable, net                                                308,245
Inventories                                                             431,636
Prepaid Insurance                                                         4,018
                                                                 --------------
Total current assets                                                    847,984

Property and equipment,  net                                          2,416,372

Other Assets:
Deposits and Notes Receivable                                            41,992

                                                                 --------------
Total Assets                                                     $    3,306,348
                                                                 ==============

Liabilities and Stockholders' Deficit

Current Liabilities:
Accounts payable and accrued liabilities                         $      659,876
Current Portion of notes payable                                        691,846
Current portion of notes payable to related parties                      86,228
                                                                 --------------
Total Current Liabilities                                             1,437,950

Notes Payable, less current portion                                   3,181,288
Notes Payable to related parties, less current portion                  706,200
                                                                 --------------
Total Liabilities                                                     5,325,438
                                                                 --------------
Commitments and Contingencies
Stockholders' Deficit
Preferred stock, $0.001 par value; 10,000,000 shares
  authorized; no shares issued and outstanding                               --
Common stock, $0.001 par value; 100,000,000 shares
  authorized; 33,242,000 shares issued and outstanding                   33,242
Additional paid in capital                                               91,279
Stockholder note receivable                                             (75,391)
Accumulated deficit                                                  (2,068,220)
                                                                 --------------
Total stockholders' deficit                                          (2,019,090)
                                                                 --------------
Total Liabilities and Stockholders' Deficit                      $    3,306,348
                                                                 ==============

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


                                       3
<PAGE>

                 GATEWAY INTERNATIONAL HOLDINGS AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
     For the three month and nine month periods ended June 30, 2004 and 2003
                                   (Unaudited)

<TABLE>
<CAPTION>
                                              For the three month periods ended  For the nine month periods ended
                                                 June 30, 2004   June 30, 2003    June 30, 2004    June 30, 2003
                                                 -------------   -------------    -------------    -------------
<S>                                              <C>             <C>              <C>              <C>
Net sales                                        $   2,273,100   $     814,131    $   5,058,605    $   2,776,955
Cost of sales                                        1,390,908         616,934        4,007,414        2,017,276
                                                 -------------   -------------    -------------    -------------
Gross Profit                                           882,192         197,197        1,051,191          759,679
Operating expenses:

Selling, general and administrative                    344,255         238,943        1,163,658          740,538
                                                 -------------   -------------    -------------    -------------
Operating Income (Loss)                                537,937         (41,746)        (112,467)          19,141

Other income (expense):
Interest Income                                             --              --               76               --
                                                 -------------   -------------    -------------    -------------
Total other income (expense)                                --              --               76               --
                                                 -------------   -------------    -------------    -------------

Income(Loss) from continuing operations
  before income taxes and discontinued
  operations                                           537,937         (41,746)        (112,391)          19,141
Provision for income taxes                                  --              --            1,600              800
                                                 -------------   -------------    -------------    -------------
Income(Loss) from continuing operations                537,937         (41,746)        (113,991)          18,341

Income from subsidiaries disposed                           --         161,456               --          161,456
Loss on disposal of subsidiaries                            --        (161,456)              --         (161,456)
                                                 -------------   -------------    -------------    -------------
Income (Loss) from discontinued operations                  --              --               --               --
                                                 -------------   -------------    -------------    -------------
Net Income (Loss)                                $     537,937   $     (41,746)   $    (113,991)   $      18,341
                                                 =============   =============    =============    =============
NET INCOME (LOSS) PER SHARE:
Basic and diluted

Net Income per share                             $        0.02   $        0.00    $        0.00    $        0.00
                                                 =============   =============    =============    =============
Weighted average

Number of common shares outstanding                 33,242,000      16,827,652       33,242,000       19,603,738
                                                 =============   =============    =============    =============
</TABLE>

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


                                       4
<PAGE>

                 GATEWAY INTERNATIONAL HOLDINGS AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the nine month periods ended June 30, 2004 and 2003
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                             June          June
                                                                             2004          2003
                                                                          ----------    ----------
<S>                                                                       <C>           <C>
Cash flows from operating activities:
   Net Income (Loss)                                                      $ (113,991)   $   18,341
   Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                                          222,915        16,470
    Bad Debt expense                                                              --        (1,273)
     (Increase) decrease in current assets:
         Accounts receivable                                                (300,676)      (59,909)
         Inventories                                                        (128,618)       55,010
         Other assets                                                        (36,569)      (22,208)
     Increase (decrease) in current liabilities:
         Accounts payable and accrued liabilities                             20,754        84,281
                                                                          ----------    ----------
Net cash (used in) provided by operating activities                         (336,185)       90,712
                                                                          ----------    ----------

Cash flows from investing activities:
   Cash received on acquisition of Eran Eng.                                  55,845            --
                                                                          ----------    ----------
Net cash provided by investing activities                                     55,845            --
                                                                          ----------    ----------

Cash flows from financing activities:
   Principal borrowings (repayments) on notes payable                        241,592       (80,871)
   Issuance of common stock                                                       --         1,500
   Principal borrowings (repayments) on notes payable to
    related parties                                                          134,869       (36,456)
                                                                          ----------    ----------
Net cash provided by (used in) financing activities                          376,461      (115,827)
                                                                          ----------    ----------

Net Increase (decrease) in cash and cash equivalents                          96,121       (25,115)
Cash at beginning of year                                                      7,964        25,417
                                                                          ----------    ----------
Cash at end of year                                                       $  104,085    $      302
                                                                          ==========    ==========

Supplemental disclosure of cash flow information
   Cash paid during the year for:
     Interest                                                             $  177,174    $   70,675
                                                                          ==========    ==========
     Income taxes                                                         $    1,600    $      800
                                                                          ==========    ==========
</TABLE>

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


                                       5
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Gateway International Holdings, Inc. (the "Company") was originally incorporated
on September 24, 1997 under the laws of the State of Nevada. The Company and its
subsidiaries are engaged in acquiring,  refurbishing  and selling  pre-owned and
new  Computer  Numerically   Controlled  machine  tools,  and  manufacturing  of
precision  component parts in the fields of defense,  aerospace,  automotive and
medical  tools.  The Company  trades on the Pink Sheet  Bulletin Board under the
symbol "GWYI.PK".

The accompanying  unaudited financial statements consolidate the accounts of the
Company and its wholly owned subsidiary, E.M. Tool Company, Inc. (doing business
as Elite Machine Tool Company,  Inc.) and Eran Engineering,  Inc., and have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States of America for interim  financial  information.  However  certain
information  and  footnote   disclosures  normally  included  in  the  financial
statements prepared in accordance with accounting  principles generally accepted
in the  United  States of  America  have been  omitted.  In the  opinion  of the
management  of the Company,  all  adjustments  (consisting  of normal  recurring
adjustments)  necessary  for a fair  presentation  have  been  included  and the
accompanying  financial  statements present fairly the financial position of the
Company as of June 30, 2004,  and the results of  operations  of the Company for
the nine  months  ended June 30, 2004 and 2003 and cash flows of the Company for
the nine months ended June 30, 2004 and 2003. These financial  statements should
be read in conjunction with the Company's September 30th, 2004 audited financial
statements  and notes thereto  included in the  Company's  Annual Report on Form
10-KSB filed with the Securities  and Exchange  Commission on June 16, 2005. The
interim results are not necessarily  indicative of the results of operations for
a full year.

Principles of Consolidation

The  consolidated   financial   statements   include  the  accounts  of  Gateway
International  Holdings,  Inc.,  and its wholly owned  subsidiaries,  E.M.  Tool
Company,  Inc.  (doing business as Elite Machine Tool Company,  Inc.),  and Eran
Engineering, Inc.

Risks and Uncertainties

The  Company  operates  in a highly  competitive  industry  subject  to  intense
competition.  There are  significant  risks and  uncertainties  associated  with
Company's financial, operational and technological environment and that includes
the potential risk of business failure.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America  requires  management of the
Company to make estimates and  assumptions  that affect the reported  amounts of
assets and liabilities  and the disclosure of contingent  assets and liabilities
at the date of the financial  statements,  and the reported  amounts of revenues
and  expenses  during  the  reporting  period.  Significant  estimates  made  by
management  are,  among  others,  valuation  allowance  on deferred  tax assets,
realization of inventories and  collectibility  of accounts  receivable.  Actual
results could differ materially from those estimates.


                                       6
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004

Intangible Assets

The Company accounts for its intangible  assets under the applicable  guidelines
of SFAS 142 "goodwill and other intangible  assets" and SFAS 144 "accounting for
the impairment or disposal of long lived assets".  Where intangible  assets have
finite lives,  they are amortized over their useful life unless factors exist to
indicate that the asset has been  impaired.  The Company  evaluates  whether the
assets are  impaired  annually or on an interim  basis or if an event  occurs or
circumstances change to suggest that an asset's value has diminished. Under SFAS
144,  when  deemed  necessary,  the  Company  completes  the  evaluation  of the
recoverability  of its long-lived assets by comparing the carrying amount of the
assets  against the estimated  undiscounted  future cash flows  associated  with
them. If such evaluations  indicate that the future  undiscounted  cash flows of
long-lived  assets are not  sufficient  to recover  the  carrying  value of such
assets, the assets are adjusted to their estimated fair values.  Under SFAS 142,
intangible  assets  with  indefinite  useful  lives  are  required  to be tested
annually for impairment or whenever events or changes in circumstances  indicate
that the carrying amount of an asset may not be  recoverable.  If the assets are
considered  to be impaired,  the  impairment to be recognized is measured by the
amount by which the carrying amount exceeds the fair value of the assets.  Based
on its review,  the Company has written off $0 as impairment  of its  long-lived
assets as of June 30, 2004 and 2003.

Revenue Recognition

The Company  records  sales when goods are shipped to the  customer.  Revenue is
recognized when all of the following criteria have been met:

      o     persuasive evidence for an arrangement exists:
      o     delivery has occurred:
      o     the fee is fixed or determinable; and
      o     collectibility is reasonably assured.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin  104 ("SAB  104"),  "Revenue  Recognition,"  which  outlines  the basic
criteria  that  must be met to  recognize  revenue  and  provides  guidance  for
presentation  of revenue  and for  disclosure  related  to  revenue  recognition
policies  in  financial  statements  filed  with  the  Securities  and  Exchange
Commission.  Management  believes that the Company's revenue  recognition policy
conforms to SAB 104.

Basic and Diluted Earnings Per Common Share

Under SFAS 128,  "Earnings  Per  Share",  basic  earnings  per  common  share is
computed by dividing net income or loss available to common  shareholders by the
weighted-average  number of  common  shares  outstanding  during  the  period of
computation.  Diluted  earnings per share is computed  similar to basic earnings
per share  except that the  denominator  is  increased  to include the number of
additional  common  shares  that would have been  outstanding  if the  potential
common shares had been issued and if the additional  common shares were dilutive
(there were no  additional  potential  common shares to be issued as of June 30,
2004 and 2003, respectively).

Fair Value of Financial Instruments

SFAS 107,  "Disclosures  About Fair Value of  Financial  Instruments,"  requires
disclosure of fair value  information  about  financial  instruments  when it is
practicable to estimate that value.  The carrying  amount of the Company's cash,
accounts  receivables,  trade payables,  accrued liabilities,  obligations under
capital leases,  and notes payable  approximates their estimated fair values due
to the short-term maturities of those financial  instruments.  The fair value of
stockholder  notes  receivable  and notes  payable  to related  parties  are not
determinable as these transactions are with related parties.


                                       7
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004

Segments of Business

Statement of Financial  Accounting  Standards  ("SFAS") 131,  "Disclosures about
Segments  of an  Enterprise  and  Related  Information,"  changed the way public
companies report  information  about segments of their business in their reports
issued to  stockholders.  It also  requires  entity-wide  disclosures  about the
products and services the entity  provides,  the material  countries in which it
holds assets and reports revenues and its major customers.  Reportable  business
segments for the nine-month  period ended June 30, 2004 are from the date of the
acquisition of the various subsidiaries.

Stock-based compensation

In October  1995,  the FASB  issued SFAS No. 123,  "Accounting  for  Stock-Based
Compensation".  SFAS No. 123 prescribes  accounting and reporting  standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting  Principles
Board Opinion No. 25,  "Accounting  for stock issued to employees"  (APB 25) and
related  interpretations  with  pro-forma  disclosure  of what  net  income  and
earnings  per share would have been had the  Company  adopted the new fair value
method. The Company uses the intrinsic value method prescribed by APB 25 and has
opted for the disclosure provisions of SFAS No. 123.

Statement of Cash Flow

In  accordance  with  Statement  of  Financial   Accounting  Standards  No.  95,
"Statement  of  Cash  Flows,"  cash  flows  from  the  Company's  operations  is
calculated  based upon the local  currencies.  As a result,  amounts  related to
assets  and  liabilities  reported  on the  statement  of cash  flows  will  not
necessarily  agree with  changes in the  corresponding  balances  on the balance
sheet.

Significant Recent Accounting Pronouncements

In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
an Amendment of FASB Statement No. 123" ("FAS No. 123R").  FAS No. 123R requires
companies to recognize in the statement of operations the grant-date  fair value
of stock options and other equity-based  compensation  issued to employees.  FAS
No. 123R is effective  beginning in the Company's second quarter of fiscal 2006.
The Company is in the process of evaluating  the impact of these  pronouncements
on its consolidated financial position, results of operations and cash flows.


                                       8
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004

In December  2004,  the FASB  issued  SFAS  Statement  No.  153,  "Exchanges  of
Non-monetary  Assets."  The  Statement  is an amendment of APB Opinion No. 29 to
eliminate the exception for non-monetary  exchanges of similar productive assets
and replaces it with a general  exception for exchanges of  non-monetary  assets
that do not have commercial substance. The Company believes that the adoption of
this standard will have no material impact on its financial statements.

In March 2004, the Emerging  Issues Task Force  ("EITF")  reached a consensus on
Issue  No.  03-01,  "The  Meaning  of  Other-Than-Temporary  Impairment  and its
Application  to Certain  Investments."  The EITF  reached a consensus  about the
criteria  that should be used to  determine  when an  investment  is  considered
impaired,  whether that impairment is other-than-temporary,  and the measurement
of an  impairment  loss and how that criteria  should be applied to  investments
accounted for under SFAS No. 115, "Accounting In Certain Investments In Debt And
Equity   Securities."  EITF  03-01  also  included   accounting   considerations
subsequent to the  recognition of  other-than-temporary  impairment and requires
certain  disclosures  about  unrealized  losses that have not been recognized as
other-than-temporary   impairments.   Additionally,   EITF  03-01  includes  new
disclosure  requirements  for  investments  that are  deemed  to be  temporarily
impaired.  In September  2004, the Financial  Accounting  Standards Board (FASB)
delayed  the  accounting  provisions  of  EITF  03-01;  however  the  disclosure
requirements remain effective for annual reports ending after June 15, 2004. The
Company will evaluate the impact of EITF 03-01 once final guidance is issued.

NOTE 2 - RELATED PARTY TRANSACTIONS

The Company has a note payable with a former related party,  Nelson Engineering,
Inc., that requires monthly payments including interest. The balance of the note
is $60,668 at June 30, 2004 and $ 107,472 at June 30,  2003.  The  Company  paid
$6,251 in interest in connection  with these notes payable during the nine month
period  ended June 30,  2004 and $0 during the half year  period  ended June 30,
2003,  which  the  Company  has  recorded  in  the  accompanying  statements  of
operations.

From time to time, the Company borrows funds from Joseph Gledhill, a stockholder
and the Vice  President  the  Company  for working  capital  purposes,  which is
non-interest  bearing.  Also, Joseph Gledhill loaned the Company $160,000 to pay
certain  stockholders  of Gourmet  Gifts,  Inc. in  connection  with the reverse
merger. At June 30, 2004, outstanding borrowings on these notes totaled $792,428
and at June 30, 2003, the outstanding borrowings totaled $559,700.

At the time of our reverse merger of Elite Machine in December 2001, the balance
owed by Larry Consalvi, CEO of our Company, to Elite Machine on advances made by
Elite Machine to Mr. Consalvi was $76,461 . At the time these advances were made
and prior to the reverse merger,  Mr. Consalvi was a director and shareholder of
Elite Machine.  Subsequent to our reverse takeover of Elite Machine, the balance
owed by Mr.  Consalvi to Elite Machine in connection  with these  advances as of
June 30, 2004 was $75,391 and June 30, 2003 is $74,661.

NOTE 3 - STOCKHOLDERS' EQUITY

Preferred 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.  As
of June 30, 2004 and 2003,  the Company had no shares of preferred  stock issued
and outstanding.


                                       9
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004

Common Stock

The Company's  Articles of Incorporation  authorize up to 100,000,000  shares of
$0.001 par value  common  stock.  At June 30,  2004 and 2003,  the  Company  had
33,242,000 and 15,921,000 shares of common stock issued and outstanding.

NOTE 4 - BUSINESS SEGMENTS

Reportable  business segments for the nine month period ended June 30, 2004, are
as follows:

                                               9 month period
                                                   ended
                                               June 30, 2004
                                               -------------

Net Sales from continuing operations:
 Elite Machine Tool Company, Inc.              $   2,845,635
 Eran Engineering, Inc.                            2,212,970
                                               -------------
                                               $   5,058,605
                                               -------------

Operating income from continuing operations:
 Elite Machine Tool Company, Inc.              $     231,004
 Eran Engineering, Inc.                             (343,395)
                                               -------------
                                               $    (112,391)
                                               -------------


                                       10
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004


Depreciation and amortization - continuing operations:
 Elite Machine Tool Company, Inc.                        $      210
 Eran Engineering, Inc.                                     222,705
                                                         ----------
                                                         $  222,915
                                                         ----------

Identifiable assets - continuing operations:
 Elite Machine Tool Company, Inc.                        $  571,305
 Eran Engineering, Inc.                                   2,735,043
                                                         ----------
                                                         $3,306,348
                                                         ----------

Capital expenditures/obligations under capital lease:
 Elite Machine Tool Company, Inc.                        $       --
 Eran Engineering, Inc.                                          --
                                                         ----------
                                                         $       --
                                                         ----------

Interest Paid:
 Elite Machine Tool Company, Inc.                        $   20,763
 Eran Engineering, Inc.                                     156,411
                                                         ----------
                                                         $  177,174
                                                         ----------


                                       11
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004

Note 5 (a) - SUBSEQUENT EVENTS: ACQUISITION COMPLETED IN FISCAL 2004:

Eran Engineering, Inc.:

In October 2003,  the Company  completed the  acquisition  of Eran  Engineering,
Inc., a company  engaged in the  manufacture of precision  parts in the field of
defense and aerospace.

The total purchase price was less than the assets acquired and negative goodwill
in excess of the  purchase  price has been  adjusted  to the amount of plant and
equipment acquired in this transaction.

The purchase price of $2,500,000 was financed partly through a bank loan of $1.3
million,  and partly  through a note to the sellers,  Alice  Thallmayer and Hans
Thallmayer of $1.2 million.

The allocation of the purchase price to the assets and liabilities assumed based
on their fair values was as follows:

Cash and cash equivalents                      $    55,845
Accounts receivable                                281,717
Fixed assets                                     2,162,438
Total Assets acquired                            2,500,000

Note payable - Bank                             (1,300,000)

Note payable - Seller                           (1,200,000)
                                               -----------
                                               $        --
                                               -----------

As Eran Engineering was acquired at the beginning of the year, the statements of
operation for the period ended June 30, 2004  represents  combined  operation of
the companies, proforma information of the combined companies is not necessary.

For 6-30-2003:

Unaudited  Pro-forma  revenue  and net  income  assuming  the  acquisition  been
completed  at the  beginning of the fiscal year 2003,  on a pro-forma  financial
results would be as follows:

~                                      For the nine months period ended
~                                               June 30, 2003
                                       --------------------------------
~                                                (Unaudited)

Revenues                                          2,776,955
Net Income for period                                18,341
Earnings per share                                    (0.00)


                                       12
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004

Note 5 (a) - SUBSEQUENT EVENTS: ACQUISITION COMPLETED AFTER FISCAL 2004:

All American CNC Sales, Inc.:

In October  2004,  the Company  completed  the  acquisition  of All American CNC
Sales,  Inc., a company engaged in the sale of new equipment through the various
distributor relationships held by it.

The shareholders of All American CNC Sales, Inc. received  1,000,000  restricted
common stock shares of Gateway International  Holdings, Inc. in exchange for all
of the outstanding  common stock shares of All American Sales, Inc. The purchase
price, based on the average share price during the period, was $610,000.00.

The allocation of the purchase price to the assets and liabilities assumed based
on their fair values was as follows:

Current Assets                                 $     65,233
Fixed Assets                                         58,885
Current Liabilities                                (166,067)
Goodwill                                            651,949
                                               ------------
                                                    610,000
Common Stock issued                                (610,000)
                                               ------------
                                               $         --
                                               ============


Gledhill/Lyons, Inc., dba Accurate Technology:

In December 2004, the Company completed the acquisition of Gledhill/Lyons, Inc.,
doing  business  as  Accurate  Technology,   Inc.,  a  company  engaged  in  the
manufacture  of  precision  parts  for the  automotive,  defense  and  aerospace
industries.

The shareholders of Gledhill/Lyons, Inc., doing business as Accurate Technology,
Inc.,   received   12,000,000   restricted   common   stock  shares  of  Gateway
International Holdings,  Inc., valued at $9,720,000,  in exchange for all of the
outstanding  common  stock shares of  Gledhill/Lyons,  Inc.,  doing  business as
Accurate Technology, Inc. Two of the officers of the Company, Larry Consalvi and
Joseph  Gledhill,  surrendered  12,000,000 of their shares to the Company so the
acquisition  of this  company  would not result in any  overall  dilution to the
existing shareholders of the Company.

The allocation of the purchase price to the assets and liabilities assumed based
on the fair values was as follows:

Current Assets                                 $    526,731
Fixed Assets                                        551,036
Current Liabilities                                (871,655)
Goodwill                                          9,513,888
                                               ------------
                                                  9,720,000
                                               ------------
Common Stock issued                              (9,720,000)
                                               ------------
                                               $         --


                                       13
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004


ESK, Inc.:

In December 2004, the Company  completed the acquisition of ESK, Inc., a company
engaged in assembly  work for Eran  Engineering,  Inc. This company was the sole
source of assembly  work for Eran  Engineering,  Inc.,  and was acquired so that
Eran could control and manage its own parts assembly needs.

The shareholders of ESK, Inc. received 219,800 restricted common stock shares of
Gateway  International  Holdings,  Inc.,  and a cash  payment  in the  amount of
$50,000.00  in exchange for all of the common  shares of ESK,  Inc. The purchase
price,  based on the average  share price during the period and the cash payment
was $212,000.00.

The allocation of the purchase price to the assets and liabilities assumed based
on the fair values was as follows:

Current Assets                                 $      --
Fixed Assets                                          --
Current Liabilities                                   --
 Goodwill                                        212,000
                                               ---------
                                                 212,000
Cash                                             (50,000)
Common Stock issued                             (162,000)
                                               ---------
                                               $      --
                                               =========

A Line Capital Corporation.:

In December 2004, the Company formed A Line Capital Corporation,  a company that
will be engaged in providing  financial  services for the Company  including the
leasing of machinery and equipment.

This company had no assets and  liabilities  and no revenues or income or losses
for any period prior to December 2004.

Spacecraft Machine Products, Inc.

In  January  2005,  the  Company  entered  into  a  definitive   Agreement  (the
"Agreement") with Spacecraft Machine Products,  Inc.  ("Spacecraft") pursuant to
which  Spacecraft  became a  wholly-owned  subsidiary  of Gateway  International
Holdings,  Inc.  ("Gateway").  According to the Agreement,  the  shareholders of
Spacecraft  received  600,000  restricted  common  stock  shares of  Gateway  in
exchange for all of the outstanding common stock shares of Spacecraft,  plus the
right to receive an additional 150,000 restricted common stock shares of Gateway
per year for three years if Spacecraft  meets certain net income  targets before
income taxes in exchange for all of the common shares of Spacecraft.

Spacecraft  Machine  Products  specializes in the  manufacturing  of tooling and
prototypes,   an  area  that  will  be  beneficial  to  all  the   manufacturing
subsidiaries of Gateway.

The allocation of the purchase price to the assets and liabilities assumed based
on the fair values was as follows;

Current Assets                                 $   348,098
Fixed Assets                                   $    41,219
Current Liabilities                            $  (751,297)
Long Term Liabilities                          $  (357,663)
Goodwill                                       $ 1,181,643
                                               -----------
                                               $   462,000
                                               -----------
Common Stock issued                            $   462,000
                                               -----------


                                       14
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004

Nu-Tech Industrial Sales, Inc.

In March 2005, the Company entered into a definitive Agreement (the "Agreement")
with Nu-Tech Industrial Sales, Inc. ("Nu-Tech") pursuant to which Nu-Tech became
a wholly-owned  subsidiary of Gateway International  Holdings, Inc. ("Gateway").
Pursuant to the Agreement,  the acquisition of Nu-Tech became effective April 1,
2005. According to the Agreement, the shareholders of Nu-Tech received 2,500,000
restricted common stock shares of Gateway in exchange for all of the outstanding
common stock shares of Nu-Tech.

Nu-Tech  was  acquired  to add small  tool sales and  support  to the  equipment
division.  The synergy between Nu-Tech, All American and Elite has already added
new revenues to all three companies.

A summary of the Nu-Tech  Industrial  Sales,  Inc. assets acquired,  liabilities
assumed and consideration paid is as follows:

                                               Allocated Amount
                                               ----------------
Current Assets                                 $        920,771
Fixed Assets                                            470,625
Current Liabilities                                    (982,630)
Goodwill                                              1,966,234
                                               ----------------
                                                      2,375,000
                                               ================
Consideration:
Common Stock issued                            $      2,375,000
                                               ================

Unaudited Pro-forma revenue and net income assuming all the acquisitions in 2004
and 2005 had been  completed  at the  beginning  of the periods  reported,  on a
pro-forma financial results would be as follows:

                                        For the 9 month periods ended June 30th,
                                                        2004             2003
                                                    (Unaudited)      (Unaudited)
                                                    -----------      -----------
Revenues                                             10,579,796        8,800,985
Net Income for period                                   (38,177)         535,616
Earnings (Loss) per share                                 (0.00)            0.03


                                       15
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004

Note 5 (c) - SUBSEQUENT EVENTS - OTHERS:

In August 2004,  the Company  declared a forward stock split and issued 2 shares
of common  stock for 1  outstanding  share of common  stock.  All shares and per
share data have been retroactively restated to reflect these stock splits.

In October 2004, the Company issued 1,000,000  restricted common stock shares to
the  shareholders  of All  American CNC Sales,  Inc.  ("All  American")  for the
purchase of all of its common  stock,  pursuant to which All  American  became a
wholly owned subsidiary of Gateway International Holdings, Inc.

In December 2004, the Company issued  12,000,000  restricted common stock shares
to the shareholders of Accurate Technologies, Inc. ("Accurate") for the purchase
of all of its common stock,  pursuant to which  Accurate  became a  wholly-owned
subsidiary of Gateway International  Holdings, Inc. Two officers of the Company,
Lawrence Consalvi and Joseph Gledhill, surrendered 12,000,000 of their shares to
the  Company so that the  acquisition  of this  company  would not result in any
overall dilution to the holdings of the Company's existing shareholders.

In December 2004, the Company issued 219,800  restricted  common stock shares to
the  shareholders of ESK, Inc.  (ESK"),  together with a cash payment of $50,000
for the purchase of all of the common stock of ESK, pursuant to which ESK became
a wholly-owned subsidiary of Gateway International Holdings, Inc.

In January 2005, the Company issued  600,000  restricted  common stock shares to
the shareholders of Spacecraft  Machine Products,  Inc., for the purchase of all
of the common stock of Spacecraft, pursuant to which Spacecraft became a wholly-
owned subsidiary of Gateway International Holdings, Inc.

During the quarter  ended March 31, 2005,  the company  issued  shares of common
stock for cash as follows:

      o     740,000 shares of common stock at the rate of $0.49 cents per share.
      o     133,354 shares of common stock at the rate of $0.75 cents per share.
      o     357,142 shares of common stock at the rate of $0.70 cents per share.

NOTE 6 - GOING CONCERN

The  Company's   consolidated   financial  statements  are  prepared  using  the
accounting  principles  generally  accepted  in the  United  States  of  America
applicable to a going concern that  contemplates  the  realization of assets and
liquidation of liabilities in the normal course of business. As of June 30, 2004
the Company  had an  accumulated  deficit of  $(2,068,220).  This matter  raises
substantial  doubt about the Company's  ability to continue as a going  concern.
The  Company has taken  certain  restructuring  steps to provide  the  necessary
capital to continue its operations.  Since the year ended September 30, 2004 the
Company,  being well aware of the need to find  additional  capital,  has raised
$735,000  through  a  subscription  of new  restricted  shares  of the  Company.
Furthermore the addition of five new subsidiaries  has further  strengthened the
Company.

In April 2005, the SEC instituted  proceedings  pursuant to Section 12(J) of the
Securities  Exchange  Act  of  1934  (the  "1934  Act")  and  cease  and  desist
proceedings  have been  instituted  pursuant  to  Section  21(C) of the 1934 Act
against the Company's President, Chief Executive Officer and Director,  Lawrence
A.  Consalvi.  The SEC  seeks  to  suspend  the  registration  of the  Company's
securities  for a period not exceeding 12 months or revoke the  registration  of
its securities  pursuant to Section 12 of the 1934 Act, and to cause the Company
and Mr.  Consalvi to cease and desist from  committing any violations of Section
13(a) of Rules 13a-1 and 13a-13 of the 1934 Act in the future.  The  proceedings
arose from the Company's failure to comply with its reporting  obligations while
its securities  were  registered with the SEC in that the Company failed to file
its annual report on Form 10-K for the fiscal years ended September 30, 2004 and
2003, and four  quarterly  reports on Form 10-Q for the quarters ended March 31,
2003,  June 30,  2003,  December  31,  2003,  and March 31,  2004,  and that Mr.
Consalvi,  during his tenure as the Company's  President,  caused the Company to
violate these reporting  requirements.  The Company intends to vigorously defend
itself in this matter as further described in Note 7.


                                       16
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004

Independent Accountants Scope Limitation

The independent accountants of the Company were unable to review the income from
operations of Nelson  Engineering,  Inc. and Bechler  Cams,  Inc. for the period
October 1, 2002  through  December  31, 2002  amounting  to  $161,456  which was
included  in the  Consolidated  Statement  of  Operations  for  the  year  ended
September  30,  2003 nor were they able to verify the loss on  disposal of these
subsidiaries   amounting  to  $161,456  through  other  review  procedures.   No
accounting  records  were  made  available  to the  Company  for  review  by its
independent accountants from Nelson Engineering, Inc. and Bechler Cams, Inc. for
the period October 1, 2002 through December 31, 2002.

It is opinion of the Company's  managements that the income from operations that
is  offset  by the loss on  disposal  is  immaterial  as it has no effect on the
income,  net  worth or  earnings  per  share  of the  Company.  The  independent
accountants  have  initiated  consultation  with  the  Securities  and  Exchange
Commission in that regard.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

The Company leases certain property under operating lease agreements.  The lease
expires on September  30, 2006 and provide for monthly  payments of $8,233.  The
company  intends to continue  leasing the property  subsequent  to September 30,
2006 on a month to month basis.

Future minimum rental commitments as of June 30, 2004 are as follows:

                                                Operating Leases
                                               -----------------

2004                                           $          24,699
2005                                                      98,796
2006                                                      98,796
2007                                                          --
                                               -----------------
Total minimum lease payments                   $         222,291
                                               =================

Rent

Rent  expense  under  operating  leases for the period  ended June 30,  2004 was
$72,600 and $29,653 for the period ended June 30, 2003.


                                       17
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004

Legal

The Company may be involved from time to time in various claims,  lawsuits,  and
disputes with third parties,  actions involving allegations or discrimination or
breach of contact actions  incidental in the normal  operations of the business.
The Company is currently not involved in any such  litigation  which  management
believes  could have a material  adverse  effect on its  financial  position  or
results of operations.

The Company is currently involved in the following lawsuits:

The Duffy law Firm V Gateway International Holdings, Inc et. al.

On December 8, 2004, a complaint  was filed  against the Company and some of its
principles by the Duffy Law Firm in the matter  entitled "The Duffy Law Firm vs.
Gledhill,  et al." The complaint was filed in Case No. 04CC11981 in the Superior
Court of California,  County of Orange,  and alleges causes of action for breach
of contract,  open book account,  quantum meruit, and declaratory relief related
to the plaintiff's claim for unpaid legal services,  approximating  $100,450, in
connection with the plaintiff's representation of the Company in a lawsuit filed
by Bechler Cams, Inc. and its principals in 2003,  which was eventually  settled
out of court pursuant to an agreement which rescinded the Company's  acquisition
of Bechler Cams,  Inc. The Company's  management  has denied that the plaintiffs
are owed the amounts sought and intends to vigorously  defend this action on the
basis brought by the plaintiffs.  The potential  liability of this suit has been
accrued  for  in  the  financial  statements  of  the  Company  in  the  sum  of
approximately $100,450 as per paragraph above.

Nelson Engineering, Inc. V Gateway International Holdings, Inc.

The plaintiff  brought suit against the Company for the balance of a loan due to
plaintiff.  The Company  does not dispute the amount due of $64,445 for the year
ended  September  30, 2004 and 2003,  and  intends to settle  this suit.  Nelson
Engineering, Inc. provided a loan to Elite Machine Tool Company Inc. and Gateway
International  Holdings,  Inc. that has only been partially repaid.  The balance
due to Nelson Engineering,  Inc. is $64,445,  which amount has been provided for
in the financial statements.

BTL Machine V. Elite Machine Tool Company, Inc

On January 4, 2005, a complaint  was filed  against the  Company's  wholly-owned
subsidiary,  Elite  Machine Tool  Company,  Inc.,  in the matter  entitled  "BTL
Machine v. Elite Machine Tool Company, Inc." The complaint was filed in Case No.
05CC01842 in the Superior  Court of  California,  County of Orange,  and alleges
causes of action for breach of  contract  and  implied  warranty  related to BTL
Machine's  claim that it received  defective  products from Elite  Machine.  BTL
Machine seeks to recover  approximately  $64,000 in damages.  The  management of
Elite Machine has denied any such  liability for defective  products and intends
to  vigorously  defend the action.  Elite  Machine  has filed a  cross-compliant
against BTL Machine seeking to recover approximately $5,000 in past due accounts
receivable.  This matter is currently in the discovery phase and, as such, Elite
Machine's counsel has advised it that it is premature to attempt to estimate any
potential outcome or loss at this time. Accordingly,  no provision has been made
in the financial statements of the Company.


                                       18
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004

The Securities and Exchange Commission V. Gateway International  Holdings,  Inc.
and Lawrence A. Consalvi.

In April 2005, the SEC instituted  proceedings  against the Company  pursuant to
Section 12(J) of the Securities  Exchange Act of 1934 (the "1934 Act") and cease
and desist  proceedings  have been  instituted  pursuant to Section 21(C) of the
1934 Act against the Company's President,  Chief Executive Officer and Director,
Lawrence A. Consalvi. The SEC seeks to suspend the registration of the Company's
securities  for a period not exceeding 12 months or revoke the  registration  of
its securities  pursuant to Section 12 of the 1934 Act, and to cause the Company
and Mr.  Consalvi to cease and desist from  committing any violations of Section
13(a)  of  Rules  13a-1  and  13a-13  of  the  1934  Act  in  the  future.  This
Administrative Proceeding, File No. 3-11894, arose from the Company's failure to
comply with its reporting  obligations while its securities were registered with
the SEC in that the  Company  failed to file its annual  report on Form 10-K for
the fiscal years ended  September 30, 2004 and 2003, and four quarterly  reports
on Form 10-Q for the quarters ended March 31, 2003, June 30, 2003,  December 31,
2003,  and March 31,  2004,  and that Mr.  Consalvi,  during  his  tenure as the
Company's President, caused the Company to violate these reporting requirements.
On May 9, 2005, the Company  submitted its answer to the Order alleging that its
failure to meet its reporting obligations was not intentional but the result its
inability  to obtain  financial  information  necessary to complete the periodic
reports from Bechler  Cams,  Inc.,  who had refused to comply with the Company's
reasonable requests for such financial information.

On July 20, 2005, trial was held on the Order  Instituting  Proceedings,  and on
August 18, 2005, the  Administrative  Law Judge issued an Initial Decision,  and
ordered the  revocation  of each class of the Company's  securities  pursuant to
Section 12(j) of the Securities  Exchange Act of 1934 (the "Exchange  Act").  It
was further ordered that the Company's Chief  Executive  Officer,  President and
Director,  Lawrence A. Consalvi,  cease and desist from committing any violation
or future  violations  of Section  13(a) of the Exchange Act and Rules 13a-1 and
13a-13.  Specifically,  the  Administrative  Law Judge  found  that the  Company
violated  Section  13(a) of Exchange Act in that the Company  failed to file two
annual reports on Form 10-K for the Company's  fiscal years ended  September 30,
2003 and September  30, 2004,  and five  quarterly  reports on form 10-Q for the
quarters ended March 31, 2003, June 30, 2003,  December 31, 2003, March 31, 2004
and June 30, 2004,  and that Mr.  Consalvi,  during his tenure as the  Company's
President  and Chief  Executive  Officer,  caused the  Company's  violations  of
Section  13(a) of the  Exchange  Act and Rules  13a-1 and  13a-13.  The  Initial
Decision is not yet effective, but shall become effective unless (1) the Company
does not file a petition for a review by the Commission of the Initial  Decision
within twenty-one (21) days of the date of the Initial Decision pursuant to Rule
360 of the Commission's  Rules of Practice,  17 C.F.R.  ss. 201.360,  or (2) the
Company  files a petition for review with the  Commission  within this period of
time and the  Commission  either  rejects the Company's  petition or accepts the
petition but decides that the  registration of the Company's  securities  should
nevertheless be revoked. On September 7, 2005, the Company filed a petition with
the Commission for a review of the Initial Decision,  and on September 12, 2005,
the Commission granted the Company's petition for review pursuant to Rule 411 of
the  Commission's  Rules of  Practice.  The  Company's  brief in  support of its
petition for review is due by October 12, 2005.

On October 20, 2004 the Company received  correspondence  from the Law Office of
Joseph R. Campoli, Jr., attorney for James Betor, Raymond Omerza, Phillip Dubsky
and Charles Harper,  alleging  violations of the Telephone  Consumer  Protection
Act, Title 47, United States Code,  Section 227 for  transmitting  the Company's
unsolicited  facsimile  advertisements to certain individuals and seeking $6,800
in settlement of these claims.  Subsequently,  the Company's  attorney contacted
Mr. Campoli and advised him that the Company neither paid for nor authorized the
sending of the unsolicited facsimiles, and had no knowledge that any third-party
was sending  unsolicited  facsimiles  purportedly on the Company's  behalf.  The
plaintiffs  have not pursued any further action against the Company with respect
to these unsolicited facsimiles.

NOTE 8 - SUPPLEMENTAL DISCLOSURE OF CASH FLOWS

The Company  prepares its statements of cash flows using the indirect  method as
defined under the Financial Accounting Standard No. 95.

The Company  paid $1,600 for income tax and $ 177,174  for  interest  during the
nine month period ended June 30, 2004.

The Company  paid $800 for income tax and $70,675 for  interest  during the nine
month period ended June 30, 2003.


                                       19
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

Forward Looking Statements

The following  presentation  of  Management's  Discussion and Analysis should be
read in conjunction with the financial  statements and notes thereto included in
Item 1 of this  Quarterly  Report  on Form  10-QSB.  Except  for the  historical
information  contained  herein,  the discussion in this report contains  certain
forward-looking  statements  that  involve  risks  and  uncertainties,  such  as
statements of our business plans, objectives,  expectations and intentions as of
the  date  of  this  filing.   This  cautionary   statement  about  reliance  on
forward-looking  statements  should be taken  into  serious  consideration  with
respect to all  forward-looking  statements wherever they appear in this report,
notwithstanding  that the "safe harbor"  protections  available to some publicly
reporting  companies under applicable  federal securities law do not apply to us
as an issuer of penny stocks.  Prospective investors are cautioned that any such
forward-looking  statements are not guarantees of future performance and involve
risk and uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements.  Readers are urged to carefully
review and consider the various disclosures made by us in this Report as well as
in our  other  reports  filed  with  the  Securities  and  Exchange  Commission.
Important  factors  currently known to Management  could cause actual results to
differ  materially  from those in  forward-looking  statements.  We undertake no
obligation to update or revise  forward-looking  statements  to reflect  changed
assumptions,  the  occurrence of  unanticipated  events or changes in the future
operating  results  over time.  We believe that our  assumptions  are based upon
reasonable  data derived from and known about our  business and  operations.  No
assurances  are made that  actual  results of  operations  or the results of any
future activities will not differ materially from our assumptions.

General Overview

Gateway International  Holdings, Inc. ("us", "we", or the "Company") is a public
company whose common stock is quoted on the Pink Sheets under the symbol "GWYI".
Prior to December 11, 2001, we were engaged in the business of catalogue  retail
gifts under the  corporate  name  "Gourmet  Gifts." Our  principal  product then
entailed the packaging,  sale and delivery of seasonal gourmet food and beverage
items.  However,  due to difficulty  in raising  additional  working  capital to
execute the business plan, we ceased operations. On December 11, 2001 we entered
into a Plan of Reorganization and Merger (the "Plan" or "Merger") with E.M. Tool
Company,  Inc., a California  corporation  doing  business as Elite Machine Tool
Company  ("Elite   Machine")  and  principally   engaged  in  the   acquisition,
refurbishment,   distribution  and  sales  of  pre-owned  Computer   Numerically
Controlled ("CNC") machine tools to manufacturing  customers.  Immediately prior
to the merger, we had 100,000,000  shares authorized and 3,384,000 shares issued
and outstanding. Pursuant to the merger, all of the 21,262 outstanding shares of
Elite Machine were  exchanged for shares of our common stock on a 1 to 637 basis
or into 13,236,000  (net of 300,000 shares  subsequently  cancelled  thereafter)
shares of our  common  stock for a total of  16,620,000  shares of common  stock
issued and outstanding. Immediately after the merger, all then existing officers
and directors of our Company  resigned and the  management of Elite Machine were
elected and appointed to such positions;  thereby effecting a change of control.
Although  Elite  Machine  became  our  wholly-owned   subsidiary  following  the
transaction,  because  the  transaction  resulted  in a change of  control,  the
transaction  was  recorded  as a "reverse  merger"  whereby  Elite  Machine  was
considered to be our accounting acquirer. We simultaneously  changed our name to
Gateway  International  Holdings,  Inc.  Thereafter,  we began  engaging  in the
acquisition,  refurbishment,  distribution  and sales of  pre-owned  CNC machine
tools to manufacturing customers across the United States of America.


                                       20
<PAGE>

Acquisition of Eran Engineering, Inc.

On October 1, 2003 we closed the  acquisition of Eran  Engineering,  Inc. ("Eran
Engineering")   from  its  two  shareholders,   Hans  B.  Thallmayer  and  Alice
Thallmayer,  pursuant to a Stock Purchase Agreement,  dated as of June 17, 2003,
whereby we purchased  all of the issued and  outstanding  capital  stock of Eran
Engineering for an aggregate purchase price of $1,250,000. In addition to a cash
payment in the amount of $650,000 which was credited to the purchase  price,  we
executed a promissory  note in favor of the sellers in the  principal  amount of
$600,000,  payable in three equal annual  installments  of $200,000 and accruing
simple interest at the rate of six percent (6%) per annum.  Our obligation under
the  promissory  note was  secured by the pledge of Lawrence  A.  Consalvi,  our
Director,  President and Chief Executive Officer and Joseph T.W.  Gledhill,  our
Vice  President and Director,  of a security  interest in certain  shares of our
common stock worth  $4,285,716 as of the date of the pledge.  Concurrently  with
the  closing  of  the  acquisition,  Eran  Engineering  purchased  from  R  &  H
Investments,  a  partnership  owned  by the  two  selling  shareholders  of Eran
Engineering,  the building in which Eran Engineering operates its business.  The
purchase  price  for the  building  was  $1,250,000,  and was  paid as  follows:
$650,000 in cash and a  promissory  note in the  principal  amount of  $600,000,
bearing  simple  interest at the rate of 6% per annum.  The cash  portion of the
purchase  price paid by us for Eran  Engineering  and the  building was financed
pursuant to a term loan from Financial Federal Credit ("FFC"),  in the principal
amount of $1,300,000.  The loan from FFC is primarily secured by a deed of trust
on the building  acquired by Eran  Engineering and a secured interest in all the
equipment owned by Eran Engineering.

Further in  connection  with the  acquisition,  Eran  Engineering  entered  into
employment  agreements with Erich Thallmayer to serve as the President and Chief
Executive  Officer of Eran  Engineering  at a annual base salary of $105,600 and
with Hans Thallmayer to serve as its Operating  Manager at an annual base salary
of $90,000. Our Director and Vice President, Joseph T.W. Gledhill,  subsequently
replaced  Erich  Thallmayer  as the  company's  President  and  Chief  Executive
Officer.  Hans Thallmayer is no longer employed as the Operating Manager of Eran
Engineering.

Eran Engineering was  incorporated  under the laws of the State of California on
July 1, 1983 and today is primarily  involved in the manufacture and assembly of
specialized,  precision components used in equipment and machinery by clients in
the aerospace and defense industry.  Eran Engineering maintains approximately 40
Computer  Numerically  Controlled  (CNC)  machines.  Some of Eran  Engineering's
customers  include:   Matsushita  Avionic  Systems  (in-flight   entertainment),
Monogram  Systems  (aerospace   infrastructures)  and  Meggitt  Defense  Systems
(un-manned tow targets). Eran also manufactures satellite, medical and connector
equipment for Malibu  Research  (satellites for the U.S. Navy) and Therox (blood
and oxygen equipment).

Rescission of Acquisition of Nelson Engineering, Inc.

On  October  4,  2002,  we  entered  into an  Agreement  of Merger  with  Nelson
Engineering,  Inc. ("NEI"), a first-tier manufacturer of precision machine parts
in  the  electronics,   medical  and  automotive  industry  sectors,   and  GWIH
Acquisition Corp. II, our wholly-owned  subsidiary formed solely for the purpose
of effecting the merger with NEI. Pursuant to the Agreement of Merger, we issued
6,175,300 restricted shares of our common stock in exchange for all of the 1,935
common shares of NEI issued and  outstanding as of the date of the  acquisition.
Subsequent  to the merger,  we filed a Current  Report on Form 8-K regarding the
merger  of NEI with and into our  wholly-owned  subsidiary,  and  following  the
effective date of the merger, NEI continued as our wholly-owned  subsidiary.  In
the months following the merger, disputes arose between the President and former
controlling  shareholder of NEI, and our management  over  significant  apparent
differences in our respective  business  objectives and policies,  such that the
parties each determined that they could not work together and that the merger of
NEI should be rescinded.  Accordingly,  the parties amicably negotiated a Mutual
Rescission of Contracts and Release of Claims,  dated May 15, 2003,  pursuant to
which the merger  transaction  was  rescinded  effective  January  1,  2003.  In
connection  with the rescission,  we returned to the former  shareholders of NEI
their shares of NEI acquired in the merger,  in exchange for their return of the
shares of our stock they received in the merger,  and the immediate  resignation
of Don Nelson from our Board of Directors.  The agreement also contained  mutual
releases of claims.  Accordingly,  NEI no longer  operates as our  subsidiary or
affiliate.


                                       21
<PAGE>

Rescission of Acquisition of Bechler Cams, Inc.

On November  15,  2002,  we closed the  acquisition  of 100% of the  outstanding
capital stock of Bechler Cams, Inc., a California corporation ("BCI"),  pursuant
to an  Agreement  and Plan of  Reorganization  dated as of March  31,  2002,  as
amended on October 4, 2002,  among us,  BCI,  and GWIH  Acquisition  Corp.,  our
wholly-owned  subsidiary  formed  solely for the purpose of effecting the merger
with BCI (the "Bechler  Agreement").  BCI is a machine shop  specializing in the
manufacturing  of precision  component  parts for customers in the aerospace and
defense  sectors and surgical  instruments and components in the medical sector.
Pursuant to the Bechler  Agreement,  we issued  11,837,500  shares of our common
stock in  exchange  for all of the capital  stock of BCI issued and  outstanding
capital as of the date of the merger.  The merger  became  effective on November
15,  2002  upon the  filing  of the  Articles  of  Merger  with the  Nevada  and
California  Secretaries of State.  Subsequent to the merger,  we filed a Current
Report on Form 8-K  regarding  the merger of BCI with and into our  wholly-owned
subsidiary, and following the effective date of the merger, BCI continued as our
wholly-owned subsidiary.

Subsequent to the merger,  Daniel Lennert and Laura Stearman,  the former owners
and executive officers of BCI (the "BCI parties")  commenced  litigation against
us, our  executives,  the executive  officers of E.M.  Tool  Company,  Inc. (our
wholly-owned  subsidiary),  and the Securities and Exchange  Commission  ("SEC")
alleging that the agreement of the BCI parties to enter into the merger with and
into GWIH Acquisition Corp., was obtained by fraud, misrepresentation, deceptive
business  practices,  violations  of rules 10(b) and 10b-5 of the Exchange  Act,
breach  of  fiduciary  duty,  and  dishonesty  by our  principals.  The case was
subsequently  settled pursuant to a Mutual  Rescission of Contracts,  Settlement
Agreement and Release of Claims, signed as of November 20, 2003 and effective as
of January 1,  2003,  pursuant  to which the  merger  transaction  was  formally
rescinded.  In  connection  with  the  rescission,  we  returned  to the  former
shareholders of BCI, their shares of BCI acquired in the merger, in exchange for
their  return  of the  shares  of our  stock  acquired  in the  merger,  and the
immediate  resignation  of  Daniel  Lennert  from our  Board of  Directors.  The
agreement also contained mutual releases of claims.  Accordingly,  BCI no longer
operates as our subsidiary or affiliate.

As of  October 7, 2005,  we are a  diversified  holding  company  that  operates
through our wholly-owned  subsidiaries  principally in the aerospace and defense
markets.  As explained  below,  we currently  have 8  subsidiaries  in operation
including:  Eran  Engineering,  Inc.,  Elite  Machine Tool  Company,  Inc.,  All
American CNC Sales, Inc., A-Line Capital Corporation,  Accurate Technology, ESK,
Inc., Spacecraft Machines, Inc., and Nu-Tech Industrial Sales, Inc. Our strategy
has been to seek and acquire profitable,  cash flow positive companies that will
compliment  and  diversify our existing  portfolio of companies  with a focus on
potential acquisitions in the aerospace and defense markets.


                                       22
<PAGE>

SUBSEQUENT EVENTS.

Acquisition of All American CNC Sales, Inc.

In October 2004, we acquired All American CNC Sales,  Inc. ("All American") from
its two  shareholders,  Tim  Consalvi  and Kathy  Consalvi,  pursuant to a Share
Exchange Agreement whereby we acquired all the outstanding  capital stock of All
American,  aggregating  9,000  shares,  for 1,000,000  restricted  shares of our
common stock. Further and as contingent consideration for the acquisition of All
American's capital stock, we agreed to issue an additional 250,000 shares of our
common stock to Tim Consalvi and Kathy Consalvi if All  American's  gross profit
equals or exceeds  $300,000 in our fiscal year 2005, and another  250,000 shares
of our common stock if All American's gross profit equals or exceeds $300,000 in
our fiscal year 2006. In connection with the  acquisition,  All American entered
into an employment  agreement with Tim Consalvi to serve as an executive officer
of All  American  for a period of one year at an annual  base salary of $168,000
plus  reimbursement of reasonable  expenses.  All American currently operates as
our wholly-owned subsidiary.  Tim Consalvi is the brother of Larry Consalvi, our
Director and President and Kathy Consalvi is his wife.

All  American  was  incorporated  under the laws of the state of  California  in
November  1993,  and today  specializes  in the sale of new CNC  machines  tools
throughout the Southern California market, of which it has an approximate market
share of 25% and a current  customer  base of over 360  companies.  The  primary
product lines offered  through All American  include:  Fadal Vertical  Machining
Centers, Giddings and Lewis Horizontal Boring and Machining Centers, Hessapp CNC
Turning and  Hwacheon CNC Turning.  In addition to the  machinery,  All American
carries a  complete  accessory  line to support  its  customer  base.  All items
carried by All American CNC Sales are represented on an exclusive basis. The top
ten customers of All American are, in  descending  order:  (1) Boeing C-17 Quick
Response Team, (2) Boeing Strategic  Defense Team, (3) Boeing Unmanned  Aircraft
Exploration,  (4) Camtech  Corporation,  (5) Precise  Solutions,  (6) John Force
Racing, (7) Edwards Life Sciences,  (8) Norotos,  Inc., (9) Beckman Coulter, and
(10)  St.  Gobain.  Our  management   believes  that  All  American's   business
compliments that of our other companies, particularly, Elite Machine.

Acquisition of Gledhill/Lyons, Inc. d.b.a. Accurate Technology

In December  2004, we acquired  Gledhill/Lyons,  Inc., a California  corporation
doing business as Accurate Technology  ("Accurate"),  from its two shareholders,
William Gledhill and David Lyons, pursuant to a Share Exchange Agreement whereby
we acquired all the  outstanding  capital stock of Accurate,  aggregating  1,000
shares,  in exchange for 12,000,000  restricted  shares of our common stock.  In
connection with the  acquisition,  Accurate  entered into employment  agreements
with David Lyons to serve as its  President at an annual base salary of $192,000
and with  William  Gledhill  to serve as its Vice  President  at an annual  base
salary of $192,000. Accurate currently operates as our wholly-owned subsidiary.

Accurate  Technology  operates  in the  aerospace  and  defense  industries  and
specializes in the manufacture of precision metal systems.  Accurate  Technology
has a diverse  client  base,  including  its two primary  customers:  Boeing and
Toyota. Our management believes that the acquisition of Accurate Technology will
further enhance and strengthen our overall precision manufacturing capabilities,
and  believes   that  this   acquisition   is  another   positive  step  in  the
implementation  of our  growth  strategy.  As of  March  11,  2005,  the top ten
customers of Accurate,  in no particular order are: The Boeing Company - Anaheim
Division,  The Boeing Company-B1B,  The Boeing  Company-C17,  The Boeing Company
C-13 Facility,  Monogram Systems, ShinMaywa Ltd., The Boeing Company-St.  Louis,
TRD U.S.A., Inc., and Western Design.


                                       23
<PAGE>

Establishment of A-Line Capital Corporation

We  established  A-Line  Capital  Corporation  ("A-Line")  in the 1st quarter of
fiscal year ending September 30, 2005 to provide financial services to consumers
who seek financing for the purchase and/or lease of machine tools and equipment.
Our subsidiaries, particularly Elite Machine and All American, currently arrange
for  approximately  $5,000,000 of equipment lease  financing  annually for their
customers. A-Line was established to capture much of the potential income stream
that was lost to equipment lease brokers in prior years and to provide equipment
lease  financing for  transactions  for our other  subsidiaries.  Our management
anticipates  that  initial  cash flow at A-Line will likely come from clients of
our subsidiary sales organizations, particularly Elite Machine and All American,
although  A-line may  provide  equipment  leasing  services in  connection  with
third-party sales that are wholly unrelated to our business.

Acquisition of ESK, Inc.

In December  2004,  we  acquired  ESK  Engineering  Inc.  ("ESK")  from its sole
shareholder  and the  former  President  and  Chief  Operating  Officer  of Eran
Engineering, Mr. Eric Thallmayer. The acquisition was accomplished pursuant to a
Share Exchange  Agreement  whereby we acquired all of the issued and outstanding
capital  stock of ESK solely in exchange  for 200,000  restricted  shares of our
common stock. ESK currently  operates as our wholly-owned  subsidiary out of its
facilities located in Santa Ana, California.  Subsequent to the acquisition, Mr.
Eric Thallmayer remains the President of ESK.

ESK is a parts assembly company located in Southern  California and is primarily
engaged in the assembly of precision parts in the aerospace, defense and medical
industries.  Our  management  intends to  utilize  ESK as the  primary  assembly
company for all of our manufacturing  divisions and believes that ESK represents
a  strategic  acquisition  in that it will  allow  our  manufacturing  divisions
control  over  the  quality,   timeliness,   and  cost   variables  of  products
manufactured by ESK for these divisions.

Acquisition of Spacecraft Machine Products, Inc.

In January 2005, we acquired  Spacecraft  Machine  Products,  Inc., a California
corporation ("Spacecraft") from its two shareholders,  Lloyd R. Leavitt, III and
the Leavitt  Family Trust,  pursuant to a Share  Exchange  Agreement  whereby we
acquired all of the outstanding capital stock of Spacecraft, aggregating 100,000
shares,  in  exchange  for a total of  600,000  restricted  shares of our common
stock,  500,000 shares of which were  distributed to Lloyd R. Leavitt,  III, and
the remaining  100,000  shares of which were  distributed  to the Leavitt Family
Trust. The Share Exchange  Agreement also provided for the additional payment of
150,000 restricted shares of our common stock in each year that Spacecraft meets
certain  annual profit goals as follows:  $200,000 gross profits by December 31,
2005,  $300,000 gross profits by December 31, 2006, and $350,000 by December 31,
2007. In addition,  in connection with the  transaction,  Lloyd R. Leavitt,  III
entered into an employment with Spacecraft at an annual base salary of $115,050.
Further,  we  engaged  Lloyd R.  Leavitt,  III to serve as our  Chief  Operating
Officer on a part-time basis during the six months  following the closing of the
acquisition,  for no  additional  consideration,  after  which the  parties  may
consider entering into a formal employment  contract to provide for a salary and
stock options.  Spacecraft currently operates as our wholly-owned subsidiary out
of its facilities located in Torrance, California.


                                       24
<PAGE>

In connection  with the  acquisition of  Spacecraft,  we executed a non-interest
bearing  promissory  note in favor of the Leavitt  Family Trust in the principal
amount of $220,000,  which is to be paid in equal  monthly  installments  over a
60-month period.  This note is in full satisfaction of our obligation to repay a
loan in the amount of $300,000  which was  previously  made to us by the Leavitt
Family  Trust.  Pursuant to a Pledge and Security  Agreement,  dated January 31,
2005, our obligation to make payments under this  promissory  note is secured by
our pledge of a security  interest in the Spacecraft stock we acquired  pursuant
to the Share Exchange Agreement.

The  Spacecraft  business has been in  operation  for over 35 years and operates
primarily in the  aerospace  and defense  industries.  In January  2000,  it was
incorporated as a California "C" corporation.  Our management  believes that the
acquisition  of  Spacecraft  represents a positive new  component to our growing
portfolio  of  companies  and that the addition of  Spacecraft  may  potentially
provide new business  opportunities  throughout our organization.  Mr. Leavitt's
father,  Lt. General Lloyd R. Leavitt  (Retired - Air Force) remains a principal
of Spacecraft and has joined our Advisory  Board.  Our management  believes that
the addition of Lt.  General  Leavitt to our Advisory  Board  provides  enhanced
credibility  and experience to our  organization,  particularly in the aerospace
and defense  sectors where his contacts and experience  have been a strong asset
for us.  Spacecraft's  major clients include  Northrop  Grumman,  Raytheon,  and
Boeing.  Spacecraft also maintains  clients in other  industries  including Walt
Disney Co.'s Disney Imagineering Division.

Acquisition of Nu-Tech Industrial Sales, Inc.

In April 2005, we closed the acquisition of Nu-Tech  Industrial  Sales,  Inc., a
California Corporation ("Nu-Tech"),  from its two shareholders,  Robert Page and
Kathy Page, pursuant to a Share Exchange Agreement,  dated as of March 31, 2005,
whereby we acquired all of the outstanding capital stock of Nu-Tech, aggregating
2,500 shares,  in exchange solely for 2,500,000  restricted shares of our common
stock. Nu-Tech currently operates as our wholly-owned subsidiary.

Nu-Tech is a Southern  California-based  sales organization that operates out of
its  offices in Brea,  California.  Profitable  every  year since its  inception
nearly  6 years  ago,  Nu-Tech  is in the  business  of  supplying  tools to the
aerospace,  automotive  and medical  equipment  manufacturing  industries,  with
clients located  throughout the United States and Mexico.  Nu-Tech's  President,
Mr.  Robert Page,  is an industry  veteran with over 25 years  experience in the
machine  tool  business,  and he will  continue to serve as President of Nu-Tech
going  forward.  Our  management  believes that the  acquisition of Nu-Tech will
provide synergies  between Nu-Tech,  Elite Machine and All American as Nu-Tech's
sales force will recommend Elite Machine and All American to its client base. In
addition,  both  Elite  Machine  and All  American  will  recommend  that  their
customers use Nu-Tech as a preferred supplier for industrial tooling needs.

In the Matter of Gateway International  Holdings, Inc. and Lawrence A. Consalvi,
Administrative Proceeding File No. 3-11894

In April 2005, the SEC instituted  proceedings  pursuant to Section 12(J) of the
Securities  Exchange  Act  of  1934  (the  "1934  Act")  and  cease  and  desist
proceedings  have been  instituted  pursuant  to  Section  21(C) of the 1934 Act
against  our  President,  Chief  Executive  Officer  and  Director,  Lawrence A.
Consalvi.  The SEC seeks to suspend the  registration  of our  securities  for a
period not  exceeding  12 months or revoke the  registration  of our  securities
pursuant  to Section  12 of the 1934 Act,  and to cause us and Mr.  Consalvi  to
cease and desist from  committing any violations of Section 13(a) of Rules 13a-1
and 13a-13 of the 1934 Act in the future. This Administrative  Proceeding,  File
No.  3-11894,  arose from our failure to comply with our  reporting  obligations
while our securities  were registered with the SEC in that we failed to file our
annual  reports on Form 10-K for our fiscal years ended  September  30, 2004 and
2003, and four  quarterly  reports on Form 10-Q for the quarters ended March 31,
2003,  June 30,  2003,  December  31,  2003,  and March 31,  2004,  and that Mr.
Consalvi,  during  his  tenure  as our  President,  caused us to  violate  these
reporting  requirements.  On May 9, 2005,  we submitted  our answer to the Order
Instituting  Proceedings  alleging  that  our  failure  to  meet  our  reporting
obligations was not intentional but the result our inability to obtain financial
information  necessary to complete the periodic reports from Bechler Cams, Inc.,
who had  refused  to comply  with our  reasonable  requests  for such  financial
information.


                                       25
<PAGE>

On July 20, 2005, trial was held on the Order  Instituting  Proceedings,  and on
August 18, 2005, the  Administrative  Law Judge issued an Initial Decision,  and
ordered the revocation of each class of our securities pursuant to Section 12(j)
of the  Securities  Exchange Act of 1934 (the  "Exchange  Act").  It was further
ordered that our Chief Executive  Officer,  President and Director,  Lawrence A.
Consalvi, cease and desist from committing any violation or future violations of
Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13. Specifically,  the
Administrative Law Judge found that we violated Section 13(a) of Exchange Act in
that we failed to file two annual reports on Form 10-K for the Company's  fiscal
years ended  September  30, 2003 and  September  30,  2004,  and five  quarterly
reports on form 10-Q for the  quarters  ended  March 31,  2003,  June 30,  2003,
December 31,  2003,  March 31, 2004 and June 30,  2004,  and that Mr.  Consalvi,
during his  tenure as our  President  and Chief  Executive  Officer,  caused our
violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13.  The
Initial Decision is not yet effective,  but shall become effective unless (1) we
do not file a petition for a review by the  Commission  of the Initial  Decision
within twenty-one (21) days of the date of the Initial Decision pursuant to Rule
360 of the Commission's Rules of Practice, 17 C.F.R. ss. 201.360, or (2) we file
a petition  for review  with the  Commission  within this period of time and the
Commission  either rejects our petition or accepts the petition but decides that
the registration of our securities should  nevertheless be revoked. On September
7, 2005,  we filed a petition  with the  Commission  for a review of the Initial
Decision,  and on September 12, 2005,  the  Commission  granted our petition for
review pursuant to Rule 411 of the Commission's Rules of Practice.  Our brief in
support of our petition for review is due by October 12, 2005. (See Risk Factors
- Risks Related to our Stock).

Critical Accounting Policies

In December  2001, the SEC requested  that all  registrants  list their three to
five most "critical  accounting  policies" in the MD&A. The SEC indicated that a
"critical  accounting policy" is one which is both important to the portrayal of
the Company's  financial  condition and results and requires  management's  most
difficult,  subjective  or complex  judgments,  often as a result of the need to
make  estimates  about the effect of matters that are inherently  uncertain.  We
believe that our following accounting policies fit this definition:

Business Combinations

SFAS 141, "Business  Combinations," which is effective for business combinations
initiated  after June 30,  2001,  eliminates  the pooling of interest  method of
accounting for business combinations and requires that all business combinations
occurring  after July 1, 2001 are  accounted  for under the  purchase  method of
accounting.


                                       26
<PAGE>

Revenue Recognition

Our net sales  consist of revenue from sales of products net of trade  discounts
and allowances. We generally obtain oral or written purchase authorizations from
our  customers  for a  specified  amount of  product  at a  specified  price and
consider  delivery to have  occurred at the time of  shipment.  Accordingly,  we
record sales when goods are shipped to our customers, and recognize revenue when
persuasive evidence of an arrangement exists,  delivery has occurred; the fee is
fixed or determinable,  and collectibility is reasonably assured. We believe our
revenue  recognition policy complies with SEC Staff Accounting Bulletin No. 104,
"Revenue   Recognition  in  Financial   Statements"   ("SAB  104").   We  assess
collectibility  based on the  credit  worthiness  of our  customer  and our past
transaction history.

Accounts Receivable

Our sales are generally made on an open account basis unless specific experience
or knowledge, or the customer's potential inability or unwillingness to meet the
payment terms,  dictate secured payments.  Our international sales are generally
made based on secure payments  including cash wire advance  payments and letters
of credit. Management's ability to manage the credit terms and take advantage of
the  leverage  or the  need  for  our  services  is  critical  to the  effective
application of credit terms and minimization of accounts  receivable  losses. We
maintain an  allowance  for  doubtful  accounts  which is analyzed on a periodic
basis to insure that it is adequate to the best of  management's  knowledge.  We
believe that we have  demonstrated  the ability to make  reasonable and reliable
estimates of product  returns and of allowances  for doubtful  accounts based on
significant historical experience.

Inventories

Inventories,  which consist primarily of pre-owned machine tools, raw materials,
and related labor and  overhead,  are stated at the lower of cost or market with
cost  determined  on a specific  identification  basis.  The  Company  regularly
monitors  inventory  for  excess or  obsolete  items  and  makes  any  valuation
corrections when such adjustments are know.

Net  realizable  value  is  based  on  management's  forecast  for  sales of the
Company's  products  in the  ensuing  years.  The  industry in which the Company
operates is characterized by technological advancement and change. Should demand
for the Company's products prove to be significantly less than anticipated,  the
ultimate  realizable value of the Company's  inventories  could be substantially
less than the amount shown on the accompanying consolidated balance sheet.


                                       27
<PAGE>

     Results Of Operations For The Three Months Ended June 30, 2004 And 2003

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                      June 30, 2004              June 30, 2003
                                 -----------------------    ------------------------
<S>                              <C>                 <C>    <C>                  <C>
Net Sales                        $2,273,100          100%   $  814,131           100%
Cost of Sales                     1,390,908        61.19       616,934         75.78
                                 ----------   ----------    ----------    ----------

Gross Profits                       882,192        38.81       197,197         24.22
Selling, General and
  Administrative Expenses           344,255        15.14       238,943         29.35
Operating Expenses                  344,255        15.14       238,943         29.35
                                 ----------   ----------    ----------    ----------

Income (Loss) from
  Operations                        537,937        23.67       (41,746)        (5.13)
Interest Income                          --                         --
Total Other Income                       --                         --
                                 ----------   ----------    ----------    ----------
Income (Loss) from
 continuing operations
 before income taxes and
 discontinued operations            537,937        23.67       (41,746)        (5.13)
Provision for Income Taxes               --           --             0

Income (Loss) from
 continuing operations after
 income tax provision and
 before discontinued
 operations                         537,937        23.67       (41,746)        (5.13)
Income from subsidiaries
 disposed of                             --           --       161,456         19.83
Loss on disposal of
 subsidiaries                            --           --      (161,456)       (19.83)
                                 ----------   ----------    ----------    ----------
Net Income (Loss)                   537,937        23.67       (41,746)        (5.13)
-------------------------------------------------------------------------------------
</TABLE>

Revenues

Net Revenues for the three  months ended June 30, 2004  increased to  $2,276,100
from  $814,131 for the three  months  ended June 30,  2003.  The increase in net
sales of  $1,458,969,  or  approximately  179.21%,  over the 2003  period is due
primarily to an increase in demand for machine  tool  equipment  and  industrial
components as well as revenues  generated by Eran Engineering,  our wholly owned
subsidiary that we acquired in our fiscal year 2004.


                                       28
<PAGE>

Cost of Sales

Cost of sales for the three months ended June 30, 2004  increased to  $1,390,908
from $616,394 for the three months ended June 30, 2003. The overall  increase in
cost of sales of $773,974,  or  approximately  125.45%,  over the 2003 period is
directly  attributable  to increased  sales resulting from an increase in demand
for machine tool  equipment  and  industrial  components  as well as the cost of
sales of Eran  Engineering,  our wholly owned subsidiary that we acquired in our
fiscal year 2004.

Gross Profits

Overall  gross  profits for the three  months  ended June 30, 2004  increased to
$882,192  from  $197,197 for the three  months ended June 30, 2003.  The overall
increase in gross  profits of $684,995 or  approximately  347.37%  over the 2003
period,  is directly  attributable  to higher gross  margins of the machine tool
equipment sold during this period, as well as the inclusion of the gross profits
of Eran Engineering,  our wholly owned subsidiary that we acquired in our fiscal
year 2004.

Operating Expenses

Total  operating  expenses for the three months ended June 30, 2004 increased to
$344,255  from  $238,943 for the three  months ended June 30, 2003.  The overall
increase in  operating  expenses  of  approximately  $105,312  or  approximately
44.07%,  over the 2003 period is covered  below in our  discussions  of Selling,
General and Administrative Expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30,
2004  increased  to $344,255  from  $238,943 for the three months ended June 30,
2003. The overall increase in operating  expenses of  approximately  $105,312 or
approximately  44.07%, over the 2003 period is due primarily to costs associated
with an increase in the cost of machine tool  equipment  during this period,  as
well as the  inclusion of the selling,  general and  administrative  expenses of
Eran  Engineering,  Inc.,  our wholly owned  subsidiary  that we acquired in our
fiscal year 2004.

Income (Loss) from Operations

Income from  operations  for the three months ended June 30, 2004 was  $537,937,
compared to a loss from  operations  of $41,746 for the three  months ended June
30,  2003.  The  increase  in  our  income  from  operations  of  $579,683,   or
approximately  1,388%  over the prior  period,  is directly  attributable  to an
increase in sales and higher gross margins of equipment sold during this period,
as well as the inclusion of income from the operations of Eran Engineering, Inc.

Interest Income

We had no interest income for the three months ended June 30, 2004 and we had no
interest income for the three months ended June 30, 2003.

Other Income

We had no other income  during the three months ended June 30, 2004,  and we had
no other income for the three months ended June 30, 2003.


                                       29
<PAGE>

Income (Loss) from Continuing  Operations  before Income Taxes and  Discontinued
Operations

Income from our  continuing  operations  before  income  taxes and  discontinued
operations  for the three months  ended June 30, 2004 was $537,93  compared to a
loss of $41,746 from continuing  operations before income taxes and discontinued
operations  for the three months ended June 30,  2003.  This  increase in income
from continuing  operations  before income taxes and discontinued  operations of
$579,683, or approximately  1,388.60% over the prior period was due primarily to
an  increase in sales and higher  gross  margins of  equipment  sold during this
period,  as  well  as the  inclusion  of  income  from  the  operations  of Eran
Engineering, Inc.

Income (Loss) from Discontinued Operations

For the three months ended June 30, 2003,  we had income from the  operations of
our wholly-owned subsidiaries,  Nelson Engineering,  Inc. and Bechler Cams, Inc.
of $161,456. Upon rescission of the acquisitions of Nelson Engineering, Inc. and
Bechler Cams,  Inc.  described  elsewhere in this report,  we reported losses of
($161,456)   resulting  from  the  discontinued   operations  of  these  former,
wholly-owned subsidiaries. We did not have any income or loss in connection with
Nelson  Engineering,  Inc.  and Bechler  Cams,  Inc.,  or our  disposal of these
subsidiaries for the three months ended June 30, 2004.

Net Income (Loss)

Net Income for the three months  ended June 30, 2004 was $537,937  compared to a
Net Loss of $41,746 for the three months ended June 30, 2003.  This  increase in
Net Income of $579,683 over the prior period was due primarily to an increase in
sales and higher gross margins of equipment sold during this period.


                                       30
<PAGE>

Results of Operations for the Nine months Ended June 30, 2004 and 2003.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
                                    June 30, 2004                    June 30, 2003
                              --------------------------     --------------------------
<S>                           <C>            <C>             <C>            <C>
Net Sales                     $ 5,058,605            100%    $ 2,776,955            100%
Cost of Sales                   4,007,414          79.22       2,017,276          72.64
                              -----------    -----------     -----------    -----------

Gross Profits                   1,051,191         (20.78)        759,679          27.36
Selling, General and
  Administrative Expenses       1,163,658          23.00         740,538          26.67
Operating Expenses              1,163,658          23.00         740,538          26.67
                              -----------    -----------     -----------    -----------

Income (Loss) from
  Operations                     (112,647)         (2.22)         19,141           0.69
Interest Income                        76                             --
Total Other Income                     76                             --
                              -----------    -----------     -----------    -----------
Income (Loss) from
  continuing operations
  before income taxes and
  discontinued operations        (112,391)         (2.22)         19,141           0.69
Provision for Income Taxes          1,600           0.03             800           0.03

Income (Loss) from
  continuing operations after
  income tax provision and
  before discontinued
  operations                     (113,991)         (2.25)         18,341          (0.66)
Income from subsidiaries
  disposed of                          --             --         161,456           5.81
Loss on disposal of
  subsidiaries                         --             --        (161,456)         (5.81)
                              -----------    -----------     -----------    -----------
Net Income (Loss)                (113,991)         (2.25)         18,341           0.66
----------------------------------------------------------------------------------------
</TABLE>

Revenues

Net  Revenues for the nine months  ended June 30, 2004  increased to  $5,058,605
from  $2,776,955  for the nine months ended June 30,  2003.  The increase in net
sales of  $2,281,650,  or  approximately  82.16%,  over the 2003  period  is due
primarily to an increase in demand for machine  tool  equipment  and  industrial
components as well as revenues  generated by Eran Engineering,  our wholly owned
subsidiary that we acquired in our fiscal year 2004.


                                       31
<PAGE>

Cost of Sales

Cost of sales for the nine months ended June 30, 2004  increased  to  $4,007,414
from $2,017,276 for the nine months ended June 30, 2003. The overall increase in
cost of sales of $1,990,138,  or approximately  98.65%,  over the 2003 period is
directly  attributable  to increased  sales resulting from an increase in demand
for machine tool  equipment  and  industrial  components  as well as the cost of
sales of Eran  Engineering,  our wholly owned subsidiary that we acquired in our
fiscal year 2004.

Gross Profits

Overall  gross  profits for the nine months  ended June 30,  2004  increased  to
$1,051,191  from  $759,679 for the nine months ended June 30, 2003.  The overall
increase  in gross  profits of $291,512  or  approximately  38.37% over the 2003
period,  is directly  attributable  to higher gross  margins of the machine tool
equipment sold during this period, as well as the inclusion of the gross profits
of Eran Engineering,  our wholly owned subsidiary that we acquired in our fiscal
year 2004.

Operating Expenses

Total  operating  expenses for the nine months ended June 30, 2004  increased to
$1,163,658  from  $740,538 for the nine months ended June 30, 2003.  The overall
increase in  operating  expenses  of  approximately  $423,120  or  approximately
57.14%,  over the 2003 period is covered  below in our  discussions  of Selling,
General and Administrative Expenses.

Selling, General and Administrative Expenses

Selling,  general and administrative expenses for the nine months ended June 30,
2004  increased to  $1,163,658  from $740,538 for the nine months ended June 30,
2003. The overall increase in operating  expenses of  approximately  $423,120 or
approximately  57.14%, over the 2003 period is due primarily to costs associated
with an increase in the cost of machine tool  equipment  during this period,  as
well as the  inclusion of the selling,  general and  administrative  expenses of
Eran  Engineering,  Inc.,  our wholly owned  subsidiary  that we acquired in our
fiscal year 2004.

Income (Loss) from Operations

Loss from  operations  for the nine  months  ended June 30,  2004 was  $112,467,
compared to income from operations of $19,141 for the nine months ended June 30,
2003.  The  decrease  in our  income to loss from  operations  of  $131,532,  or
approximately  687.17% over the prior  period,  is directly  attributable  to an
overall  decrease  in sales  and  gross  margins  of  equipment  and  industrial
components sold during this period, as well as higher operating costs.

Interest Income

Interest  income for the nine  months  ended June 30, 2004 was $76 and we had no
interest income for the nine months ended June 30, 2003. Interest income for the
nine months ended June 30, 2004 was interest earned from bank deposits.


                                       32
<PAGE>

Income (Loss) from Continuing  Operations  before Income Taxes and  Discontinued
Operations

Loss  from our  continuing  operations  before  income  taxes  and  discontinued
operations  for the nine  months  ended June 30, 2004 was  $112,391  compared to
income  of  $19,141  from   continuing   operations   before  income  taxes  and
discontinued  operations for the nine months ended June 30, 2003.  This decrease
in  income  to  loss  from  continuing   operations   before  income  taxes  and
discontinued  operations of $131,532,  or  approximately  687.17% over the prior
period was due  primarily to an overall  decrease in sales and gross  margins of
equipment and industrial  components sold during this period,  as well as higher
operating costs.

Income (Loss) from Discontinued Operations

For the nine months ended June 30, 2003,  we had income from the  operations  of
our wholly-owned subsidiaries,  Nelson Engineering,  Inc. and Bechler Cams, Inc.
of $161,456. Upon rescission of the acquisitions of Nelson Engineering, Inc. and
Bechler Cams,  Inc.  described  elsewhere in this report,  we reported losses of
($161,456)   resulting  from  the  discontinued   operations  of  these  former,
wholly-owned subsidiaries. We did not have any income or loss in connection with
Nelson  Engineering,  Inc.  and Bechler  Cams,  Inc.,  or our  disposal of these
subsidiaries for the nine months ended June 30, 2004.

Net Income (Loss)

Net Loss for the nine months ended June 30, 2004 was  $113,991compared  to a Net
Income of $18,341 for the nine months  ended June 30,  2003.  This  decrease Net
Income to Net Loss of $132,332 or  approximately  721.51%  over the prior period
was due primarily to an overall decrease in sales and gross margins of equipment
and industrial  components sold during this period,  as well as higher operating
costs.

Liquidity and Capital Resources

--------------------------------------------------------------------------------
                                                           June 30,    June 30,
                                                               2004        2003
                                                               ----        ----
Net cash provided by (used in)  operating activities     $(336,185)   $  90,712
Net cash provided by (used in) investing activities         55,845           --
Net cash provided by (used in) financing activities        376,461     (115,827)
--------------------------------------------------------------------------------

General

For the nine months ended June 30, 2004,  we had positive  cash flows  resulting
from $336,185 of cash used in our operating activities, $55,845 of cash provided
by our  investing  activities,  and $376,461 of cash  provided by our  financing
activities. Accordingly, for the nine months ended June 30, 2004, our funds from
operations  were sufficient to cover our daily  operations as further  explained
below.

Cash Flows from Operating Activities

Net cash used in our operating  activities of $336,185 for the nine months ended
June 30, 2004 was primarily attributable to a net loss of $113,391,  adjustments
to  reconcile  net  income  to  net  cash  used  in  our  operating  activities,
principally depreciation and amortization expense of $222,915, offset by changes
in  operating  assets  and  liabilities  of  accounts  receivable  of  $300,676,
inventories  expense of $128,618,  other assets of $36,569 and accounts  payable
and accrued liabilities of $20,754.


                                       33
<PAGE>

Cash Flows from Investing Activities

Net cash provided by our  investing  activities of $55,845 was net cash provided
by our acquisition of Eran Engineering, Inc.

Cash Flows from Financing Activities

Net cash of $376,461  provided by our  financing  activities  in the nine months
ended June 30, 2004 was due primarily  principal  borrowings on notes payable of
$241,592  and  principal  borrowings  on notes  payable  to  related  parties of
$134,869.

Internal Sources of Liquidity

For the nine months ended June 30, 2004, the funds generated from our operations
were not  sufficient  to fund our daily  operations.  Our gross  profit for this
period was $1,051,191,  which was not sufficient to meet our operating  expenses
of  $1,163,658  for the same period.  There is no assurance  that funds from our
future  operations will meet the  requirements of our daily  operations,  and in
that  event,  we will  need to seek  other  sources  of  financing  to  maintain
liquidity.  In the event that funds from our operations are insufficient to meet
our operating  requirements,  we will need to seek other sources of financing to
maintain liquidity. (See Risk Factors - Risks Related To Our Business).

External Sources of Liquidity

External Sources of Liquidity

We  actively  pursue  all  potential  financing  options  as we look  to  secure
additional  funds  to both  stabilize  and  grow our  business  operations.  Our
management will review any financing  options at their disposal,  and will judge
each  potential  source  of  funds on its  individual  merits.  There  can be no
assurance  that we will be able to secure  additional  funds from debt or equity
financing,  as and  when we  need  to,  or if we can,  that  the  terms  of such
financing will be favorable to us or our existing stockholders.

On November 5, 2003, our wholly-owned subsidiary, Eran Engineering, entered into
an Equipment Lease  Agreement,  pursuant to which it financed a total of $35,000
and accruing  interest at 7.45% per annum from Intech Funding Corp.  These funds
were  to be  used  towards  the  purchase  of  equipment  described  as  "1-Used
Mori-Seiki TU-30 Vertical Turning Machine Center". The loan is collateralized by
this equipment and is guaranteed by our Vice President and Director, Joseph T.W.
Gledhill.  The loan  matures  in  November  2006.  Pursuant  to the terms of the
Equipment  Lease  Agreement,  Eran  Engineering  is to repay  the loan by making
monthly  payments  of $1,088 to  Intech  Funding  Corp.  At June 30,  2004,  the
principal remaining balance on the loan was $26,746.

On November 5, 2003, our wholly-owned subsidiary,  Eran Engineering entered into
a Lease  Agreement,  pursuant  to which  Eran  Engineering  financed  a total of
$100,000 and accruing  interest at 7% per annum from Intech Funding Corp.  These
funds were to be used  towards the  purchase of  equipment  described as "1-Used
Mori-Seiki  SV-500 with APC Fanuc MSC 501". The loan is  collateralized  by this
equipment  and is guaranteed  by our Vice  President  and Director,  Joseph T.W.
Gledhill.  The loan  matures  in  November  2006.  Pursuant  to the terms of the
Equipment  Lease  Agreement,  Eran  Engineering  is to repay  the loan by making
monthly  payments  of $2,003 to  Intech  Funding  Corp.  At June 30,  2004,  the
principal remaining balance on the loan was $86,628.


                                       34
<PAGE>

In connection with the closing of our acquisition of Eran  Engineering  from its
two shareholders, Hans B. Thallmayer and Alice Thallmayer on October 1, 2003, we
executed a promissory  note in favor of the sellers in the  principal  amount of
$600,000,  payable in three equal annual  installments  of $200,000 and accruing
simple interest at the rate of 6% per annum. Our obligation under the promissory
note was secured by the pledge by Lawrence A. Consalvi, our Director,  President
and Chief  Executive  Officer and Joseph T.W.  Gledhill,  our Vice President and
Director,  of a security interest in certain shares of our common stock owned by
them and worth  $4,285,716 as of the date of the pledge.  At June 30, 2004,  the
principal balance on the note was $627,000.

In connection with the closing of our acquisition of Eran Engineering on October
1, 2003, and the contemporaneous purchase of a building by Eran Engineering from
R & H Investments,  a partnership  owned by the two selling  shareholders,  Eran
Engineering  executed a  promissory  note in the  principal  amount of $600,000,
bearing  simple  interest  at the rate of 6% per annum.  At June 30,  2004,  the
principal balance on the note was $627,000.

On September 1, 2003 we executed a non-interest bearing promissory note in favor
of our Vice  President  and  Director,  Joseph T.W.  Gledhill for the  principal
amount of $459,700, which is due and payable on or before September 30, 2006. We
made no payments to Mr.  Gledhill  under this note during our fiscal  years 2003
and 2004. At June 30, 2004,  the  outstanding  principal due under this note was
$459,700.

In August 2003, our wholly owned subsidiary,  E.M. Tool Company, Inc. executed a
promissory  note in favor of Austin D. Lucas,  Inc. in the  principal  amount of
$131,529,  payable in thirteen consecutive monthly installments of approximately
$10,000 and bearing  interest at the rate of 10%. At  September  30,  2003,  the
principal balance on this note was $112,083, and at June 30, 2004, the principal
remaining balance on this note was $32,758.

On June 30, 2003, we and our wholly-owned  subsidiary,  Eran Engineering,  Inc.,
executed a promissory  note in favor of Financial  Federal  Credit,  Inc. in the
amount of $2,059,868,  payable in consecutive monthly installments commencing on
September 1, 2003 and maturing in May 2008 as follows:  6 installments,  each in
the amount of $10,000, then 53 installments,  each in the amount of $21,000, and
a balloon payment at maturity in the amount of $886,886. The obligations to make
payment  under the note is secured by our grant of a security  interest in favor
of Financial Federal Credit, Inc. in our goods, inventory,  equipment, accounts,
accounts receivables,  documents,  instruments,  chattel paper, contract rights,
general  intangibles,  investment  property,  securities  entitlements,  deposit
accounts,  fixtures and other  property  belonging to us or in which we have any
interest (collectively,  the "Collateral"). In addition, the obligations of Eran
Engineering,  Inc. to make payments  under the note are likewise  secured by its
grant of a security interest in its Collateral to Financial Federal Credit, Inc.
At June 30, 2004, the principal balance on the note was $1,495,367.

In our fiscal quarter ended June 30, 2004, we had outstanding  debt as evidenced
by a promissory note in favor of an individual,  Mr. Daisuke  Mikami,  which was
payable in 6 monthly  installments  of  $3,500,  including  interest  at 10% per
annum.  At June 30, 2004,  the  outstanding  principal  balance and interest due
under this note was $14,439.

On January 1, 2003,  we executed a promissory  note in favor our Vice  President
and Director,  Joseph T.W.  Gledhill,  for the principal  amount of $100,000 and
accruing simple interest at the rate of 6% per annum.  The principal and accrued
interest  under this note became due on January 20,  2003.  Although we have not
repaid this note when due, Mr.  Gledhill has not called us in default  under the
note,  and we have agreed to make payments on it as funds become  available.  At
September 30, 2003,  the  outstanding  principal and interest due under the note
was $100,000. At June 30, 2004, the outstanding principal and interest due under
the note was $86,228.


                                       35
<PAGE>

In September 5, 2002, our  wholly-owned  subsidiary,  Elite Machine,  executed a
secured  promissory  note in the amount of  $1,037,683.95  in favor of Financial
Federal  Credit,  Inc., and bearing  interest at the rate of 8.25%.  The note is
payable in  monthly  installments  of $8,250  for a period of 60  months,  and a
balloon  payment on the 61st month of  $542,683.96.  This note is secured by the
assets of Elite  Machine and  guaranteed  by our  Director,  President and Chief
Executive Officer, Lawrence A. Consalvi. At June 30, 2004, the principal balance
on the note was $728,028.

Inflation

Our  management  believes that  inflation  has not had a material  effect on our
results of operations  during our fiscal  quarter ended June 30, 2004,  and does
not expect that it will in fiscal year ended  September  30,  2004,  except that
rising  oil and gas prices  may  materially  and  adversely  impact the  economy
generally.

RISK FACTORS

Our prospects are subject to certain  uncertainties  and risks.  This  Quarterly
Report on Form 10-QSB for the nine months  ending June 30, 2004,  also  contains
certain forward-looking  statements within the meaning of the Federal securities
laws. Our future results may differ materially from our current results, and our
actual   results   could  differ   materially   from  those   projected  in  the
forward-looking statements. Such differences may be the result of certain risks,
including but not limited to those risk factors set forth below,  other one-time
events and other important factors previously  disclosed or to be disclosed from
time to time in our other filings with the Securities  and Exchange  Commission.
The  following  risk factors  should be considered  carefully in evaluating  the
Company and its business because these risks currently have a significant impact
or may have a  significant  impact  in the  future  on our  business,  operating
results and financial condition. Prospective investors should consider carefully
the risk factors set out below.

Risks Related To Our Business.

Our auditors have expressed "substantial doubt" about our ability to continue as
a going concern.

As  reported by our auditor in Note 6 to our  Unaudited  Consolidated  Financial
Statements  included in Item 1 of Part I of this Quarterly Report on Form 10-QSB
for our  fiscal  quarter  ended  June 30,  2004,  our  independent  auditor  has
expressed  "substantial doubt" about our ability to continue as a going concern,
due to our substantial  accumulated  deficits of $2,068,220 at June 30, 2004. We
have taken  certain  restructuring  steps to provide  the  necessary  capital to
continue our operations, such as the raising of approximately $735,000 through a
sale of new  restricted  shares of common  stock of our  Company.  Further,  our
management  believes that the addition of five new profitable  subsidiaries  has
brought further  strength to our financial  position.  However,  there can be no
assurance whether, or when, these steps will resolve our accumulated and working
capital  deficits  and we may  continue  to incur net  losses  through  2005 and
possibly beyond.  Additionally,  we expect to incur  significant  expenses as we
focus  on  our  business  strategy.  As a  result,  we  will  need  to  generate
significant  revenue to achieve  profitability,  which may not occur. Even if we
achieve profitability,  we may be unable to sustain or increase profitability on
a  quarterly  or annual  basis in the  future.  If we are unable to achieve  and
maintain profitability our business will be materially impacted and the value of
our stockholders' investments may decline.


                                       36
<PAGE>

The SEC has  instituted  administrative  proceedings  against us because we have
failed to meet our reporting  requirements under the Securities  Exchange Act of
1934.

In April 2005, the SEC instituted  proceedings  pursuant to Section 12(J) of the
Securities  Exchange  Act  of  1934  (the  "1934  Act")  and  cease  and  desist
proceedings  have been  instituted  pursuant  to  Section  21(C) of the 1934 Act
against  our  President,  Chief  Executive  Officer  and  Director,  Lawrence A.
Consalvi.  The SEC seeks to suspend the  registration  of our  securities  for a
period not  exceeding  12 months or revoke the  registration  of our  securities
pursuant  to Section  12 of the 1934 Act,  and to cause us and Mr.  Consalvi  to
cease and desist from  committing any violations of Section 13(a) of Rules 13a-1
and 13a-13 of the 1934 Act in the future. This Administrative  Proceeding,  File
No.  3-11894,  arose from our failure to comply with our  reporting  obligations
while our securities  were registered with the SEC in that we failed to file our
annual  reports on Form 10-K for our fiscal years ended  September  30, 2004 and
2003, and four  quarterly  reports on Form 10-Q for the quarters ended March 31,
2003,  June 30,  2003,  December  31,  2003,  and March 31,  2004,  and that Mr.
Consalvi,  during  his  tenure  as our  President,  caused us to  violate  these
reporting  requirements.  On May 9, 2005,  we submitted  our answer to the Order
Instituting  Proceedings  alleging  that  our  failure  to  meet  our  reporting
obligations was not intentional but the result our inability to obtain financial
information  necessary to complete the periodic reports from Bechler Cams, Inc.,
who had  refused  to comply  with our  reasonable  requests  for such  financial
information.

On July 20, 2005, trial was held on the Order  Instituting  Proceedings,  and on
August 18, 2005, the  Administrative  Law Judge issued an Initial Decision,  and
ordered the revocation of each class of our securities pursuant to Section 12(j)
of the  Securities  Exchange Act of 1934 (the  "Exchange  Act").  It was further
ordered that our Chief Executive  Officer,  President and Director,  Lawrence A.
Consalvi, cease and desist from committing any violation or future violations of
Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13. Specifically,  the
Administrative Law Judge found that we violated Section 13(a) of Exchange Act in
that we failed to file two annual reports on Form 10-K for the Company's  fiscal
years ended  September  30, 2003 and  September  30,  2004,  and five  quarterly
reports on form 10-Q for the  quarters  ended  March 31,  2003,  June 30,  2003,
December 31,  2003,  March 31, 2004 and June 30,  2004,  and that Mr.  Consalvi,
during his  tenure as our  President  and Chief  Executive  Officer,  caused our
violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13.  The
Initial Decision is not yet effective,  but shall become effective unless (1) we
do not file a petition for a review by the  Commission  of the Initial  Decision
within twenty-one (21) days of the date of the Initial Decision pursuant to Rule
360 of the Commission's Rules of Practice, 17 C.F.R. ss. 201.360, or (2) we file
a petition  for review  with the  Commission  within this period of time and the
Commission  either rejects our petition or accepts the petition but decides that
the registration of our securities should  nevertheless be revoked. On September
7, 2005,  we filed a petition  with the  Commission  for a review of the Initial
Decision,  and on September 12, 2005,  the  Commission  granted our petition for
review pursuant to Rule 411 of the Commission's Rules of Practice.  Our brief in
support of our  petition  for review is due by October  12,  2005.  Although  we
intend to continue  vigorously defend against these actions and to bring all our
delinquent  filings up to date,  there can be no assurance that the SEC will not
pursue this action even after these filings have been made. If the  registration
of our securities is either suspended or revoked,  our stockholders  will not be
able to publicly sell our securities unless and until, whatever the case may be,
the  period  of  suspension  is over or we are  able to have a new  registration
statement declared effective by the SEC, and there is no assurance that we would
be able to accomplish that, or that any private market for our securities can or
will develop.


                                       37
<PAGE>

Our business is dependent  on, among other  sectors,  the  aerospace and defense
industries  and is therefore,  susceptible to factors which affect that industry
such as acts of terrorism and general economic factors.

We derive much of our sales  revenue from  services and  components  sold to the
aerospace industry.  As a result of the terrorist attacks of September 11, 2001,
the  aerospace  industry  has  suffered a  significant  decline  in  operational
efficiency  and  financial  condition  and the  overall  effect  of a  prolonged
downturn  in the  commercial  airline  industry  will  be a  potentially  severe
reduction in demand for our aerospace  products.  Additional acts of sabotage or
terrorism or adverse results to the U.S. in its military conflicts,  such as the
current  conflict in Iraq,  would likely lead to even further reduced demand for
our products and services.

In addition,  our business is directly affected by certain  characteristics  and
trends  in the  aerospace  industry  that  affect  our  customers,  such  as (i)
fluctuations in the aerospace  industry's  business cycle, (ii) varying fuel and
labor costs,  (iii) intense price  competition  and  regulatory  scrutiny,  (iv)
certain trends,  including a possible decrease in aviation activity,  a decrease
in  outsourcing  by aircraft  manufacturers  or the failure of projected  market
growth to  materialize  or continue,  and (v) changes in military  budgeting and
procurement   for   certain   military   aircraft.   In  the  event  that  these
characteristics and trends adversely affect customers in the aerospace industry,
they would  reduce the overall  demand for our products  and  services,  thereby
decreasing our sales and operating income.

We must comply with  environmental  laws, and any failure to do so could subject
us to claims or regulatory action.

Our  facilities  are subject to  regulations  concerning  solid waste  disposal,
hazardous materials generation,  storage, use and disposal, air emissions, waste
water discharge,  employee health and other  environmental  matters. A number of
the  metals,  chemicals  and  other  materials  used in and  resulting  from our
manufacturing  processes are  classified as hazardous  substances  and hazardous
wastes. If we do not meet the requirements of applicable  environmental laws, we
could be liable for damages and for the costs of remedial actions. We could also
be subject to fines or other penalties,  including  revocation of permits needed
to conduct our  business.  Any permit  revocation  could  require us to cease or
limit  production  at one or more of our  facilities,  which  could  damage  our
business and financial performance. We have an ongoing program of monitoring and
addressing  environmental  matters, and from time to time in the ordinary course
of business we are  required to address  minor  issues of  noncompliance  at our
operating sites. We are not aware of any historical contamination on our current
properties  or involving  neighboring  activities  that we believe  could have a
material adverse effect on our results of operations or financial condition.

We do business in industries that are cyclical,  which may result in weakness in
demand for our products.

Our products are sold in many industries, including machine tool, automotive and
aerospace,  that are highly cyclical.  The machine tool industry,  in particular
from 1998 to 2003, experienced a significant decline in global demand.  Cyclical
weakness  in the  industries  we serve  could  lead to a reduced  demand for our
products.


                                       38
<PAGE>

The industries in which we operate are characterized by intense competition, and
there can be no assurance  that  competitive  pressures  will not materially and
adversely  affect  our  future  business,  financial  condition  or  results  of
operation.

Our competitors in the aerospace and defense machine tools industry consist of a
large  fragmented  group  of  companies,  including  certain  business  units or
affiliates of our customers.  We believe that  competition  within the aerospace
and  defense  industry  will  increase  substantially  as a result  of  industry
consolidations and trends toward favoring greater  outsourcing of components and
reducing the number of preferred suppliers.  Certain of our competitors may have
substantially greater financial, production and other resources and may have (i)
the  ability to adapt more  quickly to  changes  in  customer  requirements  and
industry  conditions or trends,  (ii) stronger  relationships with customers and
suppliers, and (iii) greater name recognition than us. There can be no assurance
that  competitive  pressures  will  not  materially  and  adversely  affect  our
business, financial condition or results of operation.

From time to time, we may need additional  capital to meet the objectives of our
proposed  business plan, and there is no assurance that we will be able to raise
such  capital  or that such  financing  will be on terms that are  favorable  or
acceptable to us.

We currently have limited operating capital and cash resources.  As a result, we
may require substantial funding to meet the expenses of our anticipated business
expansion in the machine tooling  industry.  Such funding will be used to update
our  current  program   offerings;   expand  and  upgrade  our  machine  tooling
capabilities;  upgrade our facilities;  invest in research and development; take
advantage of  acquisition  opportunities;  stabilize and  integrate  acquisition
targets, if any; and meet additional working capital  requirements.  Our ability
to raise  funding  may be severely  limited  due to our  limited  assets and the
limited  public  market for our common stock.  Our ability to obtain  additional
funding  will  also be  dependent  upon  our  operating  results  and  financial
condition.  These factors may make the timing,  amount,  terms and conditions of
additional  financing  unattractive or impracticable for us. If we are unable to
raise  more  money,  our  growth  could be  impeded  and our  business  could be
materially adversely affected.

We may not be  successful  in our  ability  to  identify  and  acquire  suitable
acquisition candidates.

As part of our business strategy,  we seek to acquire additional  companies that
offer  complimentary  products,  technologies  or  services.  The  size  of  the
potential  targets,  timing,  and  success of our  acquisition  efforts  and the
anticipated capital  requirements to implement our strategy cannot be predicted.
The success of our  acquisition  strategy will depend  largely on our ability to
identify  suitable  acquisition  candidates and secure any necessary  financing,
without diverting our management's attention from the operation of our business.
Competition for acquisition  targets could also result in increased  acquisition
prices and fewer  businesses  available  for  investment.  In addition,  the due
diligence materials we rely upon in making an acquisition may not be accurate or
complete.

Risks  associated  with  acquisitions   could  result  in  increased  costs  and
production inefficiencies.

A key  element  of the our  growth  strategy  has  been  expansion  through  the
acquisition of  complementary  businesses  involved in the aerospace and defense
industries and strategic  acquisitions  that would provide us with access to new
industries.  The size of the  potential  targets,  timing,  and  success  of our
acquisition  efforts and the anticipated  capital  requirements to implement our
strategy  cannot be predicted.  Although we evaluate  acquisition  opportunities
from time to time,  there can be no assurance that we will be able to consummate
acquisitions on satisfactory  terms, or at all, or that we will be successful in
integrating  any such  acquisitions  into our  operations.  In  addition,  these
acquisitions  may be  accompanied  by risks that are commonly  encountered in an
acquisition  of a business,  any of which  could  seriously  harm our  business,
including:

                                       39
<PAGE>

      o     adverse effects on our reported  operating results due to accounting
            charges associated with acquisitions;
      o     failure of an acquired business to further our strategies;
      o     failure of the acquired business to achieve expected results;
      o     potential disputes with the sellers of acquired businesses;
      o     failure  to  retain  key  clients  or   personnel  of  the  acquired
            businesses;
      o     increased expenses resulting from newly engaged personnel;
      o     potential  loss  of key  employees  of the  acquired  businesses;
      o     diversion of management's attention from other business concerns; or
      o     difficulties  related to the integration of acquired businesses with
            our business.

For  all of the  above  reasons,  our  pursuit  of an  overall  acquisition  and
investment strategy or any individual  acquisition or investment could seriously
harm our business.

We may be unsuccessful in retaining the management of the businesses we acquire,
and even if we do, there is no guarantee that existing  management  would in all
cases make the same judgments we would expect.

Our  business  strategy  has  focused  upon  the  acquisition  of  complementary
businesses to maximize our growth and position in the industry.  Inherent in our
approach  is the  resulting  reliance  on the  current  management  team  of the
subsidiary  continuing to manage and guide the acquired  company going  forward.
Although we have been  successful  in retaining  the current  management  of our
wholly-owned  subsidiaries,  there is no guarantee that we will be able to do so
in  connection  with  future  acquisitions,   nor  that  if  retained,  existing
management  will in all cases make the same  judgments we would expect or desire
of installed management had we put some in place.

Our  customers  may  perceive a conflict  of  interest,  and decide to  purchase
equipment from our competitors.

In the past,  we have sold  products and equipment to many firms that are direct
competitors of our manufacturing  subsidiaries.  Existing customers may see this
as a conflict of interest and decide to purchase equipment from our competitors.
The loss of existing  customers,  especially our key  customers,  who perceive a
conflict of interest and decide to stop  purchasing our products and services to
purchase those of our competitors, would have a materially adverse impact on our
operations and financial condition.

Our business is dependent on a  concentrated  customer  base and the loss of our
key customers  will have a materially  adverse  impact on our future  results of
operations and financial condition.

During the nine month  period ended June 30,  2004,  our sales to two  customers
represented  47.5% of net sales, and during the nine month period ended June 30,
2003, our sales to two customers  represented  approximately 16.1% of net sales.
At June 30, 2004,  two of our  customers  accounted for  approximately  86.7% of
accounts  receivable  and at June 30, 2003,  two of our customers  accounted for
approximately  18.9%  of  accounts  receivable.  The  loss of any of  these  key
customers  would  have a  materially  adverse  impact on our  future  results of
operations and financial condition.


                                       40
<PAGE>

We may  not be  able  to  compete  successfully  because  of the  number  of our
competitors and expected numerous market entrants.

We  anticipate  that we will compete with many  established  companies  offering
machine tooling and related services. Many of these companies have substantially
greater financial,  marketing and technological resources, and greater access to
customers than us. Most of our competitors benefit from greater name recognition
and have  substantially  greater  resources  than we have.  In addition,  as the
machine tooling industry  continues to expand, we expect competition to increase
and to see new entrants into the market.  Our failure to effectively  compete in
this  industry  would   adversely   affect  our  business.   Additionally,   the
announcement or introduction of new products or the  implementation of effective
marketing strategies by our competitors may materially impact our business.

We are controlled by a limited  number of persons whose actions could  adversely
affect  the  market  price of our  common  stock  and  impact  the  value of our
stockholders' investments.

As of the date of the filing of this  Report,  a limited  number of persons  and
their affiliates,  including current and past management,  own approximately 71%
of our  outstanding  voting stock (on a pro forma,  fully diluted  basis,  after
giving  effect  to  the  above-mentioned   acquisitions).   Accordingly,   these
stockholders, if acting together, would be able to control virtually all matters
requiring approval by stockholders,  including the election of directors and the
approval  of  mergers  or  other  business  combinations.  These  actions  could
adversely  affect the market  price of our common  stock and impact the value of
our stockholders' investments.

We may be unable to retain our senior management and other key personnel.

Our future success depends, in significant part, upon the continuing service and
performance of our senior management and other key personnel. We do not maintain
key-person life insurance on senior  management or any of our key personnel.  If
we lose the services of any of these individuals, including, but not limited to,
Lawrence A.  Consalvi,  Joseph T.W.  Gledhill,  and Lloyd R.  Leavitt,  III, our
ability to effectively  deliver  services to our clients and manage our business
effectively  could  be  materially  impaired.  In  addition,   our  wholly-owned
subsidiaries  do not maintain  key-person  life  insurance  on their  respective
senior  management or any of their key  personnel,  and the loss of any of these
individuals may negatively  impact such  subsidiaries'  ability to service their
respective clients and manage their business as well.

An economic  weakness in the capital  goods market and/or a tightening of credit
by the banking industry may result in a reduction in sales of our products.

Many of our customers depend on long term financing from a financial institution
to purchase our equipment.  Economic weakness in the capital goods market and/or
a tightening  of credit in the banking  industry may result in reduced sales and
accordingly affect our operations and financial condition.

Disputes  may arise among us and the  businesses  we acquire  subsequent  to the
acquisition  which may result in a  disruption  to our business  operations  and
adversely  impact  our  ability  to meet our  reporting  requirements  under the
federal securities laws.


                                       41
<PAGE>

Subsequent  to the  acquisition  of Nelson  Engineering,  Inc. and Bechler Cams,
Inc., a dispute arose among our management and the former  shareholders of these
businesses,  some  of whom  became  our  directors  pursuant  to the  respective
acquisition  agreements.  Such disputes ultimately resulted in the rescission of
these acquisitions, and in the case of Bechler Cams, Inc., our inability to meet
our filing  requirements  under the  federal  securities  laws.  There can be no
assurance  that  disputes  may  not  arise  in  the  future  among  us  and  the
shareholders of companies we may seek to acquire which would also have a similar
negative impact on our business.

If  we  cannot  develop  technological  improvements  to  our  products  through
continued  research  and  engineering,  our  financial  results may be adversely
affected.

In order to maintain our  position in the market,  we need to continue to invest
in  research  and  engineering  to improve our  products  and  technologies  and
introduce  new  products  and  technologies.  If we  are  unable  to  make  such
investment, if our research and development does not lead to new and/or improved
products or  technologies,  or if we  experience  delays in the  development  or
market acceptance of new and/or improved products,  our financial results may be
adversely affected.

Risks Related To Our Industry

We operate in highly competitive industries, many of which are currently subject
to intense price competition,  and if we are unable to compete  successfully our
results of operations could fail to improve or could deteriorate.

Many of the industries in which we operate are highly competitive.  Our products
may not  compete  successfully  with those of our  competitors.  The markets for
machine tools and related  products are highly  competitive and include a number
of North American, European and Asian competitors. Principal competitive factors
in  the  machine  tool  industry  are:  price,  product  features,   technology,
performance, reliability, quality, delivery and customer service.

We are currently  experiencing  increased  price  competition as a result of the
general  economic  downturn,  which has  resulted in a sharp  downward  trend in
pricing.  In certain  cases,  we have lost business to  competitors  who offered
prices lower than ours. In addition,  certain of our  competitors  have built up
large excess  inventories  and therefore may continue to offer their products at
prices lower than ours until such inventories are reduced. In addition,  some of
our  competitors may have greater  financial  resources and less debt than we do
which  may  place  us  at  a  competitive  disadvantage  in  the  future.  These
competitors may be better able to withstand and respond to changes in conditions
within our industry, such as the dramatic reduction in demand and pricing levels
we experienced subsequent to the terrorist attacks of September 11, 2001.

If we fail to keep pace with the rapid industry changes or to effectively manage
the introduction of new products and services, our business and reputation could
be adversely impacted.

The markets in which we compete are characterized by rapid technological change,
frequent new product  introductions  and evolving industry  standards.  Customer
preferences are difficult to predict and there is no assurance that our products
and services  will  receive  customer  acceptance.  If we fail to keep pace with
rapid industry changes or to effectively manage the introduction of new products
and services, our business and reputation could be adversely impacted.


                                       42
<PAGE>

There is significant  competition  in our industry for highly skilled  employees
and our failure to attract and retain technical personnel would adversely affect
our business.

We may not be able to successfully  attract or retain highly skilled  employees.
We have not yet hired several key members of our  anticipated  management  team,
whom we believe will be  necessary  for our  business  success.  A high level of
employee mobility  characterizes the machine tooling industries,  and the market
for highly qualified individuals in engineering and computer applications.  This
competition means there are fewer highly qualified  employees  available to hire
and the costs of hiring and retaining these individuals are high. Even if we are
able to hire these individuals,  we may be unable to retain them.  Additionally,
there is increasing  pressure to provide  employees with stock options and other
equity  interests,  which may dilute our earnings per share. If we are unable to
hire or retain qualified employees, our business would be adversely impacted.

Risks Related To Our Stock

The  registration  of our securities may be suspended for a period not exceeding
12 months or the registration of our securities may be revoked by the Securities
and Exchange Commission.

In April 2005, the SEC instituted  proceedings  pursuant to Section 12(J) of the
Securities  Exchange  Act  of  1934  (the  "1934  Act")  and  cease  and  desist
proceedings  have been  instituted  pursuant  to  Section  21(C) of the 1934 Act
against  our  President,  Chief  Executive  Officer  and  Director,  Lawrence A.
Consalvi.  The SEC seeks to suspend the  registration  of our  securities  for a
period not  exceeding  12 months or revoke the  registration  of our  securities
pursuant  to Section  12 of the 1934 Act,  and to cause us and Mr.  Consalvi  to
cease and desist from  committing any violations of Section 13(a) of Rules 13a-1
and 13a-13 of the 1934 Act in the future. This Administrative  Proceeding,  File
No.  3-11894,  arose from our failure to comply with our  reporting  obligations
while our securities  were registered with the SEC in that we failed to file our
annual  reports on Form 10-K for our fiscal years ended  September  30, 2004 and
2003, and four  quarterly  reports on Form 10-Q for the quarters ended March 31,
2003,  June 30,  2003,  December  31,  2003,  and March 31,  2004,  and that Mr.
Consalvi,  during  his  tenure  as our  President,  caused us to  violate  these
reporting  requirements.  On May 9, 2005,  we submitted  our answer to the Order
Instituting  Proceedings  alleging  that  our  failure  to  meet  our  reporting
obligations was not intentional but the result our inability to obtain financial
information  necessary to complete the periodic reports from Bechler Cams, Inc.,
who had  refused  to comply  with our  reasonable  requests  for such  financial
information.

On July 20, 2005, trial was held on the Order  Instituting  Proceedings,  and on
August 18, 2005, the  Administrative  Law Judge issued an Initial Decision,  and
ordered the revocation of each class of our securities pursuant to Section 12(j)
of the  Securities  Exchange Act of 1934 (the  "Exchange  Act").  It was further
ordered that our Chief Executive  Officer,  President and Director,  Lawrence A.
Consalvi, cease and desist from committing any violation or future violations of
Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13. Specifically,  the
Administrative Law Judge found that we violated Section 13(a) of Exchange Act in
that we failed to file two annual reports on Form 10-K for the Company's  fiscal
years ended  September  30, 2003 and  September  30,  2004,  and five  quarterly
reports on form 10-Q for the  quarters  ended  March 31,  2003,  June 30,  2003,
December 31,  2003,  March 31, 2004 and June 30,  2004,  and that Mr.  Consalvi,
during his  tenure as our  President  and Chief  Executive  Officer,  caused our
violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13.  The
Initial Decision is not yet effective,  but shall become effective unless (1) we
do not file a petition for a review by the  Commission  of the Initial  Decision
within twenty-one (21) days of the date of the Initial Decision pursuant to Rule
360 of the Commission's Rules of Practice, 17 C.F.R. ss. 201.360, or (2) we file
a petition  for review  with the  Commission  within this period of time and the
Commission  either rejects our petition or accepts the petition but decides that
the registration of our securities should  nevertheless be revoked. On September
7, 2005,  we filed a petition  with the  Commission  for a review of the Initial
Decision,  and on September 12, 2005,  the  Commission  granted our petition for
review pursuant to Rule 411 of the Commission's Rules of Practice.  Our brief in
support of our  petition  for review is due by October  12,  2005.  Although  we
intend to continue  vigorously defend against these actions and to bring all our
delinquent  filings up to date,  there can be no assurance that the SEC will not
pursue this action even after these filings have been made. If the  registration
of our securities is either suspended or revoked,  our stockholders  will not be
able to publicly sell our securities unless and until, whatever the case may be,
the  period  of  suspension  is over or we are  able to have a new  registration
statement declared effective by the SEC, and there is no assurance that we would
be able to accomplish that, or that any private market for our securities can or
will develop.


                                       43
<PAGE>

Our stock price is volatile and there is a limited market for our shares.

The stock markets  generally  have  experienced,  and will probably  continue to
experience,  extreme price and volume fluctuations that have affected the market
price of the shares of many small capital  companies.  These  fluctuations  have
often been unrelated to the operating  results of such  companies.  Factors that
may affect the volatility of our stock price include the following:

      o     our success,  or lack of success,  in  developing  and marketing our
            products and services;
      o     the  announcement  of  new  products,   services,  or  technological
            innovations by us or our competitors;
      o     quarterly fluctuations of our operating results;
      o     changes in revenue or earning estimates by the investment community;
            and
      o     competition.

In  addition,  broad  market  fluctuations,  as well  as  general  economic  and
political  conditions,  may decrease the market price of our common stock in any
market that develops. Based on the factors described above, recent trends should
not be  considered  reliable  indicators of our future stock prices or financial
results.  Additionally,  there is a limited  market for our common  stock on the
Pink Sheets and we cannot assure you that such a market will continue to develop
or be maintained.

You should not expect the payment of dividends by us.

We do not expect to pay dividends on our common stock in the foreseeable future.
Although in May 2005, our  management  declared and paid a dividend of $0.005 on
our common  stock,  future  dividends,  if any,  will depend upon our  earnings.
Investors who require cash dividends from their investments  should not purchase
our common stock.

You may experience significant dilution.

We  anticipate  that we will  need to  raise  significant  capital  to fund  our
business.  In addition,  we anticipate that we may issue a significant number of
shares or the  rights to  acquire  shares as a part of our  strategy.  In either
event, current shareholders may experience significant dilution and our earnings
per share may decrease.


                                       44
<PAGE>

Fluctuations  in our  quarterly  operating  results may cause our stock price to
decline  and limit our  shareholders'  ability to sell our  common  stock in the
public markets.

Our  operating  results  and the  operating  results of  businesses  that we may
acquire in the future may fluctuate  significantly  due to a variety of factors,
many of which are  outside of our  control.  Our  operating  results may in some
future quarter fall below the expectations of securities analysts and investors.
In  this  event,   the  trading   price  of  our  common  stock  could   decline
significantly.  In addition to the risks  disclosed  elsewhere  in this  Report,
factors outside of our control,  which may cause our quarterly operating results
to fluctuate may include:

      o     fluctuations in the general economic condition;
      o     demand for our products;
      o     fluctuation in the capital budgets of our customers; and
      o     development of superior products and services by our competitors.

In  addition,  factors  within  our  control,  such as our  ability  to  deliver
equipment in a timely fashion,  may cause our operating  results to fluctuate in
the future.

The  factors  listed  above may  affect  both our  quarter-to-quarter  operating
results as well as our long-term success. Given the potential fluctuation in our
operating results, you should not rely on quarter-to-quarter  comparisons of our
results of operations as an indication of our future performance or to determine
any trend in our performance.  Fluctuations in our quarterly  operating  results
could  cause the  market  price and demand  for our  common  stock to  fluctuate
substantially,  which may limit your  ability  to sell our  common  stock on the
public markets.

If persons engage in short sales of our common stock,  including sales of shares
to be issued  upon  exercise of warrants  and  options,  the price of our common
stock may decline.

Selling  short is a technique  used by a  stockholder  to take  advantage  of an
anticipated  decline in the price of a security.  A significant  number of short
sales or a large volume of other sales within a relatively  short period of time
can create downward pressure on the market price of a security. Further sales of
common stock issued upon  exercise of our warrants and options  could cause even
greater  declines  in the  price  of our  common  stock  due  to the  number  of
additional  shares  available in the market,  which could  encourage short sales
that  could  further  undermine  the  value  of our  common  stock.  You  could,
therefore,  experience a decline in the value of your  investment as a result of
short sales of our common stock.



                                       45
<PAGE>

Our  common  stock is subject to penny  stock  regulation,  which may affect its
liquidity.

Our common  stock is subject  to  regulations  of the  Securities  and  Exchange
Commission (the  "Commission")  relating to the market for penny stocks. A Penny
Stock,  as defined by the Penny Stock  Reform Act,  is any equity  security  not
traded on a national  securities  exchange  or quoted on the NASDAQ  National or
Small Cap Market that has a market price of less than $5.00 per share. The penny
stock regulations  generally require that a disclosure  schedule  explaining the
penny stock market and the risks associated therewith be delivered to purchasers
of penny stocks and impose various sales price  requirements  on  broker-dealers
who sell penny stocks to persons other than established customers and accredited
investors.  The  broker-dealer  must  make a  suitable  determination  for  each
purchaser and receive the  purchaser's  written  agreement prior to the sale. In
addition,  the broker-dealer must make certain mandated  disclosures,  including
the actual sale or purchase  price and actual bid offer  quotations,  as well as
the  compensation  to be received by the  broker-dealer  and certain  associated
persons.  The  regulations  applicable  to penny stocks may severely  affect the
market  liquidity for our common stock and could limit your ability to sell your
securities in the secondary market.

Forward Looking Statements

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations  include a number of  forward-looking  statements  that  reflect  our
management's   current  views  with  respect  to  future  events  and  financial
performance. Those statements include statements regarding our intent, belief or
current  expectations,  and those of members of our management  team, as well as
the  assumptions on which such statements are based.  Prospective  investors are
cautioned that any such forward-looking  statements are not guarantees of future
performance  and involve  risk and  uncertainties,  and that actual  results may
differ materially from those  contemplated by such  forward-looking  statements.
Readers are urged to carefully review and consider the various  disclosures made
by us  throughout  this Report,  as well as in our other  reports filed with the
Securities  and  Exchange  Commission.  Important  factors  currently  known  to
Management  could  cause  actual  results  to differ  materially  from  those in
forward-looking  statements.  We  undertake  no  obligation  to update or revise
forward-looking  statements to reflect  changed  assumptions,  the occurrence of
unanticipated  events or  changes in future  operating  results  over  time.  We
believe that our  assumptions  are based upon  reasonable  data derived from and
known about our  business and  operations.  No  assurances  are made that actual
results of  operations or the results of any future  activities  will not differ
materially from our assumptions.

Since our trading shares are classified as "penny  stocks",  we are not entitled
to rely upon the "Safe Harbor"  provisions adopted by the SEC under the Exchange
Act with respect to Forward  Looking  Statements.  Nevertheless,  investors  are
urged to give serious consideration to those factors which we have identified as
outside of our  control,  and the  consequences  to us and our  investors if our
anticipated  results  do not come to pass as  expected  as a result of  material
deviations  which may occur from the  assumptions  we have relied upon in making
Forward-Looking Statements.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule  13a-15(b)  under the  Securities  Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure  controls as of the end of the period covered by
this  report,  June  30,  2004.  This  evaluation  was  carried  out  under  the
supervision  and with the  participation  of our Chief  Executive  Officer,  Mr.
Lawrence  A.  Consalvi,  and  our  Chief  Financial  Officer,  Mr.  Jitu  Banker
(collectively,  the  "Certifying  Officers").  Based upon that  evaluation,  our
Certifying  Officers  concluded that as of the end of the period covered by this
report,  June 30, 2004, our disclosure  controls and procedures are effective in
timely alerting management to material  information  relating to us and required
to be included in our periodic SEC filings.


                                       46
<PAGE>

Disclosure controls and procedures are controls and procedures that are designed
to ensure that  information  required to be disclosed  in our  periodic  reports
under the Exchange Act is recorded,  processed,  summarized and reported, within
the time periods specified in the Securities and Exchange Commission's rules and
forms. Disclosure controls and procedures include, without limitation,  controls
and procedures  designed to ensure that information  required to be disclosed in
our periodic  reports that we file under the  Exchange  Act is  accumulated  and
communicated to our management,  including our principal executive and principal
financial officers,  or persons performing similar functions,  as appropriate to
allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

Further,  as  required  by Rule  13a-15(d)  of the  Exchange  Act and  under the
supervision and with the  participation of our Certifying  Officers,  we carried
out an  evaluation  as to  whether  there has been any  change  in our  internal
control over financial  reporting during our fiscal quarter ended June 30, 2004.
Based upon this evaluation, we have concluded that there has not been any change
in our internal control over financial reporting during our fiscal quarter ended
June  30,  2004,  that has  materially  affected,  or is  reasonably  likely  to
materially affect, our internal control over financial reporting.

Internal control over financial reporting is a process designed by, or under the
supervision of, our principal  executive and principal  financial  officers,  or
persons performing  similar  functions,  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.  Internal control over financial  reporting  includes those policies
and  procedures  that:  (i)  pertain  to the  maintenance  of  records  that  in
reasonable   detail   accurately  and  fairly  reflect  the   transactions   and
dispositions of our assets; (ii) 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 (iii) 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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From  time to time we are  involved  in legal  proceedings  relating  to  claims
arising out of operations  in the normal  course of business,  as well as claims
arising from our status as an issuer of  securities  and/or  publicly  reporting
company.  For the three months  ended June 30, 2004,  we were not a party to any
material  legal  proceedings  and to our  knowledge;  no such  proceedings  were
threatened  or  contemplated,  other than  those  proceedings  disclosed  in our
periodic reports previously filed with the Securities and Exchange Commission


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<PAGE>

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Sales of Unregistered Securities

During the nine months  ended June 30,  2004,  we did not sell any of our equity
securities that were not registered under the Securities Act.

Purchases of Equity Securities

We are required by the  Securities Act of 1933 to disclose,  in tabular  format,
any repurchases of our securities  during the three months ending June 30, 2004.
We did not repurchase any of our securities  during the three months ending June
30, 2004, and accordingly, we have eliminated such table.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

During  the nine  month  period  ended June 30,  2004,  there  were no  material
defaults  in the  payment of  principal  interest,  a sinking or  purchase  fund
installment,  or any  other  material  default  not cured  within 30 days,  with
respect to any of our indebtedness exceeding 5% of our total assets.

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

No matters were  submitted to a vote of our security  holders in the three month
period ended June 30, 2004.

ITEM 5. OTHER INFORMATION

(a)  Information  Required  To Be  Disclosed  In A Report On Form  8-K,  But Not
Reported

None.

(b) Item 401(g) of Regulation S-B

During our fiscal quarter covered by this Quarterly Report on Form 10-QSB, there
have not been any  material  change  to the  procedures  by which  our  security
holders may recommend nominees to our Board of Directors.


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<PAGE>

ITEM 6. EXHIBITS

Exhibit Number    Description

2.1(5)      Agreement and Plan of Reorganization dated December 11, 2001, by and
            between  Gourmet  Gifts,  Inc.,  E.M.  Tool  Company,  Inc.  and the
            shareholders of E.M. Tool Company, Inc.

2.2(6)      Agreement  and Plan of  Reorganization  dated  March 31, 2002 by and
            between  Gateway  International  Holdings,  Inc.,  GWIH  Acquisition
            Corp., Bechler Cams, Inc. and the shareholders of Bechler Cams, Inc.

2.3(8)      Agreement  and Plan of  Reorganization  dated  April 26, 2002 by and
            between  Gateway  International  Holdings,  Inc.,  GWIH  Acquisition
            Corp.,  Nelson  Engineering,  Inc.  and the  shareholders  of Nelson
            Engineering, Inc.

2.4(8)      First  Amendment to the Agreement and Plan of  Reorganization  dated
            October 4, 2002 by and between Gateway International Holdings, Inc.,
            GWIH   Acquisition   Corp.,   Nelson   Engineering,   Inc.  and  the
            shareholders of Nelson Engineering, Inc.

2.5(8)      First  Amendment to the Agreement and Plan of  Reorganization  dated
            October 4, 2002 by and between Gateway International Holdings, Inc.,
            GWIH Acquisition  Corp.,  Bechler Cams, Inc. and the shareholders of
            Bechler Cams, Inc.

2.6(10)     Agreement  for  Purchase  and Sale and Escrow  Instructions  between
            Gateway International  Holdings, Inc. and R&H Investments dated June
            30, 2003.

2.7(10)     Stock Purchase  Agreement  between Gateway  International  Holdings,
            Inc.  and Hans B.  Thallmayer  and Alice  Thallmayer  dated June 17,
            2003.

3.1(1)(2)   Articles  of  Incorporation   of  Gourmet  Gifts,   Inc.,  a  Nevada
            corporation, filed on September 24, 1997.

3.2(1)(2)   Bylaws of Gourmet Gifts, Inc., a Nevada corporation.

3.3(11)     Amended Articles of Incorporation of Gourmet Gifts, Inc.

4.1(1)(2)   Specimen Common Stock Certificate.

10.1(3)     Promissory  Note dated August 10, 2000 between  Gourmet Gifts,  Inc.
            and Kim Farran.

10.2(4)     Promissory Note dated December 11, 2000 between Gourmet Gifts,  Inc.
            and Stanley K. Stilwell.


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<PAGE>

10.3(11)    Lease dated July 1, 2002 between IPERS  Brea/Golden  State  Business
            Parks, Inc. and Nu-Tech Industrial Sales, Inc.

10.4(11)    Promissory   Note   dated   January   1,  2003   issued  by  Gateway
            International Holdings, Inc. to Joseph T.W. Gledhill

10.5(11)    Mutual  Rescission of Contracts and Releases of Claims dated May 15,
            2003 by and among Gateway  International  Holdings,  Inc., E.M. Tool
            Company,  Inc.(doing business as Elite Machine Tool Company,  Inc.),
            Lawrence Consalvi, Joseph T.W. Gledhill,  Nelson Engineering,  Inc.,
            Don Nelson and Rich Lund

10.6(11)    Promissory  Note dated June 30,  2003  issued by  Financial  Federal
            Credit, Inc. to Gateway International  Holdings,  Inc. and E.M. Tool
            Company, Inc.

10.7(11)    Promissory   Note  dated   September   1,  2003  issued  by  Gateway
            International Holdings, Inc. to Joseph T.W. Gledhill

10.8(11)    Mutual Rescission of Contracts,  Settlement Agreement and Release of
            Claims dated  November 20, 2003 by and among  Gateway  International
            Holdings,  Inc.,  E.M. Tool  Company,  Inc.,  Lawrence  Consalvi and
            Joseph T.W.  Gledhill,  Bechler Cams, Inc., Daniel Lennert and Laura
            Stearman

10.9(11)    Promissory   Note   dated   January   1,  2004   issued  by  Gateway
            International Holdings, Inc. to Joseph T.W. Gledhill

10.10(11)   Letter  Agreement dated April 8, 2004 between Gateway  International
            Holdings, Inc. and Nelson Engineering, Inc.

10.11(11)   Standard  Industrial/Commercial  Multi-Tenant Lease dated August 20,
            2004 between  Lawrence A. Consalvi  individually  doing  business as
            Elite Machine Tool Company and SG&H Partners L.P.

10.12(11)   Addendum to Standard Industrial/Commercial  Multi-Tenant Lease dated
            August 20, 2004 between Elite Machine Tool Company and SG&H Partners
            L.P.

10.13(11)   Share Exchange  Agreement  dated  September 28, 2004 between Gateway
            International  Holdings,  Inc., All American CNC Sales, Inc. and the
            shareholders of All American CNC Sales, Inc.

10.14(11)   Employment  Agreement  dated September 28, 2004 between All American
            CNC Sales, Inc. and Tim Consalvi

10.15(11)   Share  Exchange  Agreement  dated  December 7, 2004 between  Gateway
            International Holdings, Inc., Gledhill/Lyons, Inc.(doing business as
            Accurate    Technologies)   and   the   shareholders   of   Accurate
            Technologies.

10.16(11)   Employment Agreement dated December 7, 2004 between  Gledhill/Lyons,
            Inc., d/b/a Accurate Technologies, Inc. and David Lyons.


                                       50
<PAGE>

10.17(11)   Employment Agreement dated December 7, 2004 between  Gledhill/Lyons,
            Inc., d/b/a Accurate Technologies, Inc. and William Gledhill

10.18(11)   Share Exchange  Agreement  dated  December 23, 2004 between  Gateway
            International  Holdings,  Inc.,  ESK, Inc., and the  shareholders of
            ESK, Inc.

10.19(11)   Share Exchange Agreement  effective January 31, 2005 between Gateway
            International  Holdings,  Inc.,  Spacecraft Machine Products,  Inc.,
            Lloyd R. Leavitt, III and the Leavitt Family Trust

10.20(11)   Secured Promissory Note effective January 31, 2005 issued by Gateway
            International Holdings, Inc. to the Leavitt Family Trust

10.21(11)   Employment  Agreement  effective January 31, 2005 between Spacecraft
            Machine Products, Inc. and Lloyd R. Leavitt

10.22(11)   Stock Pledge  Agreement  effective  January 31, 2005 between Gateway
            International Holdings, Inc. and Lloyd R. Leavitt

10.23(11)   Share  Exchange  Agreement  dated  March 31,  2005  between  Gateway
            International Holdings, Inc., Nu-Tech Industrial Sales, Inc. and the
            shareholders of Nu-Tech Industrial Sales, Inc.

10.24(11)   Promissory   Note   dated   October   1,  2002   issued  by  Gateway
            International Holdings, Inc. to Elite Machine Tool Company, Inc.

10.25(11)   Promissory Note dated September 5, 2002 issued by Financial  Federal
            Credit,  Inc.  to Larry  A.  Consalvi,  d/b/a/  Elite  Machine  Tool
            Company, Inc. and E.M. Tool Company, Inc.

10.26(13)   Stock  Purchase  Agreement  dated  February 6, 2003 between  Gateway
            International Holdings, Inc. and Joe Thomas.

14.1(11)    Code of Ethics for Gateway International Holdings, Inc.

16.1(3)     Letter of Albright,  Persing &  Associates,  Ltd.  dated  January 9,
            2001.

16.2(5)     Letter of David E. Coffey, CPA, dated February 3, 2001.

16.3(11)    Letter of Squar  Milner  Reehl and  Williamson,  LLP dated  June 14,
            2005.

31.1*       Certification of Chief Executive  Officer Pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002.

31.2*       Certification of Chief Financial  Officer Pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002.

32.1*       Certification of Chief Executive  Officer Pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002.


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<PAGE>

32.2*       Certification of Chief Financial  Officer Pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002.

99.1(7)     Certification of Chief Executive Officer and Chief Financial Officer
            Pursuant to 18 U.S.C.  Section 1350, as Adopted  Pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002.

99.2(9)     Unaudited  Pro  Forma  Combined  Balance  Sheet  for  Gateway  as of
            September 30, 2002.

99.3(9)     Financial  Statements for Nelson  Engineering,  Inc. as of September
            30, 2002.

99.4(9)     Financial  Statements  for Bechler  Cams,  Inc. as of September  30,
            2002.

99.5(12)    Press  release  dated  November  8,  2004  regarding  the  unaudited
            financial results for 2004.

99.6(14)    Press  release  dated April 21, 2005  regarding  the  completion  of
            financial  audits  for 2003 and 2004 and the  declaration  of a cash
            dividend by Gateway's Board of Directors.

99.7(14)    Press release dated May 6, 2005 regarding the financial  results for
            the first and second quarter of Gateway's current fiscal year.

      *     Filed herewith.

       (1)  Filed  on May  10,  1999 as an  exhibit  to  Gateway's  registration
            statement on Form 10-SB and incorporated herein by reference.

       (2)  File on June 8, 1999 as an exhibit to Gateway's amended registration
            statement on Form 10-SB and incorporated herein by reference.

       (3)  Filed on January 12, 2001 as an exhibit to Gateway's  annual  report
            on Form  10-KSB for the fiscal  year ended  September  30,  2000 and
            incorporated herein by reference.

       (4)  Filed on  February  14,  2001 as an exhibit to  Gateway's  quarterly
            report on Form 10-QSB for the fiscal quarter ended December 31, 2000
            and incorporated herein by reference.

       (5)  Filed on February 7, 2002 as an exhibit to Gateway's  report on Form
            8-K dated February 5, 2002 and incorporated herein by reference.

       (6)  Filed on May 20, 2002 as an exhibit to Gateway's quarterly report on
            Form  10-QSB  for the  fiscal  quarter  ended  March  31,  2002  and
            incorporated herein by reference.


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<PAGE>

       (7)  Filed on August 19, 2002 as an exhibit to Gateway's quarterly report
            on Form  10-QSB  for the  fiscal  quarter  ended  June 30,  2002 and
            incorporated herein by reference.

       (8)  Filed on November 7, 2002 as an exhibit to Gateway's  report on Form
            8-K dated October 23, 2002 and incorporated herein by reference.

       (9)  Filed on January 13, 2003 as an exhibit to Gateway's  amended report
            on Form 8-K  dated  October  23,  2002 and  incorporated  herein  by
            reference.

      (10)  Filed on August 8, 2003 as an  exhibit to  Gateway's  report on Form
            8-K dated July 24, 2003 and incorporated herein by reference.

      (11)  Filed on June 16, 2005 as an exhibit to Gateway's  annual  report on
            Form 10-KSB for the fiscal year ended September 30, 2003 and for the
            fiscal  year ended  September  30, 2004 and  incorporated  herein by
            reference.

      (12)  Filed on July 22, 2005 as an exhibit to Gateway's  quarterly  report
            on Form 10-QSB for the fiscal  quarter  ended  December 31, 2004 and
            incorporated herein by reference.

      (13)  Filed on August 12, 2005 as an exhibit to Gateway's  amended  report
            on Form  10-QSB  for the fiscal  quarter  ended  March 31,  2003 and
            incorporated herein by reference.

      (14)  Filed on August 15, 2005 as an exhibit to  Gateway's  report on Form
            10-QSB for the fiscal  quarter ended June 30, 2005 and  incorporated
            herein by reference.


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.

GATEWAY INTERNATIONAL HOLDINGS, INC.


By: /s/ Lawrence A. Consalvi
     -----------------------------------
     Lawrence A. Consalvi
     President, Chief Executive Officer and Director
     Date:  October 7, 2005


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