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


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

               For the quarterly period ended : December 31, 2004

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

                 For the transition period __________to_________

                        Commission File Number: 000-26017

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



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


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


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

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

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. |_| Yes |X| No

 As of July 27, 2005, there were 40,307,254 shares of the registrant's Common
Stock issued and outstanding.

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

<PAGE>

                      GATEWAY INTERNATIONAL HOLDINGS, INC.
                                   Form 10-QSB
               For the Fiscal Three months ended December 31, 2004

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>                                                                                       <C>
PART I - FINANCIAL INFORMATION.............................................................3

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

   ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............19

   ITEM 3.        CONTROLS AND PROCEDURES.................................................41

PART II - OTHER INFORMATION...............................................................42

   ITEM 1.        LEGAL PROCEEDINGS.......................................................42

   ITEM 2.        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.............42

   ITEM 3.        DEFAULTS UPON SENIOR SECURITIES.........................................43

   ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................43

   ITEM 5.        OTHER INFORMATION.......................................................43

   ITEM 6.        OTHER EXHIBITS..........................................................47
</TABLE>


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS (UNAUDITED)

                 GATEWAY INTERNATIONAL HOLDINGS AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEET
                                   (Unaudited)
                                                                 December 31,
                                                                    2004
                                                                 ------------
Assets

Current Assets:
Cash and cash equivalents                                        $    521,505
Accounts receivable, net                                              628,427
Inventories                                                         1,158,160
                                                                 ------------
Total current assets                                                2,308,092

Property and equipment,  net                                        2,671,211

Other Assets:
Deposits                                                               82,176
Goodwill                                                           10,375,166
                                                                 ------------
Total Assets                                                     $ 15,436,645
                                                                 ============

Liabilities and Stockholders' Equity

Current Liabilities:
Accounts payable and accrued liabilities                         $  1,403,510
Current Portion of notes payable                                    1,247,304
Current portion of notes payable to related parties                   202,677
                                                                 ------------
Total Current Liabilities                                           2,853,501

Notes Payable, less current portion                                 2,320,525
Notes Payable to related parties, less current portion                706,200
                                                                 ------------
Total Liabilities                                                   5,880,226
                                                                 ------------

Commitments and Contingencies
Stockholders' Equity
Preferred stock, $0.001 par value; 10,000,000 shares
authorized; no shares issued and outstanding                               --
Common stock, $0.001 par value; 100,000,000 shares
authorized; 35,976,778 shares issued and outstanding                   35,977
Additional paid in capital                                         10,980,544
Treasury Stock                                                             --
Stockholder note receivable                                           (75,391)
Accumulated deficit                                                (1,384,711)
                                                                 ------------
Total Stockholders' Equity                                          9,556,419
                                                                 ------------
Total Liabilities and Stockholders' Equity                       $ 15,436,645
                                                                 ============

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


                                       3
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
           For the Three Month Period Ended December 31, 2004 and 2003
                                   (Unaudited)



                                                     December 31,   December 31,
                                                         2004           2003
                                                      -----------    -----------

Net sales                                             $ 2,129,371    $ 1,601,341
Cost of sales                                           1,362,161      1,121,205
                                                      -----------    -----------
        Gross Profit                                      767,210        480,136
Operating expenses:
Selling, general and administrative expenses              513,778        454,127
                                                      -----------    -----------
        Operating (loss) income                           253,432         26,009
Other income (expense):
        Interest Income                                        54             --
Net income before income taxes                            253,486         26,009

Provision for income taxes                                101,394             --
                                                      -----------    -----------
Net income                                            $   152,092    $    26,009
                                                      ===========    ===========


NET INCOME PER SHARE:
Basic and diluted:
Net income per share
                                                      $      0.01    $        --
                                                      ===========    ===========

Weighted average
number of common shares outstanding                    34,451,937     33,242,000
                                                      ===========    ===========

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


                                       4
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
           For the Three Month Period Ended December 31, 2004 and 2003
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                   2004           2003
                                                              -----------    -----------
<S>                                                           <C>            <C>
Cash Flows From Operating Activities:
   Net Income                                                 $   152,092    $    26,009
   Adjustments To Reconcile Net Income To Net Cash
   Provided By (Used In) Operating Activities:
      Depreciation and Amortization                                84,720         78,517
      (Increase) Decrease In Current Assets:
         Accounts Receivable                                      (99,443)       344,081
         Inventories                                             (876,733)       942,223
         Other Assets                                             (50,768)       139,537
      Increase (Decrease) In Current Liabilities:
                                                              -----------    -----------
         Accounts Payable and Accrued Liabilities                 289,056       (250,326)
                                                              -----------    -----------
Net Cash (Used In) Provided By Operating Activities              (501,076)     1,280,041
                                                              -----------    -----------

Cash Flows From Investing Activities:
   Purchases of Property and Equipment                           (167,931)    (1,584,123)
                                                              -----------    -----------

Cash Flows From Financing Activities:
   Issuance of Common Stock                                       908,728             --
   Principal Borrowings on Notes Payable                         (159,469)       317,392
   Principal Borrowings on Notes Payable to Related Parties       345,010        (35,833)
                                                              -----------    -----------
      Net Cash Provided By Financing Activities                 1,094,269        281,559
                                                              -----------    -----------

      Net Increase (Decrease) In Cash & Cash                      425,262        (22,523)
Equivalents
Cash & Cash Equivalents At Beginning Of Year                        96243        118,766
Cash & Cash Equivalents At End Of Year                        $   521,505         96,243

Supplemental Disclosure of Cash Flow Information
   Cash Paid During the Year For:
      Interest                                                $    29,090          46998
      Income Taxes                                            $       800             --
</TABLE>

    The accompanying notes are an integral part of these unaudited financial
                                   statement


                                       5
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The accompanying  unaudited financial statements consolidate the accounts of the
Company and its  wholly-owned  subsidiaries and have been prepared in accordance
with accounting  principles  generally  accepted in the United States of America
for interim  financial  information.  However  certain  information and footnote
disclosures normally included in the financial statements prepared in accordance
with accounting  principles  generally  accepted in the United States of America
have  been  omitted.  In the  opinion  of the  management  of the  Company,  all
adjustments  (consisting of normal recurring  adjustments)  necessary for a fair
presentation  have  been  included  and the  accompanying  financial  statements
present  fairly the financial  position as of December 31, 2004, and the results
of  operations  for the three months  ended  December 31, 2004 and 2003 and cash
flows for the three months ended  December  31, 2004 and 2003.  These  financial
statements should be read in conjunction with the Company's September 30th, 2004
audited financial  statements and notes thereto included in the Company's Annual
Report on Form 10-KSB filed with the Securities and Exchange  Commission on June
16, 2005. The interim results are not  necessarily  indicative of the results of
operations for a full year.

Principles of Consolidation

The  consolidated   financial   statements   include  the  accounts  of  Gateway
International  Holdings,  Inc.,  and its  wholly-owned  subsidiaries,  E.M. Tool
Company,  Inc.  (doing  business as Elite  Machine  Tool  Company,  Inc.),  Eran
Engineering,  Inc., as well as its recently acquired wholly-owned  subsidiaries,
All American CNC Sales, Inc.,  acquired on October 1, 2004,  Gledhill/Lyons Inc.
(doing business as Accurate  Technologies,  Inc.), acquired on December 7, 2004,
ESK,  Inc.,  acquired on December  23,  2004,  and A Line  Capital  Corporation,
incorporated  in  October  2004.  All  significant  inter-company  accounts  and
transactions have been eliminated in consolidation.

Risks and Uncertainties

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

Use of Estimates in the Preparation of Financial Statements

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


                                       6
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004

Intangible Assets

      The  Company  accounts  for its  intangible  assets  under the  applicable
guidelines  of SFAS 142  "goodwill  and other  intangible  assets"  and SFAS 144
"accounting  for the  impairment  or  disposal  of  long  lived  assets".  Where
intangible  assets have finite lives,  they are amortized over their useful life
unless factors exist to indicate that the asset has been  impaired.  The Company
evaluates  whether the assets are impaired annually or on an interim basis or if
an event occurs or  circumstances  change to suggest  that an asset's  value has
diminished.  Under SFAS 144, when deemed  necessary,  the Company  completes the
evaluation  of the  recoverability  of its  long-lived  assets by comparing  the
carrying  amount of the assets  against the estimated  undiscounted  future cash
flows  associated  with  them.  If such  evaluations  indicate  that the  future
undiscounted  cash flows of long-lived  assets are not sufficient to recover the
carrying value of such assets,  the assets are adjusted to their  estimated fair
values.  Under SFAS 142,  intangible  assets with  indefinite  useful  lives are
required to be tested  annually for impairment or whenever  events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  If the assets are considered to be impaired,  the impairment to be
recognized  is measured by the amount by which the carrying  amount  exceeds the
fair value of the assets. Based on its review, the Company has written off $0 as
impairment of its long-lived assets as of December 31, 2004.

Revenue Recognition

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

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

The Company's  revenue  recognition  policy  complies with SEC Staff  Accounting
Bulletin No. 104, "Revenue Recognition in Financial Statements" ("SAB 104"). The
Company assesses  collectibility  based on the credit worthiness of the customer
and past transaction history. The Company performs initial credit evaluations of
its customers and does not require collateral from its customers.

Basic and Diluted Earnings Per Common Share

Under SFAS 128,  "Earnings  Per  Share",  basic  earnings  per  common  share is
computed by dividing net income or loss available to common  shareholders by the
weighted-average  number of  common  shares  outstanding  during  the  period of
computation.  Diluted  earnings per share is computed  similar to basic earnings
per share  except that the  denominator  is  increased  to include the number of
additional  common  shares  that would have been  outstanding  if the  potential
common shares had been issued and if the additional  common shares were dilutive
(there were no  additional  potential  common shares to be issued as of December
31, 2004 and 2003, respectively). ` Fair Value of Financial Instruments

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


                                       7
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004

Segments of Business

SFAS 131, "Disclosures about Segments of an Enterprise and Related Information,"
changed the way public  companies  report  information  about  segments of their
business in their reports issued to stockholders.  It also requires  entity-wide
disclosures  about the products and services the entity  provides,  the material
countries in which it holds assets and reports revenues and its major customers.
Reportable  business segments for the three month period ended December 31, 2004
are from the date of the acquisition of the various subsidiaries.

Stock-based compensation

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

Statement of Cash Flow

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

Significant Recent Accounting Pronouncements

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

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

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


                                       8
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004


NOTE 2 - RELATED PARTY TRANSACTIONS

The Company has a note payable with a former related party,  Nelson Engineering,
Inc., that requires monthly payments including interest. The balance of the note
is $64,445 at December 31, 2004 and $64,445 at December  31,  2003.  The Company
has a short-term note from Joseph Gledhill, a stockholder and the Vice President
of Gateway  International  Holdings,  Inc. The balance of the note is $80,774 at
December 31, 2004 and $100,000 at December 31, 2003.  The Company paid $1,211 in
interest in  connection  with these notes  payable  during the first  quarter of
fiscal 2005,  and $1,468 during the quarter ended  December 31, 2003,  which the
Company has recorded in the accompanying statements of operations.

From time to time, the Company borrows funds from Joseph Gledhill, a stockholder
and the Vice  President  of Gateway  International  Holdings,  Inc.  for working
capital purposes, which is non-interest bearing. During fiscal 2003, the Company
borrowed $100,000 from him for working capital  requirements,  none of which has
been repaid.  Also,  Joseph Gledhill loaned the Company  $160,000 to pay certain
prior Gourmet  stockholders in connection  with the reverse merger.  At December
31, 2004, outstanding borrowings on these notes totaled $706,200 and at December
31, 2003, the outstanding borrowings totaled $ 459,000.

At the time of the reverse  merger of the Company into Elite Machine in December
2001, the balance owed by Larry Consalvi,  CEO of the Company,  to Elite Machine
on  advances  made by Elite  Machine to Mr.  Consalvi  was $76,461 . At the time
these  advances were made and prior to the reverse  merger,  Mr.  Consalvi was a
director and shareholder of Elite Machine. Subsequent to the reverse takeover of
Elite Machine,  the balance owed by Mr.  Consalvi to Elite Machine in connection
with these advances as of December 31, 2004 and December 31, 2003 is $75,391.

NOTE 3 - STOCKHOLDERS' EQUITY

Preferred Stock

The Company's  articles of incorporation  authorize up to 100,000,000  shares of
$0.001 par value preferred stock. Shares of preferred stock may be issued in one
or more classes or series at such time as the Board of Directors  determine.  As
of December  31, 2004 and 2003,  the  Company had no shares of  preferred  stock
issued and outstanding.

Common Stock

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

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

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

In December 2004, the Company issued 200,000  restricted  common stock shares to
the  shareholders of ESK, Inc.  (ESK"),  together with a cash payment of $50,000
for the purchase of all of the common stock of ESK, pursuant to which ESK became
a wholly-owned subsidiary of Gateway International Holdings, Inc.


                                       9
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004

NOTE 4 - BUSINESS SEGMENTS

Reportable business segments for the three month period ended December 31, 2004,
are as follows:


                                                                   Quarter ended
                                                                      31-Dec-04
                                                                      ----------

Net sales from continuing operations
  Elite Machine Tool Company, Inc.                                    $  445,100
  Eran Engineering, Inc.                                               1,061,033
  CNC All American Sales, Inc.                                           365,226
  Gledhill/Lyons, Inc. dba Accurate Technology                           258,012
                                                                      ----------
                                                                       2,129,371
                                                                      ==========

Operating Profit from continuing operations:
  Elite Machine Tool Company, Inc.                                           466
  Eran Engineering, Inc.                                                 132,425
  CNC All American Sales, Inc.                                            70,931
  Gledhill/Lyons, Inc. dba Accurate Technology                            49,610
                                                                      ----------
                                                                         253,432
                                                                      ==========


                                       10
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004



  Depreciation and Amortization - continuing operations
  Elite Machine Tool Company, Inc.                                   $       696
  Eran Engineering, Inc.                                                  76,517
  CNC All American Sales, Inc.                                             1,470
  Gledhill/Lyons, Inc. dba Accurate Technology, Inc.                       6,037
                                                                     -----------
                                                                          84,720
                                                                     ===========

Identifiable assets - continuing operations:
  Elite Machine Tool Company, Inc.                                       607,776
  Eran Engineering, Inc.                                               3,251,670
  CNC All American Sales, Inc.                                           156,978
  Gledhill/Lyons, Inc. dba Accurate Technology, Inc.                     997,931
  Unallocated Assets                                                  10,422,290
                                                                     -----------
                                                                      15,436,645
                                                                     ===========

Capital expenditures/obligations under capital leases:
  Elite Machine Tool Company, Inc.                                            --
  Eran Engineering, Inc.                                                      --
  CNC All American Sales, Inc.                                                --
  Gledhill/Lyons, Inc. dba Accurate Technology                                --
                                                                     ===========


                                       11
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004


Note 5 - ACQUISITIONS COMPLETED IN 2004:

Eran Engineering, Inc.:

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

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

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

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


Cash and Cash Equivalents                                           $    55,845
Accounts Receivable                                                     281,717
Fixed Assets                                                          2,162,438
                                                                    -----------
Total Assets Acquired                                                 2,500,000

Note Payable - Bank                                                  (1,300,000)
Note Payable - Seller                                                (1,200,000)
                                                                    -----------
                                                                    $         --
                                                                    ===========

All American CNC Sales, Inc.:

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

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

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

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



                                       12
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004


Gledhill/Lyons, Inc., dba Accurate Technology:

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

The shareholders of Gledhill/Lyons, Inc., doing business as Accurate Technology,
Inc.,   received   12,000,000   restricted   common   stock  shares  of  Gateway
International Holdings,  Inc., valued at $9,720,000,  in exchange for all of the
outstanding  common  stock shares of  Gledhill/Lyons,  Inc.,  doing  business as
Accurate Technology, Inc. Two of the officers of the Company, Larry Consalvi and
Joseph  Gledhill,  surrendered  12,000,000 of their shares to the Company so the
acquisition of this company would result in no overall  dilution to the existing
shareholders of the Company.

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

Current Assets                                                      $   526,731
Fixed Assets                                                            551,036
Current Liabilities                                                    (871,655)

Goodwill                                                              9,513,888
                                                                    -----------
                                                                    -----------

                                                                      9,720,000
Common Stock issued                                                  (9,720,000)
                                                                    -----------
                                                                    $        --
                                                                    ===========


ESK, Inc.:

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

The shareholders of ESK, Inc. received 200,000 restricted common stock shares of
Gateway  International  Holdings,  Inc., and a sum of $50,000.00 in exchange for
all of the common shares of ESK, Inc. The purchase  price,  based on the average
share price during the period and the cash payment was $212,000.00

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

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


                                       13
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004

A Line Capital Corporation.:

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

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

Unaudited Pro-forma revenue and net income assuming the transaction had been
completed at the beginning of the period reported, on pro-forma financial
results would be as follows:

                                               For the three month periods ended
                                               December 31,        December 31,
                                                   2004             2003
                                               ------------      ---------------
Revenue                                        $ 2,822,998.      $     2,727,786

Net Income (loss) for the period               $   204,612.      $        51,838

Earnings per share                             $         --      $            --


NOTE 5 - SUBSEQUENT EVENTS

Acquisitions

Spacecraft Machine Products, Inc.

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

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


                                       14
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004


Nu-Tech Industrial Sales, Inc.

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

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

Unaudited  Pro-forma  revenue and net income  assuming the  transaction had been
completed  at the  beginning  of the period  reported,  on  pro-forma  financial
results would be as follows:

                                         For  the  three  month  periods ended
                                                     (Unaudited)
                                          31-Dec-04          31-Dec-03
Revenue                                    4,517,738         4,108,981
Net Income (loss) for the period             172,223           105,721
Earnings per
share                                             --                --


NOTE 6 - GOING CONCERN

The  Company's   consolidated   financial  statements  are  prepared  using  the
accounting  principles  generally  accepted  in the  United  States  of  America
applicable to a going concern that  contemplates  the  realization of assets and
liquidation of liabilities in the normal course of business.  As of December 31,
2004 the Company had an accumulated deficit of $ 1,384,711 and a working capital
deficit of $ 946,210.  These matters raise substantial doubt about the Company's
ability  to  continue  as  a  going  concern.  The  Company  has  taken  certain
restructuring steps to provide the necessary capital to continue its operations,
such as the raising of  approximately  $735,000 through a sale of new restricted
shares of its common stock.  Further, the Company's management believes that the
addition of five new profitable subsidiaries has brought further strength to the
Company's financial position.

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


                                       15
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004


NOTE 7 - COMMITMENTS AND CONTINGENCIES

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

Future minimum rental commitments as of December 31, 2004, are as follows:

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

                                2005                  $ 98,796

                                2006                    74,097

                                                      --------
                  Total minimum lease payments        $172,893
                                                      ========

Rent

Rent expense under operating  leases for the period ended December 31, 2004, was
$19,266 and $23,724 for the period ended December 31, 2003.

Legal

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

The Company is currently involved in the following lawsuits:

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

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

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

                                       16
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004


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

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

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

In April 2005, the SEC instituted  proceedings  pursuant to Section 12(J) of the
Securities  Exchange  Act  of  1934  (the  "1934  Act")  and  cease  and  desist
proceedings  have been  instituted  pursuant  to  Section  21(C) of the 1934 Act
against the Company's President, Chief Executive Officer and Director,  Lawrence
A.  Consalvi.  The SEC  seeks  to  suspend  the  registration  of the  Company's
securities  for a period not exceeding 12 months or revoke the  registration  of
its securities  pursuant to Section 12 of the 1934 Act, and to cause the Company
and Mr.  Consalvi to cease and desist from  committing any violations of Section
13(a) of Rules 13a-1 and 13a-13 of the 1934 Act in the future.  The  proceedings
arose from the Company's failure to comply with its reporting  obligations while
its securities  were  registered with the SEC in that the Company failed to file
its annual  report on Form 10-K for the fiscal three  months ended  December 31,
2004, and four  quarterly  reports on Form 10-Q for the quarters ended March 31,
2003,  June 30,  2003,  December  31,  2003,  and March 31,  2004,  and that Mr.
Consalvi,  during his tenure as the Company's  President,  caused the Company to
violate these reporting requirements.  On May 9, 2005, the Company submitted its
answer to the Order alleging that its failure to meet its reporting  obligations
was not intentional but the result its inability to obtain financial information
necessary to complete the periodic  reports  from Bechler  Cams,  Inc.,  who had
refused to comply with the  Company's  reasonable  requests  for such  financial
information.  On  July  20,  2005,  trial  was  held  on the  Order  Instituting
Proceedings.  It is expected  that the  administrative  law judge will issue her
initial decision no later than August 18, 2005.


BTL Machine V. Elite Machine Tool Company, Inc

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


                                       17
<PAGE>

              GATEWAY INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004

NOTE 8 - SUPPLEMENTAL DISCLOSURE OF CASH FLOWS

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

The  Company  paid  $800.00 and  provided  for $ 101,134 for income tax and paid
$29,090 for interest during the three month period ended December 31, 2004.

The Company  paid $0 for income tax and $46,998  for  interest  during the three
month period ended December 31, 2003.

The cash flow  statements  do not include the following  non-cash  investing and
financing activities:

      The Company issued  1,000,000  shares of its common stock for the purchase
      of CNC All American Sales, Inc., amounting to $610,000,  12,000,000 shares
      of its common stock for the purchase of Gledhill/Lyons,  Inc. dba Accurate
      Technology,  Inc.,  amounting to $9,720,000,  219,780 shares of its common
      stock for the  purchase  of ESK,  Inc.,  amounting  to 162,000 and 512,820
      shares of its common stock in the reduction of a Note payable to Alice and
      Hans Thallmayer,  which was incurred in connection with the acquisition of
      Eran Engineering, Inc., amounting to $ 400,000.


                                       18
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward Looking Statements

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

General Overview

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

                                       19
<PAGE>

As of July 27, 2005, we are a diversified  holding company that operates through
our wholly-owned  subsidiaries principally in the aerospace and defense markets.
We currently have 8 subsidiaries in operation including: Eran Engineering, Inc.,
Elite Machine Tool Company,  Inc., All American CNC Sales,  Inc., A-Line Capital
Corporation,  Accurate Technology,  ESK, Inc.,  Spacecraft  Machines,  Inc., and
Nu-Tech  Industrial  Sales,  Inc.  Our  strategy  has been to seek  and  acquire
profitable,  cash flow positive companies that will compliment and diversify our
existing  portfolio of companies with a focus on potential  acquisitions  in the
aerospace and defense markets.

Recent Acquisitions

Eran Engineering, Inc.

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

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

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


                                       20
<PAGE>

All American CNC Sales, Inc.

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

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

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

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

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


                                       21
<PAGE>

A-Line Capital Corporation

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

ESK, Inc.

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

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

Rescinded Acquisitions

Nelson Engineering, Inc.

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


                                       22
<PAGE>

Bechler Cams, Inc.

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

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

Subsequent Events

Spacecraft Machine Products, Inc.

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

                                       23
<PAGE>

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

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

Nu-Tech Industrial Sales, Inc.

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

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

Critical Accounting Policies

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


                                       24
<PAGE>

Business Combinations

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

Revenue Recognition

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

Accounts Receivable

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

Inventories

Inventories,  which consist primarily of pre-owned machine tools, raw materials,
and related labor and  overhead,  are stated at the lower of cost or market with
cost  determined  on a specific  identification  basis.  The  Company  regularly
monitors  inventory  for  excess or  obsolete  items  and  makes  any  valuation
corrections  when such  adjustments  are know. Net realizable  value is based on
management's  forecast for sales of the Company's products in the ensuing years.
The industry in which the Company  operates is  characterized  by  technological
advancement  and change.  Should demand for the Company's  products  prove to be
significantly  less  than  anticipated,  the  ultimate  realizable  value of the
Company's  inventories could be substantially  less than the amount shown on the
accompanying consolidated balance sheet.


                                       25
<PAGE>

Results of Operations for the Three Months Ended December 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                   December 31, 2004                           December 31, 2003

<S>                         <C>                    <C>               <C>                     <C>
Net Sales                   $ 2,129,371            100.0  %          $ 1,601,341             100.0  %
Cost of Sales                 1,362,161            63.97               1,121,205             70.02
                             -----------        ---------                                ----------

Gross Profits                   767,210            36.03                480,136              29.98
                             -----------        ---------                                ----------
Selling, General and            513,778            24.13                 454,127             28.36
Administrative Expenses
Operating Expenses              513,778            24.13                 454,127             28.36
                             -----------        ---------                                ----------

Income from Operations          253,432            11.90                  26,009              1.62
Interest Income                      54              0.0                       0               0.0
Net Profit before Income
Taxes                           253,486            11.90                  26,009              1.62
                             -----------        ---------                                ----------
Provision for Income Taxes      101,394            4.76                        0                 -

Net Profit after Income
Taxes                           152,092             7.14                  26,009              1.62
</TABLE>


Revenues

Net  Revenues  for the  three  months  ended  December  31,  2004  increased  to
$2,129,371  from  $1,601,341  for the three months ended  December 31, 2003. The
increase in net sales of $528,030, or approximately 32.97%, over the 2003 period
is due primarily an increase in the revenues of our operating  subsidiary,  Eran
Engineering,  and to our  acquisition  of All American  and Accurate  Technology
during the same period.  In  addition,  the increase in our net revenues is also
attributable to an increase in demand for manufactured goods which have likewise
increased the demand for manufactured products and our machine tools.

Cost of Sales

Cost of sales  for the  three  months  ended  December  31,  2004  increased  to
$1,362,161  from  $1,121,205  for the three months ended  December 31, 2003. The
overall increase in cost of sales of $240,956, or approximately 21.49%, over the
2003 period is directly attributable to costs associated with our acquisition of
All American and Accurate  Technology during the same period.  In addition,  the
increase  in  our  purchasing  activities  to  meet  the  increased  demand  for
manufactured  goods also contributed to an increase in our gross margins for the
same period.


                                       26
<PAGE>

Gross Profits

Overall gross profits for the three months ended  December 31, 2004 increased to
$767,210 from $480,136 for the three months ended December 31, 2003. The overall
increase  in gross  profits of $287,074  or  approximately  59.79% over the 2003
period,  is  directly  attributable  to  the  inclusion  of the  results  of the
subsidiaries we acquired during this period as well as the improved margins from
the existing subsidiaries.

Operating Expenses

Total operating  expenses for the three months ended December 31, 2004 increased
to $513,778  from  $454,127 for the three months  ended  December 31, 2003.  The
overall decrease in expenses of approximately  $59,651 or approximately  13.14%,
over the 2003 period is covered below in our  discussions  of Payroll  Expenses,
and Selling, General, and Administrative Expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended December
31, 2004 increased to $513,778 from $454,127 for the three months ended December
31,  2003.  The  increase in selling,  general  and  administrative  expenses of
$59,651,  or approximately  13.14% over the prior period is due primarily to the
inclusion  of  the  selling,   general  and   administrative   expenses  of  the
subsidiaries we acquired during this period.

Income from Operations

Income from operations for the three months ended December 31, 2004 increased to
$253,432 from $26,009 for the three months ended December 31, 2003. The increase
in income from operations of $227,423,  or approximately  874.40% over the prior
period,  is  directly  attributable  to  the  inclusion  of the  results  of the
subsidiaries we acquired  during this period as well as the improved  margins of
those subsidiaries that were acquired prior to the beginning of this period.

Interest Income

Interest  income for the three months ended December 31, 2004 was $54 and we had
no interest income for the three months ended December 31, 2003. Interest income
for the three months ended December 31, 2004 was interest earned from funds held
on deposit for short periods of time.

Net Profit after Income Tax Provision

Net Profit after income tax  provision  for the three months ended  December 31,
2004  increased to $152,092 from $26,009 for the three months ended December 31,
2003. This increase in Net Profit of $126,083 or approximately  484.77% over the
prior period,  is directly  attributable  to the inclusion of the results of the
subsidiaries we acquired  during this period as well as the improved  margins of
those subsidiaries that were acquired prior to the beginning of this period.


                                       27
<PAGE>

Liquidity and Capital Resources

                                                                   December 31
                                                                          2004
                                                             ------------------
Net cash provided by (used in) operating activities          $        (501,076)
Net cash provided by (used in) investing activities                   (167,931)
Net cash provided by (used in)  financing activities                 1,094,269


General

For the three  months  ended  December  31,  2004,  we had  positive  cash flows
resulting  from $501,076 of cash used in our operating  activities,  $167,931 of
cash used in our investing activities,  and $1,094,269 provided by our financing
activities. Accordingly, for the three months ended December 31, 2004, our funds
from  operations  were  sufficient  to cover our  daily  operations  as  further
explained below.

Cash Flows from Operating Activities

Net cash used in  operating  activities  of $501,076  for the three months ended
December  31,  2004 was  primarily  attributable  to a net  income of  $152,092,
adjustments   to  reconcile  net  income  to  net  cash  provided  by  operating
activities, principally depreciation and amortization expense of $84,720, offset
by changes in  operating  assets  and  liabilities  of  accounts  receivable  of
$(99,443),  inventories  of  $(876,733),  other assets of $(50,768) and accounts
payable and accrued liabilities of $289,056.

Cash Flows from Investing Activities

Net cash used in  investing  activities  of $167,931  for the three months ended
December  31, 2004 funded our  purchase of property  and  equipment  during this
period.

Cash Flows from Financing Activities

Net cash of $1,094,269 provided by our financing  activities in the three months
ended  December  31, 2004 was due  primarily to issuances of our common stock in
connection with the  acquisitions of our wholly-owned  subsidiaries  during this
period  of  $908,728,  principal  repayments  notes  payable  of  $159,469,  and
principal borrowings on notes payable to related parties of $345,010.

LIQUIDITY

Internal Sources of Liquidity

For the three months  ended  December 31,  2004,  the funds  generated  from our
operations  were sufficient to fund our daily  operations.  Our gross profit for
this period was $767,210, which was sufficient to meet our operating expenses of
$513,778  for the  same  period.  There  is no  assurance  that  funds  from our
operations will continue to meet the  requirements of our daily  operations.  In
the event that funds from our operations are  insufficient to meet our operating
requirements,  we will need to seek  other  sources  of  financing  to  maintain
liquidity. (See Risk Factors - Risks Related To Our Business).


                                       28
<PAGE>

External Sources of Liquidity

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

On January 1, 2004, we executed a non-interest  bearing promissory note in favor
of our Vice  President  and  Director,  Joseph T.W.  Gledhill,  in the principal
amount of $246,500, which is due and payable on or before September 30, 2006. We
did not make any  payments  under  this note in our  fiscal  year  2004,  and at
September 30, 2004, $246,500 was due and owing to Mr. Gledhill.

In our fiscal year 2004, we executed a non-interest  bearing  promissory note in
favor of our Director, President and Chief Executive Officer, Larry Consalvi, in
the principal amount of $62,241,  which is due and payable on demand. We did not
make any payments  under this note in our fiscal year 2004, and at September 30,
2004, $62,241 was due and owing to Mr. Consalvi.

On December 26, 2003, our wholly-owned  subsidiary,  Eran  Engineering,  entered
into a Master Lease  Agreement with U.S.  Bancorp  pursuant to which it financed
approximately $135,479 from U.S. Bancorp to purchase certain equipment described
as "three  (3) Mori Seiki  MV-40M CNC  Vertical  Machine  Centers."  The loan is
collateralized  by this  equipment.  Pursuant  to the terms of the Master  Lease
Agreement,  Eran  Engineering  is  obligated  to make 32 rental  payments in the
amount of $4,536.99.  At September 30, 2004, the principal  remaining balance on
the loan was $100,408.

On November 5, 2003, our wholly-owned subsidiary, Eran Engineering, entered into
an Equipment Lease  Agreement,  pursuant to which it financed a total of $35,000
and accruing  interest at 7.45% per annum from Intech Funding Corp.  These funds
were  to be  used  towards  the  purchase  of  equipment  described  as  "1-Used
Mori-Seiki TU-30 Vertical Turning Machine Center". The loan is collateralized by
this equipment and is guaranteed by our Vice President and Director, Joseph T.W.
Gledhill.  The loan  matures  in  November  2006.  Pursuant  to the terms of the
Equipment  Lease  Agreement,  Eran  Engineering  is to repay  the loan by making
monthly  payments of $1,088 to Intech  Funding Corp. At September 30, 2004,  the
principal remaining balance on the loan was $23,789.

On November 5, 2003, our wholly-owned subsidiary,  Eran Engineering entered into
a Lease  Agreement,  pursuant  to which  Eran  Engineering  financed  a total of
$100,000 and accruing  interest at 7% per annum from Intech Funding Corp.  These
funds were to be used  towards the  purchase of  equipment  described as "1-Used
Mori-Seiki  SV-500 with APC Fanuc MSC 501". The loan is  collateralized  by this
equipment  and is guaranteed  by our Vice  President  and Director,  Joseph T.W.
Gledhill.  The loan  matures  in  November  2006.  Pursuant  to the terms of the
Equipment  Lease  Agreement,  Eran  Engineering  is to repay  the loan by making
monthly  payments of $2,003 to Intech  Funding Corp. At September 30, 2004,  the
principal remaining balance on the loan was $80,723.

In  November  2003,  we had  debt  owing  to an  unrelated  individual,  Daisuke
Murikami,  in the principal amount of $19,831 and accruing  interest at the rate
of 10% per annum. At September 30, 2003, the outstanding  principal  balance and
interest  due  under  this note was  $22,447  and at  September  30,  2003,  the
principal  remaining  balance on the loan was $22,447 and at September 30, 2004,
the principal remaining balance on the loan was $19,831.

                                       29
<PAGE>

In connection with the closing of our acquisition of Eran  Engineering  from its
two shareholders, Hans B. Thallmayer and Alice Thallmayer on October 1, 2003, we
executed a promissory  note in favor of the sellers in the  principal  amount of
$600,000,  payable in three equal annual  installments  of $200,000 and accruing
simple interest at the rate of 6% per annum. Our obligation under the promissory
note was secured by the pledge by Lawrence A. Consalvi, our Director,  President
and Chief  Executive  Officer and Joseph T.W.  Gledhill,  our Vice President and
Director,  of a security interest in certain shares of our common stock owned by
them and worth  $4,285,716 as of the date of the pledge.  At September 30, 2004,
the principal balance on the note was $600,362.

In connection with the closing of our acquisition of Eran Engineering on October
1, 2003, and the contemporaneous purchase of a building by Eran Engineering from
R & H Investments,  a partnership  owned by the two selling  shareholders,  Eran
Engineering  executed a  promissory  note in the  principal  amount of $600,000,
bearing simple  interest at the rate of 6% per annum. At September 30, 2004, the
principal balance on the note was $600,362.

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

In August 2003, our wholly-owned subsidiary,  E.M. Tool Company, Inc. executed a
promissory  note in favor of Austin D. Lucas,  Inc. in the  principal  amount of
$131,529,  payable in thirteen consecutive monthly installments of approximately
$10,000 and bearing  interest at the rate of 10%. At  September  30,  2003,  the
principal  balance on this note was  $112,083,  and at September  30, 2004,  the
principal remaining balance on this note was $13,333.

On June 30, 2003, we and our wholly-owned  subsidiary,  E.M. Tool Company, Inc.,
executed a promissory  note in favor of Financial  Federal  Credit,  Inc. in the
amount of $2,059,868,  payable in consecutive monthly installments commencing on
September 1, 2003 and maturing in May 2008 as follows:  6 installments,  each in
the amount of $10,000, then 53 installments,  each in the amount of $21,000, and
a balloon payment at maturity in the amount of $886,886. The obligations to make
payment  under the note is secured by our grant of a security  interest in favor
of Financial Federal Credit, Inc. in our goods, inventory,  equipment, accounts,
accounts receivables,  documents,  instruments,  chattel paper, contract rights,
general  intangibles,  investment  property,  securities  entitlements,  deposit
accounts,  fixtures and other  property  belonging to us or in which we have any
interest (collectively,  the "Collateral"). In addition, the obligations of E.M.
Tool Company,  Inc. to make payments under the note are likewise  secured by its
grant of a security interest in its Collateral to Financial Federal Credit, Inc.
At  September  30,  2004,  the  principal  remaining  balance  on the  note  was
$1,462,053.

On January 1, 2003,  we executed a promissory  note in favor our Vice  President
and Director,  Joseph T.W.  Gledhill,  for the principal  amount of $100,000 and
accruing simple interest at the rate of 6% per annum.  The principal and accrued
interest  under this note became due on January 20,  2003.  Although we have not
repaid this note when due, Mr.  Gledhill has not called us in default  under the
note,  and we have agreed to make payments on it as funds become  available.  At
September 30, 2003,  the  outstanding  principal and interest due under the note
was $100,000.  At September 30, 2004, the outstanding principal and interest due
under the note was $75,218.62.

                                       30
<PAGE>

In our fiscal year 2003,  we had  outstanding  debt as evidenced by a promissory
note in favor of Blaga Precision,  which was payable in monthly  installments of
$10,000,  including interest at 10% per annum. In our fiscal year 2004, the note
matured and was paid in full in the amount of $11,104.

In our fiscal year 2003,  we had  outstanding  debt as evidenced by a promissory
note in favor of an  individual,  Mr.  Daisuke  Mikami,  which was  payable in 6
monthly  installments  of  $3,500,  including  interest  at 10%  per  annum.  At
September 30, 2004,  the  outstanding  principal  balance and interest due under
this note was $19,831.

In our fiscal year 2003,  we had  outstanding  debt as evidenced by a promissory
note in favor of Eran Engineering,  Inc. in the principal amount of $97,860.  At
the time this debt was incurred,  Eran  Engineering was not yet our wholly-owned
subsidiary.  Subsequent to our  acquisition  of Eran  Engineering  on October 1,
2003,  this debt was written off our books as  inter-company  debt in our fiscal
year 2004.

In September 5, 2002, our  wholly-owned  subsidiary,  Elite Machine,  executed a
secured  promissory  note in the amount of  $1,037,683.95  in favor of Financial
Federal  Credit,  Inc., and bearing  interest at the rate of 8.25%.  The note is
payable in  monthly  installments  of $8,250  for a period of 60  months,  and a
balloon  payment on the 61st month of  $542,683.96.  This note is secured by the
assets of Elite  Machine and  guaranteed  by our  Director,  President and Chief
Executive Officer,  Lawrence A. Consalvi.  At September 30, 2003, the balance on
this note was $744,286,  and at September 30, 2004, the balance on this note was
$702,050.

Inflation

Our  management  believes that  inflation  has not had a material  effect on our
results of  operations,  and does not expect  that it will in fiscal  year 2005,
except that rising oil and gas prices may  materially  and adversely  impact the
economy generally.

RISK FACTORS

Our prospects are subject to certain  uncertainties  and risks.  This  Quarterly
Report on Form  10-QSB for the three  months  ending  December  31,  2004,  also
contains certain  forward-looking  statements  within the meaning of the Federal
securities  laws.  Our future  results  may differ  materially  from our current
results,  and our actual results could differ materially from those projected in
the  forward-looking  statements.  Such differences may be the result of certain
risks,  including  but not limited to those risk factors set forth below,  other
one-time  events  and other  important  factors  previously  disclosed  or to be
disclosed  from  time to time in our  other  filings  with  the  Securities  and
Exchange  Commission.  The following risk factors should be considered carefully
in evaluating the Company and its business  because these risks currently have a
significant  impact  or may  have a  significant  impact  in the  future  on our
business,  operating  results and  financial  condition.  Prospective  investors
should consider carefully the risk factors set out below.


                                       31
<PAGE>

Risks Related To Our Business.

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

As  reported by our auditor in Note 6 to our  Unaudited  Consolidated  Financial
Statements  included in Item 1 of Part I of this Quarterly Report on Form 10-QSB
for our fiscal  quarter ended  December 31, 2004,  our  independent  auditor has
expressed  "substantial doubt" about our ability to continue as a going concern,
due to our  substantial  accumulated  deficits of $1,384,711 and working capital
deficits of $946,210 at December 31, 2004. We have taken  certain  restructuring
steps to provide the necessary  capital to continue our operations,  such as the
raising of  approximately  $735,000  through a sale of new restricted  shares of
common stock of our Company.  Further, our management believes that the addition
of  five  new  profitable  subsidiaries  has  brought  further  strength  to our
financial position.  However,  there can be no assurance whether, or when, these
steps will  resolve our  accumulated  and working  capital  deficits  and we may
continue to incur net losses through 2005 and possibly beyond. Additionally,  we
expect to incur significant expenses as we focus on our business strategy.  As a
result, we will need to generate  significant revenue to achieve  profitability,
which  may not  occur.  Even if we  achieve  profitability,  we may be unable to
sustain or increase  profitability on a quarterly or annual basis in the future.
If we are unable to achieve and  maintain  profitability  our  business  will be
materially impacted and the value of our stockholders' investments may decline.

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

In April 2005, the SEC instituted  proceedings  pursuant to Section 12(J) of the
Securities  Exchange  Act  of  1934  (the  "1934  Act")  and  cease  and  desist
proceedings  have been  instituted  pursuant  to  Section  21(C) of the 1934 Act
against  our  President,  Chief  Executive  Officer  and  Director,  Lawrence A.
Consalvi.  The SEC seeks to suspend the  registration  of our  securities  for a
period not  exceeding  12 months or revoke the  registration  of our  securities
pursuant  to Section  12 of the 1934 Act,  and to cause us and Mr.  Consalvi  to
cease and desist from  committing any violations of Section 13(a) of Rules 13a-1
and 13a-13 of the 1934 Act in the future. The proceedings arose from our failure
to comply with our reporting  obligations  while our securities  were registered
with the SEC in that we  failed to file our  annual  report on Form 10-K for the
fiscal three months ended December 31, 2004, and four quarterly  reports on Form
10-Q for the quarters  ended March 31, 2003,  June 30, 2003,  December 31, 2003,
and March 31, 2004, and that Mr.  Consalvi,  during his tenure as our President,
caused  us to  violate  these  reporting  requirements.  Although  we  intend to
vigorously defend against these actions and to bring all our delinquent  filings
up to date,  there can be no assurance  that the SEC will not pursue this action
even after these filings have been made. If the  registration  of our securities
is either suspended or revoked,  our  stockholders  will not be able to publicly
sell our  securities  unless and until,  whatever the case may be, the period of
suspension is over or we are able to have a new registration  statement declared
effective  by the  SEC,  and  there  is no  assurance  that we  would be able to
accomplish  that,  or that any  private  market for our  securities  can or will
develop.

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

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

                                       32
<PAGE>

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

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

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

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

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

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

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

                                       33
<PAGE>

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

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

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

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

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

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

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

                                       34
<PAGE>

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

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

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

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

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

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

During the fiscal year ended 2004, our sales to two customers represented 26.48%
of net  sales,  and in fiscal  year  ended  2003,  our sales to three  customers
represented approximately 17.80% of net sales. At September 30, 2004, two of our
customers  accounted  for  approximately  61%  of  accounts  receivable  and  at
September 30, 2003,  two of our customers  accounted  for  approximately  54% of
accounts  receivable.  The  loss of any of  these  key  customers  would  have a
materially  adverse  impact on our future  results of  operations  and financial
condition.

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

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

                                       35
<PAGE>

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

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

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

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

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

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

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

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

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

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


                                       36
<PAGE>

Risks Related To Our Industry

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

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

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

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

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

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

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


                                       37
<PAGE>

Risks Related To Our Stock

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

In April 2005, the SEC instituted  proceedings  pursuant to Section 12(J) of the
Securities  Exchange  Act  of  1934  (the  "1934  Act")  and  cease  and  desist
proceedings  have been  instituted  pursuant  to  Section  21(C) of the 1934 Act
against  our  President,  Chief  Executive  Officer  and  Director,  Lawrence A.
Consalvi.  The SEC seeks to suspend the  registration  of our  securities  for a
period not  exceeding  12 months or revoke the  registration  of our  securities
pursuant  to Section  12 of the 1934 Act,  and to cause us and Mr.  Consalvi  to
cease and desist from  committing any violations of Section 13(a) of Rules 13a-1
and 13a-13 of the 1934 Act in the future. The proceedings arose from our failure
to comply with our reporting  obligations  while our securities  were registered
with the SEC in that we  failed to file our  annual  report on Form 10-K for the
fiscal three months ended December 31, 2004, and four quarterly  reports on Form
10-Q for the quarters  ended March 31, 2003,  June 30, 2003,  December 31, 2003,
and March 31, 2004, and that Mr.  Consalvi,  during his tenure as our President,
caused  us to  violate  these  reporting  requirements.  Although  we  intend to
vigorously defend against these actions and to bring all our delinquent  filings
up to date,  there can be no assurance  that the SEC will not pursue this action
even after these filings have been made. If the  registration  of our securities
is either suspended or revoked,  our  stockholders  will not be able to publicly
sell our  securities  unless and until,  whatever the case may be, the period of
suspension is over or we are able to have a new registration  statement declared
effective  by the  SEC,  and  there  is no  assurance  that we  would be able to
accomplish  that,  or that any  private  market for our  securities  can or will
develop.

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

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

      o     our success,  or lack of success,  in  developing  and marketing our
            products and services;

      o     the  announcement  of  new  products,   services,  or  technological
            innovations by us or our competitors;

      o     quarterly fluctuations of our operating results;

      o     changes in revenue or earning estimates by the investment community;
            and

      o     competition.

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


                                       38
<PAGE>

You should not expect the payment of dividends by us.

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

You may experience significant dilution.

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

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

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

      o     fluctuations in the general economic condition;

      o     demand for our products;

      o     fluctuation in the capital budgets of our customers; and

      o     development of superior products and services by our competitors.

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

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

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

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

                                       39
<PAGE>

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

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

Forward Looking Statements

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

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

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

                                       40
<PAGE>

ITEM 3. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule  13a-15(b)  under the  Securities  Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure  controls as of the end of the period covered by
this  report,  December  31,  2004.  This  evaluation  was carried out under the
supervision  and with the  participation  of our Chief  Executive  Officer,  Mr.
Lawrence  A.  Consalvi,  and  our  Chief  Financial  Officer,  Mr.  Jitu  Banker
(collectively,  the  "Certifying  Officers").  Based upon that  evaluation,  our
Certifying  Officers  concluded that as of the end of the period covered by this
report,  December 31, 2004, our disclosure controls and procedures are effective
in  timely  alerting  management  to  material  information  relating  to us and
required to be included in our periodic SEC filings.

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

Internal Control Over Financial Reporting

Further,  as  required  by Rule  13a-15(d)  of the  Exchange  Act and  under the
supervision and with the  participation of our Certifying  Officers,  we carried
out an  evaluation  as to  whether  there has been any  change  in our  internal
control over  financial  reporting  during our fiscal quarter ended December 31,
2004. Based upon this evaluation,  we have concluded that there has not been any
change in our  internal  control  over  financial  reporting  during  our fiscal
quarter ended December 31, 2004, that has materially affected,  or is reasonably
likely to materially affect, our internal control over financial reporting.

Internal control over financial reporting is a process designed by, or under the
supervision of, our principal  executive and principal  financial  officers,  or
persons performing  similar  functions,  and effected by our board of directors,
management and other personnel,  to provide reasonable  assurance  regarding the
reliability of financial  reporting and the preparation of financial  statements
for  external  purposes  in  accordance  with  generally   accepted   accounting
principles.  Internal control over financial  reporting  includes those policies
and  procedures  that:  (i)  pertain  to the  maintenance  of  records  that  in
reasonable   detail   accurately  and  fairly  reflect  the   transactions   and
dispositions of our assets; (ii) provide reasonable  assurance that transactions
are recorded as  necessary to permit  preparation  of  financial  statements  in
accordance with generally accepted accounting principles,  and that our receipts
and  expenditures are being made only in accordance with  authorizations  of our
management  and  directors;  and (iii) provide  reasonable  assurance  regarding
prevention or timely detection of unauthorized  acquisition,  use or disposition
of our assets that could have a material effect on the financial statements.


                                       41
<PAGE>

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From  time to time we are  involved  in legal  proceedings  relating  to  claims
arising out of operations  in the normal  course of business,  as well as claims
arising from our status as an issuer of  securities  and/or  publicly  reporting
company. Below is a brief summary of our existing,  pending and known threatened
litigation as of the date of this report.

o     On December  8, 2004,  a  complaint  was filed  against us and some of our
      principles  by the Duffy Law Firm in the  matter  entitled  "The Duffy Law
      Firm vs.  Gledhill,  et al." The complaint was filed in Case No. 04CC11981
      in the Superior Court of California,  County of Orange, and alleges causes
      of action for breach of contract,  open book account,  quantum meruit, and
      declaratory  relief  related to the  plaintiff's  claim for  unpaid  legal
      services.  Our  management  has denied  that the  plaintiffs  are owed the
      amounts sought and we intend to vigorously defend this action on the basis
      brought by the plaintiffs. This matter is currently in the discovery phase
      and, as such,  our counsel has advised us that it is  premature to attempt
      to estimate any potential outcome or loss at this time.

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

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

In December 2004, we issued  12,000,000  shares of our  restricted  common stock
pursuant to a Share Exchange  Agreement with David Lyons and William Gledhill in
connection  with our  acquisition  of Accurate  Technology,  Inc. We believe the
issuance  of our common  stock was  exempt  from the  registration  requirements
pursuant to Regulation D or Section 4(2) of the Securities Act.

On  December  31,  2004,  we closed an  exchange  of shares  pursuant to a Share
Exchange   Agreement,   dated  December  13,  2004  with  two  of  our  existing
shareholders,  Alice  Thallmayer  and Hans  Thallmayer.  Pursuant  to this Share
Exchange  Agreement,  Alice  Thallmayer  and Hans  Thallmayer  agreed to convert
$400,000 of an  outstanding  debt in the principal  amount of $1,158,374  into 8
shares of the our common stock at a 15% discount based upon the average price of
our common stock throughout the month of November 2004. Additionally,  we agreed
pay off the  remainder  of this debt at a rate of $30,000  per month  commencing
January 1, 2005. We incurred  this debt in connection  with our purchase of Eran
Engineering,  Inc. in June 2003. We believe the issuance of our common stock was
exempt from the  registration  requirements  pursuant to Regulation D or Section
4(2) of the Securities Act.

In December  2004,  we issued  200,000  shares of our  restricted  common  stock
pursuant to a Share Exchange  Agreement with Erich Thallmayer in connection with
our  acquisition  of ESK,  Inc. We believe the  issuance of our common stock was
exempt from the  registration  requirements  pursuant to Regulation D or Section
4(2) of the Securities Act.

                                       42
<PAGE>

In October  2004,  we issued  1,000,000  shares of our  restricted  common stock
pursuant to a Share Exchange  Agreement with Tim Consalvi and Kathie Consalvi in
connection with our  acquisition of All American CNC Sales,  Inc. We believe the
issuance  of our common  stock was  exempt  from the  registration  requirements
pursuant to Regulation D or Section 4(2) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

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

Items 1.01(Material Definitive Agreements),  2.01 (Acquisition or Disposition of
Assets), and 3.02 (Unregistered Sales of Equity Securities).

On December 7, 2004, we closed the acquisition of Accurate Technology,  from its
two shareholders, William Gledhill and David Lyons, pursuant to a Share Exchange
Agreement  whereby we acquired all the  outstanding  capital  stock of Accurate,
aggregating  1,000 shares,  in exchange for 12,000,000  restricted shares of our
common  stock.  In  connection  with  the  acquisition,  Accurate  entered  into
employment  agreements  with David Lyons to serve as its  President at an annual
base salary of $192,000 and with William Gledhill to serve as its Vice President
at an annual base salary of  $192,000.  Mr.  William  Gledhill is the son of our
Vice President and Director,  Joseph T.W.  Gledhill.  We believe the issuance of
our common  stock was exempt  from the  registration  requirements  pursuant  to
Regulation D or Section 4(2) of the Securities Act.

On December 23, 2004, we closed the acquisition of ESK Engineering Inc. from its
sole  shareholder and the former  President and Chief Operating  Officer of Eran
Engineering, Mr. Eric Thallmayer. The acquisition was accomplished pursuant to a
Share Exchange  Agreement  whereby we acquired all of the issued and outstanding
capital  stock of ESK solely in exchange  for 200,000  restricted  shares of our
common  stock.  Mr.  Erich  Thallmayer  is  the  son  of  two  of  our  existing
shareholders,  Alice  Thallmayer  and  Hans  Thallmayer,  from  whom we  earlier
acquired Eran Engineering.  In addition,  Erich Thallmayer had previously served
as the  President  of Eran  Engineering  for a period  of one  year  immediately
following our acquisition of Eran Engineering.  He was subsequently  replaced by
Joseph  T.W.  Gledhill  as the  President  of Eran  Engineering.  We believe the
issuance  of our common  stock was  exempt  from the  registration  requirements
pursuant to Regulation D or Section 4(2) of the Securities Act.

On October 1, 2004, we closed the  acquisition  of All American CNC Sales,  Inc.
from its two shareholders,  Tim Consalvi and Kathy Consalvi, pursuant to a Share
Exchange Agreement whereby we acquired all the outstanding  capital stock of All
American,  aggregating  9,000  shares,  for 1,000,000  restricted  shares of our
common stock. Further and as contingent consideration for the acquisition of All
American's capital stock, we agreed to issue an additional 250,000 shares of our
common stock to Tim Consalvi and Kathy Consalvi if All  American's  gross profit
equals or exceeds  $300,000 in our fiscal year 2005, and another  250,000 shares
of our common stock if All American's gross profit equals or exceeds $300,000 in
our fiscal year 2006. In connection with the  acquisition,  All American entered
into an employment  agreement with Tim Consalvi to serve as an executive officer
of All  American  for a period of one year at an annual  base salary of $168,000
plus  reimbursement of reasonable  expenses.  Tim Consalvi is the brother of our
director and president,  Lawrence A.  Consalvi,  and Kathy Consalvi (the wife of
Tim Consalvi),  is the  sister-in-law  of Lawrence A.  Consalvi.  We believe the
issuance  of our common  stock was  exempt  from the  registration  requirements
pursuant to Regulation D or Section 4(2) of the Securities Act.

                                       43
<PAGE>

Item 2.02 (Results of Operations and Financial Condition)

On  November  8,  2004,  we issued a press  release  wherein  we  announced  our
unaudited  financial  results for our fiscal year ended  September 30, 2004. Our
results were reported on both a consolidated and subsidiary  basis. For our 2004
financial  results that were reported in the press  release,  only Elite Machine
Tool and Eran  Engineering were included.  On a consolidated  basis, we reported
record annual sales totaling  $7,445,240,  and record net income before taxes of
$726,990,  a pre-tax margin of 9.8%. On a subsidiary  basis,  Elite Machine Tool
posted total sales for the year of  $4,015,587,  and profit,  before  taxes,  of
$289,551,  a net pre-tax margin of 7.2%. Eran Engineering  reported annual sales
of $3,426,653,  and net income before taxes of $437,439, a net pre-tax margin of
12.8%.  We reported  pre-tax  earnings per share for our 2004 fiscal year of 2.3
cents per share,  based on 31,966,000 shares  outstanding.  A copy of this press
release is attached to this filing as Exhibit 99.5.

Item 3.02. (Unregistered Sales of Equity Securities).

See Item 2,  "UNREGISTERED  SALES OF EQUITY  SECURITIES"  beginning  on page 40,
above.

Item 3.03 (Material Modification to Rights of Security Holders)

On August  18,  2004,  we  announced  that our  Board of  Directors  approved  a
two-for-one  stock  split of our common  stock.  The stock split  entitled  each
stockholder  of record on the later of the close of  business  April 20, 2004 or
approval  from NASDAQ,  to receive one  additional  share for every  outstanding
share of our  common  stock.  The split is a  mandatory  exchange  payable  upon
surrender.  Therefore,  stockholders  entitled  to  receive  split  shares  were
required to remit their  pre-split  stock  certificates  to our transfer  agent,
Pacific Stock  Transfer,  to receive their split shares.  Upon the completion of
the stock  split,  we had  approximately  32 million  shares of our common stock
issued and outstanding.

Item 4.01 (Changes in Registrant's Certifying Accountant)

In December 2004, we engaged Kabani and Co., which  appointment  was approved by
our  Board  of  Directors.  During  our two most  recent  fiscal  years  and any
subsequent  interim period prior to the engagement of Kabani and Co., neither we
nor anyone on our behalf  consulted with Kabani and Co. regarding either (1) the
application  of  accounting  principles  to  a  specified  transaction,   either
contemplated or proposed, or the type of audit opinion that might be rendered on
our  financial  statements  or (2) any matter  that was either the  subject of a
"disagreement" or a "reportable event."


                                       44
<PAGE>

Item 5.02. (Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers).

Mr. Tim Consalvi

In  connection  with our  acquisition  of All American from Tim Consalvi and his
wife,  Kathie  Consalvi,  on October  1,  2004,  All  American  entered  into an
employment agreement with Tim Consalvi to serve as

the President of All American at a compensation  rate of $168,000 per annum. The
initial term of this employment  agreement is for one year commencing on October
1, 2004, and  automatically  renews for successive one year terms unless earlier
terminated  by either  party.  The  employment  agreement  provides that the Mr.
Consalvi may be  terminated  for cause.  Subsequently,  on February 2, 2004,  we
appointed Mr.  Consalvi to our Board of Directors.  Prior to his  appointment to
our Board of Directors, Mr. Consalvi has never held a directorship in a publicly
reporting company.

Mr.  Consalvi  is  currently  responsible  for  the  overall  management  of All
American's operations,  including strategic planning,  working directly with new
equipment  supplies,  managing  orders,  deliveries  and  repair  problems.  Mr.
Consalvi has been involved in the machine tool industry since June 1978, and has
specialized in the sale of new CNC machine tools since 1983.  Prior to this, Mr.
Consalvi  sold CNC Tooling and  accessories  to  customers  in the machine  tool
industry.

Mr. Consalvi is the brother of our director and president, Lawrence A. Consalvi,
and Kathy Consalvi (the wife of Tim Consalvi),  is the sister-in-law of Lawrence
A. Consalvi.

Mr. William Gledhill

In connection  with our  acquisition of  Gledhill/Lyons,  Inc.  d.b.a.  Accurate
Technology  from David Lyons and William  Gledhill,  in December 2004,  Accurate
Technology  entered into an employment  agreement with William Gledhill to serve
as the Vice President of Accurate  Technology at a compensation rate of $192,000
per  annum.  The  initial  term of this  employment  agreement  is for one  year
commencing on December 7, 2004, and automatically renews for successive one year
terms unless earlier  terminated by either party.  Subsequently,  on February 2,
2005,  we  appointed  Mr.  Gledhill  to our  Board  of  Directors.  Prior to his
appointment  to  our  Board  of  Directors,   Mr.  Gledhill  has  never  held  a
directorship in a publicly reporting company.

Mr.  Gledhill  currently  serves as the Vice  President of Accurate  Technology,
where he is  responsible  for  managing the machine  tool shop,  production  and
deliveries of Accurate Technology.  Prior to establishing Accurate Technology in
January 2000 with Mr. David Lyons, Mr. Gledhill worked as the shop manager of DJ
Industries, a company specializing in the manufacture of precision machine parts
and  founded by his father and our Vice  President  and  Director,  Joseph  T.W.
Gledhill.

Mr.  Gledhill  is the  son of our  Vice  President  and  Director,  Joseph  T.W.
Gledhill.

Mr. David Lyons

In connection  with the  acquisition of  Gledhill/Lyons,  Inc.  d.b.a.  Accurate
Technology  from David Lyons and William  Gledhill,  in December 2004,  Accurate
Technology entered into an employment agreement with David Lyons to serve as the
President of Accurate  Technology at a compensation  rate of $192,000 per annum.
The initial  term of this  employment  agreement is for one year  commencing  on
December 7, 2004, and automatically  renews for successive one year terms unless
earlier  terminated by either party. The employment  agreement provides that Mr.
Lyons may be  terminated  for cause.  Subsequently,  on  February  2,  2005,  we
appointed Mr. Lyons to our Board of Directors.  Prior to his  appointment to our
Board of  Directors,  Mr.  Lyons has never  held a  directorship  in a  publicly
reporting company.

                                       45
<PAGE>

Mr. Lyons  currently  serves as the President of Accurate  Technology,  where he
manages the sales and finances of the company.  Prior to this and for a total of
16 years,  Mr. Lyons worked as the  purchasing  manager and sales  manager at DJ
Industries, a company specializing in the manufacture of precision machine parts
and founded by our Vice President and Director, Joseph T.W. Gledhill.

Item 8.01 (Other Events)

We  established  A-Line  Capital  Corporation  ("A-Line")  in the 1st quarter of
fiscal year ending September 31, 2005 to provide financial services to consumers
who seek financing for the purchase and/or lease of machine tools and equipment.
Our subsidiaries, particularly Elite Machine and All American, currently arrange
for  approximately  $5,000,000 of equipment lease  financing  annually for their
customers. A-Line was established to capture much of the potential income stream
that was lost to equipment lease brokers in prior years and to provide equipment
lease  financing for  transactions  for our other  subsidiaries.  Our management
anticipates  that  initial  cash flow at A-Line will likely come from clients of
our subsidiary sales organizations, particularly Elite Machine and All American,
although  A-line may  provide  equipment  leasing  services in  connection  with
third-party sales that are wholly unrelated to our business.

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

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


                                       46
<PAGE>

ITEM 6.  OTHER EXHIBITS


Exhibit Number                                                    Description
--------------                                                    -----------
<TABLE>
<CAPTION>
<S>                   <C>
2.1 (5)           Agreement and Plan of Reorganization dated December 11, 2001, by and between Gourmet Gifts, Inc., E.M.
                  Tool Company, Inc. and the shareholders of E.M. Tool Company, Inc.

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

2.3 (8)           Agreement  and  Plan of  Reorganization  dated  April  26,  2002 by and between Gateway International
                  Holdings, Inc., GWIH Acquisition Corp., Nelson Engineering,  Inc. and the shareholders of Nelson
                  Engineering, Inc.
2.4 (8)           First  Amendment  to the  Agreement  and Plan of  Reorganization  dated October 4, 2002 by and between
                  Gateway  International  Holdings,  Inc., GWIH Acquisition Corp., Nelson  Engineering,  Inc. and the
                  shareholders of Nelson Engineering, Inc.

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

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

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

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

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

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

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

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

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

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


                                       47
<PAGE>

Exhibit Number                                                    Description
--------------                                                    -----------
<TABLE>
<CAPTION>
<S>                   <C>

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

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

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


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

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

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

10.10 (11)        Letter Agreement dated April 8, 2004 between Gateway International  Holdings,  Inc. and Nelson Engineering,
                  Inc.
10.11             (11) Standard Industrial/Commercial Multi-Tenant Lease dated
                  August 20, 2004 between Lawrence A. Consalvi individually
                  doing business as Elite Machine Tool Company and SG&H Partners
                  L.P.

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

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

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

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

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

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

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

</TABLE>

                                       48
<PAGE>

Exhibit Number                                                    Description
--------------                                                    -----------
<TABLE>
<CAPTION>
<S>                   <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       49
<PAGE>


Exhibit Number                                                    Description
--------------                                                    -----------
<TABLE>
<CAPTION>
<S>                   <C>
99.2 (9)          Unaudited Pro Forma Combined Balance Sheet for Gateway as of September 30, 2002.

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

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

99.5*             Press release dated November 8, 2004 regarding the unaudited financial results for 2004.
</TABLE>

                *  Filed herewith.

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

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

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

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

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

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

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

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

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

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

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


                                       50
<PAGE>

SIGNATURES

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

GATEWAY INTERNATIONAL HOLDINGS, INC.


By: /s/ Lawrence A. Consalvi
     -----------------------------------
     Lawrence A. Consalvi
     President, Chief Executive Officer and Director
     Date:  July 27, 2005


In accordance with the Securities Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.


By:  /s/ Lawrence A. Consalvi
     -----------------------------------
     Lawrence A. Consalvi
     President, Chief Executive Officer and Director
     Director
     Date:  July 27, 2005


By:  /s/Jitu Banker
     -----------------------------------
    Jitu Banker
    Chief Financial Officer and Secretary
    Date:  July 27, 2005


By:   /s/ Lloyd R. Leavitt, III
     -----------------------------------
     Lloyd R. Leavitt, III
     Chief Operating Officer and Director
     Date:  July 27, 2005


                                       51