UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





Form
10-Q





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


For
the quarterly period ended September 30, 2010




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




For the
transition period from _______________ to _______________.





Commission
file number 0-32341





M
Line Holdings, Inc.


(Exact
Name of Company as Specified in its Charter)




Nevada
              (State
      or other jurisdiction of
              incorporation
      or organization)
            88-0375818
              (I.R.S.
      Employer
              Identification
      No.)2672
      Dow Avenue
              Tustin,
      CA
              (Address
      of principal executive offices)
            92780
              (Zip
      Code)





(714)
      630-6253(Registrant’s
      telephone number, including area code)Gateway
      International Holdings, Inc.(Former
      name, former address and former fiscal year, if changed since last
      report)





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





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





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





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





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





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





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


Yes  ̈     No
 ̈.





Applicable
only to corporate issuers:





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.  As of November 22, 2010 ,
there were 30,861,956 shares of common stock, par value $0.001, issued and
outstanding.








M
LINE HOLDINGS, INC.





TABLE OF
CONTENTS





PART IITEM
      1.
                  Financial
      Statements (unaudited).
                  3ITEM
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                  17ITEM
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk.
                  21ITEM
      4.
                  Controls
      and Procedures.
                  21PART IIITEM
      1.
                  Legal
      Proceedings.
                  24ITEM
      1A.
                  Risk
      Factors.
                  28ITEM
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds.
                  28ITEM
      3.
                  Defaults
      Upon Senior Securities.
                  28ITEM
      4.
                  Removed
      and Reserved.
                  28ITEM
      5.
                  Other
      Information.
                  28ITEM
      6.
                  Exhibits.
                  29


2




PART
I-FINANCIAL INFORMATION





M
LINE HOLDINGS, INC. AND SUBSIDIARIES


(FORMERLY
GATEWAY INTERNATIONAL HOLDINGS, INC.)


CONSOLIDATED
BALANCE SHEETS


(UNAUDITED)





As of
                        September 30,
                      
                      
                      As of
                        June 30,2010
                      
                      
                      2010AssetsCurrent
      Assets:Cash
      and cash equivalents
                      
                      $
                      247,851
                      
                      
                      $
                      50,410Accounts
      receivable, net
                      
                      
                      683,524
                      
                      
                      
                      613,642Inventories
                      
                      
                      737,557
                      
                      
                      
                      751,300Due
      from related party
                      
                      
                      418,332
                      
                      
                      
                      352,333Prepaid
      and other current assets
                      
                      
                      62,916
                      
                      
                      
                      53,723Current
      Assets - Discontinued Operations
                      
                      
                      8,113
                      
                      
                      
                      8,113Total
      current assets
                      
                      
                      2,158,293
                      
                      
                      
                      1,829,521Property
      and equipment,  net
                      
                      
                      708,793
                      
                      
                      
                      813,203Intangible
      Assets, net
                      
                      
                      118,222
                      
                      
                      
                      136,409Deposits
      and other
                      
                      
                      60,077
                      
                      
                      
                      60,077Non
      Current Assets - Discontinued Operations
                      
                      
                      23,377
                      
                      
                      
                      23,377Total
      Assets
                      
                      $
                      3,068,761
                      
                      
                      $
                      2,862,587Liabilities
      and Shareholders' EquityCurrent
      Liabilities:Line
      of Credit
                      
                      $
                      218,889
                      
                      
                      $
                      218,889Accounts
      Payable
                      
                      
                      869,483
                      
                      
                      
                      720,565Accrued
      Expenses and other
                      
                      
                      696,244
                      
                      
                      
                      557,095Derivative
      liability
                      
                      
                      93,488
                      
                      
                      
                      98,289Notes
      payable - current
                      
                      
                      229,239
                      
                      
                      
                      272,941Convertible
      notes payable
                      
                      
                      100,000
                      
                      
                      
                      100,000Capital
      Leases - current
                      
                      
                      46,866
                      
                      
                      
                      46,527Current
      Liabilities - Discontinued Operations
                      
                      
                      704,361
                      
                      
                      
                      704,061Total
      Current Liabilities
                      
                      
                      2,958,570
                      
                      
                      
                      2,718,367Notes
      Payable - long term
                      
                      
                      19,750
                      
                      
                      
                      19,750Capital
      Leases - long term
                      
                      
                      35,306
                      
                      
                      
                      44,310Deferred
      Income Taxes
                      
                      
                      16,710
                      
                      
                      
                      16,710Deferred
      Rent - long term
                      
                      
                      29,675
                      
                      
                      
                      39,566TOTAL
      LIABILITIES
                      
                      
                      3,060,011
                      
                      
                      
                      2,838,703Commitments
      and contingenciesShareholders'
      EquityCommon
      Stock, $0.001: 100,000,000 sharesAuthorized;
      30,861,956 shares issued and outstandingat
      September 30, 2010 and June 30, 2010, respectively
                      
                      
                      30,862
                      
                      
                      
                      30,862Additional
      paid in capital
                      
                      
                      9,505,812
                      
                      
                      
                      9,505,812Accumulated
      deficit
                      
                      
                      (9,527,925
                      )
                      
                      
                      (9,512,790
                      )Total
      stockholders' equity
                      
                      
                      8,749
                      
                      
                      
                      23,884Total
      Liabilities and Shareholders' Equity
                      
                      $
                      3,068,761
                      
                      
                      $
                      2,862,587





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


3


M
LINE HOLDINGS, INC. AND SUBSIDIARIES


(FORMERLY
GATEWAY INTERNATIONAL HOLDINGS, INC.)


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)





Three Months EndedSeptember
      30,2010
                            
                            
                            2009Net
      sales
                            
                            $
                            1,656,599
                            
                            
                            $
                            1,648,159Cost
      of sales
                            
                            
                            930,024
                            
                            
                            
                            1,345,434Gross
      Profit
                            
                            
                            726,575
                            
                            
                            
                            302,725Operating
      expenses:Selling,
      general and administrative
                            
                            
                            716,485
                            
                            
                            
                            866,795Amortization
      of intangible assets
                            
                            
                            18,188
                            
                            
                            
                            10,445Total
      operating expense
                            
                            
                            734,673
                            
                            
                            
                            877,240Operating
      Loss
                            
                            
                            (8,098
                            )
                            
                            
                            (574,515
                            )Other
      income (expense):Interest
      Expense
                            
                            
                            (12,418
                            )
                            
                            
                            (13,189
                            )Interest
      Income
                            
                            
                            6,182
                            
                            
                            
                            -Gain  on
      sale of assets
                            
                            
                            -
                            
                            
                            
                            -Total
      other expense
                            
                            
                            (6,236
                            )
                            
                            
                            (13,189
                            )Loss
      before income tax
                            
                            
                            (14,334
                            )
                            
                            
                            (587,704
                            )Income
      tax provision
                            
                            
                            (800
                            )
                            
                            
                            ( 800
                            )NET
      LOSS
                            
                            
                            (15,134
                            )
                            
                            
                            (588,504
                            )NET INCOME (LOSS) PER
SHARE:Basic
      and dilutive loss per share:Net
      Loss
                            
                            $
                            (0.00
                            )
                            
                            $
                            (0.02
                            )Weighted
      average number of common shares under in per share calculations (basic and
      diluted)Basic
                            
                            
                            30,861,956
                            
                            
                            
                            30,861,956Diluted
                            
                            
                            30,861,956
                            
                            
                            
                            30,861,956





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


4


M
LINE  HOLDINGS, INC. AND SUBSIDIARIES


(FORMERLY
GATEWAY INTERNATIONAL HOLDINGS, INC.)


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2010 AND 2009


(UNAUDITED)





September
      30, 2010
                          
                          
                          September
      30, 2009Cash
      flows from operating activities:Net
      loss
                          
                          $
                          (15,134
                          )
                          
                          $
                          (588,504
                          )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
                          
                          
                          104,410
                          
                          
                          
                          100,984Amortization
      of intangilbe assets
                          
                          
                          18,188
                          
                          
                          
                          10,445Imputed
      interest on related party notes
                          
                          
                          (6,182
                          )
                          
                          
                          -Changes
      in operating assets and liabilities:Account
      receivable
                          
                          
                          (69,882
                          )
                          
                          
                          69,774Inventory
                          
                          
                          13,743
                          
                          
                          
                          180,981Prepaid
      expenses and other assets
                          
                          
                          (9,193
                          )
                          
                          
                          96,048Due
      from related party
                          
                          
                          (59,817
                          )
                          
                          
                          219,809Account
      payable and accrued expenses
                          
                          
                          288,067
                          
                          
                          
                          -Deferred
      rent
                          
                          
                          (9,891
                          )
                          
                          
                          (6,571
                          )Cash
      provided by operating activities
                          
                          
                          254,309
                          
                          
                          
                          82,966Cash
      used in operating activities of discontinued operations
                          
                          
                          300
                          
                          
                          
                          -Net
      Cash provided by operating activities
                          
                          
                          254,609
                          
                          
                          
                          82,966Cash
      flows from financing activities:Payments
      to  notes payable
                          
                          
                          (43,702
                          )
                          
                          
                          (82,362
                          )Change
      in derivative liability
                          
                          
                          (4,801
                          )
                          
                          
                          -Payments
      on capital leases
                          
                          
                          (8,665
                          )
                          
                          
                          (24,054
                          )Net
      cash used in financing activities
                          
                          
                          (57,168
                          )
                          
                          
                          (106,416
                          )Net
      increase (decrease) in cash and cash equivalent
                          
                          
                          197,441
                          
                          
                          
                          (23,450
                          )Cash
      and cash equivalents at beginning of period
                          
                          
                          50,410
                          
                          
                          
                          438,030Cash
      and cash equivalents at end of period
                          
                          $
                          247,851
                          
                          
                          $
                          414,580Supplemental
      disclosure of cash flow information:Cash
      paid for interest
                          
                          $
                          10,418
                          
                          
                          $
                          13,189Cash
      paid for income taxes
                          
                          $
                          -
                          
                          
                          $
                          -







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


5


M
LINE HOLDINGS, INC. AND SUBSIDIARIES


(FORMERLY
GATEWAY INTERNATIONAL HOLDINGS, INC.)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010


(UNAUDITED)


1.           Business





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





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





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





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





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


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


6




2.           Basis of Presentation and Significant
Accounting Policies





Basis
of Presentation





The
consolidated financial statements of M Line Holdings, Inc. are unaudited and
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information, pursuant to
the rules and regulations of the Securities and Exchange Commission. The results
of operations for the three month periods ended September 30, 2010 and 2009 are
not necessarily indicative of the results to be expected for the full year. All
accounts and intercompany transactions have been eliminated in consolidation. In
the opinion of management, the consolidated financial statements include all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the Company's financial position, results of operations and cash flows.
These statements should be read in conjunction with the financial statements and
related notes which are part of the Company's Annual Report on Form 10-K for the
year ended June 30, 2010.





Net
Income (Loss) per Share





Basic net
income (loss) per share is calculated by dividing net income (loss) by the
weighted average common shares outstanding during the period. Diluted net income
(loss) per share reflects the potential dilution to basic EPS that could occur
upon conversion or exercise of securities, options or other such items to common
shares using the treasury stock method, based upon the weighted average fair
value of our common shares during the period. There were no potentially dilutive
securities as of September 30, 2010 and June 30, 2010,
respectively.





Reclassification





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





Recent
Accounting Pronouncements





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





In
January 2010, the FASB issued new accounting guidance which requires new
disclosures regarding transfers in and out of Level 1 and Level 2 fair value
measurements, as well as requiring presentation on a gross basis of information
about purchases, sales, issuances and settlements in Level 3 fair value
measurements. The guidance also clarifies existing disclosures regarding level
of disaggregation, inputs and valuation techniques. The new guidance is
effective for interim and annual reporting periods beginning after
December 15, 2009.  Disclosures about purchases, sales, issuances
and settlements in the roll forward of activity in Level 3 fair value
measurements are effective for fiscal years beginning after December 15,
2010.  As this guidance requires only additional disclosure, there
should be no impact on the consolidated financial statements of the Company upon
adoption.




7




3.           Inventories





Inventories
consist of the following at:





September
                    30, 2010
                  
                  
                  June 30, 2010Finished
      Goods and Components
                  
                  $
                  579,685
                  
                  
                  $
                  568,695CNC
      Machines held for sale
                  
                  
                  117,000
                  
                  
                  
                  134,500Work
      in Progress
                  
                  
                  151,866
                  
                  
                  
                  140,773Raw
      Materials and Parts
                  
                  
                  11,648
                  
                  
                  
                  12,416860,199
                  
                  
                  
                  856,384Less
      reserve for inventories
                  
                  
                  (122,642
                  )
                  
                  
                  (105,084
                  )$
                  737,557
                  
                  
                  $
                  751,300





4.           Accrued Expenses





Accrued
expenses consist of the following at:





September
                        30, 2010
                      
                      
                      June 30, 2010Compensation
      and related benefits
                      
                      $
                      444,056
                      
                      
                      $
                      336,597Audit
      Fees
                      
                      
                      15,000
                      
                      
                      
                      70,000Other
                      
                      
                      237,188
                      
                      
                      
                      150,500$
                      696,244
                      
                      
                      $
                      557,097


8


5.           Capital Leases





The
Company leases certain equipment under capital leases with terms ranging from
four to five years. Future annual minimum lease payments are as follows as of
September 30, 2010 and June 30, 2010 .





September
                      30, 2010
                    
                    
                    June 30, 20102011
                    
                    $
                    48,492
                    
                    
                    $
                    48,4542012
                    
                    
                    39,673
                    
                    
                    
                    45,6932013
                    
                    
                    8,025
                    
                    
                    
                    13,900Total
      minimum lease payments
                    
                    
                    96,190
                    
                    
                    
                    108,047Less
      amount representing interest
                    
                    
                    14,018
                    
                    
                    
                    17,210Present
      value of future minimum lease payments
                    
                    
                    82,172
                    
                    
                    
                    90,837Less
      current portion of capital lease obligations
                    
                    
                    (46,866
                    )
                    
                    
                    (46,527
                    )Capital
      Lease obligations, net of current portion
                    
                    $
                    35,306
                    
                    
                    $
                    44,310





6.           Line of Credit and Notes
Payable





Pacific
Western Bank Credit Agreement





We are in
default under our agreement with Pacific Western Bank.  If Pacific Western
Bank files a lawsuit for our default we may be forced to sell assets to pay this
obligation, which would have a material, negative impact on our business.





As of
September 21, 2009, our credit agreement with Pacific Western Bank
terminated.  During the quarter ended June 30, 2010 we repaid Pacific
Western Bank the sum of $360,000.00 leaving a balance as follows




Line
      of Credit
                      
                      $
                      218,889Term
      Loan
                      
                      
                      -Total
                      
                      $
                      218,889





We
reached an agreement with Pacific Western Bank for an extension until August 31,
2010 to repay this balance,$218,889, at a stated interest rate equal to the
lender’s referenced prime rate plus 1.50%.  We did not pay the outstanding
balance by August 31, 2010, and have not received an additional extension. 
As a result we are in default under the terms of our line of credit.  This
line of credit is secured by certain of our assets.  If Pacific Western
Bank filed a lawsuit as a result of our default we may be required to sell some
assets to repay this obligation.  Per our agreement to extend time for
repayment with Pacific Western Bank, at the time of repayment of the line of
credit we also agreed to repay any balance due on the equipment loans to Eran
Engineering, Inc.  As of September 30, 2010, the balance on these equipment
loans totaled $84,341.





As of
September 30, 2010, we owed $218,889 under the line of credit with Pacific
Western Bank. At September
30, 2010, the Company was in violation of certain covenants with the bank and
the Company has not been able to obtain a waiver from the bank.


9





Notes
payable consist of the following at September 30, 2010.





September
                          30, 2010
                        
                        
                        June 30,
                          2010Notes
      payable to financial institutions, secured by the underlying equipment in
      aggregate monthly installments of $7,292 including interest rates between
      7.2% ansd 9.75% per annum for a period of 50 and 60
months.
                        
                        $
                        84,344
                        
                        
                        $
                        98,046Unsecured
      loan to an individual in respect of the acquisition of a former
      subsidiary.
                        
                        
                        27,061
                        
                        
                        
                        27,061Term
      loan to Pacific Western Bank payable in monthly installments of $17,120
      including interest at a rate of Prime plus 1.50% per annum due November
      2010.
                        
                        
                        19,750
                        
                        
                        
                        19,750An
      unsecured note payable to a corporation in respect of machines sold to us
      payable in monthly installments of $5,000.00 per month.
                        
                        
                        71,070
                        
                        
                        
                        86,070An
      unsecured note payable to a corporation in settlement of a lawsuit payable
      in monthly installments of $5,000.00 per month
                        
                        
                        46,764
                        
                        
                        
                        61,764Note
      payable to a financial institution secured by common stock of the company
      and payable in full on demand.
                        
                        
                        100,000
                        
                        
                        
                        100,000TOTAL
                        
                        
                        348,989
                        
                        
                        
                        392,691Less
      Current Portion
                        
                        
                        329,239
                        
                        
                        
                        (372,941
                        )Long
      Term Portion
                        
                        $
                        19,750
                        
                        
                        $
                        19,7502011
                        
                        $
                        329,239
                        
                        
                        $
                        372,9412012
                        
                        
                        19,750
                        
                        
                        
                        19,7502013
                        
                        
                        -
                        
                        
                        
                        -2014
                        
                        
                        -
                        
                        
                        
                        -Thereafter
                        
                        
                        -
                        
                        
                        
                        -$
                        348,989
                        
                        
                        $
                        392,691





7.           Litigation





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


10


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





Plaintiff
and All American CNC Sales have both responded to discovery requests and are
engaged in the meet and confer process to resolve outstanding discovery
issues.  Several depositions have been taken and we anticipate more
going forward.  Plaintiff and All American have agreed to a settlement
in principal providing for a dismissal of the case against All American for a
waiver of costs.  No provision has been made in our financial
statements as we believe that the responsibility for liability, if any, is with
the manufacturer.





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





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





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





We do not
have a provision in our financial statements at September 30, 2010, for this
lawsuit.  No provision is necessary as we feel that the litigation has no
merit.





3.           Elite
Machine Tool Company v. ARAM Precision Tool and Die, Avi Amichai, Superior Court for the
State of California, County of Orange, Case No. 30-2008-00090891.





Elite
Machine filed this action on August 8, 2008.





The
Complaint alleged breach of contract for the defendants failing to pay Elite
Machine for a machine the defendants purchased from Elite Machine, and sought
damages totaling $16,238. ARAM Precision Tool and Die filed its Answer and
Cross-Complaint on October 1, 2008.  The Cross-Complaint alleged that
Elite Machine failed to deliver certain parts of the machine per the sales
contract and seeks damages totaling $25,000.  In late June 2009, the
parties settled this matter and the lawsuits were dismissed on August 13,
2009.  Under the terms of the settlement, Aram is expected to pay
Elite Machine Tool Company $4,000 in full and final settlement. To date
this amount has not been received.





4.           CNC
Manufacturing v. All American CNC Sales, Inc., Elite Machine Tool Company/Sales
& Services, CNC Repos, Superior Court for the
State of California, County of Riverside, Case No. RIC 509650.





Plaintiff
filed this Complaint on October 2, 2008.





The
Complaint alleges causes of action for breach of contract and rescission and
claims All American breached the agreement with CNC Manufacturing by failing to
deliver a machine that conforms to the specifications requested by CNC
Manufacturing, and requests damages totaling $138,750.  Elite Machine
filed an Answer timely, on January 15, 2009.  Discovery has commenced
in this matter but is not expected to be concluded for several
months.  The Court has set a Trial Setting Conference for October 13,
2010.  Management intends to aggressively defend itself against this
claim.  No trial date has been set.  No provision has been
made in the attached financial statements as we believe that the litigation has
no merit.


11


5.           Sunbelt
Machine Works Corp. v. All American CNC Sales, Inc., United States
District Court, Southern District of Texas, Case No. 4:09-cv-108.





Sunbelt
filed the Complaint on January 16, 2009.





This case
involved a dispute between All American and Sunbelt regarding the sale of a Mori
Seiki MH-63 machine by All American to Sunbelt.  Sunbelt claimed that
it received a machine that does not conform to the specifications it
ordered.  The amount sought in the Complaint was approximately
$139,000.  All American filed its Answer on April 13,
2009.  Sunbelt filed a Motion for Summary Judgment, which was granted
by the Court.  As a result a Judgment has been entered against All
American and M Line Holdings in the amount of $153,000.





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





A
provision has been made in the attached financial statements in the sum of
$46,764 at September 30, 2010.





6.           Hwacheon
Machinery v. All American CNC Sales, Circuit Court of the 19th Judicial
Circuit, Lake County, Illinois, Case No. 09L544.





The
Complaint was filed on June 8, 2009.





The
Complaint alleges causes of action for account stated, and arises from a claim
by Hwacheon that All American CNC has not paid it for machines sold to All
American CNC.  The Complaint seeks damages of approximately
$362,000.  All American filed an answer on or about July 15,
2009.  Default has been entered against All American CNC Sales,
Inc.





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





The
Complaint against Hwacheon seeks declaratory relief from the Court relieving M
Line Holdings from having to respond to Hwacheon’s harassing, burdensome and
voluminous requests for documents relating to Hwacheon’s judgment against All
American CNC Sales, Inc.  No answer has been filed by Hwacheon and no
trial date has been set.  Management does not expect a significant
financial impact as a result of this lawsuit.





8.           Fadal
Machining v. All American CNC Sales, et al., Los Angeles Superior
Court, Los Angeles, California, Case No. BC415693.





The
Complaint was filed on June 12, 2009.


12


The
Complaint alleges causes of action for breach of contract and common counts
against All American CNC seeking damages in the amount of at least $163,578.88,
and arises from a claim by Fadal that All American failed to pay amounts
due.  On June 26, 2009, Fadal amended the Complaint to include M Line
Holdings, Inc. as a Defendant.  On or about August 11, 2009, the Court
heard oral argument on Fadal’s Motion for Right to Attach Order and Writ of
Attachment.  The Court granted this Motion in part, issuing a Right to
Attach Order against All American CNC in the amount of approximately
$164,000.  The Court denied the Motion as to M Line Holdings,
Inc.  On August 12, 2009, All American CNC filed an Answer to the
Complaint, and M Line Holdings, Inc., filed a demurrer to the
Complaint.  The hearing on M Line Holdings, Inc.’s demurrer is not
currently set.  Management intends to aggressively defend itself
against this claim.  No trial date has been set and a provision has
been made in the financial statement of All American CNC Sales, Inc. in the
sum of $163,578 at September 30, 2010, but not in M Line Holdings, Inc.
financial statements where All American CNC Sales, Inc. is recorded as
discontinued operations as a result the business shutting down..





9.           Do v.
E.M. Tool Company, Orange County Superior Court, Orange County,
California, Case No. 30-2009-00123879.





The
Complaint was filed on June 1, 2009.





The
Complaint alleges causes of action for negligence, product liability and breach
of warranty, and seeks damages to be determined at time of
trial.  This lawsuit was tendered by E.M. Tool Company to its
insurance company, which is currently providing a defense.  We filed
an Answer and a Cross-complaint against the manufacturer of the equipment the
Mori Seiki Company, Ltd.  To the best of our knowledge no trial date
has been set and no provision has been made in the financial statement at
September 30, 2010 as we believe the litigation has no merit and any liability
is that of the manufacturer, not E.M. Tool Company.





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





The
Complaint was filed on April 14, 2009.





The
Complaint alleges causes of action for Declaratory Relief, Breach of Contract,
Fraud, Common Counts, and Negligent Misrepresentation, claiming the Defendant
failed to pay Fox Hills Machining for the sale of two machines from Fox Hills to
CNC Repos.  The damages sought in the Complaint are not less than
$30,000.  The Defendants filed an Answer on June 5,
2009.  Management intends to aggressively defend itself against this
claim.  No trial date has been set and no provision has been made in
the financial statements at September 30, 2010.





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





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





No
provision has been made in the financial statements of the company at September
30, 2010.  The Company’s management believes that payment(s), if any,
will be the responsibility of Workers Compensation Insurance.


13


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





A former
president of All American CNC Sales, Inc. has filed suit against the Company for
allegedly failing to pay him his entire severance payment.  The
Complaint does not specify the damages sought.  The parties then
reached a settlement in the principal sum of $40,000 to be documented in due
course.  Meanwhile a default was entered against the Company, which
management believes was in error because a settlement was already reached by the
principal parties involved. The default has since been vacated and Company has
answered the Complaint and has filed a motion for leave to file a cross
complaint.





We are
negotiating a settlement in this case at this time. Therefore, no provision has
been made in the financial statement for this sum as of September 30,
2010.





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





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





Management
believes that the amount of the charges by Plaintiff is overstated and intends
to defend the action for the amount sought by Plaintiff.





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





8.         Income
Taxes





The
provision (benefit) for income taxes is comprised of the following for the
quarters ended September 30:





QUARTER ENDED
                    SEPTEMBER 30,2010
                  
                  
                  2009Current
      Federal
                  
                  $
                  -
                  
                  
                  $
                  -Current
      State
                  
                  
                  -
                  
                  
                  
                  -Deferred
      Federal
                  
                  
                  4,194
                  
                  
                  
                  199,820Deferred
      State
                  
                  
                  740
                  
                  
                  
                  35,262Valuation
      Allowance
                  
                  
                  (4,934
                  )
                  
                  
                  (235,082
                  )$
                  0
                  
                  
                  $
                  0


14


The
benefit for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes.
The differences between the federal statutory tax rate of 34% and the effective
tax rates are primarily due to state income tax provisions, net operating loss
(“NOL”) carry forwards, deferred tax valuation allowance and permanent
differences as follows for the quarters ended September 30:




QUARTER ENDED
                          SEPTEMBER 30,2010
                        
                        
                        2009Federal
      tax at statutory rate
                        
                        
                        34
                        %
                        
                        
                        34
                        %Permanent
      differences:State
      Income Taxes, net of federal benefit
                        
                        
                        6
                        %
                        
                        
                        6
                        %Change
      in valuation allowance/Other
                        
                        
                        (37
                        )
      %
                        
                        
                        (36
                        )
      %Other
                        
                        
                        (3
                        )
      %
                        
                        
                        (4
                        )
      %0
                        %
                        
                        
                        0
                        %





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying value of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.




QUARTER ENDED
                              SEPTEMBER 30,2010
                            
                            
                            2009DEFERRED
      TAX ASSETS & LIABILITIES:CURRENT:Allowances
      for bad debt
                            
                            $
                            33,246
                            
                            
                            $
                            64,674Reserve
      for inventories
                            
                            
                            41,859Accrued
      expenses
                            
                            
                            74,606
                            
                            
                            
                            39,044Other
                            
                            
                            14,311
                            
                            
                            
                            33,896164,022
                            
                            
                            
                            137,614NON-CURRENT:Net
      Operating loss carryforwards
                            
                            
                            364,964
                            
                            
                            
                            770,209Depreciation
                            
                            
                            (28,322
                            )
                            
                            
                            (168,373
                            )Amortization
      of intangibles
                            
                            
                            (16,710
                            )
                            
                            
                            -319,932
                            
                            
                            
                            601,836GROSS
      TAX ASSET
                            
                            
                            483,954
                            
                            
                            
                            739,450VALUATION
      ALLOWANCE
                            
                            
                            (483,954
                            )
                            
                            
                            (461,328
                            )$
                            0
                            
                            
                            $
                            278,122





9.           Common Stock





During
the quarter ended September 30, 2010, the Company did not have any transactions
relating to common stock.





10.           Related Party
Transaction





There was
no related party transaction during the quarter ended September 30, 2010 as all
related party notes were repaid or settled during the fiscal year ended June 30,
2009.


15


11. Segments and Geographic
Information





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





SEGMENT
INFORMATION


Segment
information for the three months ended September 30, 2010
 
 Machine
              
              
              Precision
              
              
              Corporate
              
              
              Totalsales
              
              
              ManufacturingRevenue
              
              $
              788,896
              
              
              $
              867,703
              
              
              $
              -
              
              
              $
              1,656,599Interest
      Income
              
              
              -
              
              
              
              -
              
              
              
              6,182
              
              
              
              6,182Interest
      expense
              
              
              74
              
              
              
              12,344
              
              
              
              
              
              
              
              12,418Depreciation
      and Amortization
              
              
              18,938
              
              
              
              97,799
              
              
              
              5,861
              
              
              
              122,598Income
      (loss) before taxes
              
              
              67,704
              
              
              
              (92,950
              )
              
              
              10,912
              
              
              
              (14,334
              )Total
      Assets
              
              
              239,180
              
              
              
              1,973,512
              
              
              
              856,069
              
              
              
              3,068,761Capital
      Expenditure
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
  Segment
information for the three months ended September 30, 2009
 
 Machine
              
              
              Precision
              
              
              Corporate
              
              
              Totalsales
              
              
              ManufacturingRevenue
              
              $
              876,045
              
              
              $
              772,114
              
              
              $
              -
              
              
              $
              1,648,159Interest
      Income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Interest
      expense
              
              
              224
              
              
              
              -
              
              
              
              12,965
              
              
              
              13,189Depreciation
      and Amortization
              
              
              13,150
              
              
              
              97,984
              
              
              
              295
              
              
              
              111,429Income
      (loss) before taxes
              
              
              (283,018
              )
              
              
              (338,824
              )
              
              
              33,338
              
              
              
              (588,504
              )Total
      Assets
              
              
              223,944
              
              
              
              1,863,927
              
              
              
              2,007,844
              
              
              
              4,095,715Capital
      Expenditure
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -





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





12.           Going Concern and Management
Plans





The
company has reached an agreement with Pacific Western Bank for an extension
until August 31, 2010 to repay this balance, $218,889, at a stated interest rate
equal to the lender’s referenced prime rate plus 1.50%.  We did not pay the
outstanding balance by August 31, 2010, and have not received an additional
extension.  As a result we are in default under the terms of our line of
credit.  This line of credit is secured by certain of our assets.  If
Pacific Western Bank filed a lawsuit as a result of our default we may be
required to sell some assets to repay this obligation.  Per our agreement
to extend time for repayment with Pacific Western Bank, at the time of repayment
of the line of credit we also agreed to repay any balance due on the equipment
loans to Eran Engineering, Inc.  As of September 30, 2010, the balance on
these equipment loans totaled $84,341.




13.           Subsequent Events





The
company has concluded an agreement to refinance the equipment of Eran
Engineering, Inc. in order to repay Pacific Western Bank and provide working
capital for the group.





The
company has received a letter of demand from Asher to repay the note receivable
for $100,000 and management expects to repay the note in full
shortly.





The
Company has appointed Island Stock Transfer as its new transfer agent and this
agreement became effective on  November 16, 2010.  40,000
shares of M Line Holdings, Inc, stock was issued to Island Stock Transfer as
part of the fees due.


16


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





This
quarterly report on Form 10-Q of M Line Holdings, Inc. (formerly known as
Gateway International Holdings, Inc., and referred to herein as “MLH”, “we,”
“us” or “Company”) for the three months ended September 30, 2010, contains
forward-looking statements, principally in this Section and “Business.”
Generally, you can identify these statements because they use words like
“anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar
terms. These statements reflect only our current expectations. Although we do
not make forward-looking statements unless we believe we have a reasonable basis
for doing so, we cannot guarantee their accuracy and actual results may differ
materially from those we anticipated due to a number of uncertainties, many of
which are unforeseen, including, among others, the risks we face as described in
this filing. You should not place undue reliance on these forward-looking
statements which apply only as of the date of this quarterly report. These
forward-looking statements are within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are intended to be covered by the safe harbors
created thereby. To the extent that such statements are not recitations of
historical fact, such statements constitute forward-looking statements that, by
definition, involve risks and uncertainties. In any forward-looking statement
where we express an expectation or belief as to future results or events, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation of belief will be accomplished.





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





Overview





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





Our
Machine Sales Group is in the business of acquiring and selling computer
numerically controlled (“CNC”) machines, and related tools, to manufacturing
customers. We specialize in the purchase, refurbishment and sales of used CNC
machines.


17


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





Trends
Affecting Our Business





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





The
primary components sold by our Precision Manufacturing segment during the
quarters ended September 30, 2010 and, 2009, were parts sold to Panasonic, a
leading provider of in-flight entertainment systems for commercial aircraft. The
decline in economic activity has an adverse effect on our business. This has had
an effect on Panasonic’s orders to us, and, therefore, there has been an adverse
effect on our business. In addition, any further decrease may have an impact
with the Machine Tools Group, as many of our customers that buy machines from us
do business with airline manufacturers.





Critical
Accounting Policies





Use
of Estimates





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





Inventories





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


18


Results
of Operations for the Three Months Ended September 30, 2010 Compared to the
Three Months Ended September 30, 2009




Three month period ended September 30, 2010 and 2009.2010
                
                
                
                2009Sales
      by segment:Machine
      Sales
                
                $
                788,896
                
                
                $
                876,045Precision
      Engineering
                
                
                867,703
                
                
                
                772,1141,656,599
                
                
                
                1,648,159Gross
      Profit by segment:Machine
      Sales
                
                
                339,324
                
                
                
                82,563Precision
      Engineering
                
                
                387,251
                
                
                
                220,162726,575
                
                
                
                302,725




Sales





Sales in
the fiscal 2010 period increased 1% compared to the comparable period in fiscal
2009. The change is attributable to increase in sales  in the
Precision Manufacturing  Group. Sales increased by 11% in the
Precision Manufacturing Group.  Sales in the Machine Sales Group
decreased by 10%. The sales
decrease in this group was primarily due to fewer customers purchasing equipment
during this period.




Gross
Margin





Gross
profit increased by 140% compared to the comparable period in fiscal 2009. The
gross profit for the Machine Sales Group increased by 311% due to an increase in
margins as a result of customer demand for machines and the
ability to purchase better equipment at lower prices.  The economy has
resulted in better priced equipment being available for purchase. The
increase within the Precision Manufacturing Group resulted from better margins
as a result of customer demand for product in the
2010  period.





Selling,
General & Administrative





Selling,
general and administrative costs decreased by $150,310 compared to the
comparable period in fiscal 2009. The change is due to decreases in personnel
costs and cost
savings throughout the Company. The greatest savings came from personnel layoffs
and salary reductions during the fiscal 2010 period.


19


Amortization
of Intangible Assets





Amortization
expense for intangible assets for the period ended September 2010 was $18,188
to  $10,445  in the comparable period in fiscal
2009.





Interest
Expense





Interest
expense decreased by $771 compared to the comparable period in fiscal 2009. The
change is attributable to lower average debt balances.





Gain
on Sale of Assets





During
the fiscal 2010 period, there was no gain or loss as no assets were sold during
the period.




Net
Loss
  Net
losses have reduced from ($588,504) for the quarter ended September 30, 2009 to
($15,134) for the quarter ended September 30, 2010.  This very
significant reduction in losses totaling $573,370 was due to better profit
margins obtained on revenues together with significant overhead
savings.




Liquidity
and Capital Resources





Our
principal sources of liquidity consist of cash and cash equivalents, cash
generated from operations and borrowing from various sources, including Pacific
Western Bank. At September 30, 2010 and June 30, 2010, our cash and cash
equivalents and working capital decreased by $23,450 and $556,830,
respectively.





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





Cash
Flows





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





Provided
      by (used in)
                
                2010
                
                
                
                2009
                
                
                ChangeOperating
      activities
                
                
                254,609
                
                
                
                82,966
                
                
                
                (171,643
                )Investing
      activities
                
                
                -
                
                
                
                -Financing
      activities
                
                
                (57,168
                )
                
                
                (106,416
                )
                
                
                (49,248
                )197,441
                
                
                
                (23,450
                )
                
                
                (220,891
                )





Operating
Activities





Operating
cash flows during the fiscal 2010 and 2009 fiscal periods reflect our results of
operations, offset by net cash provided by operating assets and liabilities and
non-cash items (depreciation, amortization and stock-based compensation). During
the 2010 period, non-cash expenses included in our net income and in operating
activities totaled $122,598 compared to $111,429 in the 2009
period.





The
increase in operating assets and liabilities for the 2010 and 2009 periods were
$142,845 and $86,153, respectively. During the 2010 period, the increase was
primarily attributable to an increase in accounts payable and accrued
expenses.


20


The
changes in operating assets for the 2010 period were primarily attributable to a
reduction of $284,067  in accounts payable and accrued
expenses.





Investing
Activities





We made
capital expenditures of $0 and $0 during the first three months of the fiscal
2010 and 2009 periods, respectively.





Financing
Activities





During
the first three months of the fiscal 2010 and 2009 periods, we repaid (net of
borrowings) $52,367 and $106,416, respectively of outstanding debt and capital
lease obligations. During the 2010 and 2009 periods, we repaid $0 on our line of
credit.





Off
Balance Sheet Arrangements





We have
no off balance sheet arrangements.





ITEM
3.             Quantitative
and Qualitative Disclosures about Market Risk.





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





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





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





ITEM
4.          Controls and
Procedures.





(a) Disclosure Controls and
Procedures





We
conducted an evaluation, with the participation of our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange
Act, as of September 30, 2009, to ensure that information required to be
disclosed by us in the reports filed or submitted by us under the Exchange Act
is recorded, processed, summarized and reported, within the time periods
specified in the Securities Exchange Commission's rules and forms, including to
ensure that information required to be disclosed by us in the reports filed or
submitted by us under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal financial officer,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that as of
September 30, 2010, our disclosure controls and procedures were not effective at
the reasonable assurance level due to the material weaknesses identified and
described in Item 4T.


21


(b) Management Report on Internal Control
Over Financial Reporting





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





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


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





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





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





A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis. Our management assessed the
effectiveness of our internal control over financial reporting as of September
30, 2010. In making this assessment, our management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. Based on this assessment,
Management has identified the following two material weaknesses that have caused
management to conclude that, as of September 30, 2010, our disclosure controls
and procedures, and our internal control over financial reporting, were not
effective at the reasonable assurance level:





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


22


2.           We
have not documented our internal controls.  We have limited policies
and procedures that cover the recording and reporting of financial
transactions.  Although providing this report in this Quarterly
Report, it is optional for us at this time.Written documentation of key internal
controls over financial reporting is a requirement   of Section
404 of the Sarbanes-Oxley Act.   Management evaluated the impact of
our failure to have written documentation of our internal controls and
procedures on our assessment of our disclosure controls and procedures and has
concluded that the control deficiency that resulted represented a material
weakness.





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





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





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





(c) Remediation of Material
Weaknesses





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





(d) Changes in Internal Control over
Financial Reporting





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


23


PART
II – OTHER INFORMATION





ITEM
1.                 Legal
Proceedings.





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





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





Plaintiff
and All American CNC Sales have both responded to discovery requests and are
engaged in the meet and confer process to resolve outstanding discovery
issues.  Several depositions have been taken and we anticipate more
going forward.  Plaintiff and All American have agreed to a settlement
in principal providing for a dismissal of the case against All American for a
waiver of costs.  No provision has been made in our financial
statements as we believe that the responsibility for liability, if any, is with
the manufacturer.





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





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





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





We do not
have a provision in our financial statements at September 30, 2010, for this
lawsuit.  No provision is necessary as we feel that the litigation has no
merit.





3.           Elite
Machine Tool Company v. ARAM Precision Tool and Die, Avi Amichai, Superior Court for the
State of California, County of Orange, Case No. 30-2008-00090891.





Elite
Machine filed this action on August 8, 2008.





The
Complaint alleged breach of contract for the defendants failing to pay Elite
Machine for a machine the defendants purchased from Elite Machine, and sought
damages totaling $16,238. ARAM Precision Tool and Die filed its Answer and
Cross-Complaint on October 1, 2008.  The Cross-Complaint alleged that
Elite Machine failed to deliver certain parts of the machine per the sales
contract and seeks damages totaling $25,000.  In late June 2009, the
parties settled this matter and the lawsuits were dismissed on August 13,
2009.  Under the terms of the settlement, Aram is expected to pay
Elite Machine Tool Company $4,000 in full and final settlement. To date
this amount has not been received.





4.           CNC
Manufacturing v. All American CNC Sales, Inc., Elite Machine Tool Company/Sales
& Services, CNC Repos, Superior Court for the
State of California, County of Riverside, Case No. RIC 509650.





Plaintiff
filed this Complaint on October 2, 2008.





The
Complaint alleges causes of action for breach of contract and rescission and
claims All American breached the agreement with CNC Manufacturing by failing to
deliver a machine that conforms to the specifications requested by CNC
Manufacturing, and requests damages totaling $138,750.  Elite Machine
filed an Answer timely, on January 15, 2009.  Discovery has commenced
in this matter but is not expected to be concluded for several
months.  The Court has set a Trial Setting Conference for October 13,
2010.  Management intends to aggressively defend itself against this
claim.  No trial date has been set.  No provision has been
made in the attached financial statements as we believe that the litigation has
no merit.





5.           Sunbelt
Machine Works Corp. v. All American CNC Sales, Inc., United States
District Court, Southern District of Texas, Case No. 4:09-cv-108.




Sunbelt
filed the Complaint on January 16, 2009.


24




This case
involved a dispute between All American and Sunbelt regarding the sale of a Mori
Seiki MH-63 machine by All American to Sunbelt.  Sunbelt claimed that
it received a machine that does not conform to the specifications it
ordered.  The amount sought in the Complaint was approximately
$139,000.  All American filed its Answer on April 13,
2009.  Sunbelt filed a Motion for Summary Judgment, which was granted
by the Court.  As a result a Judgment has been entered against All
American and M Line Holdings in the amount of $153,000.





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





A
provision has been made in the attached financial statements in the sum of
$46,764 at September 30, 2010.





6.           Hwacheon
Machinery v. All American CNC Sales, Circuit Court of the 19th Judicial
Circuit, Lake County, Illinois, Case No. 09L544.





The
Complaint was filed on June 8, 2009.





The
Complaint alleges causes of action for account stated, and arises from a claim
by Hwacheon that All American CNC has not paid it for machines sold to All
American CNC.  The Complaint seeks damages of approximately
$362,000.  All American filed an answer on or about July 15,
2009.  Default has been entered against All American CNC Sales,
Inc.





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





The
Complaint against Hwacheon seeks declaratory relief from the Court relieving M
Line Holdings from having to respond to Hwacheon’s harassing, burdensome and
voluminous requests for documents relating to Hwacheon’s judgment against All
American CNC Sales, Inc.  No answer has been filed by Hwacheon and no
trial date has been set.  Management does not expect a significant
financial impact as a result of this lawsuit.





8.           Fadal
Machining v. All American CNC Sales, et al., Los Angeles Superior
Court, Los Angeles, California, Case No. BC415693.





The
Complaint was filed on June 12, 2009.





The
Complaint alleges causes of action for breach of contract and common counts
against All American CNC seeking damages in the amount of at least $163,578.88,
and arises from a claim by Fadal that All American failed to pay amounts
due.  On June 26, 2009, Fadal amended the Complaint to include M Line
Holdings, Inc. as a Defendant.  On or about August 11, 2009, the Court
heard oral argument on Fadal’s Motion for Right to Attach Order and Writ of
Attachment.  The Court granted this Motion in part, issuing a Right to
Attach Order against All American CNC in the amount of approximately
$164,000.  The Court denied the Motion as to M Line Holdings,
Inc.  On August 12, 2009, All American CNC filed an Answer to the
Complaint, and M Line Holdings, Inc., filed a demurrer to the
Complaint.  The hearing on M Line Holdings, Inc.’s demurrer is not
currently set.  Management intends to aggressively defend itself
against this claim.  No trial date has been set and a provision has
been made in the financial statement of All American CNC Sales, Inc. in the
sum of $163,578 at September 30, 2010, but not in M Line Holdings, Inc.
financial statements where All American CNC Sales, Inc. is recorded as
discontinued operations as a result the business shutting
down..


25


9.           Do v.
E.M. Tool Company, Orange County Superior Court, Orange County,
California, Case No. 30-2009-00123879.





The
Complaint was filed on June 1, 2009.





The
Complaint alleges causes of action for negligence, product liability and breach
of warranty, and seeks damages to be determined at time of
trial.  This lawsuit was tendered by E.M. Tool Company to its
insurance company, which is currently providing a defense.  We filed
an Answer and a Cross-complaint against the manufacturer of the equipment the
Mori Seiki Company, Ltd.  To the best of our knowledge no trial date
has been set and no provision has been made in the financial statement at
September 30, 2010 as we believe the litigation has no merit and any liability
is that of the manufacturer, not E.M. Tool Company.





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





The
Complaint was filed on April 14, 2009.





The
Complaint alleges causes of action for Declaratory Relief, Breach of Contract,
Fraud, Common Counts, and Negligent Misrepresentation, claiming the Defendant
failed to pay Fox Hills Machining for the sale of two machines from Fox Hills to
CNC Repos.  The damages sought in the Complaint are not less than
$30,000.  The Defendants filed an Answer on June 5,
2009.  Management intends to aggressively defend itself against this
claim.  No trial date has been set and no provision has been made in
the financial statements at September 30, 2010.





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





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





No
provision has been made in the financial statements of the company
at September 30, 2010.  The Company’s management believes that
payment(s), if any, will be the responsibility of Workers Compensation
Insurance.





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





A former
president of All American CNC Sales, Inc. has filed suit against the Company for
allegedly failing to pay him his entire severance payment.  The
Complaint does not specify the damages sought.  The parties then
reached a settlement in the principal sum of $40,000 to be documented in due
course.  Meanwhile a default was entered against the Company, which
management believes was in error because a settlement was already reached by the
principal parties involved. The default has since been vacated and Company has
answered the Complaint and has filed a motion for leave to file a cross
complaint.


26


We are
negotiating a settlement in this case at this time. Therefore, no provision has
been made in the financial statement for this sum as of September 30,
2010.





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





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





Management
believes that the amount of the charges by Plaintiff is overstated and intends
to defend the action for the amount sought by Plaintiff.





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


27




ITEM
1A.          Risk
Factors.





As a
smaller reporting company we are not required to provide the information
required by this Item.  However, we have  included risk
factors in our Annual Report on Form 10-K for the year ended June 30, 2010, as
filed with the Commission on .November  12, 2010





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





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





ITEM
3.             Defaults
upon Senior Securities.





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





ITEM
4.             Removed
and Reserved.




ITEM
5.             Other
Information.





Money Line Capital Letter of
Intent





Letter
of Intent with Money Line Capital, Inc.


On June
30, 2009, we entered into a binding Letter of Intent (the “LOI”) with Money Line
Capital,Inc., a California corporation (“MLCI”). MLCI is our largest shareholder
and specializes in business financing transactions and holds equity in a number
of operating subsidiaries in various fields, including financing, aerospace,
real estate, media, beverage, and technology. Under the LOI the parties agree to
complete a transaction whereby all the MLCI shareholders will exchange their
shares of MLCI stock for shares of our stock. No cash will be exchanged in his
transaction. The parties had agreed to negotiate in good faith to close the
transaction on or before January 29, 2010, however due to the downturn in the
economyMLCI’s inability to complete the required audits, and the desire of our
Board of Directors to get as favorable a valuation for our common stock as
possible, the parties have put the merger transaction on hold indefinitely. In
order for us to finalize the transaction we must be current in our reporting
obligations under the Securities and Exchange Act of 1934, as amended, and be
publicly-traded at the time of the closing; and MLCI must have its financial
statements (and its subsidiaries, as applicable) audited for the period ended
June 30, 2010, as well as completing a valuation by a qualified third-party
company,.





Assignment
of Gledhill Note.


On March
25, 2009, we entered into an Assignment of Promissory Note and Consent Thereto
(the “Assignment”) with MLCI, under which MLCI agreed to assume our repayment
obligations to Joseph Gledhill and Joyce Gledhill under that certain $650,000
principal amount Promissory Note dated December 8, 2008 (the “Gateway Note”) in
exchange for the issuance of 3,250,000 shares of our common stock (the
“Shares”). Mr. Gledhill, one of our former directors, and Joyce Gledhill
consented to the Assignment. Pursuant to the Assignment, MLCI and the Gledhill’s
entered into a new $650,000 principal amount secured promissory note, a security
agreement and a pledge agreement. We issued the 3,250,000 shares of our common
stock to MLCI on June 30, 2009.


28


ITEM
6.             Exhibits.





(a)           Exhibits





Item
      No.
                          
                          Description3.1
      (1)
                          
                          Articles
      of Incorporation of M Line Holdings, Inc., a Nevada corporation, as
      amended3.2
      (5)
                          
                          Certificate
      of Amendment of Articles of Incorporation3.3
      (1)
                          
                          Bylaws
      of M Line Holdings, Inc., a Nevada corporation10.1
      (1)
                          
                          Asset
      Purchase Agreement with CNC Repos, Inc. and certain of its shareholders
      dated October 1, 200710.2
      (1)
                          
                          Commercial
      Real Estate Lease dated February 15, 2007 for the office space located in
      Tustin, CA10.3
      (1)
                          
                          Commercial
      Real Estate Lease dated November 15, 2007 for the office space located in
      Anaheim, CA10.4
      (1)
                          
                          Employment
      Agreement with Timothy D. Consalvi dated February 1,
  200710.5
      (1)
                          
                          Employment
      Agreement with Joseph T.W. Gledhill dated February 5,
  200710.6
      (2)
                          
                          Employment
      Agreement with Lawrence A. Consalvi dated February 5,
  200710.7
      (1)
                          
                          Share
      Exchange Agreement with Gledhill/Lyons, Inc. dated March 26,
      200710.8
      (1)
                          
                          Share
      Exchange Agreement with Nu-Tech Industrial Sales, Inc. dated March 19,
      200710.9
      (1)
                          
                          Fee
      Agreement with Steve Kasprisin dated April 30, 200810.10
      (3)
                          
                          Separation
      Agreement by and between Gateway International Holdings, Inc., and Mr.
      Lawrence A. Consalvi dated September 26, 200810.11
      (4)
                          
                          Sales
      Agent Agreement by and between Gateway International Holdings, Inc., and
      Mr. Lawrence A. Consalvi dated September 30, 200810.12
      (4)
                          
                          Loan
      Agreements with Pacific Western Bank dated September 20,
    200810.13
      (5)
                          
                          Assignment
      of Promissory Note and Consent Thereto by and between M Line Holdings,
      Inc. and Money Line Capital, Inc. dated March 24, 200910.14
      (5)
                          
                          M
      Line Holdings, Inc. Demand Note for up to $500,000 dated March 25,
      200910.15
      (6)
                          
                          Letter
      of Intent by and between M Line Holdings, Inc. and Money Line Capital,
      Inc. dated June 30, 200910.16
      (7)
                          
                          Securities
      Purchase Agreement and Convertible Promissory Note with Asher Enterprises,
      Inc. dated April 26, 2010 (filed herewith)10.17
      (7)
                          
                          Convertible
      Promissory Note with Asher Enterprises, Inc. dated May 25, 2010 (filed
      herewith)10.18
      (7)
                          
                          Commercial
      Real Estate Lease with SG&H Partners, L.P. for Anaheim Property dated
      August 13, 2010 (filed herewith)10.19
      (7)
                          
                          Business
      Loan Agreement with Pacific Western Bank dated June 7, 2010 (filed
      herewith)21
      (7)
                          
                          List
      of Subsidiaries31.1
                          
                          Rule
      13a-14(a)/15d-14(a) Certification of George Colin (filed
      herewith).31.2
                          
                          Rule
      13a-14(a)/15d-14(a) Certification of Jitu Banker (filed
      herewith).32.1
                          
                          Section
      1350 Certification of George Colin (filed herewith).32.2
                          
                          Section
      1350 Certification of Jitu Banker (filed herewith).(1)
                          
                          Incorporated
      by reference from our Registration Statement on Form 10-12G filed with the
      Commission on May 16, 2008.(2)
                          
                          Incorporated
      by reference from our Registration Statement on First Amended Form
      10-12G/A filed with the Commission on July 16, 2008.(3)
                          
                          Incorporated
      by reference from our First Amended Current Report on Form 8-K/A filed
      with the Commission on October 10, 2008.(4)
                          
                          Incorporated
      by reference from our Quarterly Report on Form 10-Q for the period ended
      September 30, 2008, as filed with the Commission on November 13,
      2008.(5)
                          
                          Incorporated
      by reference from our Current Report on Form 8-K filed with the Commission
      on April 24, 2009.(6)
                          
                          Incorporated
      by reference from our Current Report on Form 8-K filed with the Commission
      on July 6, 2009.(7)
                          
                          Incorporated
      by reference from our Annual Report on Form 10-K for the period ended June
      30, 2010, as filed with the Commission on November 12,
    2010.


29


SIGNATURES





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





M
      Line Holdings, Inc.Dated:
      November 22, 2010
            
            
            /s/ George ColinBy:
            
            George
      ColinPresident,
      Chief ExecutiveOfficer
      and a DirectorDated:
      November 22, 2010
            
            
            /s/ Jitu BankerBy:
            
            Jitu
      BankerChief
      Financial Officer,Secretary
      and a Director


30