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 March  31, 2011





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





For the transition period from _______________ to _______________.





Commission file number 0-32341


M Line Holdings, Inc.


(Exact Name of Company as Specified in its Charter)





Nevada
88-0375818(State or other jurisdiction of
(I.R.S. Employerincorporation or organization)
Identification No.)





2672 Dow AvenueTustin, CA
92780(Address of principal executive offices)
(Zip Code)





(714) 630-6253


(Registrant’s telephone number, including area code)





Gateway International Holdings, Inc.


(Former name, former address and former fiscal year, if changed since last report)





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





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





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





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





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





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





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


Yes  ̈     No  ̈.




Applicable only to corporate issuers:





Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of May 16, 2011, there were 33,540,845 shares of common stock, par value $0.001, issued and outstanding.










M LINE HOLDINGS, INC.





TABLE OF CONTENTS





PART IITEM 1.
Unaudited Financial Statements.
3ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
18ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk.
23ITEM 4.
Controls and Procedures.
23PART IIITEM 1.
Legal Proceedings.
25ITEM 1A.
Risk Factors.
30ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
30ITEM 3.
Defaults Upon Senior Securities.
30ITEM 4.
Removed and Reserved.
30ITEM 5.
Other Information.
30ITEM 6.
Exhibits.
31




2


PART I-FINANCIAL INFORMATION





M LINE HOLDINGS, INC.


CONSOLIDATED CONDENSED BALANCE SHEETS


(Unaudited)





As of March 31,


As of June 302011


2010AssetsCurrent Assets:Cash and cash equivalents

$
39,553


$
50,410Accounts receivable, net


538,407



613,642Inventories


800,403



751,300Due from related party


722,180



352,333Prepaid and other current assets


-



53,723Current Assets - Discontinued Operations


8,113



8,113Total current assets


2,108,656



1,829,521Property and equipment,  net


589,188



813,203Intangible Assets, net


81,848



136,409Deposits and other


60,077



60,077Non Current Assets - Discontinued Operations


23,377



23,377Total Assets

$
2,863,143


$
2,862,587Liabilities and Shareholders' Equity (Deficit)Current Liabilities:Line of Credit

$
218,889


$
218,889Accounts Payable


1,098,399



720,565Accrued Expenses and other


580,140



557,095Derivative liability


-



98,289Notes payable - current


163,369



272,941Convertible notes payable


90,000



100,000Capital Leases - current


46,106



46,527Current Liabilities - Discontinued Operations


704,361



704,061Total Current Liabilities


2,901,264



2,718,367Notes Payable - long term


39,207



19,750Capital Leases - long term


16,745



44,310Deferred Income Taxes


16,710



16,710Deferred Rent - long term


9,892



39,566Total liabilities


2,983,818



2,838,703Shareholders' Equity (Deficit)Common Stock, $0.001: 100,000,000 sharesAuthorized; 33,540,845 and 30,861,956 shares issued and outstandingat March 31, 2010 and June 30, 2010, respectively


33,541



30,862Additional paid in capital


9,618,367



9,505,812Accumulated deficit


(9,761,505
)


(9,512,790
)Total stockholders' equity (deficit)


(120,675
)


23,884Total Liabilities and Shareholders' Equity

$
2,863,143


$
2,862,587





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


3


M LINE  HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF OPERATIONS


FOR THE THREE AND NINE MONTH PERIODS  ENDED MARCH  31, 2011 AND 2010


(UNAUDITED)





Three Month Periods Ended March 31,


Nine Month Period Ended March 31,2011


2010


2011


2010Net sales

$
2,139,371


$
1,166,970


$
6,324,765


$
4,134,052Cost of sales


1,484,619



594,868



4,232,254



2,921,925Gross Profit


654,752



572,102



2,092,511



1,212,127Operating expenses:Selling, general and administrative


823,718



706,188



2,363,506



2,317,142Amortization of intangible assets


18,188



10,447



54,564



31,337Total operating income


841,906



716,635



2,418,070



2,348,479Operating loss


187,154



(144,533
)


(325,559
)


(1,136,352
)Other income (expense):Interest Expense


(27,455
)


(18,241
)


(65,409
)


(46,356
)Rental Income


1,001



-



74,700



-Interest Income


4,801



-



15,620



-Change in derivative liability


62,370



-



98,289



-Loss on debt settlement


(45,556
)


-



(45,556
)


-Gain on sale of assets


-



-



-



2,497Total other income (expense)


(4,839
)


(18,241
)


77,644



(43,859
)Loss  from continuing operations before income tax


(191,993
)


(162,774
)


(247,915
)


(1,180,211
)Income tax provision


-



-



800



-Income from continuing operations after income tax


(191,993
)


(162,774
)


(248,915
)

$
(1,180,211
)Loss from discontinued operations, net of income taxes


-



(1,922
)


-



(58,145
)NET LOSS


(191,993
)


(164,696
)


(248,915
)


(1,238,356
)NET INCOME PER SHARE:Basic and diluted net loss per share:Continuing operations

$
(0.01
)

$
(0.01
)

$
(0.01
)

$
(0.04
)Discontinued Operations


-



(0.00
)


-



(0.00
)Total net loss per share

$
(0.01
)

$
(0.01
)

$
(0.01
)

$
(0.04
)Weighted average number of common shares under in per share calculations (basic and diluted)Basic


33,047,635



30,861,956



31,590,391



30,861,956Dilutive


33,047,635



30,861,956



31,590,391



30,861,956





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


4


M LINE HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE NINE MONTH PERIODS ENDED MARCH 31, 2011 AND 2010





2011


2010Cash flows from operating activities:Net loss

$
(248,715
)

$
(1,238,357
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Gain on disposition of assets


-



(2,497
)Depreciation


224,015



301,157Amortization of intangible assets


54,564



31,337Shares issued for services


8,600



-Change in derivative liabilities


98,289



-Changes in operating assets and liabilities:Account receivable


75,236



128,425Inventory


(49,103
)


307,903Prepaid expenses and other assets


53,724



220,902Due from related party


(329,847
)


-Account payable and accrued expenses


446,434



208,719Deferred rent


(29,674
)


(18,606
)Cash provided by(used in) operating activities


106,944



(61,017
)Cash used in operating activities of discontinued operations


300



-Net cash provided by(used in) operating activities


107,244



(61,017
)Cash flows from investing activities:Capital expenditures


-



(54,551
)Proceeds from sale of assets


-



23,934Net cash used in investing activities:


-



(30,617
)Cash flows from financing activities:Net borrowings (repayments) on line of credit






-Payments on notes payable


(90,115
)


(81,044
)Payments on capital leases


(27,986
)


(71,276
)Net cash used in financing activities


(118,101
)


(152,320
)Net increase/(decrease) in cash and cash equivalent


(10,857
)


(243,954
)Cash and cash equivalents at beginning of period


50,410



438,030Cash and cash equivalents at end of period

$
39,553


$
194,076Supplemental disclosure of cash flow information:Cash paid for interest

$
65,409


$
46,356Cash paid for income taxes

$
-


$
-Supplemental disclosure of non-cash investing and financing activities:Return of capital lease

$
-


$
21,054





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


5


M LINE HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH  31, 2011


(UNAUDITED)





1.
Business





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





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





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





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





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


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





2.
Basis of Presentation and Significant Accounting Policies





Basis of Presentation





The consolidated financial statements of M Line Holdings, Inc. are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations for the three and  nine month periods ended March 31, 2011 and 2010 are not necessarily indicative of the results to be expected for the full year. All accounts and intercompany transactions have been eliminated in consolidation. In the opinion of management, the consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary to present fairly the Company's financial position, results of operations and cash flows. These statements should be read in conjunction with the financial statements and related notes which are part of the Company's Annual Report on Form 10-K for the year ended June 30, 2010.


6


Net Income (Loss) per Share





Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average common shares outstanding during the period. Diluted net income (loss) per share reflects the potential dilution to basic EPS that could occur upon conversion or exercise of securities, options or other such items to common shares using the treasury stock method, based upon the weighted average fair value of our common shares during the period. There were no potentially dilutive securities as of March 31, 2011 and March  31, 2010, respectively.





Recent Accounting Pronouncements





In April 2010, the FASB issued Accounting Standards Update 2010-13 (ASU 2010-13), "Compensation - Stock Compensation (Topic 718)." This update provides amendments to Topic 718 to clarity that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The provisions of ASU 2010-13 are not expected to have a material effect on the Company's consolidated financial statements.





In July 2010, the FASB issued an accounting update to provide guidance to enhance disclosures related to the credit quality of a company's financing receivables portfolio and the associated allowance for credit losses. Pursuant to this accounting update, a company is required to provide a greater level of disaggregated information about its allowance for credit loss with the objective of facilitating users' evaluation of the nature of credit risk inherent in the company's portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. The revised disclosures as of the end of the reporting period are effective for the Company beginning in the second quarter of fiscal 2011, and the revised discourses related to activities during the reporting period are effective for the Company beginning in the third quarter of fiscal 2011. The Company is currently evaluating the impact of this accounting update on its financial disclosures.





3.
Inventories





Inventories consist of the following at:





March 31, 2011


June 30, 2010Finished Goods and Components

$
586,693


$
568,695CNC Machines held for sale


47,450



134,500Work in Progress


204,655



140,773Raw Materials and Parts


11,392



12,416850,190



856,384Less: Reserve for inventories


(49,787
)


(105,084
)Inventories, net.

$
800,403


$
751,300




7


4.
Accrued Expenses





Accrued expenses consist of the following at:





March 31,

2011


June 30,

2010Compensation and related benefits

$
502,871


$
336,595Audit Fees


15,000



70,000Other


62,269



150,500$
580,140


$
557,095





5.
Capital Leases





The Company leases certain equipment under capital leases with terms ranging from four to five years. Future annual minimum lease payments are as follows as of March  31, 2011 and June 30, 2010.





CAPITAL LEASES:





March 31, 2011


June 30, 20102011

$
53,323


$
48,4542012


18,813



45,6932013


0



13,9002014


0



02015


0



0Total minimum lease payments


72,136



108,047Less amount representing interest


9,285



17,210Present value of future minimum lease payments


62,851



90,837Less current portion of capital lease obligations


46,106



46,527Capital Lease obligations, net of current portion

$
16,745


$
44,310





6.
Line of Credit and Notes Payable





Pacific Western Bank Credit Agreement





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





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





Line of Credit

$
218,889Term Loan


-Total

$
218,889





We reached an agreement with Pacific Western Bank for an extension until August 31, 2010 to repay this balance $218,889, at a stated interest rate equal to the lender’s referenced prime rate plus 1.50%.  We did not pay the outstanding balance by August 31, 2010, and have not received an additional extension.  As a result we are in default under the terms of our line of credit.  This line of credit is secured by certain of our assets.  If Pacific Western Bank filed a lawsuit as a result of our default we may be required to sell some assets to repay this obligation.  Per our agreement to extend time for repayment with Pacific Western Bank, at the time of repayment of the line of credit we also agreed to repay any balance due on the equipment loans to Eran Engineering, Inc.  As of March 31, 2011, the balance on these equipment loans totaled $57,931.





As of March 31, 2011, we owed $218,889 under the line of credit with Pacific Western Bank. At March 31, 2011, the Company was in violation of certain covenants with the bank and the Company has not been able to obtain a waiver from the bank.


8


Notes Payable consist of the following at March 31, 2011 and June 30, 2010





March 31,

2011


June 30,

2010Notes payable to financial institutions, secured by the underlying equipment in aggregate monthly installments of $7,292 including interest rates between 7.2% and 9.75% per annum for a period of 50 and 60 months.

$
57,931


$
98,046An unsecured note payable to a corporation in respect of  accounting software payable in monthly installments of $1,785.


46,811



46,811An unsecured note payable to a corporation in respect of machines sold to us payable in monthly installments of $5,000.


66,070



86,070An unsecured note payable to a corporation in settlement of a lawsuit payablein monthly installments of $5,000.


31,764



61,764Note payable to a financial institution secured by common stock of the company and payable in full on demand.


90,000



100,000TOTAL


259,576



392,691Less Current Portion


253,369



372,941Long Term Portion

$
39,207


$
19,7502011


253,369



372,9412012


39,207



19,7502013






-2014


-



-Thereafter


-



-292,576



392,691




9


7.
Litigation





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





Plaintiff filed this action on March 7, 2008.





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





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





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





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.  Management denies the allegations of the Statement of Claim and intends to vigorously defend against these allegations.


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





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





Elite Machine filed this action on August 8, 2008.





The Complaint alleged breach of contract for the defendants failing to pay Elite Machine for a machine the defendants purchased from Elite Machine, and sought damages totaling $16,238. ARAM Precision Tool and Die filed its Answer and Cross-Complaint on October 1, 2008.  The Cross-Complaint alleged that Elite Machine failed to deliver certain parts of the machine per the sales contract and seeks damages totaling $25,000.  In late June 2009, the parties settled this matter and the lawsuits were dismissed on August 13, 2009.  Under the terms of the settlement, Aram is expected to pay Elite Machine Tool Company $4,000 in full and final settlement.





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





Plaintiff filed this Complaint on October 2, 2008.





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





This action has been stayed due to the bankruptcy filing of All American CNC Sales, Inc.


10


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





Sunbelt filed the Complaint on January 16, 2009.





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





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





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





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





The Complaint was filed on June 8, 2009.





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





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





Currently MLH and Hwacheon are negotiating a settlement.  Management expects that this matter will be settled shortly.  We do not have sufficient information top render an opinion as to the outcome of the appeal in this matter.





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





The complaint against Hwacheon seeks declatory relief from the court relieving M Line Holdings from having to respond to Hwacheon’s  harassing, burdensome and voluminous requests for documents relating to Hwacheon’s  judgment against All American CNC Sales, Inc.  Answer has been filed and case is in discovery phase. No trial date has been set.  Management does not expect a significant financial impact as a result of this lawsuit.





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





The Complaint was filed on June 12, 2009.





The Complaint alleges causes of action for breach of contract and common counts against All American CNC seeking damages in the amount of at least $163,578.88, and arises from a claim by Fadal that All American failed to pay amounts due.  On June 26, 2009, Fadal amended the Complaint to include M Line Holdings, Inc. as a Defendant.  On or about August 11, 2009, the Court heard oral argument on Fadal’s Motion for Right to Attach Order and Writ of Attachment.  The Court granted this Motion in part, issuing a Right to Attach Order against All American CNC in the amount of approximately $164,000.  The Court denied the Motion as to M Line Holdings, Inc.  On August 12, 2009, All American CNC filed an Answer to the Complaint.  Management intends to aggressively defend itself against this claim.


11


The Court ordered a court mandated mediation and this was heard in March.  The mediation did not result in a settlement however the parties are still discussing terms of a prospective settlement. We do not have sufficient information to render an opinion as to our client’s potential liability in this matter.





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





The Complaint was filed on June 1, 2009.





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





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





The Complaint was filed on April 14, 2009.





The Complaint alleges causes of action for Declaratory Relief, Breach of Contract, Fraud, Common Counts, and Negligent Misrepresentation, claiming the Defendant failed to pay Fox Hills Machining for the sale of two machines from Fox Hills to CNC Repos.  The damages sought in the Complaint are estimated to be approximately $30,000.  The Defendants filed an Answer on June 5, 2009.





Recently the parties agreed to settle but the final numbers have still to be finalized. We do not have sufficient information to render an opinion as to our client’s potential liability in this matter.




No provision has been made in the March 31, 2011 financials as the settlement amount is not expected to be material.


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





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





We do not have sufficient information to render an opinion as to our client’s potential liability in this matter.





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





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





Recently a settlement of $50,000 has been reached in this case, requiring payments commencing on March 11, 2011 for ten months. The first month payment was made however the Company is currently in default of the terms of this settlement agreement.  Potential liability exposure of our client are the amount of the damages under the settlement agreement plus possible attorney’s fees and expenses.




A provision has been made in the March 31, 2011 financials in the amount of $50,000.




12


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





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





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





Plaintiffs and defendants recently met and agreed to settle this case by April 30, 2011.  Due to busy schedules, the parties have agreed to meet in May to settle this case.  We do not have sufficient information to render an opinion as to our client’s potential liability in this matter.




A provision has been made in the March 31, 2011 financials in the amount of $120,166.


14.
M Line Holdings, Inc.  V  Pacific Western BankOrange County Superior Court Case No BC448012. The case was filed on 10/21/2010.





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





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


Joseph Gledhill has filed a cross complaint against MLH for indemnity and other causes of action.  MLH’s answer is not due yet. Management intends to vigorously defend this cross complaint.





MLH filed an answer on or about 1/21/11.  The court granted a demur in this case to the Defendant giving MLH time to amend its complaint.  The amended complaint was filed on May 2, 2011.





Plaintiff filed an action for a writ of attachment that was defeated by MLH.





We do not have sufficient information to render an opinion as to our client’s potential liability in this matter.





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





16.
Kolhaas v. M Line Holdings, Inc.  Orange County Superior Court, Case No. 30-2011-00442075





Plaintiff filed complaint against client seeking damages of $25,000 for an alleged breach of contract and related causes of action.  Client has filed an answer to the complaint.  Management intends to vigorously defend this case.  We do not have sufficient information to render an opinion as to our client’s potential liability in this matter.





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.


13


Our opinions expressed above are within the scope of clause (a) of paragraph 5 of the Statement of Policy hereinafter defined.  Our response is limited by, and provided in accordance with, the American Bar Association (the “ABA”) Statement of Policy Regarding Lawyer’s Response to Auditors’ Request for Information (December 1975); Statement on the scope and use of this response (Paragraphs 2 and 7) are specifically incorporated herein by this reference, and any description herein of any loss contingencies (as defined in Paragraph 5 of the Statement) is qualified in its entirety by Paragraph 5 of the Statement and the accompanying Commentary (which is an integral part of the Statement).





8.
Common Stock





During the quarter ended March 31, 2011, the Company issued the following shares of common stock.





1,388,889 shares of common stock to Asher Enterprises, Inc., in part settlement of the outstanding loans due to them. The company valued the shares at market price on the issuance date, in the sum of $55,556.





250,000 shares of common stock to Issuers Capital Advisors, LLC., as payment of consulting services to the company. The company valued the shares at market price on the issuance date in the sum of $5,000.





1,000,000 shares of common stock to employees of the company in lieu of salaries due.  The company valued the shares at market price on the issuance date in the sum of $40,000.00.





9.
Related Party Transaction





The related party transactions represented a net receivable of $722,180 at March 31, 2011 as compared to $352,333 at June 30, 2010




The related party is a large shareholder of the Company.  The amount is due on demand, interest free and unsecured.




10.
Segments and Geographic Information





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





SEGMENT INFORMATION





Segment Information for three months ended March  31, 2011





Machine Sales


Precision Manufacturing


Corporate


TotalRevenue

$
1,253,239


$
886,132


$
-


$
2,139,371Interest Income


-



-



0



0Interest Expense


2,077



23,379



2,000



27,455Depreciation and Amortization


18,938



51,084



5,861



75,883Income (loss) before taxes


(107,673
)


(3,353
)


(80,967
)


(191,993
)Total Assets


361,217



1,845,486



656,440



2,863,143


14


Segment Information for three months ended March  31, 2010





Machine Sales


Precision Manufacturing


Corporate


TotalRevenue

$
404,375


$
762,595


$
-


$
1,166,970Interest Income


-



-



-



-Interest Expense


1,772



2,821



13,648



18,241Depreciation and Amortization


11,196



97,799



2,128



111,123Income (loss) before taxes


(95,160
)


(1,250
)


(68,286
)


(164,696
)Total Assets


85,641



2,350,440



1,109,508



3,545,589





Segment Information for nine months ended March  31, 2011





Machine Sales


Precision Manufacturing


Corporate


TotalRevenue

$
3,847,703


$
2,477,062


$
-


$
6,324,765Interest Income


-



-



15,620



15,620Interest Expense


2,171



57,375



5,863



65,409Depreciation and Amortization


56,814



204,181



17,584



278,579Income (loss) before taxes


(92,589
)


(60,523
)


(94,903
)


(247,915
)Total Assets


361,217



1,845,486



656,440



2,863,143





Segment Information for nine months ended March  31, 2010





Machine Sales


Precision Manufacturing


Corporate


TotalRevenue

$
1,932,141


$
2,202,297


$
(386
)

$
4,134,052Interest Income


-



-



-



-Interest Expense


1,996



9,949



34,411



46,356Depreciation and Amortization


36,193



293,583



2,718



332,494Income (loss) before taxes


(376,333
)


(550,941
)


(311,082
)


(1,238,356
)Total Assets


85,641



2,350,440



1,109,508



3,545,589





11.
Going Concern and Management Plans





The Company’s consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liabilities in the normal course of business.  However, the Company has an accumulated deficit of  $9,761,455 as of March  31, 2011 and a net loss of $248,715 for the nine months ended March 31, 2011.


15


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





The consolidated financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.  The Company’s continuation as a going concern is dependent upon its ability to retain its current short term financing and ultimately to generate sufficient cash flow to meet its obligations on a timely basis in order to attain profitability.





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





The company reached an agreement with Pacific Western Bank for an extension until August 31, 2010 to repay this balance, $218,889, at a stated interest rate equal to the lender’s referenced prime rate plus 1.50%.  We did not pay the outstanding balance by August 31, 2010, and have not received an additional extension.  As a result we are in default under the terms of our line of credit.




The Company is currently in negotiation with various funding sources to refinance the equipment and receivables at Eran Engineering, Inc. This proposed refinancing if obtained would not only add additional working capital but will result in the repayment of the remaining leases and line of credit at Pacific Western Bank.  The Company believes that it will continue to finance ongoing operations.





12.
Subsequent Events





None.


16


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





This quarterly report on Form 10-Q of M Line Holdings, Inc. (formerly known as Gateway International Holdings, Inc., and referred to herein as “MLH”, “we,” “us” or “Company”) for the three months ended March 31, 2011, contains forward-looking statements, principally in this Section and “Business.” Generally, you can identify these statements because they use words like “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These statements reflect only our current expectations. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen, including, among others, the risks we face as described in this filing. You should not place undue reliance on these forward-looking statements which apply only as of the date of this quarterly report. These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation of belief will be accomplished.





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





Overview





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





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


17


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





Trends Affecting Our Business





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





The primary components sold by our Precision Manufacturing segment during the quarters ended March 31, 2011 and, 2010, were parts sold to Panasonic, a leading provider of in-flight entertainment systems for commercial aircraft. The decline in economic activity has an adverse effect on our business. This has had an effect on Panasonic’s orders to us, and, therefore, there has been an adverse effect on our business. In addition, any further decrease may have an impact with the Machine Tools Group, as many of our customers that buy machines from us do business with airline manufacturers.





Critical Accounting Policies





Use of Estimates





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





Inventories





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


18


Results of Operations for the Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010





Three months ended March 31,2011


2010Sales by segment:Machine Sales

$
1,253,239


$
404,375Precision Engineering


886,132



762,5952,139,371



1,166,970Gross Profit by segment:Machine Sales


167,067



166,422Precision Engineering


487,685



405,680654,752



572,102





Sales





Sales in the fiscal 2011 period increased 81% compared to the comparable period in fiscal 2010. The change is attributable to an increase in sales in the Machine Sales Group. Sales increased by 16% in the Precision Manufacturing Group.  Sales in the Machine Sales Group increased by 315%. The sales increase in this group was primarily due to an increase in demand from customers purchasing equipment during this period.





Gross Margin





Gross profit increased by 14% compared to the comparable period in fiscal 2010. The gross profit for the Machine Sales Group did not increase for the period as margins were lower for this period in comparison to the prior year. The increase in margins of 20% within the Precision Manufacturing Group resulted from better margins as a result of customer demand for product.





Selling, General & Administrative





Selling, general and administrative costs increased by $128,607 compared to the comparable period in fiscal 2010. The change is due to a small increase in personnel costs and costs associated with sales and marketing.


19


Amortization of Intangible Assets





Amortization expense for intangible assets for the 3 month period ended March 2011 was $18,188 to $10,447  in the comparable period in fiscal 2010.





Interest Expense





Interest expense increased by $9,214 compared to the comparable period in fiscal 2010. The change is attributable to a higher interest charge for Accounts receivable finance.





Gain on Sale of Assets





During the current 3 month period ended March 31, 2011, there was no gain or loss as no assets were sold during the period.





Net Loss





Net losses have increased from $164,696 in the prior period to $191,993 in the 3 month period ended March 31, 2011.  This increase in the loss for the current period was not very significant and was the result in lower margins earned in the machine sales group for the current period.





Results of Operations for the Nine Months Ended March 31, 2011 Compared to the Nine Months Ended March 31, 2010





Nine months ended March 31,2011


2010Sales by segment:Machine Sales

$
3,847,703


$
1,932,141Precision Engineering


2,477,062



2,201,9116,324,765



4,134,052Gross Profit by segment:Machine Sales


759,421



381,459Precision Engineering


1,333,090



830,6682,092,511



1,212,127





Sales





Sales in the fiscal 2011 period increased 53% compared to the comparable period in fiscal 2010. The change is attributable to an increase in sales in the Machine Sales Group. Sales increased by 12% in the Precision Manufacturing Group.  Sales in the Machine Sales Group increased by 99%. The sales increase in this group was primarily due to an increase in demand from customers purchasing equipment during this period.





Gross Margin





Gross profit increased by 73% compared to the comparable period in fiscal 2010. The gross profit for the Machine Sales Group increased by 99% due to an increase in margins as a result of customer demand for machines and the ability to purchase better equipment at lower prices.  The economy has resulted in better priced equipment being available for purchase. The increase in margins of 60% within the Precision Manufacturing Group resulted from better margins as a result of customer demand for product in the 2011  period.





Selling, General & Administrative





Selling, general and administrative costs increased by $57,441 compared to the comparable period in fiscal 2010. The change is due primarily to an increase in personnel costs and sales and marketing expense.


20


Amortization of Intangible Assets





Amortization expense for intangible assets for the period ended March 31, 2011 was $54,564 to  $31,337  in the comparable period in fiscal 2010.





Interest Expense





Interest expense increased by $19,053 compared to the comparable period in fiscal 2010. The change is attributable to higher costs as a result of Accounts Receivable finance..





Gain on Sale of Assets





During the fiscal 2011 period, there was no gain or loss as no assets were sold during the period.





Net Loss





Net losses have reduced from $1,238,356 for the 9 month period ended March 31, 2010 to $259,792 for the 9 month period ended March 31, 2011.  This very significant reduction in losses totaling $978,564 was due to better profit margins obtained on revenues together with significant overhead savings.





Liquidity and Capital Resources





Our principal sources of liquidity consist of cash and cash equivalents, cash generated from operations and borrowing from various sources, including Pacific Western Bank. At March 31, 2011 and June 30, 2010, our cash and cash equivalents and working capital decreased and increase by $39,553 and $134,493, respectively.





Cash Flows





The following table sets forth our cash flows for the 9 month period ended March 31:





2011


2010


ChangeOperating activities


107,244



(61,017
)


168,261Investing activities


0



(30,617
)


30,617Financing activities


(118,101
)


(152,320
)


34,219(10,857
)


(243,954
)


233,097





Operating Activities





Operating cash flows during the fiscal 2011 and 2010 fiscal periods reflect our results of operations, offset by net cash provided by operating assets and liabilities and non-cash items (depreciation, amortization and stock-based compensation). During the 2011 period, non-cash expenses included in our net income and in operating activities totaled $188,890 compared to $329,997 in the 2010 period.


21


Investing Activities


We made capital expenditures of $0 and $(54,551) during the first nine months of the fiscal 2011 and 2010 periods, respectively.





Financing Activities





During the first nine months of the fiscal 2011 and 2010 periods, we repaid (net of borrowings) $118,101 and $152,320, respectively of outstanding debt and capital lease obligations. During the 2011 and 2010 periods, we repaid $0 on our line of credit.





Off Balance Sheet Arrangements





We have no off balance sheet arrangements.





ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk.





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





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





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





ITEM 4.
Controls and Procedures.





(a) Disclosure Controls and Procedures





We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of December 31, 2010, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2011, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in Item 4T.


22


(b) Management Report on Internal Control Over Financial Reporting





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





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




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





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





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





A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, Management has identified the following two material weaknesses that have caused management to conclude that, as of March 31, 2011, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:





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


23


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





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





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





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





(c) Remediation of Material Weaknesses





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





(d) Changes in Internal Control over Financial Reporting





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


24


PART II – OTHER INFORMATION





ITEM 1.
Legal Proceedings.


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





Plaintiff filed this action on March 7, 2008.





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





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





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





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.  Management denies the allegations of the Statement of Claim and intends to vigorously defend against these allegations.


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





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





Elite Machine filed this action on August 8, 2008.





The Complaint alleged breach of contract for the defendants failing to pay Elite Machine for a machine the defendants purchased from Elite Machine, and sought damages totaling $16,238. ARAM Precision Tool and Die filed its Answer and Cross-Complaint on October 1, 2008.  The Cross-Complaint alleged that Elite Machine failed to deliver certain parts of the machine per the sales contract and seeks damages totaling $25,000.  In late June 2009, the parties settled this matter and the lawsuits were dismissed on August 13, 2009.  Under the terms of the settlement, Aram is expected to pay Elite Machine Tool Company $4,000 in full and final settlement.





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





Plaintiff filed this Complaint on October 2, 2008.


25


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





This action has been stayed due to the bankruptcy filing of All American CNC Sales, Inc.





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





Sunbelt filed the Complaint on January 16, 2009.





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





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





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





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





The Complaint was filed on June 8, 2009.





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





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





Currently MLH and Hwacheon are negotiating a settlement.  Management expects that this matter will be settled shortly.  We do not have sufficient information top render an opinion as to the outcome of the appeal in this matter.





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





The complaint against Hwacheon seeks declatory relief from the court relieving M Line Holdings from having to respond to Hwacheon’s  harassing, burdensome and voluminous requests for documents relating to Hwacheon’s  judgment against All American CNC Sales, Inc.  Answer has been filed and case is in discovery phase. No trial date has been set.  Management does not expect a significant financial impact as a result of this lawsuit.


26


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





The Complaint was filed on June 12, 2009.





The Complaint alleges causes of action for breach of contract and common counts against All American CNC seeking damages in the amount of at least $163,578.88, and arises from a claim by Fadal that All American failed to pay amounts due.  On June 26, 2009, Fadal amended the Complaint to include M Line Holdings, Inc. as a Defendant.  On or about August 11, 2009, the Court heard oral argument on Fadal’s Motion for Right to Attach Order and Writ of Attachment.  The Court granted this Motion in part, issuing a Right to Attach Order against All American CNC in the amount of approximately $164,000.  The Court denied the Motion as to M Line Holdings, Inc.  On August 12, 2009, All American CNC filed an Answer to the Complaint.  Management intends to aggressively defend itself against this claim.




The Court ordered a court mandated mediation and this was heard in March.  The mediation did not result in a settlement however the parties are still discussing terms of a prospective settlement. We do not have sufficient information to render an opinion as to our client’s potential liability in this matter.





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





The Complaint was filed on June 1, 2009.





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





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





The Complaint was filed on April 14, 2009.





The Complaint alleges causes of action for Declaratory Relief, Breach of Contract, Fraud, Common Counts, and Negligent Misrepresentation, claiming the Defendant failed to pay Fox Hills Machining for the sale of two machines from Fox Hills to CNC Repos.  The damages sought in the Complaint are estimated to be approximately $30,000.  The Defendants filed an Answer on June 5, 2009.





Recently the parties agreed to settle but the final numbers have still to be finalized. We do not have sufficient information to render an opinion as to our client’s potential liability in this matter.




No provision has been made in the March 31, 2011 financials as the settlement amount is not expected to be material


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





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





We do not have sufficient information to render an opinion as to our client’s potential liability in this matter.


27


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





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





Recently a settlement of $50,000 has been reached in this case, requiring payments commencing on March 11, 2011 for ten months. The first month payment was made however the Company is currently in default of the terms of this settlement agreement.  Potential liability exposure of our client are the amount of the damages under the settlement agreement plus possible attorney’s fees and expenses.




A provision has been made in the March 31, 2011 financials in the amount of $50,000.


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





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





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





Plaintiffs and defendants recently met and agreed to settle this case by April 30, 2011.  Due to busy schedules, the parties have agreed to meet in May to settle this case.  We do not have sufficient information to render an opinion as to our client’s potential liability in this matter.




A provision has been made in the March 31, 2011 financials in the amount of $120,166.


14.
M Line Holdings, Inc.  V  Pacific Western BankOrange County Superior Court Case No BC448012. The case was filed on 10/21/2010.





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





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


Joseph Gledhill has filed a cross complaint against MLH for indemnity and other causes of action.  MLH’s answer is not due yet. Management intends to vigorously defend this cross complaint.





MLH filed an answer on or about 1/21/11.  The court granted a demur in this case to the Defendant giving MLH time to amend its complaint.  The amended complaint was filed on May 2, 2011.





Plaintiff filed an action for a writ of attachment that was defeated by MLH.





We do not have sufficient information to render an opinion as to our client’s potential liability in this matter.





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


28


16.
Kolhaas v. M Line Holdings, Inc.  Orange County Superior Court, Case No. 30-2011-00442075





Plaintiff filed complaint against client seeking damages of $25,000 for an alleged breach of contract and related causes of action.  Client has filed an answer to the complaint.  Management intends to vigorously defend this case.  We do not have sufficient information to render an opinion as to our client’s potential liability in this matter.





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.





Our opinions expressed above are within the scope of clause (a) of paragraph 5 of the Statement of Policy hereinafter defined.  Our response is limited by, and provided in accordance with, the American Bar Association (the “ABA”) Statement of Policy Regarding Lawyer’s Response to Auditors’ Request for Information (December 1975); Statement on the scope and use of this response (Paragraphs 2 and 7) are specifically incorporated herein by this reference, and any description herein of any loss contingencies (as defined in Paragraph 5 of the Statement) is qualified in its entirety by Paragraph 5 of the Statement and the accompanying Commentary (which is an integral part of the Statement).


29





ITEM 1A.
Risk Factors.





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





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





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





ITEM 3.
Defaults upon Senior Securities.





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





ITEM 4.
Removed and Reserved.





ITEM 5.
Other Information.





Money Line Capital Letter of Intent





Letter of Intent with Money Line Capital, Inc.





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


30





ITEM 6.
Exhibits.





(a)
Exhibits





Item No.

Description3.1 (1)

Articles of Incorporation of M Line Holdings, Inc., a Nevada corporation, as amended3.2 (5)

Certificate of Amendment of Articles of Incorporation3.3 (1)

Bylaws of M Line Holdings, Inc., a Nevada corporation10.1 (1)

Asset Purchase Agreement with CNC Repos, Inc. and certain of its shareholders dated October 1, 200710.2 (1)

Commercial Real Estate Lease dated February 15, 2007 for the office space located in Tustin, CA10.3 (1)

Commercial Real Estate Lease dated November 15, 2007 for the office space located in Anaheim, CA10.4 (1)

Employment Agreement with Timothy D. Consalvi dated February 1, 200710.5 (1)

Employment Agreement with Joseph T.W. Gledhill dated February 5, 200710.6 (2)

Employment Agreement with Lawrence A. Consalvi dated February 5, 200710.7 (1)

Share Exchange Agreement with Gledhill/Lyons, Inc. dated March 26, 200710.8 (1)

Share Exchange Agreement with Nu-Tech Industrial Sales, Inc. dated March 19, 200710.9 (1)

Fee Agreement with Steve Kasprisin dated April 30, 200810.10 (3)

Separation Agreement by and between Gateway International Holdings, Inc., and Mr. Lawrence A. Consalvi dated September 26, 200810.11 (4)

Sales Agent Agreement by and between Gateway International Holdings, Inc., and Mr. Lawrence A. Consalvi dated September 30, 200810.12 (4)

Loan Agreements with Pacific Western Bank dated September 20, 200810.13 (5)

Assignment of Promissory Note and Consent Thereto by and between M Line Holdings, Inc. and Money Line Capital, Inc. dated March 24, 200910.14 (5)

M Line Holdings, Inc. Demand Note for up to $500,000 dated March 25, 200910.15 (6)

Letter of Intent by and between M Line Holdings, Inc. and Money Line Capital, Inc. dated June 30, 200910.16 (7)

Securities Purchase Agreement and Convertible Promissory Note with Asher Enterprises, Inc. dated April 26, 2010 (filed herewith)10.17 (7)

Convertible Promissory Note with Asher Enterprises, Inc. dated May 25, 2010 (filed herewith)10.18 (7)

Commercial Real Estate Lease with SG&H Partners, L.P. for Anaheim Property dated August 13, 2010 (filed herewith)10.19 (7)

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


31





21 (7)

List of Subsidiaries31.1

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

Rule 13a-14(a)/15d-14(a) Certification of Jitu Banker (filed herewith).32.1

Section 1350 Certification of George Colin (filed herewith).32.2

Section 1350 Certification of Jitu Banker (filed herewith).(1)

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

Incorporated by reference from our Registration Statement on First Amended Form 10-12G/A filed with the Commission on July 16, 2008.(3)

Incorporated by reference from our First Amended Current Report on Form 8-K/A filed with the Commission on October 10, 2008.(4)

Incorporated by reference from our Quarterly Report on Form 10-Q for the period ended September 30, 2008, as filed with the Commission on November 13, 2008.(5)

Incorporated by reference from our Current Report on Form 8-K filed with the Commission on April 24, 2009.(6)

Incorporated by reference from our Current Report on Form 8-K filed with the Commission on July 6, 2009.(7)

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





32


SIGNATURES





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





M Line Holdings, Inc.Dated: May  16, 2011

/s/ George ColinBy:
George ColinPresident, Chief ExecutiveOfficer and a DirectorDated: May 16, 2011

/s/ Jitu BankerBy:
Jitu BankerChief Financial Officer,Secretary and a Director




33