UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





Form
10-Q


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




For
the quarterly period ended December 31, 2008





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





For the
transition period from _______________ to _______________.





Commission
file number 0-32341




Gateway
International 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)





Issuer’s
telephone number, including area code    (714)
630-6253





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


(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 February 10, 2009,
there were 27,611,956 shares of common stock, par value $0.001, issued and
outstanding.









GATEWAY
INTERNATIONAL 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.
                      
                      13ITEM
      3.
                      
                      Quantitative
      and Qualitative Disclosures About Market Risk.
                      
                      21ITEM
      4T.
                      
                      Controls
      and Procedures.
                      
                      22PART IIITEM
      1.
                      
                      Legal
      Proceedings.
                      
                      23ITEM
      1A.
                      
                      Risk
      Factors.
                      
                      24ITEM
      2.
                      
                      Unregistered
      Sales of Equity Securities and Use of Proceeds.
                      
                      24ITEM
      3.
                      
                      Defaults
      Upon Senior Securities.
                      
                      24ITEM
      4.
                      
                      Submission
      of Matters to a Vote of Security Holders.
                      
                      24ITEM
      5.
                      
                      Other
      Information.
                      
                      25ITEM
      6.
                      
                      Exhibits.
                      
                      25




2




PART
I-FINANCIAL INFORMATION


GATEWAY
INTERNATIONAL HOLDINGS, INC.


CONSOLIDATED
BALANCE SHEETS





June
      30, 2008
                                              
                                              
                                              December
      31,
                                                2008(unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
                                              
                                              $
                                              1,024,643
                                              
                                              
                                              $
                                              1,226,285Accounts
      receivable, net of allowances of $82,000 and $101,500 at June 30, 2008 and
      December 31, 2008, respectively.
                                              
                                              
                                              1,648,217
                                              
                                              
                                              
                                              847,718Inventories
                                              
                                              
                                              1,721,289
                                              
                                              
                                              
                                              1,385,722Due
      from related party
                                              
                                              
                                              81,000
                                              
                                              
                                              
                                              -Prepaid
      and other
                                              
                                              
                                              180,011
                                              
                                              
                                              
                                              252,619Deferred
      income taxes
                                              
                                              
                                              168,053
                                              
                                              
                                              
                                              368,485Total
      current assets
                                              
                                              
                                              4,823,213
                                              
                                              
                                              
                                              4,080,829Property
      and equipment, net
                                              
                                              
                                              1,603,675
                                              
                                              
                                              
                                              1,426,656Intangible
      assets, net
                                              
                                              
                                              928,439
                                              
                                              
                                              
                                              864,778Goodwill
                                              
                                              
                                              392,547
                                              
                                              
                                              
                                              194,378Deposits
      and other
                                              
                                              
                                              61,146
                                              
                                              
                                              
                                              61,146Deferred
      income taxes
                                              
                                              
                                              -
                                              
                                              
                                              
                                              25,790Total assets
                                              
                                              $
                                              7,809,020
                                              
                                              
                                              $
                                              6,653,577Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Line
      of credit
                                              
                                              $
                                              330,000
                                              
                                              
                                              $
                                              607,000Accounts
      payable
                                              
                                              
                                              1,646,871
                                              
                                              
                                              
                                              1,063,650Income
      taxes payable
                                              
                                              
                                              187,954
                                              
                                              
                                              
                                              -Accrued
      expenses and other
                                              
                                              
                                              213,752
                                              
                                              
                                              
                                              519,634Accrued
      interest due to related party
                                              
                                              
                                              82,173
                                              
                                              
                                              
                                              997Customer
      deposits
                                              
                                              
                                              149,500
                                              
                                              
                                              
                                              179,847Notes
      payable
                                              
                                              
                                              244,635
                                              
                                              
                                              
                                              406,610Notes
      payable, related party
                                              
                                              
                                              734,880
                                              
                                              
                                              
                                              712,787Capital
      leases
                                              
                                              
                                              85,533
                                              
                                              
                                              
                                              79,647Total
      current liabilities
                                              
                                              
                                              3,675,298
                                              
                                              
                                              
                                              3,570,172Notes
      payable
                                              
                                              
                                              429,493
                                              
                                              
                                              
                                              188,198Notes
      payable, related party
                                              
                                              
                                              31,526
                                              
                                              
                                              
                                              4,498Capital
      leases
                                              
                                              
                                              130,361
                                              
                                              
                                              
                                              92,700Deferred
      income taxes
                                              
                                              
                                              58,304
                                              
                                              
                                              
                                              -Deferred
      rent
                                              
                                              
                                              79,126
                                              
                                              
                                              
                                              72,486Total liabilities
                                              
                                              
                                              4,404,108
                                              
                                              
                                              
                                              3,928,054Shareholders’
      equity:Common
      stock, $0.001 par value: 100,000,000 shares authorized28,378,645
      and 27,611,956 shares issued and outstandingat
      June 30, 2008 and December 31, 2008, respectively
                                              
                                              
                                              28,379
                                              
                                              
                                              
                                              27,612Additional
      paid-in capital
                                              
                                              
                                              8,921,354
                                              
                                              
                                              
                                              8,857,321Accumulated
      deficit
                                              
                                              
                                              (5,544,821
                                              )
                                              
                                              
                                              (6,159,410
                                              )Total
      shareholders’ equity
                                              
                                              
                                              3,404,912
                                              
                                              
                                              
                                              2,725,523Total
      liabilities and shareholders' equity
                                              
                                              $
                                              7,809,020
                                              
                                              
                                              $
                                              6,653,577





See
accompanying Notes to Consolidated Financial Statements.




3




GATEWAY
INTERNATIONAL HOLDINGS, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)




Three
      Months Ended December 31,
                      
                      
                      Six
      Months Ended December 31,2007
                      
                      
                      2008
                      
                      
                      2007
                      
                      
                      2008Sales
                      
                      $
                      4,765,884
                      
                      
                      $
                      3,081,709
                      
                      
                      $
                      8,757,517
                      
                      
                      $
                      8,130,756Cost
      of sales
                      
                      
                      3,357,096
                      
                      
                      
                      2,516,725
                      
                      
                      
                      6,566,410
                      
                      
                      
                      6,079,760Gross
      profit
                      
                      
                      1,408,788
                      
                      
                      
                      564,984
                      
                      
                      
                      2,191,107
                      
                      
                      
                      2,050,996Operating
      expenses:Selling,
      general and administrative
                      
                      
                      1,343,647
                      
                      
                      
                      1,302,374
                      
                      
                      
                      2,430,341
                      
                      
                      
                      2,642,336Amortization
      of intangible assets
                      
                      
                      28,349
                      
                      
                      
                      31,830
                      
                      
                      
                      49,734
                      
                      
                      
                      63,661Impairment
      of goodwill
                      
                      
                      -
                      
                      
                      
                      198,169
                      
                      
                      
                      -
                      
                      
                      
                      198,169Total
      operating expenses
                      
                      
                      1,371,996
                      
                      
                      
                      1,532,373
                      
                      
                      
                      2,480,075
                      
                      
                      
                      2,904,166Operating
      income (loss)
                      
                      
                      36,792
                      
                      
                      
                      (967,389
                      )
                      
                      
                      (288,968
                      )
                      
                      
                      (853,170
                      )Interest
      expense (a)
                      
                      
                      (29,364
                      )
                      
                      
                      (33,688
                      )
                      
                      
                      (74,865
                      )
                      
                      
                      (67,351
                      )Interest
      income
                      
                      
                      1,645
                      
                      
                      
                      2,375
                      
                      
                      
                      1,663
                      
                      
                      
                      4,750Gain
      on sale of assets
                      
                      
                      9,601
                      
                      
                      
                      16,125
                      
                      
                      
                      44,974
                      
                      
                      
                      16,657Income
      (loss) before income taxes
                      
                      
                      18,674
                      
                      
                      
                      (982,577
                      )
                      
                      
                      (317,196
                      )
                      
                      
                      (899,114
                      )Income
      tax (provision) benefit
                      
                      
                      (7,470
                      )
                      
                      
                      320,022
                      
                      
                      
                      132,590
                      
                      
                      
                      284,526Net
      income (loss)
                      
                      $
                      11,204
                      
                      
                      $
                      (662,555
                      )
                      
                      $
                      (184,606
                      )
                      
                      $
                      (614,588
                      )Net
      income (loss) per shareBasic
                      
                      $
                      0.00
                      
                      
                      $
                      (0.02
                      )
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.02
                      )Diluted
                      
                      $
                      0.00
                      
                      
                      $
                      (0.02
                      )
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.02
                      )Weighted
      average number of common shares used in per share
      calculations:Basic
      and diluted
                      
                      
                      28,011,956
                      
                      
                      
                      28,419,856
                      
                      
                      
                      27,856,667
                      
                      
                      
                      28,362,434(a)
      Related party interest expense included in this amount:
                      
                      $
                      7,959
                      
                      
                      $
                      9,895
                      
                      
                      $
                      18,032
                      
                      
                      $
                      27,927





See
accompanying Notes to Consolidated Financial Statements.




4




GATEWAY
INTERNATIONAL HOLDINGS, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)




For
      the Six Months Ended December 31,2007
                                                                                  
                                                                                  
                                                                                  2008Cash
      flows from operating activities:Net
      loss
                                                                                  
                                                                                  $
                                                                                  (184,606
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (614,588
                                                                                  )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Disposition
      of assets
                                                                                  
                                                                                  
                                                                                  (25,772
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (16,657
                                                                                  )Depreciation
                                                                                  
                                                                                  
                                                                                  255,195
                                                                                  
                                                                                  
                                                                                  
                                                                                  209,968Amortization
      of intangible assets
                                                                                  
                                                                                  
                                                                                  49,734
                                                                                  
                                                                                  
                                                                                  
                                                                                  63,661Stock-based
      compensation
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  13,743Imputed
      interest on related party notes
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,458Impairment
      of goodwill
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  198,169Changes
      in operating assets and liabilities:Accounts
      receivable
                                                                                  
                                                                                  
                                                                                  656,578
                                                                                  
                                                                                  
                                                                                  
                                                                                  800,499Inventories
                                                                                  
                                                                                  
                                                                                  (1,093,390
                                                                                  )
                                                                                  
                                                                                  
                                                                                  389,242Related
      party receivable
                                                                                  
                                                                                  
                                                                                  (12,564
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -Prepaid
      expenses and other assets
                                                                                  
                                                                                  
                                                                                  136,071
                                                                                  
                                                                                  
                                                                                  
                                                                                  (72,608
                                                                                  )Accounts
      payable and accrued expenses
                                                                                  
                                                                                  
                                                                                  138,853
                                                                                  
                                                                                  
                                                                                  
                                                                                  (255,909
                                                                                  )Customer
      deposits
                                                                                  
                                                                                  
                                                                                  524,512
                                                                                  
                                                                                  
                                                                                  
                                                                                  30,347Income
      taxes payable
                                                                                  
                                                                                  
                                                                                  147,004
                                                                                  
                                                                                  
                                                                                  
                                                                                  (187,954
                                                                                  )Deferred
      rent
                                                                                  
                                                                                  
                                                                                  68,454
                                                                                  
                                                                                  
                                                                                  
                                                                                  (6,640
                                                                                  )Deferred
      income taxes
                                                                                  
                                                                                  
                                                                                  (300,102
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (284,526
                                                                                  )Net
      cash provided by operating activities
                                                                                  
                                                                                  
                                                                                  359,967
                                                                                  
                                                                                  
                                                                                  
                                                                                  269,205Cash
      flows from investing activities:Capital
      expenditures
                                                                                  
                                                                                  
                                                                                  (188,247
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (28,227
                                                                                  )Deposits
      and other
                                                                                  
                                                                                  
                                                                                  35,777
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Net
      cash used in investing activities
                                                                                  
                                                                                  
                                                                                  (152,470
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (28,227
                                                                                  )Cash
      flows from financing activities:Net
      borrowings (repayments) on line of credit
                                                                                  
                                                                                  
                                                                                  (80,823
                                                                                  )
                                                                                  
                                                                                  
                                                                                  277,000Proceeds
      from issuance of notes payable
                                                                                  
                                                                                  
                                                                                  87,782
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Payments
      on notes payable
                                                                                  
                                                                                  
                                                                                  (40,507
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (125,851
                                                                                  )Payments
      on related party notes payable
                                                                                  
                                                                                  
                                                                                  (31,354
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (146,938
                                                                                  )Payments
      on capital leases
                                                                                  
                                                                                  
                                                                                  (104,581
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (43,547
                                                                                  )Net
      cash used in financing activities
                                                                                  
                                                                                  
                                                                                  (169,483
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (39,336
                                                                                  )Net
      change in cash and cash equivalents
                                                                                  
                                                                                  
                                                                                  38,014
                                                                                  
                                                                                  
                                                                                  
                                                                                  201,642Cash
      and cash equivalents at beginning of period
                                                                                  
                                                                                  
                                                                                  972,546
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,024,643Cash
      and cash equivalents at end of period
                                                                                  
                                                                                  $
                                                                                  1,010,560
                                                                                  
                                                                                  
                                                                                  $
                                                                                  1,226,285Supplemental
      disclosure of cash flow information:Cash
      paid for interest
                                                                                  
                                                                                  $
                                                                                  122,068
                                                                                  
                                                                                  
                                                                                  $
                                                                                  138,228Cash
      paid for income taxes
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  280,000Supplemental
      disclosure of non-cash investing and financing activities:Conversion
      of portion of line of credit to term loan
                                                                                  
                                                                                  $
                                                                                  500,000
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -Stock
      issued for creditor settlement
                                                                                  
                                                                                  $
                                                                                  63,000
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -Stock
      issued for acquisition of CNC Repos, Inc.
                                                                                  
                                                                                  $
                                                                                  440,000
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -Stock
      cancelled for repayment of note receivable
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  81,000Conversion
      of accrued interest into related party notes payable
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  97,817Capital
      expenditures acquired under capital leases and notes
    payable
                                                                                  
                                                                                  $
                                                                                  133,832
                                                                                  
                                                                                  
                                                                                  $
                                                                                  46,531Stock
      retired upon cancellation of note
                                                                                  
                                                                                  $
                                                                                  417
                                                                                  
                                                                                  
                                                                                  $
                                                                                  417




See
accompanying Notes to Consolidated Financial Statements.




5




GATEWAY
INTERNATIONAL HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008


(UNAUDITED)





1.
            Business





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





·
            Acquiring,
      refurbishing and selling new and used CNC machine-tool equipment through
      our All American CNC Sales, Inc. (“All American”) and Elite Machine Tool
      (“Elite”) subsidiaries (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).




Effective December 9, 2008, three
affiliate shareholders of the Company, Timothy D. Consalvi, ourformerChief Executive Officer and Director,
Joseph Gledhill, an Executive Vice President, Director and 10% shareholder, and
Lawrence A. Consalvi, a former officer and Director, and a 10% shareholder,
entered into a Stock Purchase Agreement (the “Agreement”) with a
third-party, Money Line Capital, Inc. (“Money
Line”), whereby Money Line agreed to purchase an aggregate of 11,850,000 shares
of the Company’s common stock held by the above named shareholders. These shares
represent approximately 43% of our outstanding common stock. The Company did not
issue any new shares of stock.


The
Company was not a party to the above transactions, however, did acknowledge
certain representations and warranties. The Company entered into several
ancillary agreements as a result of the above transaction. First, we terminated
our employment agreement with Timothy D. Consalvi for serving as our Chief
Executive Officer and agreed to pay him one of the two years of severance
required under his employment agreement, and entered into a new employment
agreement with Mr. Consalvi whereby he is currently employed by us as the
President of All American. Second, we consolidated the amounts owed to Mr.
Gledhill under previously issued promissory notes and accrued interest into one
$650,000 promissory note.  As of December 31, 2008, the Company
accrued $147,745 for unpaid amounts severance due which has been included in
accrued expenses in the accompanying consolidated balance sheet.





2.
            Basis
      of Presentation and Significant Accounting
  Policies





Basis
of Presentation


The
consolidated financial statements of Gateway 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. Notes to the
financial statements which would substantially duplicate the disclosures
contained in the audited financial statements for the most recent fiscal year
ended June 30, 2008 as reported in the Company's Form 10-K have been
omitted.  The results of operations for the three and six month periods
ended December 31, 2007 and 2008 are not necessarily indicative of the results
to be expected for the full year. All accounts and intercompany transactions
have been eliminated in consolidation. In the opinion of management, the
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, necessary to present fairly the Company's financial
position, results of operations and cash flows. These statements should be read
in conjunction with the financial statements and related notes which are part of
the Company's Annual Report on Form 10-K for the year ended June 30,
2008.




6


Valuation
of Long-lived Assets and Other Intangible Assets


Long-lived
assets consist primarily of our property, plant, and equipment. Purchased
intangible assets include customer relationship.  Intangible assets
are amortized using the straight-line method over estimated useful
lives.  Because all of intangible assets are subject to amortization,
the Company reviews these intangible assets for impairment in accordance with
the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of”.





The
Company reviews its individual intangible assets for impairment on an annual
basis or whenever events or changes in circumstances indicate that its carrying
amount may not be recoverable. A long-lived asset or other intangible asset is
considered impaired when its anticipated undiscounted cash flow is less than its
carrying value. In making this determination, the Company uses certain
assumptions, including, but not limited to: (i) estimates of the fair market
value of these assets; and (ii) estimates of future cash flows expected to be
generated by these assets, which are based mainly on sales projections. As of
December 31, 2008, the Company evaluated its intangible asset acquired in
connection with the CNC Repos, Inc. (“CNC Repos”).  Due to the recent
decline in the Company’s estimated stock price and economic downturn, an
impairment test was performed and based on that analysis, no impairment was
required.





Income
Taxes


Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.  The Company has determined its deferred tax assets
resulting from net operating losses will be utilized in future periods to offset
taxable income.





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 earnings per share
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. The
following computation sets forth the potentially dilutive shares which have been
excluded from the computation of diluted net loss per share since their effects
are anti-dilutive.





Three
      Months Ended December 31,
                          
                          
                          Six
      Months Ended December 31,2007
                          
                          
                          2008
                          
                          
                          2007
                          
                          
                          2008Unissued
      common stock subject to vesting
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          10,963




7




3.
            Concentrations





The
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 14 years and we believe our relationship is good.





Sales to
this customer accounted for consolidated sales for the three and six months
ended December 31, 2007 and 2008 as follows:





Three Months Ended December 31,
                  
                  
                  Six Months Ended December 31,2007
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2008Percent
      of sales
                  
                  
                  28
                  %
                  
                  
                  21
                  %
                  
                  
                  29
                  %
                  
                  
                  37
                  %Number
      of customers
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  1





4.
            Inventories





Inventories
consist of the following at:


June
      30,
                          
                          
                          December
      31,2008
                          
                          
                          2008Finished
      components and parts
                          
                          $
                          612,825
                          
                          
                          $
                          607,029CNC
      machines held for sale
                          
                          
                          740,421
                          
                          
                          
                          295,804Work
      in process
                          
                          
                          116,832
                          
                          
                          
                          271,023Raw
      materials and parts
                          
                          
                          251,211
                          
                          
                          
                          211,866$
                          1,721,289
                          
                          
                          $
                          1,385,722





5.
            Goodwill




Goodwill represents the excess of the
purchase price of an acquired business or assets over the fair value of the
identifiable assets acquired and liabilities assumed. The Company evaluates its
goodwill for impairment in the period in which the anniversary date for the
transaction which gave rise, or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. During the three months
ended December 31, 2008, the Company tested for impairment of its goodwill
arising from the acquisition of CNC Repos, Inc. (“CNC Repos”).


The
Company performed it impairment test for CNC Repos as prescribed by SFAS No.
142, “Goodwill and Other Intangible Assets” which provided an indicator that
goodwill impairment is probable.  Accordingly, the Company performed
step two of the SFAS 142 impairment analysis to determine the amount of goodwill
impairment to be recorded.  The amount was calculated by comparing the
implied fair value of the goodwill to its carrying amount.  This
exercise required the Company to allocate the fair value determined in step one
to the individual assets and liabilities of the reporting unit.  Any
remaining fair value would be the implied fair value of goodwill on the testing
date.   Based on its analysis, the Company determined that the
carrying value exceeded the fair value, and therefore, an impairment charge of
$198,169 was recognized during the three months ended December 31,
2008.




8




The
determination as to whether a write-down of goodwill is necessary involves
significant judgment based on the short-term and long-term projections of the
future performance of the reporting unit to which the goodwill is
attributed.  The impairment was attributable to (i) lower internal
sales forecast and cash flows attributable to the current economic environment
which has negatively impacted the ability of our customers to obtain financing
for capital purchases and (ii) a decline the Company’s stock price since the
date of acquisition.





6.
            Accrued
      Expenses





Accrued
expenses consist of the following at:


June
      30,
                        
                        
                        December
      31,2008
                        
                        
                        2008Compensation,
      benefits and related
                        
                        $
                        160,071
                        
                        
                        $
                        304,884Severance
      due to Larry Consalvi
                        
                        
                        —
                        
                        
                        
                        165,215Other
                        
                        
                        53,681
                        
                        
                        
                        49,535$
                        213,752
                        
                        
                        $
                        519,634





7.
            Line
      of Credit and Notes Payable





Pacific
Western Bank Credit Agreement


On August
21, 2006, the Company entered into credit agreement with Pacific Western Bank
(“PWB”). The credit agreement provides for borrowings of up to $1,500,000
through a line of credit. On November 15, 2007, the credit agreement was amended
to reduce the amount available under the line of credit to $1,000,000 and to
convert $500,000 of outstanding principal into a term loan. On September 29,
2008, the Company renewed the credit agreement through September 21, 2009. Two
of the Company’s officers and directors, Joseph Gledhill and Timothy Consalvi,
are guarantors under the credit agreement.





The line
of credit has a stated interest rate equal to the lender's referenced prime rate
plus 1.5%. Interest is payable monthly with the outstanding principal balance
due on September 21, 2009. The amount available for borrowings is determined
based on a monthly basis based on 80% of eligible accounts receivable, as
defined. As of December 31, 2008, the Company also has an irrevocable letter of
credit outstanding of $100,000. The proceeds from the line of credit have been
used for working capital needs.





The term
loan provides for borrowings of up to $500,000. The loan has a stated interest
rate equal to the lender's referenced prime rate plus 1.5%. Principal and
interest payments are payable monthly.





The amount available for borrowings
under the line of credit is determined on a monthly basis based on 80% of
eligible accounts receivable, less the amount outstanding under the letter of
credit, as defined. 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.As of December 31, 2008, the balance
outstanding under the line of credit exceeded the borrowing base amount by
$52,000.  On February 11, 2009, the Company repaid the $52,000 that
exceeded the borrowing base amount.


9




As of
December 31, 2008, the
Companydid notmeet itsminimum tangible net worthcovenant, as set forth in
thecredit
agreement.  The following sets forththemeasurement of the covenant as of
December 31, 2008.




Covenant
                        
                        MeasurementMaintain a minimum tangible net
      worth of $2,500,000, to be evaluated
      quarterly;
                        
                        $
                        2,316,367





On February 12, 2009, the Company
received a letter of forbearance from Pacific Western Bank, pursuant to which
Pacific Western Bank agreed to forbear, on a day-to-day basis, from exercising
the rights and remedies available to it under the credit agreement for the
Company’s failure to meet the above-listed covenant.  The forbearance
shall cease upon the earlier of: (i) March 31, 2009; (ii) the occurrence of any
additional Event of Default under the credit agreement; or (iii) the covenant is
changed in a new credit agreement entered into with any renewal of the line of
credit.
  Related
Party Note Payable


On
December 8, 2008, the Company amended the terms of a notes payable together with
accrue interest due to Joseph Gledhill totaling $644,025 (“Original Note”) due
January 31, 2009 into a note for $650,000 (“Amended Note”).  Under the
terms of the Amended Note, the principal balance is to be repaid as follows: (i)
$200,000 on January 31, 2009, (ii) $100,000 per month from February 2009 through
April 2009 and (iii) $150,000 on May 31, 2009. The Amended Note bears interest
at a rate of 8% per annum in the event the Company does not make the principal
payments in accordance with their due dates.  The Company has imputed
an interest rate of 8%.





In
accordance with Emerging Issues Task Force 96-19, “Debtor’s Accounting for a
Modification or Exchange of Debt Instruments”, the Company determined the change
in the present value of the expected cash flows between the Amended Note and the
Original Notes was less than 10%; therefore for financial reporting purposes,
the amendment to the Original Note was treated as a modification of
debt.  Accordingly, no gain or loss was recorded as a result of the
modification.





8.
            Litigation


1.           Onofrio Saputo and
Christopher Frisco v. Gateway International Holdings, Inc.,LawrenceConsalvi, Timothy
Consalvi and Joe Gledhill,Court of the State ofCalifornia,CountyofOrange, Case No.
30-2008-00110905.  Plaintiffs filed this action on August 21,
2008.
 
 TheComplaint, which has causes of action for
securities fraud, breach of fiduciary duties, fraud and deceit, and rescission,
alleges that the defendants intentionally misrepresented, or failed to disclose,
certain facts regarding the company prior to the plaintiffs purchasing Gateway
International Holdings, Inc. common stock.  TheComplaintseeks total monetary damages of
approximately $188,415, plus interest, and punitive damages.The Company filed
an Answer to the Complaint on October 17, 2008, denying the allegations of the
Complaint, denying that plaintiffs are entitled to any relief whatsoever and
asserting various affirmative defenses.  A trial date has not yet been
scheduled and the Court has set a Case Management Conference for February 23,
2009.  No amounts have been accrued for this matter in the
accompanying consolidated financial statements.
 
 The
Company’s management believes it has meritorious defenses to the plaintiff’s
claims and plans to vigorously defend against the lawsuit.  However,
there can be no assurance as to the outcome of the lawsuit. Litigation is
subject to inherent uncertainties, and unfavorable rulings could
occur.  If an unfavorable ruling were to occur, there could be a
material adverse effect on our financial condition, results of operations or
liquidity.  The Company has reached an agreement in principal with the
plaintiffs to settle this matter but no definitive settlement agreement has been
signed.
 
 2.          Voicu Belteu v. Mori Seiki Co.,
Ltd.; Mori Seiki U.S.A., Inc.; All American CNC Sales, Inc. dba Elite Machine
Tool Company; Ellison Manufacturing Tech., Superior Court for the State of
California, County of Orange, Case No. 30-2008-00103710. Plaintiff filed this
action on March 7, 2008.
 
 The Complaint, which has causes of
action for strict products liability and negligence, alleges that a CNC machine
manufactured by Mori Seiki and sold through the Company’s 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.  The Company filed cross-complaints
against several individuals and entities involved in the machine purchase and
sales transaction, seeking indemnity, contribution, and damages based on other
legal theories.   The Company filed an Answer to the Complaint
along with the various aforementioned cross-complaints.  Some of the
cross-defendants are seeking to dismiss certain claims we have brought against
them, which will be before the Court shortly.   Discovery has
commenced in this action both by the Company and by some of the other parties
but substantial discovery work remains, including depositions of various
witnesses.  The Company’s management believes it has meritorious
defenses to plaintiff’s claims and plans to vigorously defend against the
lawsuit and pursue Mori Seiki, and possibly other entities or individuals, for
any damages the Company incurs.  However, there can be no assurance as
to the outcome of the lawsuit.  No amounts have been accrued for this
matter in the accompanying consolidated financial
statements.
 3.          James M. Cassidy v. Gateway
International Holdings, Inc., American Arbitration Association, Case No.
73-194-32755-08.  The Company was served with a Demand for Arbitration
and Statement of Claim, which was filed on September 16,
2008.
 
 The
Statement of Claim alleges that claimant is an attorney who performed services
for the Company pursuant to an agreement dated April 2, 2007 between the Company
and the claimant.  The Statement of Claim alleges the Company breached the
agreement and seeks compensatory damages in the amount of $195,000 plus
interest, attorneys’ fees and costs.  The Company denies the allegations of
the Statement of Claim and will vigorously defend against these
allegations.  An arbitrator has not yet been selected, and a trial date has
not yet been scheduled.  The parties have informally agreed to attend
mediation in order to discuss a potential resolution of the matter, which should
occur in the next 60 days.  The parties have agreed to stay
arbitration pending completion of mediation.  No amounts have been
accrued for this matter in the accompanying consolidated financial
statements.
 4.          Elite Machine Tool Company v. ARAM
Precision Tool and Die, Avi Amichai, Superior Court for the State ofCalifornia,CountyofOrange, Case No. 30-2008-00090891. Elite
Machinefiled this action
onAugust 8, 2008.
 
 The
Complaint alleges breach of contract for the defendants failing to pay Elite
Machine for a machine the defendants purchased from Elite Machine, and seeks
damages totaling $16,238. ARAM Precision Tool and Die filed its Answer and
Cross-Complaint on October 1, 2008.  The Cross-Complaint alleges that
Elite Machine failed to deliver certain parts of the machine per the sales
contract and seeks damages totaling $25,000.  Plaintiff and Defendant
have both served and discovery, respectively, and are now engaging in the meet
and confer process to resolve any outstanding discovery
issues.  Management believes the machine was sold to ARAM as
represented and thus ARAM’s claims have no merit and intends to vigorously
defend against the Cross-Complaint.  Trial has been set for May 4,
2009.  No amounts have been accrued for this matter in the
accompanying consolidated financial statements.
 
 5.          RACL, Inc. 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 RACL by failing to deliver a
machine that conforms to the specifications requested by RACL, and requests
damages totaling $138,750.  Elite Machine filed a timely
Answer.  Discovery has commenced in this matter but is not expected to
be concluded for several months.   The Court has set a Case
Management Conference for April 2, 2009.  Management intends to
aggressively defend itself against this claim.  No trial date has been
set.  No amounts have been accrued for this matter in the accompanying
consolidated financial statements.
  6.           All American CNC v. Sunbelt
Machine, Orange County Superior Court, Case No.
0-2008-00112502.  All American filed the Complaint on September 25,
2008.  No trial date has been set.
  This case
involves a dispute between All American and Sunbelt regarding the sale of a Mori
Seiki MH-63 machine by All American to Sunbelt.  Sunbelt has claimed
that it received a machine that does not conform to the specifications it
ordered.  The amount at issue is approximately $140,000 at this
stage.   Subsequent to filing of the above-referenced suit,
Sunbelt filed a similar action in Federal District Court in Houston,
Texas.  All American plans to seek to transfer and consolidate the
federal case into the State of California case in Orange County,
California.  Discovery has not commenced.  All American
anticipates substantial law and motion activity in this case prior to
commencement of discovery.  Management believes that the machine
delivered to Sunbelt was conforming and Sunbelt’s claims are without
merit.  Management intends to vigorously defend this
claim.  No amounts have been accrued for this matter in the
accompanying consolidated financial statements.


9.
            Common
      Stock





During
the quarter ended September 30, 2008, the Company cancelled 416,689 shares of
common stock previously issued to secure a repaid promissory note.





On
October 6, 2008, Mr. Lawrence Consalvi returned and the Company cancelled shares
400,000 shares of common stock in exchange for the cancellation of amounts due
to the Company.




10




10.
            Related
      Party Transactions





In
connection with the close of the Company’s financial statements for the year
ended June 30, 2008, the Company discovered it paid Lawrence Consalvi for
certain expenses submitted for reimbursement. Due to the lack of documentation
surrounding the nature of the expense, Mr. Consalvi agreed to reimburse the
Company $81,000 or return 400,000 shares of the Company’s common stock. On
October 6, 2008, Mr. Consalvi returned 400,000 shares of common stock in
exchange for the cancellation of amounts due to the Company.  There
was no gain or loss recognized on this transaction.





On
September 26, 2008, the Company entered into a separation agreement with
Lawrence Consalvi, the Company’s former Executive Vice President, former
Director and shareholder. In connection with this agreement, the Company is
required provide severance payments to be paid over a nine-month period. The
payments consist of salary, health insurance and a car allowance. The remaining
obligations have been included in accrued expenses in the accompanying
consolidated balance sheet.





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.





Three
      Months EndedDecember
                    
                    Machine
      Sales
                    
                    
                    Precision
      Manufacturing
                    
                    
                    Corporate
                    
                    
                    Total31,
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2008Revenues
                    
                    $
                    3,324,896
                    
                    
                    $
                    1,897,678
                    
                    
                    $
                    1,440,988
                    
                    
                    $
                    1,184,031
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    4,765,884
                    
                    
                    $
                    3,081,709Income
      (loss) before taxes
                    
                    
                    102,246
                    
                    
                    
                    (428,495
                    )
                    
                    
                    194,798
                    
                    
                    
                    (15,689
                    )
                    
                    
                    (278,370
                    )
                    
                    
                    (538,393
                    )
                    
                    
                    18,674
                    
                    
                    
                    (982,577
                    )








Six
      Months Ended
                
                Machine
      Sales
                
                
                Precision
      Manufacturing
                
                
                Corporate
                
                
                TotalDecember
      31,
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008Revenues
                
                $
                6,228,331
                
                
                $
                5,148,584
                
                
                $
                2,529,186
                
                
                $
                2,982,172
                
                
                $
                -
                
                
                $
                -
                
                
                $
                8,757,517
                
                
                $
                8,130,756Income
      (loss) before taxes
                
                
                178,830
                
                
                
                (539,039
                )
                
                
                240,914
                
                
                
                543,368
                
                
                
                (736,940
                )
                
                
                (903,443
                )
                
                
                (317,196
                )
                
                
                (899,114
                )





Sales are derived principally from
customers located within theUnited States.


11




12.
            Subsequent
      Events





On
January 10, 2008, the Company entered into a promissory note agreement in the
amount of $100,000 with a shareholder of the Company, Onofrio Saputo (“Saputo”)
who is also the brother in-law to Larry Consalvi, the Company’s former Executive
Vice President and former member of the Company’s board of directors. The note
was due on or before January 10, 2009 and is secured by 357,142 shares of common
stock of the Company. The note bears interest at a rate of 9.25% per annum and
is payable upon maturity of the note.





On
January 22, 2009, the Company, Saputo and Money Line entered into an agreement
whereby Money Line agreed to purchase the promissory note from the Company for
$100,000 and to purchase the underlying shares of common stock in exchange for a
settlement and mutual release between the above parties.  This
transaction is set to close within five business days after both parties confirm
they have the documentation required under the agreement.  This
confirmation has not occurred and the transaction has not closed.




12




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





This
quarterly report on Form 10-Q of Gateway International Holdings, Inc.
(“Gateway”, “we,” “us” or “Company”) for the three months ended December 31,
2008, contains forward-looking statements, principally in this Section and
“Business.” Generally, you can identify these statements because they use words
like “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and
similar terms. These statements reflect only our current expectations. Although
we do not make forward-looking statements unless we believe we have a reasonable
basis for doing so, we cannot guarantee their accuracy and actual results may
differ materially from those we anticipated due to a number of uncertainties,
many of which are unforeseen, including, among others, the risks we face as
described in this filing. You should not place undue reliance on these
forward-looking statements which apply only as of the date of this quarterly
report. These forward-looking statements are within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and are intended to be covered by the safe
harbors created thereby. To the extent that such statements are not recitations
of historical fact, such statements constitute forward-looking statements that,
by definition, involve risks and uncertainties. In any forward-looking statement
where we express an expectation or belief as to future results or events, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation of belief will be accomplished.





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





Overview





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





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




13




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 14 years and we believe our relationship is good.





Sales to
this customer accounted for consolidated sales for the three and six months
ended December 31, 2007 and 2008 as follows:





Three
      Months Ended December 31,
                  
                  
                  Six
      Months Ended December 31,2007
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2008Percent
      of sales
                  
                  
                  28
                  %
                  
                  
                  21
                  %
                  
                  
                  29
                  %
                  
                  
                  37
                  %Number
      of customers
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  1





Trends
Affecting Our Business





The
recent tightening of the capital markets has adversely affected our sales of new
and used CNC machines. Historically, as capital markets tighten, companies
finance the purchases capital equipment on credit, such as the CNC machines we
sell. Our customers are having more difficulty in obtaining credit and,
therefore, are unable to purchase machines that they may be able to purchase in
better financial times.





On
September 30, 2008, Mr. Lawrence A. Consalvi resigned from his position as one
of our Directors and as an Executive Vice President, as well as from all officer
and director positions he held with our subsidiaries. Mr. Consalvi continues to
work with us selling CNC machines, but as an independent sales agent. If Mr.
Consalvi elected to stop selling machines for us, it would have a negative
impact on our business.





The
primary components sold by our Precision Manufacturing segment are parts sold to
Panasonic, a leading provider of in-flight entertainment systems for commercial
aircraft.  In early September 2008, Boeing Co.’s (“Boeing”) largest
labor union went on strike, causing Boeing to immediately halt its production of
aircraft. The strike was settled on November 1, 2008. As a result of the strike,
Boeing delivered five commercial aircraft in October 2008 and 12 in September
2008, down from 36 in both July and August 2008. Although the strike has ended
there is no timetable as to when production levels will be restored to
pre-strike numbers. The Boeing strike and the current economic climate has an
adverse affect on Panasonic’s orders to us, and has resulted in delays in
scheduled shipment of products which has had a negative effect on our business
during the three months ended December 31, 2008.





The
operating results within our Precision Manufacturing segment are characterized
by relatively high fixed costs. Increases and decreases in our production
activity result in the allocation of fixed manufacturing costs over a larger or
reduced number of parts, which yields lower or higher per unit costs. As a
result, our manufacturing activity can significantly affect our gross profit
margin and the valuation of our inventory. Our manufacturing rates have varied
from period to period based on production capacity which is drive by market
demand.




14




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, utilization of
deferred tax assets, 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.





Accounting
for Income Taxes





We
account for income taxes under the provisions of SFAS No. 109, “Accounting
for Income Taxes”. Under this method, we determine deferred tax assets and
liabilities based upon the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to affect taxable income. The tax
consequences of most events recognized in the current year's financial
statements are included in determining income taxes currently payable. However,
because tax laws and financial accounting standards differ in their recognition
and measurement of assets, liabilities, equity, revenues, expenses, gains and
losses, differences arise between the amount of taxable income and pre-tax
financial income for a year and between the tax bases of assets or liabilities
and their reported amounts in the financial statements. Because it is assumed
that the reported amounts of assets and liabilities will be recovered and
settled, respectively, a difference between the tax basis of an asset or a
liability and its reported amount on the consolidated balance sheet will result
in a taxable or a deductible amount in some future years when the related
liabilities are settled or the reported amounts of the assets are recovered. We
then assess the likelihood that our deferred tax assets will be recovered from
future taxable income and unless we believe that recovery is more likely than
not, we must establish a valuation allowance.




15




Valuation
of Long-lived Assets and Other Intangible Assets





Long-lived
assets consist primarily of our property, plant, and equipment. Purchased
intangible assets include customer relationship.  Intangible assets
are amortized using the straight-line method over estimated useful
lives.  Because all of intangible assets are subject to amortization,
we review these intangible assets for impairment in accordance with the
provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of”.





Goodwill





Goodwill represents the excess of the
purchase price of an acquired business or assets over the fair value of the
identifiable assets acquired and liabilities assumed. We evaluate our goodwill
for impairment in the period in which the anniversary date for the transaction
which gave rise, or whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. During the three months ended
December 31, 2008, we tested for impairment of its goodwill arising from the
acquisition of CNC Repos,
Inc. (“CNC
Repos”).


We
performed our impairment test for CNC Repos as prescribed by SFAS No. 142,
“Goodwill and Other Intangible Assets” which provided an indicator that goodwill
impairment was probable.  Accordingly, we performed step two of the
SFAS 142 impairment analysis to determine the amount of goodwill impairment to
be recorded.  The amount was calculated by comparing the implied fair
value of the goodwill to its carrying amount.  This exercise required
us to allocate the fair value determined in step one to the individual assets
and liabilities of the reporting unit.  Any remaining fair value would
be the implied fair value of goodwill on the testing date.  Based on
its analysis, management determined that the carrying value exceeded the fair
value, and therefore, an impairment charge of $198,169 was recognized during the
three months ended December 31, 2008.





The
impairment was attributable to (i) lower internal sales forecast and cash flows
attributable to the current economic environment which has negatively impacted
the ability of our customers to obtain financing for capital purchases and (ii)
a decline the our estimated fair value of our stock price since the date of
acquisition.




Fair
Value Accounting





Effective
July 1, 2008, we adopted Statement of Financial Accounting Standard (“SFAS,
No. 157”), “Fair Value Measurements”, to account for our financial assets
and liabilities. SFAS No. 157 provides a framework for measuring fair
value, clarifies the definition of fair value and expands disclosures regarding
fair value measurements. SFAS No. 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability (an exit
price) in an orderly transaction between market participants at the reporting
date. The standard establishes a three-tier hierarchy, which prioritizes the
inputs used in the valuation methodologies in measuring fair value:




·
            Level
      1 - Observable quoted prices for identical instruments in active
      markets;


·
            Level
      2 - Observable quoted prices for similar instruments in active markets,
      observable quoted prices for identical or similar instruments in markets
      that are not active and model-derived valuations in which all significant
      inputs and significant value drivers are observable in active markets;
      or


·
            Level
      3 - Valuations derived from valuation techniques in which one or more
      significant inputs or significant value drivers are
      unobservable.





We do not
have financial assets or liabilities, as defined under SFAS No.
157.




16





Results
of Operation





Three Months Ended December 31,
                
                
                Three Months Ended December 31, 20082007
                
                
                2008
                
                
                Change ($)
                
                
                Change (%)Sales
      by segment:Machine
      Sales
                
                $
                3,324,896
                
                
                $
                1,897,678
                
                
                $
                (1,427,218
                )
                
                
                -43
                %Precision
      Manufacturing
                
                
                1,440,988
                
                
                
                1,184,031
                
                
                
                (256,957
                )
                
                
                -18
                %4,765,884
                
                
                
                3,081,709
                
                
                
                (1,684,175
                )
                
                
                -35
                %Gross
      profit by segment:Machine
      Sales
                
                
                795,643
                
                
                
                234,393
                
                
                
                (561,250
                )
                
                
                -71
                %Precision
      Manufacturing
                
                
                613,145
                
                
                
                330,591
                
                
                
                (282,554
                )
                
                
                -46
                %1,408,788
                
                
                
                564,984
                
                
                
                (843,804
                )
                
                
                -60
                %Gross
      margin by segmentMachine
      Sales
                
                
                24
                %
                
                
                12
                %
                
                
                
                
                
                
                -12
                %Precision
      Manufacturing
                
                
                43
                %
                
                
                28
                %
                
                
                
                
                
                
                -15
                %





Six Months Ended December 31,
                
                
                Six Months Ended December 31, 20082007
                
                
                2008
                
                
                Change ($)
                
                
                Change (%)Sales
      by segment:Machine
      Sales
                
                $
                6,228,331
                
                
                $
                5,148,584
                
                
                $
                (1,079,747
                )
                
                
                -17
                %Precision
      Manufacturing
                
                
                2,529,186
                
                
                
                2,982,172
                
                
                
                452,986
                
                
                
                18
                %8,757,517
                
                
                
                8,130,756
                
                
                
                (626,761
                )
                
                
                -7
                %Gross
      profit by segment:Machine
      Sales
                
                
                1,318,899
                
                
                
                834,030
                
                
                
                (484,869
                )
                
                
                -37
                %Precision
      Manufacturing
                
                
                872,208
                
                
                
                1,216,966
                
                
                
                344,758
                
                
                
                40
                %2,191,107
                
                
                
                2,050,996
                
                
                
                (140,111
                )
                
                
                -6
                %Gross
      margin by segmentMachine
      Sales
                
                
                21
                %
                
                
                16
                %
                
                
                
                
                
                
                -5
                %Precision
      Manufacturing
                
                
                34
                %
                
                
                41
                %
                
                
                
                
                
                
                6
                %





Results
of Operation for the Three Months Ended December 31, 2007 Compared to the Three
Months Ended December 31, 2008





Sales





Sales in the fiscal 2009 period
decreased 7% from the comparable period in fiscal 2008. The change is
attributable to an 18% increaseinsales within the Precision
Manufacturing Group, offset by a 17% decline in sales within the Machine Sales
Group.


During the 2009 period, the Precision
Manufacturing Group’s sales were adversely impacted by lower shipments to our
single largest customer, Panasonic which we believe are due to the Boeing strike
and the current economic climate which has resulted in delays in scheduled
shipment ofparts.


During the 2009 period, the Machine
Sales Group experienced lower unit sales due to the recent tightening of credit
which made it more difficult forourcustomers to obtain credit to purchase
both new and used CNC machines.


17





Gross
Margin





Gross
profit decreased by 60% in the fiscal 2009 period from the comparable period in
fiscal 2008. Gross margin decreased by 12% to 18%. The change resulted from
lower gross margins from both the Precision Manufacturing and Machine Sales
Groups.





The
decrease within the Precision Manufacturing Group resulted from lower production
activity in the 2009 period. The lower production activity impacted gross
margins as follow (as a percent of sales):





·
            9%
      increase resulting in underutilization of direct
  labor;


·
            4%  increase
      outside services; and


·
            5%
      increase in direct overhead.




Selling,
General & Administrative





Selling,
general and administrative costs increased by $41,273 compared to the comparable
period in fiscal 2008. The increase was attributable to nonrecurring
compensation related obligations of approximately $260,000 incurred during the
2009 period and the absence of management bonuses.  During the 2008
period, management bonuses totaled approximately $171,600.





Impairment
of Goodwill





During
the fiscal 2009 period, we recorded an impairment charge for goodwill of
$198,169 compared to $0 for the comparable period in fiscal 2008.





Interest
Expense





Interest
expense increased by $4,324 compared to the comparable period in fiscal 2008.
The change is attributable to higher average debt balances, partially offset by
decreases in the variable interest rates on certain debt obligations, primarily
our line of credit.





Gain
on Sale of Assets





During
the fiscal 2009 and 2008 periods, we recognized gains from the sale of assets as
we sold certain manufacturing equipment within the Precision Manufacturing
Group.





Income
Tax Benefit





During
the 2009 period, the effective tax benefit rate was 33%.  The
significant components contributing the decrease from our statutory tax rate
included the non-deductibility of the impairment of goodwill; partially offset
by timing differences for certain accrued liabilities which impacted the tax
benefit rate by a decrease of 20% and an increase of 33%,
respectively.





18




Results
of Operation for the Six Months Ended December 31, 2007 Compared to the Six
Months Ended December 31, 2008





Sales





Sales in
the fiscal 2009 period decreased 7% from the comparable period in fiscal 2008.
The change is attributable to an 18% increase sales within the Precision
Manufacturing Group, offset by a 17% decline in sales within the Machine Sales
Group.





During
the second quarter of fiscal 2009 sales within both the Precision Manufacturing
and Machine Sales Groups were adversely impacted. The decline within the
Precision Manufacturing Group resulted from lower shipments to our single
largest customer, Panasonic which we believe are due to the Boeing strike and
the current economic climate which has resulted in delays in scheduled shipment
of products.





During
second quarter of 2009 period, the Machine Sales Group experienced lower unit
sales due to the recent tightening of credit which made it more difficult for
customers to obtain credit to purchase both new and used CNC
machines.





Gross
Margin





Gross
profit decreased by 6% in the fiscal 2009 period from the comparable period in
fiscal 2008. Gross margin remained flat at 25%. During this period, gross
margins increased by 6% within the Precision Manufacturing due to higher
manufacturing activity during the 2009 period. During the 2009 period, gross
margins within the Machine Tools Group declined by 5% primarily resulting from
higher refurbishment costs.




Selling,
General & Administrative





Selling,
general and administrative costs increased by $211,995 compared to the
comparable period in fiscal 2008. The increase was attributable to nonrecurring
compensation and severance obligations of approximately $417,000 incurred during
the 2009 period and the absence of management bonuses.  During the
2008 period, management bonuses totaled approximately $171,600.





Impairment
of Goodwill





During
the fiscal 2009 period, we recorded an impairment charge for goodwill of
$198,169 compared to $0 for the comparable period in fiscal 2008.





Interest
Expense





Interest
expense decreased by $7,514 compared to the comparable period in fiscal 2008.
The change is attributable to higher average debt balances, offset by decreases
in the variable interest rates on certain debt obligations, primarily our line
of credit.





Gain
on Sale of Assets





During
the fiscal 2009 and 2008 periods, we recognized gains from the sale of assets as
we sold certain manufacturing equipment within the Precision Manufacturing
Group.





Income
Tax Benefit





During
the 2009 and 2008 periods, the effective tax benefit rates were 31.5% and
41.6%.  The significant components contributing the decrease from our
statutory tax rate during the 2009 period included the non-deductibility of the
impairment of goodwill; partially offset by timing differences for certain
accrued liabilities.


19





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 Joseph
Gledhill, an executive officer of ours, and Pacific Western Bank (“PWB”). In
addition, on February 23, 2007, we received net proceeds from the sale of our
Precision Manufacturing Group’s facility of $1,926,605, of which $641,667 was
used to repay the balance outstanding on a credit facility secured by the
building. At December 31, 2008, our cash and cash equivalents increased by
$201,642 and our working capital decreased by $637,258 from the June 30, 2008
amounts, respectively.





At
December 31, 2008, we had $926,445 in debt outstanding under our credit
agreement with Pacific Western Bank, an increase of $193,667 from June 30, 2008.
The credit agreement provides for borrowings of up to $1,500,000 consisting of a
$1,000,000 line of credit and letter of credit and a $500,000 term loan and a
letter of credit. The amount outstanding under the line of credit, term loan and
letter of credit are $607,000, $319,445 and $100,000, respectively. The credit
agreement is currently secured by substantially all of our assets and personal
guarantees by two of our executive officers, Joseph Gledhill and Timothy
Consalvi.





The amount available for borrowings
under the line of credit is determined on a monthly basis based on 80% of
eligible accounts receivable, less the amount outstanding under the letter of
credit, as defined. 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.As of December 31, 2008, the
balance outstanding under the line of credit exceeded the borrowing base amount
by $52,000.  On February 11, 2009, we repaid the $52,000 that exceeded
the borrowing base amount.





As of December 31, 2008, we did not meet
minimum tangible net worth covenant, as set forth in our credit
agreement.  The following sets forth our measurement of the covenant
as of December 31, 2008.





Covenant
                        
                        MeasurementMaintain a minimum tangible net
      worth of $2,500,000, to be evaluated
      quarterly;
                        
                        $
                        2,316,367





On February12, 2009, we received aletter of forbearance from Pacific
Western Bank, pursuant to which Pacific Western Bank agreed to forbear, on a
day-to-day basis, from exercising the rights and remedies available to it under
the credit agreement for our failure to meet the above-listed
covenant  The forbearance shall cease upon the earlier of: (i) March
31, 2009; (ii) the occurrence of any additional Event of Default under the
credit agreement; or (iii) the covenant is changed in a new credit agreement
entered into with any renewal of the line of
credit.If, in the future, we are not able
maintain our financial covenants, we may be required to repay the outstanding
balance which would have a material adverse impact to our
liquidity.  20





Cash
Flows





The
following table sets forth our cash flows for the six months ended December
31:





Provided
      by (used in)
                    
                    2007
                    
                    
                    2008
                    
                    
                    ChangeOperating
      activities
                    
                    $
                    359,967
                    
                    
                    $
                    269,205
                    
                    
                    $
                    (90,762
                    )Investing
      activities
                    
                    
                    (152,470
                    )
                    
                    
                    (28,227
                    )
                    
                    
                    124,243Financing
      activities
                    
                    
                    (169,483
                    )
                    
                    
                    (39,336
                    )
                    
                    
                    130,147$
                    38,014
                    
                    
                    $
                    201,642
                    
                    
                    $
                    163,628





Operating
Activities





Operating
cash flows during the fiscal 2008 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 2009 period, non-cash expenses included in our results of operations and in
operating activities totaled $471,342 and $279,157 in the 2008 period. The
increase was primarily to the impairment of goodwill charge during the 2009
period totaling $198,169.


The increase in operating assets and
liabilities for the 2008
and 2009 periods were $265,416and $412,451, respectively. During the 2009 period,
the increase in operating resulted from lower accounts receivable, inventory and
accounts payable balances. The change in accounts receivable is lower sequential
sales within both the Machine Sales and Precision Manufacturing segments while
the change in inventory and accounts payable are due to the reduction of CNC
machine inventory.


The
changes in operating assets for the 2008 period were primarily attributable a
reduction in accounts receivable, offset increases in inventory and customer
deposits. The changes in inventory resulting purchases of CNC machines for
customer deposits received and for forecasted demand.





Investing
Activities





We made
capital expenditures of $188,247 and $28,227 during the first six months of the
fiscal 2008 and 2009 periods, respectively. During the 2008 period, our
expenditures primarily consisted of equipment employed by our Precision
Manufacturing Group.





Financing
Activities





During
the first six months of the fiscal 2008 and 2009 periods, we repaid (net of
borrowings) $169,483 and $39,336, respectively of outstanding debt and capital
lease obligations. During the 2009 period, we borrowed a total of $277,000 on
our line of credit, as compared to $80,823 of net repayments during the 2008
period.





Off
Balance Sheet Arrangements





We have
no off balance sheet arrangements.


21





ITEM
      3.
            Quantitative
      and Qualitative Disclosures about Market
Risk.





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





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





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





ITEM
      4T.
            Controls
      and Procedures.





Disclosure Controls and
Procedures





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures were effective as of December 31, 2008 in alerting them in a
timely manner to material information required to be disclosed by us in the
reports we file with or submit to the Securities and Exchange Commission under
the Securities Exchange Act of 1934.





Changes in Internal Control over
Financial Reporting





There has
been no change in our internal control over financial reporting during the
second quarter of fiscal 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.


22


PART II – OTHER INFORMATION





ITEM
      1.
            Legal
      Proceedings.





1.           Onofrio Saputo and Christopher
Frisco v. Gateway International Holdings, Inc., Lawrence Consalvi, Timothy
Consalvi and Joe Gledhill,Court of the State of California, County of
Orange, Case No. 30-2008-00110905.  Plaintiffs filed this action on
August 21, 2008.





TheComplaint, which has causes of action for
securities fraud, breach of fiduciary duties, fraud and deceit, and rescission,
alleges that the defendants intentionally misrepresented, or failed to disclose,
certain facts regarding the company prior to the plaintiffs purchasing Gateway
International Holdings, Inc. common stock.  TheComplaintseeks total monetary damages of
approximately $188,415, plus interest, and punitive damages.We filed an Answer
to the Complaint on October 17, 2008, denying the allegations of the Complaint,
denying that plaintiffs are entitled to any relief whatsoever and asserting
various affirmative defenses.  A trial date has not yet been scheduled and
the Court has set a Case Management Conference for February 23,
2009.


Management
believes we have meritorious defenses to the plaintiff’s claims and plan to
vigorously defend against the lawsuit.  However, there can be no
assurance as to the outcome of the lawsuit. Litigation is subject to inherent
uncertainties, and unfavorable rulings could occur.  If an unfavorable
ruling were to occur, there could be a material adverse effect on our financial
condition, results of operations or liquidity.  We have reached an
agreement in principal with the plaintiffs to settle this matter but no
definitive settlement agreement has been signed.





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





The Complaint, which has causes of
action for strict products liability and negligence, alleges that a CNC machine
manufactured by Mori Seiki and sold through our subsidiary,All American
CNC Sales, Inc. dba Elite Machine Tool Company, was defective and injured the
plaintiff.  The Complaint seeks damages in excess of $6,300,000 for
medical expenses, future medical expenses, lost wages, future lost wages and
general damages.  We have filed cross-complaints against several
individuals and entities involved in the machine purchase and sales transaction,
seeking indemnity, contribution, and damages based on other legal
theories.   We filed an Answer to the Complaint along with the
various aforementioned cross-complaints.  Some of the cross-defendants
are seeking to dismiss certain claims we have brought against them, which will
be before the Court shortly.   Discovery has commenced in this
action both by us and by some of the other parties but substantial discovery
work remains, including depositions of various witnesses. Management
believes we have meritorious defenses to plaintiff’s claims and plan to
vigorously defend against the lawsuit and pursue Mori Seiki, and possibly other
entities or individuals, for any damages we incur.  However, there can
be no assurance as to the outcome of the lawsuit.


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





The
Statement of Claim alleges that claimant is an attorney who performed services
for us pursuant to an agreement dated April 2, 2007 between us and the
claimant.  The Statement of Claim alleges that we breached the agreement
and seeks compensatory damages in the amount of $195,000 plus interest,
attorneys’ fees and costs.  We deny the allegations of the Statement of
Claim and will vigorously defend against these allegations.  An arbitrator
has not yet been selected, and a trial date has not yet been scheduled. 
The parties have informally agreed to attend mediation in order to discuss a
potential resolution of the matter, which should occur in the next 60
days.  The parties have agreed to stay arbitration pending completion
of mediation.


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


23





The
Complaint alleges breach of contract for the defendants failing to pay Elite
Machine for a machine the defendants purchased from Elite Machine, and seeks
damages totaling $16,238. ARAM Precision Tool and Die filed its Answer and
Cross-Complaint on October 1, 2008.  The Cross-Complaint alleges that
Elite Machine failed to deliver certain parts of the machine per the sales
contract and seeks damages totaling $25,000.  Plaintiff and Defendant
have both served and discovery, respectively, and are now engaging in the meet
and confer process to resolve any outstanding discovery
issues.  Management believes the machine was sold to ARAM as
represented and thus ARAM’s claims have no merit and intends to vigorously
defend against the Cross-Complaint.  Trial has been set for May 4,
2009.


The
Complaint alleges causes of action for breach of contract and rescission and
claims All American breached the agreement with RACL by failing to deliver a
machine that conforms to the specifications requested by RACL, and requests
damages totaling $138,750.  Elite Machine filed an Answer
timely.  Discovery has commenced in this matter but is not expected to
be concluded for several months.   The Court has set a Case
Management Conference for April 2, 2009.  Management intends to
aggressively defend itself against this claim.  No trial date has been
set.
 
  6.           All American CNC v. Sunbelt
Machine, Orange County Superior Court, Case No.
0-2008-00112502.  All American filed the Complaint on September 25,
2008.  No trial date has been set.
  This case involves a dispute between
All American and Sunbelt regarding the sale of a Mori Seiki MH-63 machine by All
American to Sunbelt.  Sunbelt has claimed that it received a machine
that does not conform to the specifications it ordered.  The amount at
issue is approximately $140,000 at this stage.   Subsequent to
filing of the above-referenced suit, Sunbelt has filed a similar action in
Federal District Court in Houston, Texas.  All American plans to seek
to transfer and consolidate the federal case into the State of California case
in Orange County, California.  Discovery has not
commenced.  All American anticipates substantial law and motion
activity in this case prior to commencement of discovery.  Management
believes that the machine delivered to Sunbelt was conforming and Sunbelt’s
claims are without merit.  Management intends to vigorously defend
this claim.


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.





ITEM
      1A.
            Risk
      Factors.





As a
smaller reporting company we are not required to provide the information
required by this Item.  However, we did include risk factors in our
Annual Report on Form 10-K for the year ended June 30, 2008, as filed with the
Commission on October 1, 2008.





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





Pursuant
to a Stock Purchase Agreement, three of our affiliate-shareholders sold shares
that represent approximately 43% of our outstanding voting rights to Money Line
Capital, Inc. (“MLCI”).  These three shareholders also issued
irrevocable proxies to MLCI for an additional 1,130,000 shares, which equal
approximately 4.1% of our outstanding common stock, granting MLCI the right to
vote these shares.  These transactions triggered a requirement under
our Fee Agreement with Steve Kasprisin, our Chief Financial Officer, Secretary
and a Director, that requires us to issue Mr. Kasprisin 50,000 shares of our
common stock upon a change in control.





Pursuant to the Fee Agreement, we
issued Mr. Kasprisin 50,000 shares of our common stock on December 10,
2008.  The issuance was exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, and Mr. Kasprisin is a sophisticated
investor and familiar with our operations.





ITEM
      3.
            Defaults
      upon Senior Securities.





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




24




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




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





ITEM
      5.
            Other
      Information.





Lawrence Consalvi
Resignation





On
September 30, 2008, Mr. Lawrence A. Consalvi resigned from his positions as one
of our Directors and as our Executive Vice President, as well as from all
officer and director positions he held with our subsidiaries, effective
September 24, 2008.  Pursuant to his resignation we entered into a
Separation Agreement with Mr. Consalvi.  Pursuant to the Agreement,
Mr. Consalvi returned 400,000 shares of our common stock to us for cancellation
in order to repay certain obligations he owed us.  The shares were
cancelled, effective October 6, 2008.  Mr. Consalvi continues to work
with us selling CNC machines as an independent contractor. We are currently in
discussions with Mr. Consalvi regarding the possibility of hiring him as the
President of Elite Machine, and, by mutual consent of the parties, cancelling
all further severance payments owed to Mr. Consalvi.  However, at this
time, no new agreement has been reached.





Money Line
Transaction





On
December 8, 2008, three of our affiliate-shareholders, namely, Timothy D.
Consalvi, our Chief Executive Officer and Director, Joseph Gledhill, an
Executive Vice President, Director and 10% shareholder, and Lawrence A.
Consalvi, a former officer and Director, and a 10% shareholder, entered into a
Stock Purchase Agreement (the “Agreement”) with Money Line Capital, Inc., a
California corporation (“MLCI”), under which MLCI agreed to purchase an
aggregate of 11,850,000 shares of our common stock from these
shareholders.  These shares represent approximately 43% of our
outstanding common stock.  The transaction closed December 9,
2008.





Although
we were not a party to the Agreement we did acknowledge certain representations
and warranties in the Agreement, and we entered into several ancillary
agreements as a result of the Agreement.  First, we terminated our
employment agreement with Timothy D. Consalvi for serving as our Chief Executive
Officer, paying him one of the two years of severance required under his
employment agreement, and entered into a new employment agreement with Mr.
Consalvi whereby he will be employed by us as the President of All American CNC
Sales, Inc., one of our wholly-owned subsidiaries.  Second, we
consolidated the amounts owed to Mr. Joseph Gledhill under previously issued
promissory notes into one $650,000 principal amount promissory
note.  Pursuant to this transaction and our Fee Agreement with Stephen
M. Kasprisin, one of our directors, we issued Mr. Kasprisin 50,000 shares of our
common stock on December 10, 2008.





Also
pursuant to this transaction, Mr. Timothy D. Consalvi resigned from his position
as our Chief Executive Officer.  Mr. Consalvi’s resignation was
effective immediately.  Mr. George Colin replaced Mr. Consalvi as our
Chief Executive Officer.





ITEM
      6.
            Exhibits.





(a)           Exhibits


Item
      No.
            
            Description3.1
      (1)
            
            Articles
      of Incorporation of Gateway International Holdings, Inc., a Nevada
      corporation, as amended3.2
      (1)
            
            Bylaws
      of Gateway International Holdings, Inc., a Nevada
    corporation


25





10.1
      (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,
    200821
      (1)
            
            List
      of Subsidiaries31.1
            
            Rule
      13a-14(a)/15d-14(a) Certification of Timothy D. Consalvi (filed
      herewith).31.2
            
            Rule
      13a-14(a)/15d-14(a) Certification of Steve Kasprisin (filed
      herewith).32.1
            
            Section
      1350 Certification of Timothy D. Consalvi (filed
  herewith).32.2
            
            Section
      1350 Certification of Steve Kasprisin (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.


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SIGNATURES





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





Gateway
      International Holdings, Inc.Dated:  February
      16, 2009
            
            /s/  George
      ColinBy:
            George
      ColinPresident,
      Chief ExecutiveOfficer
      and a DirectorDated:  February
      16, 2008
            
            /s/  Stephen
      KasprisinBy:
            Stephen
      KasprisinChief
      Financial Officer,Secretary
      and a Director


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