- Annual Report (10-K)   UNITED STATES SECURITIE

- Annual Report (10-K)

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
Form 10-K
 
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended June 30, 2012
 
OR
 
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from_____________ to _____________.
 
Commission file number 000-53265
 
M LINE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
(State or other jurisdiction of
incorporation or organization)
 
88-0375818
(I.R.S. Employer
Identification No.)
     
2672 Dow Avenue
Tustin, CA
(Address of principal executive offices)
 
92780
(Zip Code)
 
Registrant’s telephone number, including area code    (714) 630-6253
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class   Name of each exchange on which registered
     
None   None
 
Securities registered pursuant to Section 12(g) of the Act:
 
Common Stock, par value $0.001
(Title of class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes   ¨ No   x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes x     No   ¨
 
Indicate by check mark whether the registrant (1) has 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 ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer   ¨ Accelerated filer   ¨
   
Non-accelerated filer ¨ Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes ¨     No x
 
Aggregate market value of the voting stock held by non-affiliates: $1,695,512 as based on last reported sales price of such stock.  The voting stock held by non-affiliates on that date consisted of 16,955,124 shares of common stock.
 
Applicable Only to Registrants Involved in Bankruptcy Proceedings During the Preceding Five Years:
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes ¨      No ¨
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  As of September 30, 2011, there were 56,846,145shares of common stock, par value $0.001, issued and outstanding.
 
Documents Incorporated by Reference
 
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to rule 424(b) or (c) of the Securities Act of 1933.  The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).   None.
 
 
 
 
M Line Holdings, Inc.
 
TABLE OF CONTENTS
 
PART I
     
ITEM 1 – BUSINESS   1
ITEM 1A. – RISK FACTORS. 14
ITEM 1B – UNRESOLVED STAFF COMMENTS   17
ITEM 2 - PROPERTIES   18
ITEM 3 - LEGAL PROCEEDINGS   18
ITEM 4 – (REMOVED AND RESERVED)   22
     
PART II
     
ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   23
ITEM 6 – SELECTED FINANCIAL DATA   26
ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION   27
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   36
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   36
ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   37
ITEM 9A – CONTROLS AND PROCEDURES   37
ITEM 9B – OTHER INFORMATION   38
     
PART III
     
ITEM 10 – DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNACE   39
ITEM 11 – EXECUTIVE COMPENSATION   41
ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   45
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   46
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES   47
     
PART IV
     
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES   49
 
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PART I
 
Explanatory Note
 
This Annual Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”).  These statements are based on management’s beliefs and assumptions, and on information currently available to management.  Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading “Management's Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,”  “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.
 
Forward-looking statements are not guarantees of future performance.  They involve risks, uncertainties and assumptions.  The Company's future results and shareholder values may differ materially from those expressed in these forward-looking statements.  Readers are cautioned not to put undue reliance on any forward-looking statements.
 
ITEM 1 – BUSINESS
 
Corporate History
 
M Line Holdings, Inc. (“We,” “M Line” or “Company”) was incorporated in Nevada on September 24, 1997, under the name Gourmet Gifts, Inc. Prior to December 11, 2001, we were engaged in the business of catalogue retail gifts. At the time, our principal business activity entailed the packaging, sale and delivery of seasonal gourmet food and beverage items. However, due to difficulty in raising additional working capital to execute our business plan, we ceased operations, and subsequently completed a reverse merger with E.M. Tool Company, Inc., a California corporation d.b.a. Elite Machine Tool Company (“Elite Machine”).
 
Acquisition of Elite Machine and Reverse Acquisition Accounting
 
On December 11, 2001, we finalized an agreement to acquire 100% of the issued and outstanding capital stock of E.M. Tool Co., Inc. dba Elite Machine Tool (“Elite Machine”) . Immediately prior to the merger, we had 100,000,000 shares authorized, of which 6,768,000 shares were outstanding. Pursuant to the merger, all of the outstanding shares of Elite Machine, aggregating 21,262 shares, were exchanged for shares of our common stock on a 1 to 1,274 basis or into 27,072,000 (net of 600,000 shares subsequently cancelled) shares of our common stock leaving a total of 33,240,000 shares of common stock issued and outstanding after the merger. Immediately after the merger, our previous officers and directors resigned and the executive officers and directors of Elite Machine were elected and appointed to such positions, thereby effecting a change of control.
 
Due to the change in voting control and change in senior management in Gateway as a result of the merger, the transaction was recorded as a “reverse-merger” whereby Elite Machine was considered to be the acquirer for accounting purposes. At the closing of the reverse merger, Elite Machine became our wholly-owned subsidiary and we changed our corporate name to Gateway International Holdings, Inc., effective January 28, 2002.
 
Gateway International Holdings, Inc. changed its name to M Line Holdings, Inc. effective March 25, 2009.
 
After the merger, through Elite Machine, we were a company engaged in the acquisition, refurbishment, distribution and sales of pre-owned computer numerically controlled (“CNC”) machine tools to manufacturing customers across the United States of America. This was our sole business from this point until we acquired the additional businesses listed herein.
 
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Acquisition of Eran Engineering, Inc.
 
In October, 2003, pursuant to a Stock Purchase Agreement, dated June 17, 2003, we acquired all the issued and outstanding shares of Eran Engineering, a California corporation, from its two shareholders, Hans B. Thallmayer and Alice Thallmayer, for an aggregate purchase price of $1,250,000. In addition to a cash payment 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 by Lawrence A. Consalvi, a former Director and former President and Chief Executive Officer, and Joseph T.W. Gledhill, a former Vice President and Director, of a security interest in certain shares of our common stock worth approximately $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 was primarily secured by a deed of trust on the building acquired by Eran Engineering and a security interest in all the equipment owned by Eran Engineering.  This note has been paid in full.
 
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 an 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 former 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. We have no obligation to either Erich Thallmayer or Hans Thallmayer in connection with their past employment agreements.
 
As discussed below, Eran Engineering manufactures and assembles specialized, precision components used primarily in the commercial aviation, medical, and defense industries. Barton Webb was appointed in July 2011 to serve as the President of Eran Engineering, Inc.
 
Acquisition of All American CNC Sales, Inc.
 
All American CNC Sales, Inc. (“All American”) is a California corporation and was incorporated on November 4, 1993. All American was founded by our former Chief Executive Officer, Timothy D. Consalvi, and his wife. In October, 2004, pursuant to a share exchange agreement, we acquired all the outstanding shares of All American from Mr. Consalvi and his wife in exchange for 1,000,000 shares of our common stock. On December 21, 2005, we issued an additional 500,000 shares to the original shareholders pursuant to the earn-out provisions of the share exchange agreement, which provided that if All American’s gross profit exceeded the stated goal of $300,000 for each of fiscal year 2005 and fiscal year 2006, we would issue to the shareholders an aggregate of 250,000 shares for each year such target was reached.  During the year ended September 2005, shortly after the first target measurement period, for which period the gross profit threshold was achieved for the issuance of 250,000 shares, our Board of Directors agreed to issue the second tranche of 250,000 shares even though the gross profit threshold had not been achieved.
 
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In connection with the acquisition, we entered into an employment agreement with Timothy Consalvi, the President and CEO of All American at the time of the exchange, for him to continue as President of All American. The agreement was superseded on November 20, 2006 with the execution of a new employment agreement under which Mr. Consalvi became our President and Chief Executive Officer. Timothy Consalvi was elected to our Board of Directors in March, 2005. Timothy Consalvi is the brother of Lawrence A. Consalvi, formerly the President of Elite Machine and formerly both one of our Directors and an Executive Vice President.  Timothy Consalvi resigned from our Board of Directors effective March 25, 2009, and is no longer with the company in any capacity effective June 30, 2009.
 
All American was involved in selling new CNC machine tools but we elected to cease operations of All American effective June 30, 2009 since it was not economically feasible to continue to with its operations.
 
The Enforcement Action
 
Our common stock was previously registered with the Securities and Exchange Commission (the “Commission”) under Section 12(g) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Our stock was originally registered on or around September 1999. From September 1999 through our quarterly report for the quarter ended December 31, 2002, we filed the required quarterly and annual reports with the Commission as a reporting company under Exchange Act. However, beginning with our quarterly report for the quarter ended March 31, 2003 through our quarterly report for the quarter ended March 31, 2005 we failed to timely file compliant annual and quarterly reports. Our failure to file these reports was primarily caused by our failure to obtain financial documentation from two companies we acquired in late 2002, Bechler Cams, Inc. and Nelson Engineering, Inc. Our inability to obtain this financial information led to our auditors being unable to adequately review and audit our financial statements, as required under the Exchange Act. Although we requested this information from Bechler Cams, Inc. and Nelson Engineering, Inc., in hindsight there may have been additional actions our previous management and consultants could have taken to obtain this information. Additionally, with proper due diligence, our previous management and consultants should have obtained the financial statements and determined their ability to be audited prior to closing the acquisitions. These are two areas our new management and consultants have looked at closely since that time to ensure this does not occur in the future.
 
As a result of not getting the required reports on file, the Commission instituted an enforcement proceeding against us in April 2005. Although we were able to eventually file our delinquent reports by unwinding certain acquisitions, the Commission ruled that our audit reports and review were still non-compliant and after a hearing in front of an administrative law judge and a subsequent appeal heard by the Commission, on May 31, 2006, the Commission entered an Order finding the following: i) our conduct with respect to our reporting obligations was “serious, egregious, recurrent, and evidenced a high degree of culpability” as evidenced by our knowledge, through our then Chief Executive Officer, Lawrence A. Consalvi, of our reporting obligations and our failure to file a total of seven annual and quarterly reports due between May 2003 and December 2004; ii) our failure to notify the Commission of our inability to file our periodic reports; iii) our failure to terminate the registration of our common stock; iv) our failure to hire new auditors to replace Squar Milner after they resigned until eighteen months had passed; v) our continuation of an aggressive growth strategy during a time when we were not complying with our Exchange Act reporting requirements; vi) our failure to offer credible assurances against future violations of our reporting obligations under the Exchange Act; and vii) our failure to accept responsibility for our failure to meet our reporting obligations under the Exchange Act, and not taking all measures available to us to obtain the necessary financial information from Bechler Cams, Inc. and Nelson Engineering.
 
Based on these findings the Commission entered an Order Imposing Remedial Sanctions which revoked the registration of our common stock pursuant to Section 12(j) of the Exchange Act and ordered our then President and Chief Executive Officer, Lawrence A. Consalvi, to cease and desist from causing any violations or future violations of the Exchange Act.
 
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Due to the Commission’s decision to deregister our common stock we were de-listed from the OTC Bulletin Board and Pink Sheets. Our common stock is not currently listed on any national stock exchange or over-the-counter securities market.  As discussed below, we are planning to get re-listed on the OTC Bulletin Board at some point in the future and have re-registered our common stock as the first step in this process.
 
The Remedial Measures and Re-Registration of our Common Stock
 
We have new and different management since our common stock was deregistered and de-listed.  As a result of the Commission’s action, our management underwent a comprehensive review of the primary causes for our delinquent reports, and our inability to timely remedy these issues. Although the primary cause of our inability to file timely compliant reports was the breach of the acquisition agreements by the companies we acquired, there was also inadequate internal financial personnel in place to properly review these acquisitions and perform the day-to-day accounting functions necessary for a reporting company under the Exchange Act. In order to remedy these issues we have undergone numerous changes. With respect to our management, we have undergone the following changes: i) Lawrence A. Consalvi stepped down as our President, Chief Executive Officer , ii) Timothy D. Consalvi was appointed as our President and Chief Executive Officer, and was from November, 2006 until December 2008 when he resigned from those positions; and iii) Stephen M. Kasprisin, who has a long public company accounting background, was our full-time Chief Financial Officer from November 2006 until October 2007, and then was our part-time Chief Financial Officer until March 31, 2009, when he resigned and we hired Mr. Jitu Banker as our full time Chief Financial Officer. With respect to our board of directors, in early 2009 we appointed George Colin, Jitu Banker and Robert Sabahat to our board of directors.
 
Our management, together with our advisors, have discussed the due diligence review, and legal and financial preparations, that must occur prior to closing any future acquisitions. These preparations include full legal review of any letters of intent and acquisition agreements prior to execution, and review of any target company’s financial statements and information by our Chief Financial Officer, controller and outside financial consultants, if any, to ensure the target company’s financial information can be fully audited prior to completing any acquisition. Additionally, as a reporting company under the Exchange Act, we conduct quarterly and annual evaluations, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As part of this process we have worked with our executives at the subsidiary level to ensure proper communication with our Controller and Chief Financial Officer, and have provided our Controller and Chief Financial Officer with outside financial consultants to assist as needed to ensure accurate and timely reporting of our financial information.
 
With these changes in place, on May 16, 2008, we filed a registration statement on Form 10 to re-register our common stock under Section 12 of the Exchange Act.  As a result, on July 15, 2008, we became subject to the reporting requirements under the Exchange Act.  Effective November 23, 2009, our common stock was re-listed on the OTC Bulletin Board under the symbol “MLHC.”
 
Business Overview
 
We currently conduct all of our operations through two of our two wholly-owned subsidiaries: Elite Machine and Eran Engineering. We ceased operations of our third subsidiary, All American, effective June 30, 2009. Through our two operating subsidiaries we provide services and products to the machine tool industry, including the sale of refurbished CNC machines and the manufacture of precision metal components.
 
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Our services and products are primarily marketed and sold to the commercial aviation, medical, aerospace, and defense industries. Currently we manage the operations of these subsidiaries. In the future we hope to expand our business, both through the growing of our existing businesses and their client bases, as well as through acquisitions of companies that complement the products and services we currently offer.
 
Money Line Capital Letter of Intent
 
As part of that strategy, on June 30, 2010, we entered into a binding Letter of Intent (the “LOI”) with Money Line Capital, Inc. (“MLCI”).  MLCI is our largest shareholder and specializes in business financing transactions and holds equity in a number of operating subsidiaries in various fields, including financing, aerospace, real estate, media, beverage, and technology.  Under the LOI the parties agree to complete a transaction whereby all the MLCI shareholders will exchange their shares of MLCI stock for shares of our stock.  No cash will be exchanged in this transaction.  The parties had agreed to negotiate in good faith to close the transaction on or before January 29, 2010, however due to the downturn in the economy, MLCI’s inability to complete the required audits, and the desire of our Board of Directors to get as favorable a valuation for our common stock as possible, the parties have put the merger transaction on hold indefinitely.  In order for us to finalize the transaction we must be current in our reporting obligations under the Securities and Exchange Act of 1934, as amended, and be publicly-traded at the time of the closing; and MLCI must have its financial statements (and its subsidiaries, as applicable) audited for the period ended June 30, 2011, as well as completing a valuation by a qualified third-party company.  We have re-evaluated the acquisition of MLCI as a whole and we now plan on acquiring certain subsidiaries of MLCI one at a time in order to reduce the costs associated with this transaction.
 
Machine Sales Group
 
The Machine Sales Group is currently composed of one of our subsidiaries, Elite Machine, which is in the business of acquiring and selling computer numerically controlled (“CNC”) machines, and related tools, to manufacturing customers. The operations of this group also include the business generated from our purchase of certain assets of CNC Repos, Inc.
 
CNC machines use commands from an onboard computer to control the movement of cutting tools and the rotation speeds of the part being produced. The computer controls enable the operator to program specific operations, such as part rotation and tooling selection and movement for a particular part and then store that program in memory for future use. Because CNC machines can manufacture parts unattended and operate at speeds faster than similar manually-operated machines, they can generate higher profits with less rework and scrap. Elite Machines specializes in selling used, refurbished CNC machines.
 
For the years ended June 30, 2012, and 2011, the Machine and Tools Group accounted for $5,929,967 (58%) and $6,179,472 (62%) of our total sales, respectively. This segment of our business also accounted for 31% and 41% of our gross profits for the years ended June 30, 2012, and 2011, respectively.
 
(a)           Company Overview
 
Elite Machine is a California corporation and was founded in 1990 by our former Director and Executive Vice President, Lawrence A. Consalvi. Mr. Consalvi was also the President of Elite Machine. Through the reverse merger transaction described above, Elite Machines became our wholly-owned subsidiary, which today specializes in the sale of previously-owned CNC machine tools from CNC machine manufacturers including Mori Seiki, Matsuura and Kitamura. Elite Machine is a leading dealer of pre-owned CNC machines in the Western United States. Elite Machine purchases high-quality used CNC machinery from Japan, Europe, and the United States, and then inspects and where necessary repairs and refurbishes them prior to resale. Elite Machine’s refurbishments on CNC machines it purchases typically include painting, replacing parts, and servicing the machine.
 
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(b)           Principal Products and Services.
 
Elite Machines is in the business of selling CNC machines. However, the company does not manufacture its own CNC machines. Elite Machine buys used CNC machines, refurbishes them and sells them.  CNC machines use commands from an onboard computer to control the movement of cutting tools and the rotation speeds of the part being produced. The computer controls enable the operator to program specific operations, such as part rotation and tooling selection and movement, for a particular part and then store that program in memory for future use. The machines are then typically used to mass produce a particular part. This helps ensure all the same parts are identical. The machine can then be reprogrammed to manufacture a different part depending on the needs of the customer.
 
Elite Machine purchases all the used machines it sells, bears the risk of reselling the machines, and is responsible for all costs incurred in order to resell the machines. Normally the machines sold by Elite Machine are sold “as is.” However, Elite Machine does offer a limited warranty to the purchasers of the used CNC machines it sells, but the company is planning on moving away from this practice. Currently, approximately 80% of Elite Machine’s customers are under some type of warranty with Elite Machine with most on a 30-day warranty.
 
(c)           Product Manufacturing.
 
Elite Machine does not manufacture any of its own products.
 
Elite Machine locates CNC machines for resale through relationships with past customers and through its marketing efforts, the monitoring of both internet and direct mail sale boards, and personal relationships with machine tool companies. Elite Machine purchases the machines on credit terms or cash on delivery. Machines are purchased based upon the desirability of the model and make and the age and condition of the machine. Refurbishment generally entails cleaning the machine, spot painting and testing for basic functionality. All machines are either sold on an “as is” or a warranty basis, typically with 30-day expiration, and Elite generally provides installation of the machine in the customer’s facility.
 
(d)           Sales, Marketing and Distribution.
 
The Elite Machine product line consists primarily of used CNC machines. These machines are predominately marketed through our in-house sales staff. Sales personnel are assigned regions and sell the machines in their territory.  Used machines are sold on a warranty basis, typically with a 30-day expiration, and generally include installation of the machine at the customer’s location. We also sell machine tools through alternative channels such as   the internet and auctions.
 
On September 24, 2008, Lawrence A. Consalvi resigned from his position as President of Elite Machine.  After his resignation we contracted with Mr. Consalvi for him to be an independent sales agent, whereby Mr. Consalvi is involved in selling CNC machines on behalf of Elite Machine.
 
Mr. Lawrence A. Consalvi was re-appointed as President of Elite Machine Tool effective July 1, 2009.
 
(e)           New Product Development.
 
Due to Elite Machine selling machines manufactured by third parties, as opposed to being a manufacturing company, the company does not engage in new product development. However, the company does advise the CNC machine manufacturers regarding customer needs and requirements to assist with their future machine development.
 
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(f)           Competition.
 
Our competitors in the machine tools industry consist of a large fragmented group of companies, including certain business units or affiliates of our customers. Our management believes that competition within the 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.
 
(g)          Sources and Availability of Raw Materials.
 
All of the machines and parts sold by the Machine Sales Group are manufactured by third parties so we do not directly purchase any raw materials. However, the third party companies that manufacture CNC machines rely on the availability of a variety of raw materials, primarily metals such as steel and aluminum, but none of the primary raw materials are scarce and we do not anticipate the third party manufacturers will have any problems obtaining these raw materials.
 
(h)          Dependence on Major Customers.
 
Our Machine Sales Group does not depend on one or two major customers. In fact, the largest single customer of this group accounted for less than 10% of the total revenue for this group.
 
(i)           Patents, Trademarks and Licenses.
 
Elite Machine does not have any patents or licenses, or other intellectual property.
 
(j)           Need for Government Approval.
 
As noted above, Elite Machine does not manufacture its own products, it merely sells used CNC machines. As sellers of used CNC machines, Elite Machine does not need government approval to operate its business.
 
(k)          Effect of Government Regulation on Business.
 
As noted above, Elite Machine does not manufacture its own products, they merely sell used CNC machines. As sellers of used CNC machines, Elite Machine is not subject to onerous government regulation.
 
However, inasmuch as Elite Machine refurbishes used CNC machines to resell, it maintains strict control standards on the maintenance and use of its equipment to ensure employee safety during the refurbishing process.
 
(l)           Research and Development.
 
Because Elite Machine sells products manufactured by third parties this business segment does not spend a material amount on research and development.
 
(m)         Effects of Compliance with Environmental Laws.
 
The machine tool industry is subject to environmental laws and regulations concerning emissions into the air, discharges into waterways, and the generation, handling, storage and disposal of waste materials, some of which may be hazardous. CNC machines contain coolants which are deemed as hazardous waste and must be disposed of according to the laws of specific jurisdictions. In addition, we perform spot painting of machines during the re-furbishing process. As required we provide for waste containers for coolants and cleaning products and contract with a hazardous waste company for proper disposal.
 
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We strive to comply with all applicable environmental, health and safety laws and regulations. We believe that our operations are in compliance with all applicable laws and regulations on environmental matters. These laws and regulations, on federal, state and local levels, are evolving and frequently modified and we cannot predict accurately the effect, if any, they will have on its business in the future. In many instances, the regulations have not been finalized, or are frequently being modified. Even where regulations have been adopted, they are subject to varying and contradicting interpretations and implementation. In some cases, compliance can only be achieved by capital expenditure and we cannot accurately predict what capital expenditures, if any, may be required.
 
Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with any violations. As a generator of hazardous materials, we are subject to financial exposure with regard to intentional or unintentional violations. In addition, we utilize facilities located in industrial areas with lengthy operating histories and it is possible that historical or neighboring activities could impact our facilities. Any present or future noncompliance with environmental laws or future discovery of contamination could have a material adverse effect on our results of operations or financial condition.
 
(n)           Employees.
 
As of June 30, 2012, we, with our subsidiaries, employ a total of 64 full-time employees, including 2 executive employees. Of these employees our Machine Sales Group employs 2 managerial employees, and 10 employees engaged in the sales and processing of CNC machine sales and the precision manufacturing group employs 7 managerial employees and 45 machinists and support personnel.
 
We are not aware of any problems in our relationships with our employees. Our employees are not represented by a collective bargaining organization and we have never experienced any work stoppage.
 
Precision Manufacturing Group
 
The Precision Manufacturing Group is composed of Eran Engineering, a wholly-owned subsidiary, which is in the business of manufacturing and assembling specialized, precision components used in equipment and machinery in the commercial aviation, medical, aerospace and defense industries.
 
For the years ended June 30, 2012 and 2011, the Precision Manufacturing Group accounted for $4,247,482 (42%) and $3,721,228 (38%) of our sales, respectively.  This segment of our business also accounted for 50% and 59% of our gross profits for the years ended June 30, 2012 and 2011, respectively.
 
(a)           Company Overview.
 
(1)            Eran Engineering, Inc.
 
In October, 2003, pursuant to a Stock Purchase Agreement, dated June 17, 2003, we acquired all the issued and outstanding shares of Eran Engineering, a California corporation, from its two shareholders for an aggregate purchase price of $1,250,000. In addition to a cash payment 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 by Lawrence A. Consalvi, our then President and Chief Executive Officer, and Joseph T.W. Gledhill, our former Vice President and Director, of a security interest in certain shares of our common stock worth approximately $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 operated its business. The purchase price for the building was $1,250,000, and was paid as follows:
 
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· $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.
 
Concurrently with the acquisition of Eran Engineering, we purchased the Santa Ana, California, building in which Eran Engineering operated. The purchase price for the building was $1,250,000, of which we paid $600,000 by a promissory note in the amount of $600,000 and the remainder in cash financed pursuant to a term loan in the principal amount of $1,300,000. On February 23, 2007, we completed the sale of the building and property for a sales price of $2,017,000 resulting in a net gain to us of over $600,000.
 
(b)           Product Manufacturing.
 
Eran Engineering manufactures and assembles specialized, precision components used in equipment and machinery in the commercial aviation, medical, aerospace and defense industries. The primary components sold by Eran during the years ended June 30, 2012 and 2011, were parts sold to Panasonic Avionics Corporation, a leading provider of in-flight entertainment systems for commercial aircraft. The other components were parts manufactured for, and sold to, medical companies and general commercial aircraft companies. Eran Engineering maintains approximately 40 CNC machines for use in its specialized manufacturing processes. Barton Webb, serves as the President of Eran Engineering.
 
(c)           Sales, Marketing and Distribution.
 
Eran maintains an in-house sales staff that solicits orders from customers. Solicitation of orders is generally based upon relationships with buyers versus the use of advertising or other forms of solicitation. Orders are received via a bid process and Eran prepares costs estimates and submits a bid for the manufacturing order. Once an order is received, generally through a binding purchase order, Eran programs its machines to manufacture the part. Parts are manufactured internally and then in most cases, assembled at Eran’s facility. Some assemblies require the receipt of parts manufactured by other companies and as a result, delays in shipment could be encountered as a result of delays in manufacturing by contractors retained by the customer. Eran has no control or liability for these parts manufactured by other manufacturers used in the assembly’s delivered by Eran.
 
(d)           New Product Development.
 
Eran does not develop any proprietary products. Instead, Eran works with principal manufacturers to machine the components they require for the development of their products.
 
(e)           Competition.
 
The market for precision part manufacturing is extremely competitive. There are no substantial barriers to entry, and we continue to face competition from domestic and international manufacturers. We believe that our ability to compete successfully depends upon a number of factors, including market presence, connections in the industry, reliability, low error rate, technical expertise and functionality, performance and quality of our parts, on time deliveries, customization, the pricing policies of our competitors, customer support, our ability to support industry standards, and industry and general economic trends.
 
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Many of our competitors have greater market presence, engineering and marketing capabilities, and financial, technological and personnel resources than those available to us. As a result, they may be able to develop and expand more quickly, adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily, and devote greater resources to the marketing of their services than we can.
 
The competition for design, manufacturing and service in precision machining and machine tools consists of independent firms, many of which, however, are smaller than our collective group of wholly-owned subsidiaries. We believe that this allows us to bring a broader spectrum of support to its customers.
 
In addition to similar companies, we compete against the in-house manufacturing and service capabilities of our larger customers. We believe these large manufacturers are increasingly outsourcing activities that are outside their core competency to increase their efficiencies and reduce their costs. This outsourcing provides an opportunity for us to grow with our current clients and the addition of new clients.
 
Although there are numerous domestic and foreign companies which compete in the markets for the products and services offered by us, our management believes that it will be able to compete effectively with these firms on price, ability to meet customer deadlines and the stringent quality control standards. We strive to develop a competitive advantage by providing high quality, high precision and quick turnaround support to customers from design to delivery.
 
(f)           Sources and Availability of Raw Materials.
 
Our precision equipment group utilizes a variety of raw materials in its specialized manufacturing processes, however, the primary raw materials it uses are widely available and we believe they will be readily available for our use as needed.
 
(g)           Dependence on Major Customers.
 
Eran has two major customers:  Panasonic Avionics Corp., which accounted for 53.8% and 62% of our total revenue for the years ended June 30, 2012 and 2011, respectively, and Iris Diagnostics, which accounted for 8% and 12% of our total revenue for the years ended June 30, 2012 and 2011, respectively.
 
(h)           Patents, Trademarks and Licenses.
 
Eran does not have any patents or licenses, or other intellectual property.
 
(i)           Need for Government Approval.
 
As a manufacturer of precision parts, Eran’s business is not subject to government approval for its operations or its end products. .
 
(j)           Effect of Government Regulation on Business.
 
As a manufacturer of precision parts there are certain regulations that relate to the conduct of our business in general, such as regulations and standards established by the Occupational Safety and Health Act or similar state laws relating to employee health and safety. As such we maintain strict control standards on the maintenance and use of its equipment to ensure employee safety. We comply with all guidelines and recommendations regarding the use of safety equipment such as safety goggles, protective gloves and aprons, ventilators or air guards as may be required. Employees are specifically trained, including emphasis on safety procedures, for each machine used. Management maintains and reviews a schedule of maintenance and safety check for all the equipment used in its operations.
 
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Although there are not many regulations on the manufacturing of precision parts, there are certifications companies can receive in the industry. Eran is ISO 9001-2008 and AS9100 rev. C registered.
 
(k)           Research and Development.
 
Our precision manufacturing group does not normally engage in research and development. Eran purchases manufactured CNC machines and receives a purchase order with detailed instructions from its customers regarding the specifications for the parts it wishes to have Eran manufacture.
 
The Research and Development expenditure incurred during the third and fourth quarters of fiscal 2012 represented the development costs incurred for aircraft structures. The Company during the second quarter begun to add and upgrade its manufacturing base from purely aircraft interiors to a combination which includes critical aircraft structures. The company had to incur considerable startup costs relating to development and staff training, downtime in manufacturing and other costs, including materials, such as titanium and hard steels, for which the company had to rework several times to ensure that the product manufactured was of the highest quality and acceptable to its customers
 
Management has entered into agreements with Engineering service companies, in Canada and in India, upgraded its software and purchased new software such as Catia. Our commitment to excellence and the new direction to make Eran Engineering an “Aerospace” company has helped us develop and solidify contact with Rohr, Inc. and its subsidiary, Goodrich Aerostructures (both are now subsidiaries of UTC). We had, but did overcame the considerable problems with production, due to staff knowledge limitations, additional training and engineering staff contracts etc.
 
All costs relating to this new development have been expensed as Research and Development costs,
 
(l)           Effects of Compliance with Environmental Laws.
 
The precision manufacturing industry is subject to environmental laws and regulations concerning emissions into the air, discharges into waterways, and the generation, handling, storage and disposal of waste materials, some of which may be hazardous.
 
The precision manufacturing division utilizes various coolants and lubricants that could be considered hazardous waste. Care is taken to prevent accidental discharge and all coolants and lubricants removed from machines are contained and disposed of by an outside waste disposal company. In addition, our Tustin facility is subject to certain local waste water regulations and is required annually to have its waste water and backflow prevention equipment tested by an outside testing agency. The last test was performed in July 2011 and we passed without exception, and are currently in the process of performing a test in October 2012.
 
Eran strives to comply with all applicable environmental, health and safety laws and regulations. Eran believes that its operations are in compliance with all applicable laws and regulations on environmental matters. These laws and regulations, on federal, state and local levels, are evolving and frequently modified and we cannot predict accurately the effect, if any, they will have on its business in the future. In many instances, the regulations have not been finalized, or are frequently being modified. Even where regulations have been adopted, they are subject to varying and contradicting interpretations and implementation. In some cases, compliance can only be achieved by capital expenditure and we cannot accurately predict what capital expenditures, if any, may be required.
 
Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with any violations. As a generator of hazardous materials, we are subject to financial exposure with regard to intentional or unintentional violations. In addition, we utilize facilities located in industrial areas with lengthy operating histories and it is possible that historical or neighboring activities could impact our facilities. Any present or future noncompliance with environmental laws or future discovery of contamination could have a material adverse effect on our results of operations or financial condition.
 
(m)           Employees.
 
As of June 30, 2012, we, with our subsidiaries, employ a total of 64 full-time employees, including 2 executive employees. For the precision manufacturing group, we employ 4 managerial employees, 1 sales manager, and 47 employees engaged in precision metal parts manufacturing related positions  and the machinery sales group employs 2 managerial employees and 10 sales and support personnel.
 
We are not aware of any problems in its relationships with its employees.  The Company’s employees are not represented by a collective bargaining organization and the Company has never experienced any work stoppage.
 
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Discontinued Operations
 
Effective June 30, 2009, our Board of Directors elected to cease the operations of All American because the business was no longer economically feasible.  During the year ended June 30, 2009, All American was part of our machine tools group.  The company sold new CNC machines it purchased from third party manufacturers.  As a result of All American shutting down its operations on June 30, 2009, the operations of All American are no longer included in the accompanying financial statements.
 
Prior to  being shut down and for our fiscal year ended June 30, 2009, All American specialized in the sale of new CNC machines throughout the Orange County, California market and had a customer base of over 530 companies, representing approximately a 10% market share in that area. The primary product lines offered through All American included: Fadal Vertical Machining Centers, Hwacheon CNC Turning Centers and Vertical Machining Centers, Visionwide CNC Bridge Mills, and Clausing Industrial CNC Vertical Machining Centers. The primary industry segments in which All American sold machines was in the aerospace, military and medical fields.  However, on or about March 31, 2009, Fadal, one of All American’s primary suppliers of CNC machines, ceased manufacturing CNC machines.
 
Typically, All American purchased a machine once a customer ordered and purchased the machine from All American. However, at times, All American purchased a CNC machine when it did not have a prospective customer to purchase the machine. This normally occurred when All American either needed a CNC machine for a showroom, management believed it was getting a good deal on the machine from the manufacturer, and/or it needed one or more machines on hand to meet future customer demand. Normally, the original manufacturer of the machine, not All American, was responsible for any problems or issues with the machine, since the machines are typically under warranty.  As of June 30, 2009, when we ceased operations of All American, we had no machines in our inventory, and current assets totaling $116,868, consisting entirely of accounts receivable and non-current assets totaling $63,704, consisting of company vehicles and office equipment.  These assets are listed accordingly on our balance sheet in the accompanying financial statements.
 
Industry Overview
 
CNC Machines
 
Since the introduction of CNC tooling machines, continual advances in computer control technology have allowed for easier programming and additional machine capabilities. A vertical turning machine permits the production of larger, heavier and more oddly-shaped parts on a machine that uses less floor space when compared to the traditional horizontal turning machine because the spindle and cam are aligned on a vertical plane, with the spindle on the bottom. Horizontal turning machines have become faster and more accurate with the ability to perform more functions i.e. milling of the parts and cross milling both on and off center line of the part. The vertical turning machines have additionally increased thru-put for part production through increased spindle RPM’s (rotations per minute), with the ability to accomplish high speed machining and increased accuracy through new electronics. Finally, the horizontal machines through the same features mentioned above and with the expansion of more tools and the ability to add multiple pallets out in the field gives the customer the ability to grow into the machine as his work flow increases.
 
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Precision Tools
 
The precision tools industry, as it relates to Eran and our business, deals with the manufacturing of specific, specialized parts for use in several different industries, including, but not limited to, the commercial aviation, medical, aerospace and defense industries. Since the introduction of Computer Numerical Control (CNC) machines into the manufacturing arena, the process of taking raw material and producing a product have had a significant impact in today’s highly competitive manufacturing environment. Precision tool manufacturing companies operate by receiving a purchase order from a customer, then with a blueprint drawing from engineering, and produce a part program which is then loaded into the on board memory of the CNC machine tool. The machine tool follows the part program and cuts the material into the desired shape which the engineers have designed. The CNC Machine tool benefits are: a more consist end product as well as a closer tolerance product on a consistent part-over-part process. In today’s competitive market all types of raw materials are used from a varied type of steel, aluminum, brass, copper as well as plastics.
 
The precision manufacturing business is an ever changing segment and to remain competitive companies must be prepared to constantly maintain their quality programs, equipment and train their personnel. Manufacturing in today’s work environment is extremely competitive and, therefore, maintaining ISO registration is almost certainly a requirement. To become a first tier supplier to major aerospace and defense contractors a company must become AS9100 compliant with a Continuous Improvement Operation with an eye on the future. All of these programs in conjunction with a competitive price point and on time delivery commitment will make a significant impact to a company’s ability to maintain their business and grow.
 
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ITEM 1A. – RISK FACTORS.
 
As a smaller reporting company we are not required to provide a statement of risk factors. However, we believe this information may be valuable to our shareholders for this filing. We reserve the right to not provide risk factors in our future filings. Our primary risk factors and other considerations include:
 
If we are unable to maintain relationships with our suppliers, our business could be materially adversely affected.
 
Substantially all of our products are manufactured by third parties. To the extent that a manufacturer is unwilling to do business with us, or to continue to do business with us once we enter into formal agreements with it, our business could be materially adversely affected. In addition, to the extent that the manufacturer modifies the terms of any contract it may enter into with us (including, without limitation, the terms regarding price, rights of return, or other terms that are favorable to us), or extend lead times, limit supplies due to capacity constraints, or other factors, there could be a material adverse effect on our business.
 
We operate in a competitive industry and continue to be under the pressure of eroding gross profit margins, which could have a material adverse effect on our business.
 
The market for the products we sell is very competitive and subject to rapid technological change. The prices for our intended products tend to decrease over their life cycle, which can result in decreased gross profit margins for us. There is also substantial and continuing pressure from customers to reduce their total cost for products. We expend substantial amounts on the value creation services required to remain competitive, retain existing business, and gain new customers, and we must evaluate the expense of those efforts against the impact of price and margin reductions. Further, our margins will be lower in certain geographic markets and certain parts of our business than in others. If we are unable to effectively compete in our industry or are unable to maintain acceptable gross profit margins, our business could be materially adversely affected.
 
Products sold by us may be found to be defective and, as a result, warranty and/or product liability claims may be asserted against us, which may have a material adverse effect on the company.
 
We may face claims for damages as a result of defects or failures in the products we intend to sell to our customers. Although many of our products are sold under a third-party warranty or are sold “as is” our ability to avoid liabilities, including consequential damages, may be limited as a result of differing factors, such as the inability to exclude such damages due to the laws of some of the locations where we do business. Our business could be materially adversely affected as a result of a significant quality or performance issue in the products developed by us, if we are required to pay for the damages that result.
 
Our share ownership is concentrated.
 
Money Line Capital, Inc., our largest shareholder, controls approximately 37.7% of our outstanding common stock.  Our officers and directors, as a group, own a majority of Money Line Capital, Inc.’s common stock and own an additional 15.2% of our common stock as a group.  As a result, these stockholders can exert significant influence over all matters requiring stockholder approval, including the election and removal of directors, any merger, consolidation or sale of all or substantially all of assets, as well as any charter amendment and other matters requiring stockholder approval. In addition, these stockholders may dictate the day to day management of the business. This concentration of ownership may delay or prevent a change in control and may have a negative impact on the market price of our common stock by discouraging third party investors. In addition, the interests of these stockholders may not always coincide with the interests of our other stockholders.
 
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If we acquire other companies or assets, we may not be able to successfully integrate them or attain the anticipated benefits.
 
We intend to acquire other businesses that are synergistic with ours. If we are unsuccessful in integrating our acquisitions, or if integration is more difficult than anticipated, we may experience disruptions that could have a material adverse effect on our business. In addition, we may not realize all of the anticipated benefits from our acquisitions, which could result in an impairment of goodwill or other intangible assets.
 
If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls over financial reporting, we may not be able to report our financial results accurately or timely or detect fraud, which could have a material adverse effect on our business.
 
An effective internal control environment is necessary for us to produce reliable financial reports and is an important part of our effort to prevent financial fraud. We will be required to periodically evaluate the effectiveness of the design and operation of our internal controls over financial reporting. Based on these evaluations, we may conclude that enhancements, modifications or changes to internal controls are necessary or desirable. While management will evaluate the effectiveness of our internal controls on a regular basis, and although we have recently undergone substantial changes to address any weaknesses, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including collusion, management override, and failure of human judgment. In addition, control procedures are designed to reduce rather than eliminate business risks. If we fail to maintain an effective system of internal controls, or if management or our independent registered public accounting firm discovers material weaknesses in our internal controls, we may be unable to produce reliable financial reports or prevent fraud, which could have a material adverse effect on our business. In addition, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such actions could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which could cause the market price of our common stock to decline or limit our access to capital.
 
We rely on third-party suppliers and manufacturers to provide our CNC machines, and we will have limited control over these suppliers and manufacturers and may not be able to obtain quality products on a timely basis or in sufficient quantity.
 
All of our CNC machines are manufactured by third-party manufacturers. We do not have any long-term contracts with these suppliers or manufacturing sources.  We expect we will have to compete with our competitors for production capacity and availability at these third-party manufacturers.
 
There can be no assurance that there will not be a significant disruption in the supply of CNC machines from our intended sources or, in the event of a disruption, that we would be able to locate alternative suppliers of equipment of comparable quality at an acceptable price, or at all. In addition, we cannot be certain that our unaffiliated manufacturers will be able to fill our orders in a timely manner. If we experience significant increased demand, or need to replace an existing manufacturer, there can be no assurance that additional manufacturing capacity will be available when required on terms that are acceptable to us, or at all, or that any supplier or manufacturer would allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing or find new manufacturing sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products and quality control standards. Any delays, interruption or increased costs in the manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower revenues and net income both in the short and long-term.
 
In addition, there can be no assurance that our suppliers and manufacturers will continue to manufacture products that are consistent with our standards. We may receive shipments of product that fail to conform to our quality control standards. In that event, unless we are able to obtain replacement products in a timely manner, we risk the loss of revenues resulting from the inability to sell those products and related increased administrative and shipping costs. In addition, because we do not control our manufacturers, products that fail to meet our standards or other unauthorized products could end up in the marketplace without our knowledge, which could harm our reputation in the marketplace.
 
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We have two customers that account for greater than 24% of our total sales for the year ended June 30, 2011.
 
Panasonic Avionics Corp. accounts for 22.8% and 23.8% of our total sales for the years ended June 30, 2012 and 2011, respectively.  We do not have a long term, exclusive agreement with these customers. If either of these customers reduced or stopped ordering precision parts from Eran it would have a material adverse impact on our consolidated sales, results of operations and cash flows.
 
Our Machine Sales Group relies on the availability of used CNC machines for resale, if no used machines are available for purchase our business will suffer.
 
The primary business of our Machine Sales Group is to purchase and resell used CNC machines.  If there are no or limited CNC machines available for purchase, our Machine Sales Group sales will suffer.  Likewise, if there is a slow down in the economy and the current owners of CNC machines opt not to sell their used CNC machines to purchase new ones, or our customers hold on to their existing CNC machines longer and do not purchase additional used CNC machines our sales will suffer.
 
The current crisis in the credit markets may adversely affect our customers’ ability to finance the purchase of new and used CNC machines.  This would result in a significant reduction in our sales.
 
Most of our customers that purchase used CNC machines do so utilizing credit.  The current crisis in the credit markets may adversely affect our customers’ ability to finance the purchase of a used CNC machine from us.  If this were to occur it would result in a significant reduction in our sales.
 
As of June 30, 2012 the Company owed Pacific Western Bank $253,128 and $236,400 at June 30, 2011).
 
We are in default of our obligations due to Pacific Western Bank. However, subsequent to the year end, the Company paid the amount due to Pacific Western Bank in full, and as a result this settles all outstanding legal disputes between the parties in full.
  
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New governmental regulation relating to greenhouse gas emissions may subject us to significant new costs and restrictions on our operations.
 
Climate change is receiving increasing attention worldwide.  Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions.  There are bills pending in Congress that would regulate greenhouse gas emissions through a cap-and-trade system under which emitters would be required to buy allowances to offset emissions of greenhouse gas.  In addition, several states are considering various greenhouse gas registration and reduction programs.  Greenhouse gas regulation could increase the price of the electricity we purchase, increase costs for our use of natural gas, potentially restrict access to or the use of natural gas, require us to purchase allowances to offset our own emissions or result in an overall increase in our costs of raw materials, any one of which could significantly increase our costs, reduce our competitiveness in a global economy or otherwise negatively affect our business, operations or financial results.  While future emission regulation appears likely, it is too early to predict how this regulation will affect our business, operations or financial results.
 
The Commission previously revoked the registration of our common stock pursuant to Section 12(j) of the Exchange Act due to our failure to timely file our periodic reports under the Exchange Act. If we fail to timely file these reports in the future, we could be delisted from an exchange and/or the Commission could delist our common stock again, which could negatively impact our business and cause a significant decrease in our stock price.
 
On May 31, 2006, the Commission entered an Order Imposing Remedial Sanctions which revoked the registration of our common stock pursuant to Section 12(j) of the Exchange Act and ordered our then president and chief executive officer, Lawrence A. Consalvi, to cease and desist from causing any violations or future violations of the Exchange Act. This deregistration was the result of our inability to obtain financial information from acquisitions we completed in the past. Although we have since divested ourselves of those acquisitions, and taken numerous remedial measures to ensure this does not occur in the future, there can be no assurance that future acquisitions by us will not have issues or cause us to be delinquent with our required filings under the Exchange Act. Any delinquent filings could have an adverse effect on our business and our stock price, if we are publicly-traded. These adverse effects include being delisted from any exchange where our common stock may be listed, such as the OTC Bulletin Board, which could cause our stock price to decrease. Additionally, if we are unable to timely file our periodic reports under the Exchange Act, the Commission could again revoke the registration of our common stock pursuant to Section 12(j) of the Exchange Act, prohibiting us from listing our stock on any public marketplace, including the OTC Bulletin Board and Pink Sheets, which would have the effect of our common stock not being publicly-traded and greatly reduce the liquidity of our common stock and greatly reduce the ability of our stockholders to sell or trade our common stock. Regarding our business, if we were delinquent in our filings and/or had the registration of our common stock revoked, we may be unable to effectuate our business plan to acquire other companies in our industry since we likely would not be able to structure these acquisitions using our common stock or other securities. This could negatively impact our business and cause a significant decrease in our stock price.
 
ITEM 1B – UNRESOLVED STAFF COMMENTS
 
This Item is not applicable to us as we are not an accelerated filer, a large accelerated filer, or a well-seasoned issuer; however, we have not received written comments from the Commission staff regarding our periodic or current reports under the Securities Exchange Act of 1934 within the last 180 days before the end of our last fiscal year.
 
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ITEM 2 – PROPERTIES
 
In July, 2007, we entered into a 5-year triple net lease for approximately 48,600 square feet of manufacturing and office space in a free-standing industrial building at 2672 Dow Avenue, Tustin, California 92780 for a average monthly rental of $28,390 for the first 12 months, $35,090 for the second 12 months, $36,143 for the third 12 months, $37,227 for the fourth 12 months and $38,334 for the final 12 months. We recently finalized an amendment to the lease agreement that extends the lease under new terms that commenced on October 1, 2011 and continues until June 30, 2017.  The rent for month 1(October 2011) through month 21 is $27,741, month 22 to 33 $28,573, month 34 to 45, $29,430, month 46 to 57, $30,313 and month 58 to 69, $31,223. The precision manufacturing group and head office resides at this location.
 
We also have a five year lease for approximately 13,820 square feet of office and warehouse space located at 3840 East Eagle Drive, Anaheim, California at a monthly rental rate of $8,777 for the first year, $9,040 for the second year, $9,311 for the third year, $9,591 for the fourth year, and $9,879 for the fifth year.  The lease for this property began September 1, 2010 and expires on August 31, 2015.  The Machines Sales Group resides at this location.
 
ITEM 3 - LEGAL PROCEEDINGS
 
1. James M. Cassidy v. Gateway International Holdings, Inc. , American Arbitration Association, Case No. 73-194-32755-08 .  
 
Our client was served with a Demand for Arbitration and Statement of Claim, which was filed on September 16, 2008. 
 
The Statement of Claim alleges that claimant is an attorney who performed services for us pursuant to an agreement dated April 2, 2007 between us and the claimant.  The Statement of Claim alleges that we breached the agreement and seeks compensatory damages in the amount of $195,000 plus interest, attorneys’ fees and costs.  Management denies the allegations of the Statement of Claim and will vigorously defend against these allegations.  An arbitrator has not yet been selected, and a trial date has not yet been scheduled. 
 
No provision has been made in the June 30, 2012 financial statements as we feel the litigation has no merit and the likelihood of any liability is extremely low.
 
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2. CNC Manufacturing v. All American CNC Sales, Inc., Elite Machine Tool Company/Sales & Services, CNC Repos ,   Superior Court for the State of California, County of Riverside, Case No. RIC 509650.  
 
Plaintiff filed this Complaint on October 2, 2008.
 
The Complaint alleges causes of action for breach of contract and rescission and claims All American breached the agreement with CNC Manufacturing by failing to deliver a machine that conforms to the specifications requested by CNC Manufacturing, and requests damages totaling $138,750. Elite Machine filed an Answer timely, on January 15, 2009. This case was settled on September 12, 2011 in an amount of 427,500 and the full provision has been made in the June 30, 2012 financial statements.
 
Abstract of Judgment and Writ were issued August 17, 2012.
 
3. Hwacheon Machinery v. All American CNC Sales , Circuit Court of the 19th Judicial Circuit, Lake County, Illinois, Case No. 09L544.  
 
The Complaint was filed on June 8, 2009.
 
The Complaint alleges causes of action for account stated, and arises from a claim by Hwacheon that All American CNC has not paid it for machines sold to All American CNC.  The Complaint seeks damages of approximately $362,000.  All American filed an answer on or about July 15, 2009. Default has been entered against All American CNC Sales, Inc.
 
In a hearing in the Superior Court of California Hwacheon filed an alter ego case against Eran Engineering, Inc., Elite Machine Too and M Line Holdings, Inc. The judge granted the summary judgment against all three defendants in the amount of $403,860.91 including interest through February 8, 2011. Post judgment proceedings have been initiated by Hwacheon. MLH and Eran Engineering filed an appeal which was dismissed pursuant to settlement.
 
The Company has entered into a revised settlement agreement in the total amount of $105,000 with $70,000 being paid out of proceeds of an anticipated new loan and the balance being paid at the rate of $5,000 per month commencing December 15, 2012 reducing by $10,000 if paid in full by December 15, 2012.
 
4. Fadal Machining v. All American CNC Sales, et al . , Los Angeles Superior Court, Los Angeles, California, Case No. BC415693.  
 
The Complaint was filed on June 12, 2009.
 
The Complaint alleges causes of action for breach of contract and common counts against All American CNC seeking damages in the amount of at least $163,578.88, and arises from a claim by Fadal that All American failed to pay amounts due.  On June 26, 2009, Fadal amended the Complaint to include M Line Holdings, Inc. as a Defendant.  
 
A settlement agreement in the amount of $60,000 was signed on May 31, 2011.
 
The Company has not made payments that are due under the settlement agreement. Judgment was entered on June 16, 2011 and a Writ was issued on February 24, 2012.
 
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5. Fox Hills Machining v. CNC Repos , Orange County Superior Court, Orange County, California, Case No. 30-2009-00121514.  
 
The Complaint was filed on April 14, 2009.
 
The Complaint alleges causes of action for Declaratory Relief, Breach of Contract, Fraud, Common Counts, and Negligent Misrepresentation, claiming the Defendant failed to pay Fox Hills Machining for the sale of two machines from Fox Hills to CNC Repos.  The damages sought in the Complaint are estimated to be approximately $30,000.  The Court records show the case was dismissed on July 31, 2012. Further, the records show that a stipulated judgment was entered August 27, 2012; Writ was issued on September 9, 2012.
 
A provision of $10,000 has been made in the June 30, 2012 financial statements.
 
6. C. William Kircher Jr. V M Line Holdings, Inc. Orange County Superior Court Case No. 00397576
 
A former attorney for M Line Holdings, Inc. has sued seeking damages for failure to pay legal fees in the amount of $120,166.30.
 
This case has settled. The terms of the settlement call for 12 payments of $5,000 per month commencing August 25, 2011 and the issuance of 150,000 shares of common stock.
 
The first three payments have been made but the Company is currently in default of its payments. The Company has recorded $50,000 in the June 30, 2012 financial statements. Currently plaintiff is in communication with the Company to work out an arrangement
 
7. M Line Holdings, Inc. V Pacific Western Bank Los Angeles Superior Court Case No BC448012. The case was filed on 10/21/2010.
 
The Complaint alleges causes of action for Declaratory Relief, Breach of Contract, Fraud, Common Counts, and Negligent Misrepresentation, claiming the Defendant failed to fund against the line of credit when funds were available and also failed to remove two of the personal guarantors after agreeing in writing to do so and MLH is seeking unspecified damages.
 
The Complaint in this case was dismissed with prejudice on October 17, 2011.
 
8. Pacific Western Bank v. M Line Holdings, Inc. Los Angeles County Superior Court Case No BC448012. The case was filed as a cross-complaint on 11/12/2010.
 
The Cross-complaint alleges causes of action basically for breach of written agreement and related claims. Defendant failed to repay a credit line when it became due and is also claiming that defendant must repay two equipment loans even though these loans are current due to the terms of the credit line agreement. Cross-complaint is seeking damages of $300,616.
 
On July 12, 2012 a Writ was issued and on September 24, 2012 an Abstract of Judgment was issued. The Company has recorded approximately $253,000 in the June 30, 2012 financial statements.
 
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9. Neal Kohlhaas v. M Line Holdings, INC. Orange County Superior Court Case No. 30-2011-00442075.
 
Plaintiff has filed suit against M Line alleging a breach of a consulting agreement and seeking damages in the amount of approximately $20,000. Company has decided to defend the action on the basis that services were not provided as agreed or expected. The case is currently in the discovery phase of litigation.
 
No provision has been made in the June 30, 2012 financial statements as we feel the litigation has no merit and the likelihood of any liability is extremely low.
 
10. Timothy D. Consalvi v. M Line Holdings, Inc. et.al ., Orange County Superior Court Case No, 00308489 .
 
A former president of All American CNC Sales, Inc. has filed suit against the Company seeking payment on an alleged severance obligation by the Company. The Complaint does not specify the damages sought. The parties then reached a settlement in the principal sum of $40,000 to be documented in due course. Meanwhile a default was entered against MLH, which management believes was in error because a settlement was already reached by the principal parties involved. The default has since been vacated and Company has answered the complaint and has filed a motion for leave to file a cross complaint.
 
Recently a settlement of $50,000 has been reached in this case, requiring payments commencing on March 11, 2011 for ten months. The first two month’s payment have been made however the Company is currently in default of the terms of this settlement agreement. Mr. Consalvi has filed his stipulated judgment on March 5, 2012. Abstract of judgment and Writ were issued on March 13, 2012.
  
11.. Joe Gledhill v. M Line Holdings, Inc., et. al.- Orange County Superior Court Case No . 30-2011-00506723
 
Joseph Gledhill, a former officer and director of the company and its subsidiary Eran Engineering has filed suit within the Pacific Western case seeking indemnity of the Pacific Western claim and various other causes of action. Management has decided to vigorously defend these claims and believes Mr. Gledhill’s suit has no merit. Trial has been set for April 8, 2013.
 
No provision has been made in the June 30, 2012 financial statements as we feel the litigation has no merit and the likelihood of any liability is extremely low.
 
12 M Line Holdings, Inc., v. Timothy Consalvi, et. al.- Orange County Superior Court Case No. 30-201100493329
 
M Line has recently filed suit against two of its former directors alleging that they breached their fiduciary duty to the company by mismanaging the corporate affairs of the company and its subsidiaries resulting in damages to the company and its subsidiaries. Defendants have not yet been served or have not answered the complaint at this time.
 
This case is expected to be dismissed at the 10/29/2012 Order to Show Cause Hearing.
 
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13 All Direct Travel Services, Inc. Vs Jitu Banker, M Line holdings, Inc., Airworks International, Inc., case number 30-2011-00472824-CL-CO-CJC
 
It has been settled as to the Chief Financial Officer and M Line for $2,000 payable on 25 February.
 
Default Judgment entered on January 6, 2012.
 
Litigation is subject to inherent uncertainties, and unfavorable rulings could occur.  If an unfavorable ruling were to occur in any of the above matters, there could be a material adverse effect on our client’s financial condition, results of operations or liquidity.
 
Our opinions expressed above are within the scope of clause (a) of Paragraph 5 of the Statement of Policy hereinafter defined. Our response is limited by, and provided in accordance with, the American Bar Association (the “ABA”) Statement of Policy Regarding Lawyer’s Responses to Auditors’ Request for Information (December 1975); without limiting the generality of the foregoing, the limitations set forth in such Statement on the scope and use of this response (Paragraphs 2 and 7) are specifically incorporated herein by this reference, and any description herein of any loss contingencies (as defined in Paragraph 5 of the Statement) is qualified in its entirety by Paragraph 5 of the Statement and the accompanying Commentary (which is an integral part of the Statement)
 
ITEM 4 – (REMOVED AND RESERVED).
 
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PART II
 
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Market Information
 
Our common stock is currently listed on the OTC Bulletin Board under the symbol “MLHC.”  On May 16, 2008, we filed a registration statement on Form 10 to re-register our common stock under Section 12 of the Exchange Act.  As a result, on July 15, 2008, we became subject to the reporting requirements under the Exchange Act.  We began listing on the OTC Bulletin Board on November 23, 2009.
 
The following table sets forth the high and low bid information for each quarter within the two most recent fiscal years.  The information reflects prices between dealers, and does not include retail markup, markdown, or commission, and may not represent actual transactions.
 
Fiscal Year
Ended
      Bid Prices  
June 30,   Period   High     Low  
                 
2011   First Quarter   $ 0.09     $ 0.04  
    Second Quarter   $ 0.21     $ 0.01  
    Third Quarter   $ 0.20     $ 0.02  
    Fourth Quarter   $ 0.12     $ 0.03  
                     
2012   First Quarter   $ 0.07     $ 0.02  
    Second Quarter   $ 0.06     $ 0.03  
    Third Quarter   $ 0.05     $ 0.01  
    Fourth Quarter   $ 0.03     $ 0.02  
 
The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock.  The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which we do not meet.  Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
 
Holders
 
As of June 30, 2012, there were 46,871,145 shares of our common stock outstanding held by 126 holders of record of our common stock and numerous shareholders holding shares in brokerage accounts.  Of these shares, 16,955,124 were held by non-affiliates.  On the cover page of this filing we value these shares at $339,102.  These shares were valued at $0.02 per share, which was closing price of our common stock on the OTC Bulletin Board on October 10, 2012.
 
Dividends
 
In May 2005, we declared and paid a dividend of $0.005 on our common stock. The dividend was paid to all shareholders except shareholders who are also directors of the Company or members of their immediate family, all of whom waived their right to receive the dividend payment. We have not paid any dividends since May, 2005 nor do we plan to in the foreseeable future.
 
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Securities Authorized for Issuance Under Equity Compensation Plans
 
There are no outstanding options or warrants to purchase shares of our common stock under any equity compensation plans.
 
Non-Qualified Stock Option Plan
 
In November 2006, the Board of Directors approved the creating of a non-qualified stock option plan for key managers, which, among other provisions, would have provided for the granting of options by the board at strike prices at or exceeding market value, and expiration periods of up to ten years.  This plan was never created and no options were ever issued.
 
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As a result, we did not have any options, warrants or rights outstanding as of June 30, 2011.
 
Plan Category   Number of Securities to
be issued upon exercise
of outstanding options,
warrants and rights     Weighted-average
exercise price of
outstanding options,
warrants and rights     Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))  
    (a)     (b)     (c)  
Equity compensation plans approved by security holders     -0-       -0-       -0-  
Equity compensation plans not approved by security holders     -0-       -0-       -0-  
Total     -0-       -0-       -0-  
  
Recent Issuance of Unregistered Securities
 
During the year ended June 30, 2012, the company issued the following shares of common stock.
 
3,650,000 shares of common stock was issued to financial advisors and other parties in payment of services to the company. The company valued the shares at the market price on the issuance date in the sum of $129,000.00.
 
The Company also issued 4,237,500 shares of the company common stock in lieu of salaries and expenses due on behalf of related parties. The shares were valued at $228,750 based on the market price.
 
412,800 shares of common stock was issued to employees of the company as a bonus in lieu of cash payments. The company valued these shares at the market price on the issuance date in the sum of $16,256.00.
 
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If our stock is listed on an exchange we will be subject to the Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which we do not meet. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
 
ITEM 6 – SELECTED FINANCIAL DATA
 
As a smaller reporting company we are not required to provide the information required by this Item.
 
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ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
Forward-Looking Statements
 
This annual report on Form 10-K of M Line Holdings, Inc. for the year ended June 30, 2012 contains forward-looking statements, principally in this Section and “Business.” Generally, you can identify these statements because they use words like “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These statements reflect only our current expectations. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen, including, among others, the risks we face as described in this filing. You should not place undue reliance on these forward-looking statements which apply only as of the date of this annual report. These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation of belief will be accomplished.
 
We believe it is important to communicate our expectations to our investors. There may be events in the future; however, that we are unable to predict accurately or over which we have no control. The risk factors listed in this filing, as well as any cautionary language in this annual report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results or events to differ materially from those anticipated, include, but are not limited to: our ability to successfully maintain a credit facility to purchase new and used machines, manufacture new products; the ability to obtain financing for product acquisition; changes in product strategies; general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in various tax laws; and the availability of key management and other personnel.
 
Critical Accounting Policies
 
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which requires us to make estimates and assumptions in certain circumstances that affect amounts reported. In preparing these financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. We believe that of our significant accounting policies (more fully described in Notes to the Consolidated Financial Statements), the following are particularly important to the portrayal of our results of operations and financial position and may require the application of a higher level of judgment by our management, and as a result are subject to an inherent degree of uncertainty.
 
Estimates
 
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. We review our estimates on an on-going basis, including those related to sales allowances, the allowance for doubtful accounts, inventory reserves, long-lived assets, income taxes and litigation. We base our estimates on our historical experience, knowledge of current conditions and our beliefs of what could occur in the future considering available information. Actual results may differ from these estimates, and material effects on our operating results and financial position may result. We believe the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements.
 
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Revenue Recognition
 
We recognize revenues when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) our price to the customer is fixed or determinable; and (iv) collection of the sales price is reasonably assured. Delivery occurs when goods are shipped and title and risk of loss transfer to the customer, in accordance with the terms specified in the arrangement with the customer. Revenue recognition is deferred in all instances where the earnings process is incomplete. We record reserves for estimated sales returns and allowances for both CNC machine sales and manufactured parts in the same period as the related revenues are recognized. We base these estimates on our historical experience for returns or the specific identification of an event necessitating a reserve. Our estimates may change from time to time in the event we ship manufactured parts which in the customers’ opinion, do not conform to the specifications provided. To the extent actual sales returns differ from our estimates, our future results of operations may be affected.
 
Accounts Receivable
 
We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience and any specific customer collection issues that we have identified. While our credit losses have historically been within our expectations and the allowance established, we may not continue to experience the same credit loss rates as we have in the past. Accounts receivable are written off or reserves established when considered to be uncollectible or at risk of being uncollectible. While management believes that adequate allowances have been provided in the Consolidated Financial Statements, it is possible that we could experience unexpected credit losses. Our accounts receivable are concentrated in a relatively few number of customers. One customer, Panasonic Avionics Corporation (“Panasonic”), a leading provider of in-flight entertainment systems for commercial aircraft, accounts for 44% and 67% of our consolidated accounts receivable balance at June 30, 2012 and 2011, respectively.  Therefore, a significant change in the liquidity or financial position of any one customer could make it more difficult for us to collect our accounts receivable and require us to increase our allowance for doubtful accounts, which could have a material adverse impact on our consolidated financial position, results of operations and cash flows.
 
Inventories
 
Within our Precision Manufacturing segment, we seek to purchase and maintain raw materials at sufficient levels to meet lead times based on forecasted demand. Within our Machine Tools segment, we purchase machines held for resale based upon management’s judgment of current market conditions and demand for both new and used machines. If forecasted demand exceeds actual demand, we may need to provide an allowance for excess or obsolete quantities on hand. We also review our inventories for changes in the market prices of machines held in inventory and provide reserves as deemed necessary. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. We state our inventories at the lower of cost, using the first-in, first-out method on an average costs basis, or market.
 
Abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) are recognized as current-period charges. Fixed production overhead is allocated to the costs of conversion into inventories based on the normal capacity of the production facilities. We utilize an expected normal level of production within the Precision Manufacturing segment, based on our plant capacity. To the extent we do not achieve a normal expected production levels, we charge such under-absorption of fixed overhead to operations.
 
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Long-lived Assets
 
We continually monitor and review long-lived assets, including fixed assets intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The determination of recoverability is based on an estimate of the undiscounted cash flows expected to result from the use of an asset and its eventual disposition. The estimate of cash flows is based upon, among other things, certain assumptions about expected future operating performance, growth rates and other factors. Our estimates of cash flows may differ from actual cash flows due to, among other things increased competition, loss of customers and loss of manufacturer representation contract, all which can cause materially changes our operating performance. If the sums of the undiscounted cash flows are less than the carrying value, we recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset or discounted cash flows.  Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
 
Based on management’s review, we determined that there was no impairment provision of long-lived assets for the year ended June 30, 2012.
 
Goodwill and Acquired Intangible Assets
 
As part of Goodwill impairment testing it requires a two-step approach to test goodwill for impairment for each reporting unit. The first step tests for impairment by applying fair value-based tests to a reporting unit. The second step, if deemed necessary, measures the impairment by applying fair value-based tests to specific assets and liabilities within the reporting unit. Application of the goodwill impairment tests require judgment, including identification of reporting units, assignment of assets and liabilities to each reporting unit, assignment of goodwill to each reporting unit, and determination of the fair value of each reporting unit. The determination of fair value for a reporting unit could be materially affected by changes in these estimates and assumptions.  Based on its review, all remaining goodwill of $198,169 was written off in the financial statements for the year ended June 30, 2010. There was no impairment of goodwill from continuing operations as of June 30, 2012.
 
Accounting for Income Taxes
 
The Company accounts for income taxes in accordance with FASB ASC Topic 740-10, Income Taxes , (“ASC 740”) which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.
 
The Company accounts for uncertain tax positions in accordance with ASC 740, which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest, penalties and disclosures required. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
 
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Recent Accounting Pronouncements
 
In December 2011, the FASB issued guidance on offsetting (netting) assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The new guidance is effective for annual periods beginning after January 1, 2013.
 
In September 2011, the FASB issued guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If, an entity
determines that the fair value of a reporting unit is less than its carrying amount, the two-step goodwill impairment test is not required. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted.
 
In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance is effective for annual periods beginning after December 15, 2011. In December 2011, the FASB issued a deferral of certain portion of this guidance.
 
In September 2011 the FASB issued guidance on compensation, retirement benefits on an multiemployer plan. This guidance relates to disclosures about an employer’s participation in a multiemployee plan. For public entities, effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. The amendments should be applied retrospectively for all prior periods presented.
 
In December 2011 the FASB issued guidance on Property, Plant, and Equipment and the Derecognition of in Substance Real Estate—a Scope Clarification. The amendments in this Update should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities.

 
Results of Operations
 
Sales Concentration
 
The sales within our Precision Manufacturing segment are highly concentrated within two customers, Panasonic Avionics and Iris Diagnostics. Sales to these customers accounted for 26% and 29% of consolidated sales for the years ended June 30, 2012 and 2011, respectively. The loss of all or a substantial portion of sales to this customer would cause us to lose a substantial portion of our sales within this segment and on a consolidated basis, and have a corresponding negative impact on our operating profit margin due to operation leverage this customer provides. This could lead to sales volumes not being high enough to cover our current cost structure or provide adequate operating cash flows. Panasonic has been a customer of ours for approximately 15 years and we believe our relationship is good.
 
Gross Profit
 
Our gross profit represents sales less the cost of sales. Gross margin represents our gross profit divided by sales.
 
Cost of sales for our Precision Manufacturing segment primarily consists of raw materials, direct labor, depreciation of manufacturing equipment and overhead incurred in the manufacturing of parts for our customers. Our gross margins will increase and decrease depending on the amount of products we manufacture as result of allocating fixed manufacturing costs over a larger or reduced number of parts, which yields lower or higher per unit costs, respectively. As a result, a change in manufacturing volume in a quarter can significantly affect our gross margin in that and future quarters.
 
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Cost of sales for our Machine Sales Segment includes the cost of machines, replacement parts, freight, and refurbishment expenses. Gross margins within the Machine Sales segment can vary based on the price we procure equipment for in the marketplace, sales mix between new and used equipment and the costs to refurbish used machines.
 
Selling, General and Administrative
 
Our selling, general and administrative expenses consist of personnel costs, including the sales, executive, finance and administration. These costs also include non-manufacturing related depreciation, overhead and professional fees.
 
Amortization of Intangible Assets
 
Our amortization expense includes the amortization of identifiable intangible assets, consisting of customer lists, from our acquisition of All American CNC Sales, Inc. in 2004 and our acquisition of CNC Repos, Inc. in fiscal 2008.
 
Interest Expense
 
Interest expense primarily consists of the cost of borrowings under our accounts receivable line of credit agreement with Main Credit Corporation, Pacific Western Bank, and Credit and capital lease agreements. See Liquidity and Capital Resources and Notes to Consolidated Financial Statements for further discussion.
 
Segment Information
 
    Year ended June 30,           Change  
    2012     2011     Change ($)     (%)  
Sales by segment:                                
Machine Sales   $ 5,929,967     $ 6,179,472     $ (249,505 )     (4 )
Precision Engineering     4,247,482       3,721,228       526,254       14  
                                 
Gross profit by segment:                                
Machine Sales     1,105,395       1,122,914       (17,520 )     (2 )
Precision Engineering     1,741,329       1,627,075       114,254       7  
                                 
Gross margin by segment: (%)                                
Machine Sales     17       18                  
Precision Engineering     41       44                  
 
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Results of Operations for the Year Ended June 30, 2012 and 2011
 
Introduction
 
For the twelve months ended June 30, 2012, we generated $10,177,449 in revenues on cost of sales of $7,330,725.  With these revenues and cost of sales for the year ended June 30, 2012, we had a net loss of $768,242, after taxes.  For the year ended June 30, 2011, we had revenues of $9,900,700, on cost of sales of $7,150,711.  With these revenues and costs of sales we had a net income of $765,242, after taxes, for year ended June 30, 2011.  An explanation of these numbers and how they relate to our business is contained below.
 
Revenues, Expenses and Loss from operations:
 
    Year ended     Year ended  
    June 30,     June 30,  
    2012     2011  
Revenues   $ 10,177,449     $ 9,900,700  
Cost of Sales     7,330,725       7,150,711  
Selling, General and  Administrative Expenses     2,629,232       2,687,213  
Amortization of Intangible Assets     31,952       104,458  
Operating Income (loss)     185,540       (41,682 )
Interest Expense     (208,145 )     (103,889 )
Interest Income     -       21,756  
Gain on sale of assets     138,642       -  
Total Other Income (Expense)     (743,237 )     356,144  
Net Income (Loss)   $ (765,842 )   $ 232,329  
 
Revenues
 
Sales in the fiscal 2012 period increased 2.8% compared to the comparable period in fiscal 2011.
 
The change is attributable to an increase in sales in the Precision Manufacturing Group.  Sales decreased by (4)% in the Machine Sales Group and a increased by 14% in the Precision Manufacturing Group.  
 
The machine sales group primarily sells pre-owned CNC machinery manufactured by Mori Seiki. The average sale price of the machinery changes based on the equipment that is available to purchase in the market place and the prevailing market conditions that affect the price that equipment can be sold for. The average sale price of the 84 pieces of equipment sold in the year ended June 30, 2012 was $67,239 compared to the comparable period in fiscal 2011 of 84 pieces of equipment sold at an average sale price of $69,978. In addition repair work for the year ended June 30, 2012 was $156,098 compared to the comparable period in fiscal 2011 of $119,732.
 
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Market conditions reflect not only the price that equipment can be purchased for but also the price that equipment may be sold. During good economic times when the business climate is improving, particularly in areas such as aerospace, the demand for equipment can result in a change in the buying price. However the need for that equipment by customers is generally reflected in the sale price, therefore as a general rule margins are reasonably consistent even though average sale prices may change. As a result we do not expect future results to be materially impacted by these conditions.
 
The increase in sales in the Precision Manufacturing Group is the result of an increase of $247,386 to $273,581 in sales of precision metal component parts from a customer of ours, C & D Zodiac in the fiscal year ended June 30, 2012, compared to $26,195 for the comparable period in fiscal 2011. Furthermore new customer sales to Goodrich Aerostructures resulted in an increase of $256,878 during the year ended June 30, 2012 as compared to $0 for new customers in the comparable period in fiscal 2011.
  
Our precision manufacturing group has recently received orders from a new major customer. We have had to upgrade our manufacturing operations from primarily interiors work to a combination of interior and structures and therefore achieved sales of $256,878 for the current fiscal year due primarily to time for training our personnel and related costs together with the downtime in manufacturing. We have successfully manufactured parts for the aircraft structure segment and are hopeful that this customer’s orders will continue to increase and together with other new customers will result in an increase in sales and profitability of the Precision Manufacturing Group. The addition of this new customer should result in a positive effect on the future results of the Company.
 
We anticipate that as a result of an increase in activity in the aerospace industry, we will continue to grow the revenues of both the Machine Tool Group and the Precision Manufacturing Group.
 
Gross Margin
 
Gross profit increased by 4% compared to the comparable period in fiscal 2011. The gross profit for the Machine Sales Group decreased by (2%) due to an decrease in margins as a result of higher prices paid for product and higher freight costs. The increase within the Precision Manufacturing Group of 7% resulted from higher margins as a result of the more profitable work in aircraft structures.
 
Cost of Sales
 
Our cost of sales for the year ended June 30, 2012, were $7,330,725 and consisted primarily of used CNC machines, refurbishment of those machines and raw materials usage, compared to our cost of sales for the year ended June 30, 2011 of $7,150,711.  The increase in our cost of sales was primarily due to the need to purchase raw materials and outside processing costs to meet the sales of our precision manufacturing group.
 
Amortization of Intangible Assets
 
Amortization expense for intangible assets for the fiscal year, 2012 was $31,952 compared to $104,458 in the comparable period in fiscal 2011.
 
Selling, General and Administrative Expenses
 
Our selling, general and administrative expenses are those expenses we have related to the actual sales of our products and the costs we incur in transporting those products.  For the year ended June 30, 2012 our selling and distribution expenses were $2,629,232, compared to $2,687,213 for the year ended June 30, 2011.  Our selling, general and administrative expenses for the year ended June 30, 2012, primarily consisted of salaries of $1,558,611, rent of $383,932, legal and professional fees of $384,496 and insurance expenses of $311,833.
 
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Interest Expense
 
For the year ended June 30, 2012, our interest expense increased by $104,256 compared to the comparable period in 2011. The change is attributable to higher average debt balances and increases in the average interest rate paid on our debt and capital lease obligations.
 
Gain on Sale of Assets
 
During 2012, we recorded a net gain from the sale of assets within the Precision products Group of $138,642.  We did not have a gain on sale of assets in 2011.  
 
Research and Development
 
The Research and Development expenditure incurred during the third quarter of fiscal 2012 represented the development costs incurred for aircraft structures. The Company had during the last quarter begun to add and upgrade its manufacturing base from purely aircraft interiors to a combination which includes aircraft structures. The company had to incur considerable startup costs relating to development and staff training, downtime in manufacturing and other costs, including materials, such as titanium and hard steels, for which the company had to rework several times to ensure that the product manufactured was good and acceptable.
 
Management has entered into agreements with Engineering service companies, in Canada and in India, upgraded its software and added new software such as Catia. Our commitment to excellence and the new direction to make Eran Engineering an “Aerospace” company has helped us develop and solidify contact with Rohr, Inc. and its subsidiary, Goodrich Aerostructures (now both are subsidiaries of UTC). We had, but did overcame the considerable problems with production, due staff knowledge limitation, additional training, engineering staff contracts etc.
 
All costs relating to this new development have been expensed as Research and Development costs,
 
Change in derivative liability
 
The derivative liability for the month period ended June 30, 2012 was $0 compared to that of the comparable period in 2011 amounting to $93,488.
 
The $0 cost in derivative liability arises as a result of the repayment of a convertible loan from Asher Enterprises, Inc. in fiscal 2010. The loan was a convertible promissory note with the ability to convert to shares at a discount from the market price. Until the loan was repaid a charge was included on our financial statements that reflected the possible derivative liability that could result if the loan was converted to shares in the Company. The derivative liability was calculated using the Black Schole method.
 
The loan was repaid in May 2011 and as a result the charge for the derivative liability is no longer necessary.
 
Liquidity and Capital Resources
 
Our principal sources of liquidity consist of cash and cash equivalents, cash generated from operations and borrowing from various sources. At June 30, 2012, our cash and cash equivalents totaled $(5,212) and we had positive working capital of $258,334.
 
At June 30, 2012, we had $253,128 in debt outstanding under our credit agreement with Pacific Western Bank. The credit agreement provided for borrowings of up to $1,500,000, and included a line of credit, a term loan and a letter of credit. The amount outstanding under the line of credit, term loan and letter of credit are $253,128, $0 and $0, respectively, as of June 30, 2012. We reached a settlement agreement with Pacific Western Bank to extend the repayment of the $253,128 until we refinance our equipment, which is currently anticipated to close in October 2012.
 
Our existing sources of liquidity, along with cash expected to be generated from sales, may not be sufficient to fund our operations, anticipated capital expenditures, working capital and other financing requirements for the foreseeable future. If that is the case we may need to seek to obtain additional debt or equity financing, especially if we experience downturns or cyclical fluctuations in our business that are more severe or longer than anticipated, or if we fail to achieve anticipated revenue targets, or if we experience significant increases in the cost of raw material and equipment for resale, lose a significant customer, or increases in our expense levels resulting from being a publicly-traded company, if we achieve this status. If we attempt to obtain additional debt or equity financing, we cannot assure you that such financing will be available to us on favorable terms, or at all.
 
34
 
 
Cash Flows
 
The following table sets forth our cash flows for the years ended June 30:
 
    2012     2011  
Provided by (used in):                
Operating activities   $ 266,425     $ 231,446  
Investing activities     (59,907 )     (5,928 )
Financing activities     110,508       (54,892 )
    $ (215,824 )   $ 170,626  
 
Cash Flows for the Years Ended June 30, 2012 and 2011
 
Operating Activities
 
Net cash provided by (used in) operating activities was $(266,425) for the year ended June 30, 2012, compared to $231,446 for the year ended June 30, 2011.  Our cash from operating activities for the year ended June 30, 2012 was primarily $161,783 in accounts receivables, ($460,176) in inventories, $11,944 in prepaid expenses and other assets, $656,217 in accounts payable and accrued expenses, $192,755 in depreciation, $31,953 in amortization of intangible assets.
 
Investing Activities
 
Net cash provided by (used in) investing activities was ($59,907) for the year ended June 30, 2012, compared to $(5,928) for the year ended June 30, 2011.  The cash used for investing activities for the year ended June 30, 2012 was for capital expenditures.  For the year ended June 30, 2012, our cash provided by (used in) investing activities consisted of $205,000 in proceeds from sale of assets.  These related to equipment purchases and sales in our precision manufacturing group.
 
Financing Activities
 
Net cash provided by (used in) financing activities was $110,508 for the year ended June 30, 2012, compared to ($54,891) for the year ended June 30, 2011.  The cash provided by (used in) financing activities for the year ended June 30, 2012, consisted of $456,834 in net borrowings on our line of credit, $150,000 in proceeds on note payables, ($3,210) in payments on capital leases ($493,116) due from a related party.
 
35
 
 
Contractual Obligations
 
The following table summarizes our contractual obligations and commercial commitments as of June 30, 2012:
 
    2012     2013     2014     2015     2016     Total  
                                     
Debt obligations   $ 713,802     $ -     $ -     $ -     $ -     $ 713,802  
Capital leases     19,749       19,749       -       -       -       39,498  
Operating leases     441,377       441,377       454,616       468,252       482,301       2,287,923  
    $ 1,174,928     $ 461,126     $ 454,616     $ 468,252     $ 482,301     $ 3,041,223  
 
Quantitative and Qualitative Disclosures about Market Risk
 
The only financial instruments we hold are cash and cash equivalents. We also have a fixed interest rate agreement with Pacific Western Bank. In addition we have a fixed interest rate credit facility with Main Credit secured by the receivables and inventory of Eran Engineering.  Changes in market interest rates will impact our interest costs.
 
We are currently billed by the majority of our vendors in U.S. dollars and we currently bill the majority of our customers in U.S. dollars. However, our financial results could be affected by factors such as changes in foreign credit and currency rates or changes in economic conditions.
 
Off Balance Sheet Arrangements
 
We have no off balance sheet arrangements.
 
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
As a smaller reporting company we are not required to provide the information required by this Item.
 
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Report of Registered Public Accounting Firm F-1
   
Consolidated Balance Sheets as of June 30, 2012 and 2011 F-2
   
Consolidated Statements of Operations for the years ended June 30, 2012 and 2011 F-3
   
Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2012 and 2011 F-4
   
Consolidated Statements of Cash Flows for the years ended June 30, 2012 and 2011 F-5
   
Notes to Consolidated Financial Statements F-6
 
36
 
 
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders
M Line Holdings, Inc.
 
We have audited the accompanying consolidated balance sheets of M Line Holdings, Inc. (formerly, Gateway International, Inc) (the “Company”)  as of June 30, 2012 and 2011 and the related consolidated statements of operation, stockholders' equity, and cash flow for each of the years in the two-year period ended June 30, 2012.   These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2012 and 2011 and the results of its operations and its cash flow for each of the years in the two-year period ended June 30, 2012 in conformity with accounting principles generally accepted in the United States of America.
  
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, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The Company has incurred operating losses of $768,242 for the year ended June 30, 2012. The Company had an excess of current liabilities above current assets of a negative working capital of $508,610 at June 30, 2012. The Company has an accumulated deficit of $10,051,106 as of June 30, 2012.  These factors as discussed in Note 19 to the consolidated financial statements raise doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 19.  The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
 
/s/ Kabani & Company, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
 
Los Angeles, California
October 15, 2012
 
F- 1
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2012 AND JUNE 30, 2011
 
    2012     2011  
Assets                
                 
Current Assets:                
Cash and cash equivalents   $ 5,212     $ 221,036  
Accounts receivable, net     794,317       894,197  
Inventories, net     1,609,411       1,199,422  
Due from related party     1,262,615       769,499  
Prepaid and other current assets     -       14,148  
Total current assets     3,671,555       3,098,302  
                 
Property and equipment,  net     543,050       537,256  
Intangible Assets, net     -       31,952  
Deposits and other     82,806       80,653  
Total Assets   $ 4,297,411     $ 3,748,163  
                 
Liabilities and Shareholders' Equity                
                 
Current Liabilities:                
Line of Credit   $ 1,083,879     $ 627,045  
Accounts Payable     996,861       901,230  
Accrued Expenses and other     1,314,065       839,574  
Notes payable – current     597,261       305,939  
Capital Leases – current     71,558       44,998  
Litigation payable     116,541       494,446  
Total Current Liabilities     4,180,165       3,213,232  
                 
Notes Payable - long term     19,749       13,428  
Capital Leases - long term     -       29,770  
Deferred Income Taxes     16,710       16,710  
Total liabilities     4,216,624       3,273,140  
                 
Commitments and Contingencies     -       -  
                 
Shareholders' Equity                
Common Stock, $0.001: 100,000,000 shares                
Authorized; 46,871,145 and 38,570,845 shares issued and outstanding at June 30, 2012 and June 30, 2011, respectively     46,871       38,571  
Additional paid in capital     10,179,021       9,813,315  
Related party Receivable due to shares issuance     (94,000 )     (94,000 )
Accumulated deficit     (10,051,106 )     (9,282,863 )
Total stockholders' equity     80,786       475,023  
Total Liabilities and Shareholders' Equity   $ 4,297,411     $ 3,748,163  
 
The accompanying notes form an integral part of these audited consolidated financial statements
 
F- 2
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
JUNE 30, 2012 AND JUNE 30, 2011
 
    As of June 30,  
    2012     2011  
Net sales   $ 10,177,449     $ 9,900,700  
Cost of sales     7,330,725       7,150,711  
Gross Profit     2,846,724       2,749,989  
                 
Operating expenses:                
Selling, general and administrative     2,629,232       2,687,213  
Amortization of intangible assets     31,952       104,458  
Total operating expense     2,661,184       2,791,671  
Operating income (loss)     185,540       (41,682 )
                 
Other income (expense):                
Interest expense     (208,145 )     (103,889 )
Interest income     -       21,756  
Research and Development expenditure     (967,976 )     -  
Rental income     -       119,700  
Change in derivative liability     -       93,488  
Gain on debt settlement     86,097       142,956  
Gain  on sale of assets     138,642       -  
Total other income (expenses)     (951,382 )     274,011  
Income (loss) before income tax     (765,842 )     232,329  
                 
Income tax provision     2,400       2,400  
Net income (loss)   $ (768,242 )   $ 229,929  
                 
Net income (loss) per share:                
Basic and dilutive income (loss) per share:   $ (0.02 )   $ 0.01  
Weighted average number of common shares under in per share calculations (basic and diluted)     45,296,196       32,603,326  
Weighted average number of shares used to compute basic and diluted loss per share is the same as the effect of potential dilutive securities is anti-dilutive.                
 
The accompanying notes form an integral part of these audited consolidated financial statements
 
F- 3
 
 
M LINE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
 
    Common Stock     Additional
Paid-in     Related
party     Accumulated        
    Shares     Amount     Amount     Receivable     Deficit     Total  
Balance, July 1, 2010     30,861,956     $ 30,862     $ 9,505,812     $ -     $ (9,512,790 )   $ 23,884  
                                                 
Shares issued for services     990,000       990       27,010       -       -       28,000  
                                                 
Shares issued for debt settlement     3,538,889       3,539       156,517       -       -       160,056  
                                                 
Shares issued for deposit     380,000       380       11,020       -       -       11,400  
                                                 
Shares issued in lieu of related party expenses     2,800,000       2,800       91,200       (94,000 )     -       -  
                                                 
Imputed interest on related party notes     -       -       21,756       -       -       21,756  
                                                 
Net income     -       -       -               229,929       229,929  
                                                 
Balance at June 30, 2011     38,570,845       38,571       9,813,315       (94,000 )     (9,282,861 )   $ 475,025  
                                                 
Shares issued for services     8,300,300       8,300       365,706       -       -       374,006  
                                                 
Net income (loss)     -       -       -       -       (768,242 )     (768,242 )
                                                 
Balance at June 30, 2012     46,871,145       46,871       10,179,021       (94,000 )     (10,051,103 )     80,789  
  
The accompanying notes form an integral part of these audited consolidated financial statements
 
F- 4
 
 
M LINE  HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS  ENDED JUNE 30, 2012 AND 2011
 
    2012     2011  
Cash flows from operating activities:                
Net income (loss)   $ (768,242 )   $ 229,929  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                
Gain on disposition of assets     (138,642 )     0  
Imputed Interest     -       (21,756 )
Bad Debt expense     (61,902 )     28,285  
Depreciation     192,755       281,875  
Amortization of intangible assets     31,953       104,458  
Issuance of shares for services     374,006       28,000  
Gain on debt settlement     (86,097 )     (142,956 )
Reserve for inventories     50,099       54,980  
Change in derivative liabilities     -       (93,845 )
Changes in operating assets and liabilities:                
Account receivable     161,783       (308,841 )
Inventory     (460,088 )     (503,102 )
Prepaid expenses and other assets     11,994       30,400  
Account payable and accrued expenses     656,217       953,143  
Deferred rent     -       (39,566 )
Litigation payable     (230,260 )     -  
Cash provided by operating activities     (266,425 )     601,004  
Cash used in operating activities of discontinued operations     -       (369,559 )
Net cash provided by operating activities     (266,425 )     231,445  
                 
Cash flows from investing activities:                
Acquisition of equipment     (59,907 )     (5,928 )
                 
Cash flows from financing activities:                
Net borrowings (repayments) on line of credit     456,834       408,156  
Due from related party     (493,116 )     (373,654 )
Proceeds from notes payable     150,000       150,000  
Payments to notes payable     -       (223,324 )
Payments on capital leases     (3,210 )     (16,069 )
Net cash used in financing activities     110,508       (54,891 )
                 
Net increase (decrease) in cash and cash equivalent     (215,824 )     170,626  
                 
Cash and cash equivalents at beginning of period     221,036       50,410  
Cash and cash equivalents at end of period   $ 5,212     $ 221,036  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ 208,145     $ 103,889  
Cash paid for income taxes   $ -     $ -  
                 
Supplemental disclosure of non-cash investing and financing activities:                
Shares issued for deposit   $ -     $ 11,400  
Shares issued for related party receivable   $ -     $ 94,000  
Capital expenditures acquired under capital leases and notes payable   $ -     $ -  
Shares issued for debt settlement   $ -     $ 160,056  
  
The accompanying notes form an integral part of these audited consolidated financial statements
 
F- 5
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. Organization and Business
 
Organization and Business
 
M. Line Holdings, Inc. (formerly, Gateway International Holding, Inc.) (the “Company”) was incorporated in Nevada on September 24, 1997. The Company and its subsidiaries are engaged in the following businesses:
 
Acquiring, refurbishing and selling pre-owned CNC machine-tool equipment through Elite Machine Tool Company, its wholly owned subsidiary, the machine sales group.
 
Eran Engineering, Inc. (“Eran Engineering”), its wholly owned subsidiary manufactures precision metal component parts for the aerospace, medical and defense, industries. This is the precision manufacturing group.
 
2. Basis of Presentation and Significant Accounting Policies
 
Basis of Presentation
 
The accompanying consolidated financial statements include the accounts of M Line Holdings, Inc. and its wholly-owned subsidiaries: E.M. Tool Company, Inc. d.b.a. Elite Machine Tool Company, Eran Engineering, Inc and AACNC as discontinued operations. All intercompany accounts and transactions have been eliminated.
 
Business Segments
 
FASB ASC Topic 280: Segment Reporting (“ASC 280”) requires the determination of reportable business segments (i.e., the management approach). This approach requires that business segment information used by the chief operating decision maker to assess performance and manage company resources be the source for segment information disclosure. The Company operates in two reportable segments consisting of (1) Machine Sales and (2) Precision Manufacturing.
 
Concentrations of Credit Risks
 
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and trade accounts receivable. The Company invests its cash balances through high-credit quality financial institutions. From time to time, the Company maintains bank account levels in excess of FDIC insurance limits. If the financial institutions in which the Company has its accounts has financial difficulties, the Company’s cash balances could be at risk.
 
Sales from significant customers representing 10% or more of sales consist of the following customers for the years ended June 30:
 
    Year ended
June 30, 2012     Year ended
June 30, 2011  
Percent of sales     23       24  
Number of customer     1       1  
 
F- 6
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Accounts receivable from this customer at June 30, 2012 and 2011 were $354,589 and $458,970, respectively.
 
As a result of the Company's concentration of its customer base and industries served, the loss or cancellation of business from, or significant changes in scheduled deliveries of product sold to the above customers or a change in their financial position could materially and adversely affect the Company's consolidated financial position, results of operations and cash flows.
 
One customer, included in the Precision Manufacturing segment represents a significant concentration. Sales to this customer as a percentage of sales within the Precision Manufacturing Segment are as follows for the years ended June 30:
 
    Year ended June 30,  
    2012     2011  
% of segment sales significant customer sales concentration     54       62  
 
Accounts receivable for significant customers at June 30, 2012 and 2011 were $354,589 and $458,970, respectively.
 
The Company’s Precision Manufacturing segment operates a single manufacturing facility located in Tustin, California. A major interruption in the manufacturing operations at this facility would have a material adverse affect on the consolidated financial position and results of operations of the Company.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of sales and expenses during the reporting period. Significant estimates made by management are, among others, realization of inventories, collectability of accounts receivable, litigation, impairment of goodwill, and long-lived assets other than goodwill. Actual results could materially differ from those estimates.
 
Cash and Cash Equivalents
 
The Company considers all highly liquid investments with insignificant interest rate risk and original maturities of three months or less from the date of purchase to be cash equivalents. The carrying amounts of cash and cash equivalents approximate their fair values. The Company maintains cash and cash equivalents balances at certain financial institutions in excess of amounts insured by federal agencies. Management does not believe that as a result of this concentration, it is subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships.
 
Accounts Receivable
 
The Company performs periodic credit evaluations and continually monitors its collection of amounts due from its customers. The Company adjusts credit limits and payment terms granted to its customers based upon payment history and the customer's current creditworthiness. The Company does not require collateral from its customers to secure amounts due from them. The Company regularly reviews its accounts receivable and collection of these balances subsequent to each of these periods. The Company maintains reserves for potential credit losses, and historically, such losses have been within management expectations. As of June 30, 2012 and 2011, accounts receivable totals were $794,317 and $894,197, net of a provision for bad debt expense of $47,193 and $105,096 respectively.
 
F- 7
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Inventories
 
Inventories are stated at the lower of cost, determined on a first in, first out (“FIFO”)
 
Property and Equipment
 
Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Equipment under capital lease obligations is depreciated over the estimated useful life of the asset. Leasehold improvements are amortized over the shorter of the estimated useful life or the term of the lease. Repairs and maintenance are expensed as incurred, while improvements are capitalized. Upon the sale or retirement of property and equipment, the accounts are relieved of the cost and the related accumulated depreciation, which any resulting gain or loss included in the consolidated statements of operations.
 
Long-Lived Assets
 
The Company reviews its fixed assets and certain identifiable intangibles with definite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset or discounted cash flows. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
 
Based on management’s review, the Company determined there was an impairment of intangible assets of $0 and $0 at June 30, 2012 and 2011, respectively.
 
Income Taxes
 
The Company accounts for income taxes in accordance with FASB ASC Topic 740-10, Income Taxes , (“ASC 740”) which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.
 
The Company accounts for uncertain tax positions in accordance with ASC 740, which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest, penalties and disclosures required. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
 
F- 8
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Contingencies and Litigation
 
The Company evaluates contingent liabilities including threatened or pending litigation.”   Management assesses the likelihood of any adverse judgments or outcomes to a potential claim or legal proceeding, as well as potential ranges of probable losses, when the outcomes of the claims or proceedings are probable and reasonably estimable. A determination of the amount of accrued liabilities required, if any, for these contingencies is made after the analysis of each matter. Because of uncertainties related to these matters, management bases its estimates on the information available at the time. As additional information becomes available, management reassess the potential liability related to its pending claims and litigation and may revise our estimates. Any revisions in the estimates of potential liabilities could have a material impact on the results of operations and financial position.
 
Revenue Recognition
 
The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104 “Revenue Recognition”. Revenue is recognized at the date of shipment to customers when; a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist, and collectability is reasonably assured.
 
Revenues generated from the Precision Manufacturing segment consist of manufactured parts and in some instances, assembly of these items based on detailed engineering specifications received by the Company from the customer. The Company generally begins to manufacture the parts upon the receipt and acceptance of a purchase order which specifies the quantity, price and delivery dates such products are required to be shipped within. Prior to shipment, physical inspection of the parts is performed to ensure specifications meet the engineering requirements. Historically, customer returns have been inconsequential.
 
Revenues generated from the sales of new and pre-owned CNC machines from the Machine Tools segment are based on the acceptance of a purchase order and the customer’s acknowledgement of the Company’s terms and conditions which specifies the shipping terms, payment terms and the warranty period, if any. In certain instances, the Company may perform installation services including the leveling of the machine, which is inconsequential. Under agreements with certain new equipment manufacturers, a ninety day warranty is provided to customers whereby the manufacturer is responsible for any replacement parts and the Company is responsible for the installation of the parts. In certain instances, the Company provides warranties for used equipment for periods ranging up to thirty days. Historically, warranty costs have been inconsequential. Generally, the Company does not accept returns of equipment.
 
Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposits.
 
Advertising
 
The Company expenses the cost of advertising when incurred as selling expenses. Advertising expenses were $7,685 and $8,051, for the years ended June 30, 2012 and 2011 respectively.
 
Net Income (Loss) per Share
 
Basic net income (loss) per share is calculated by dividing net loss by the Company’s weighted average common shares outstanding during the period. Diluted net income per share reflects the potential dilution to basic earnings per share that could occur upon conversion or exercise of securities, options or other such items to common shares using the treasury stock method, based upon the Company’s weighted average fair value of the common shares during the period. For each period presented, basic and diluted net income (loss) per share amounts are identical as the Company does not have potentially dilutive securities.
 
F- 9
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Fair Value of Financial Instruments
 
Financial instruments are recorded on the consolidated balance sheets. The carrying amount for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses approximates fair value due to the immediate or short-term maturity of these financial instruments. The fair value of long-term debt approximates the carrying amounts based upon the expected borrowing rate for debt with similar remaining maturities and comparable risk. The fair value of related party notes cannot be readily determined because of the nature of the relationship between the Company and the lenders.
 
Reclassification
 
Certain reclassification has been made to the previous year’s financial statements to conform to current year presentation with no effect on previously reported net loss.
 
Recent Accounting Pronouncements
 
In December 2011 the FASB issued guidance on disclosures about Offsetting Assets and Liabilities on the Balance Sheet. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.
  
In September 2011, the FASB issued guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If, an entity determines that the fair value of a reporting unit is less than its carrying amount, the two-step goodwill impairment test is not required. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted.
 
In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance is effective for annual periods beginning after December 15, 2011. In December 2011, the FASB issued a deferral of certain portion of this guidance.
 
In September 2011 the FASB issued guidance on compensation, retirement benefits on an multiemployer plan. This guidance relates to disclosures about an employer’s participation in a multiemployee plan. For public entities, effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. The amendments should be applied retrospectively for all prior periods presented.
  
In December 2011 the FASB issued guidance on Property, Plant, and Equipment and the Derecognition of in Substance Real Estate—a Scope Clarification. The amendments in this Update should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities.

 
F- 10
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
3. Inventories
 
Inventories consist of the following at:
 
    June 30, 2012     June 30, 2011  
Finished Goods and Components   $ 1,157,918     $ 740,078  
CNC Machines held for sale     116,000.00       -  
Work in Progress     387,969       505,108  
Raw Materials and Parts     5,632       9,216  
      1,667,519       1,254,402  
Less: Reserve for inventories     (58,108 )     (54,980 )
Inventories, net.   $ 1,609,411     $ 1,199,422  
 
4. Related Parties
 
As of June 30, 2012 and 2011, we had an amount due from a related party, a shareholder of the Company in the amount of $1,262,615 and $769,499 which is expected to be repaid to the company within the next fiscal year. The Company advanced funds and paid various general expenses incurred by the related party during the course of business for the year ended June 30, 2012. These amounts are fully secured by the related party’s assets.  Interest was imputed at 6% per annum for the fiscal year ended June 30, 2011. Imputed Interest amounted to $0 and $21,756 for the year ended June 30, 2012 and 2011, respectively
 
5. Prepaid and Other
 
Prepaid and other current assets were $0 and $14,148 as of June 30, 2012 and 2011.
 
6. Property and Equipment
 
Property and equipment consists of the following at June 30:
 
    Estimated              
    Useful life              
    (in years)     2012     2011  
Machinery and Equipment     7     $ 2,435,611       2,527,488  
Equipment under capital leases   4 to 5       0       215,021  
Fixtures, Fittings and office equipment   3 to 5       321,974       207,554  
Vehicles     5       23,276       26,390  
Leasehold Improvements     3       105,298       119,649  
              2,886,158       3,096,102  
                         
Less accumulated depreciation             (2,343,108 )     (2,558,846 )
            $ 543,050       537,256  
 
Depreciation expense was $192,755 and $ 281,875 for the years ended June 30, 2012 and 2011, respectively.
 
F- 11
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
7. Intangible Assets
 
Intangible assets consist of the following at June 30:
 
   
Weighted
Average
Remaining
    2012     2011  
   
Life (in
years)
    Cost    
Carrying
Amount
    Cost    
Carrying
Amount
 
                               
Customer Relationships     7-6     $ 417,831       0     $ 417,831       31,952  
 
Amortization expense was $31,952 and $104,458 for the years ended June 30, 2012 and 2011, respectively.
 
Estimated intangible asset amortization expense for the remaining carrying amount of intangible assets will be $0 for the year ending June 30, 2013.
 
The parent company impaired the intangible asset amounting to $170,000 as it did not consider the fair value of the reporting unit adequate to support the carrying amount of the asset in E.M. Tool Company, Inc. dba Elite Machine Tool for the year ended June 30, 2010. There was no impairment for 2012.
 
8. Accrued Expenses
 
 Accrued expenses consist of the following at June 30:
 
    June 30, 2012     June 30, 2011  
Compensation and related benefits   $ 993,077     $ 738,650  
Audit Fees     77,500       65,000  
Other     243,488       35,924  
    $ 1,314,065     $ 839,574  
 
9. Capital Leases
 
 The company leases certain equipment under capital leases with terms ranging from four to five years. Future annual minimum lease payments are as follows as of June 30:
 
F- 12
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
    June 30, 2012     June 30, 2011  
             
2012   $ 71,558     $ 70,058  
2013     -       11,318  
2014     -       -  
2015     -       -  
2016     -       -  
Total minimum lease payments     71,558       81,376  
Less amount representing interest     -       6,608  
Present value of future minimum lease payments     71,558       74,768  
Less current portion of capital lease obligations     71,558       44,998  
Capital Lease obligations, net of current portion   $ -     $ 29,770  
 
10. Line of Credit and Notes Payable
 
Pacific Western Bank Credit Agreement   As of June 30, 2012, the Company owed $253,128 principal plus accrued interest.
 
We are in default of our obligations due to Pacific Western Bank. However, subsequent to the year end, the Company has paid off in full the amount due to Pacific Western Bank, and as a result this settles all outstanding legal disputes between the parties in full.
 
Main Credit:   As of June 30, 2012 the Company owed $1,083,879 principal.  This line of credit is secured by the receivables and inventory of Eran Engineering.  The original term has expired and the line continues on a month to month basis.  There is no intent by Main Credit to cancel the line and the Company continues to borrow funds as necessary.
 
F- 13
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
11. Note Payable:
 
    June 30, 2012     June 30,
2011  
Notes payable to financial institutions, secured by the underlying equipment in aggregate monthly installments of $7,292 including interest rates between 7.2% and 9.75% per annum for a period of 50 months.   $ 253,129     $ 44,471  
                 
An unsecured note payable to a corporation in respect of accounting software payable in monthly installments. The company has disputed the debt and therefore all payments are on hold.     46,811       46,811  
                 
An unsecured note payable to a corporation in respect of machines sold to us payable in monthly installments of $5,000.00 per month. This agreement will expire in June 2012     17,070       66,070  
                 
An unsecured note payable to a corporation in monthly installments of $5,000.00 per month. This balance is due to be paid in six monthly payments ending December 31, 2011.     -       31,764  
                 
An unsecured note payable to a financial institution in full on November 2011     300,000       150,000  
                 
TOTAL     617,010       319,367  
Less Current Portion     597,261       305,939  
Long Term Portion (in the next twelve months)   $ 19,749     $ 13,428  
 
Interest expense on notes payable and  capital leases for years ended June 30, 2012 and 2011, were $208,145 and  $103,889, respectively.
 
F- 14
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
12.   Litigation Settlements Payable
 
The following amounts are based on settlement agreements reached with the parties:
 
An unsecured note payable to a corporation in settlement of a lawsuit payable on the refinance of the company's equipment, expected to close in October 2012.     48,316  
         
An unsecured note payable to a corporation in settlement of a lawsuit payable in 12 monthly payments of $5,000.00     60,000  
         
An unsecured note payable to a corporation in settlement of a lawsuit payable in 12 monthly installments of $1,000.00     8,225  
         
TOTAL     116,541  
 
13. Derivative Liability
 
The Company has no provision for derivative liability at June 30, 2012 as the loan was paid in full. However, the company had a provision of $93,488 in 2011 to protect against any losses if the note payable to a financial institution was converted into common stock. This Liability was based on the price of the stock of the Company as of June 30, 2010 based on the terms of the conversion in the agreement..
 
14. Commitments and Contingencies
 
The Company has provided certain of its customers with thirty day product warranties. The warranty expense of  $35,407 and $41,544 for the years ended June 30, 2012 and 2011, respectively were accounted for in the cost of goods sold..
 
The Company leased its manufacturing and office facilities under non-cancelable operating lease arrangements.
 
Rent expense under operating leases was $383,932 and $537,462 for the years ended June 30, 2012 and 2011, respectively.
 
Future rent under lease agreements for the next five years is as follows:
 
  2012     $ 438,217  
  2013       451,361  
  2014       464,900  
  2015       478,848  
  Thereafter       493,221  
        $ 2,326,547  
 
F- 15
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
15. Litigation
 
1 James M. Cassidy v. Gateway International Holdings, Inc. , American Arbitration Association, Case No. 73-194-32755-08 . 
 
Our client was served with a Demand for Arbitration and Statement of Claim, which was filed on September 16, 2008.
 
The Statement of Claim alleges that claimant is an attorney who performed services for us pursuant to an agreement dated April 2, 2007 between us and the claimant.  The Statement of Claim alleges that we breached the agreement and seeks compensatory damages in the amount of $195,000 plus interest, attorneys’ fees and costs.  Management denies the allegations of the Statement of Claim and will vigorously defend against these allegations.  An arbitrator has not yet been selected, and a trial date has not yet been scheduled.
 
No provision has been made in the June 30, 2012 financial statements as we feel the litigation has no merit and the likelihood of any liability is extremely low.+ 9 )
 
2. CNC Manufacturing v. All American CNC Sales, Inc., Elite Machine Tool Company/Sales & Services, CNC Repos ,   Superior Court for the State of California, County of Riverside, Case No. RIC 509650.
  
Plaintiff filed this Complaint on October 2, 2008.
 
The Complaint alleges causes of action for breach of contract and rescission and claims All American breached the agreement with CNC Manufacturing by failing to deliver a machine that conforms to the specifications requested by CNC Manufacturing, and requests damages totaling $138,750. Elite Machine filed an Answer timely, on January 15, 2009. This case was settled on September 12, 2011 in an amount of $27,500 and the full provision has been made in the June 30, 2012 financial statements.
 
Abstract of Judgment and Writ were issued August 17, 2012.
 
F- 16
 
 
3. Hwacheon Machinery v. All American CNC Sales , Circuit Court of the 19th Judicial Circuit, Lake County, Illinois, Case No. 09L544. 
 
The Complaint was filed on June 8, 2009.
 
The Complaint alleges causes of action for account stated, and arises from a claim by Hwacheon that All American CNC has not paid it for machines sold to All American CNC.  The Complaint seeks damages of approximately $362,000.  All American filed an answer on or about July 15, 2009. Default has been entered against All American CNC Sales, Inc.
 
In a hearing in the Superior Court of California Hwacheon filed an alter ego case against Eran Engineering, Inc., Elite Machine Too and M Line Holdings, Inc. The judge granted the summary judgment against all three defendants in the amount of $403,860.91 including interest through February 8, 2011. Post judgment proceedings have been initiated by Hwacheon. MLH and Eran Engineering filed an appeal which was dismissed pursuant to settlement.
 
The Company has entered into a revised settlement agreement in the total amount of $105,000 with $70,000 being paid out of proceeds of an anticipated new loan and the balance being paid at the rate of $5,000 per month commencing December 15, 2012 reducing by $10,000 if paid in full by December 15, 2012.
  
4. Fadal Machining v. All American CNC Sales, et al . , Los Angeles Superior Court, Los Angeles, California, Case No. BC415693. 
 
The Complaint was filed on June 12, 2009.
 
The Complaint alleges causes of action for breach of contract and common counts against All American CNC seeking damages in the amount of at least $163,578.88, and arises from a claim by Fadal that All American failed to pay amounts due.  On June 26, 2009, Fadal amended the Complaint to include M Line Holdings, Inc. as a Defendant. 
 
A settlement agreement in the amount of $60,000 was signed on May 31, 2011.
 
The Company has not made payments that are due under the settlement agreement. Judgment was entered on June 16, 2011 and a Writ was issued on February 24, 2012.
 
5. Fox Hills Machining v. CNC Repos , Orange County Superior Court, Orange County, California, Case No. 30-2009-00121514. 
 
The Complaint was filed on April 14, 2009.
 
The Complaint alleges causes of action for Declaratory Relief, Breach of Contract, Fraud, Common Counts, and Negligent Misrepresentation, claiming the Defendant failed to pay Fox Hills Machining for the sale of two machines from Fox Hills to CNC Repos.  The damages sought in the Complaint are estimated to be approximately $30,000.  The Court records show the case was dismissed on July 31, 2012. Further, the records show that a stipulated judgment was entered August 27, 2012; Writ was issued on September 9, 2012.
 
F- 17
 
 
A provision of $10,000 has been made in the June 30, 2012 financial statements.
 
6. C. William Kircher Jr. V M Line Holdings, Inc. Orange County Superior Court Case No. 00397576
 
A former attorney for M Line Holdings, Inc. has sued seeking damages for failure to pay legal fees in the amount of $120,166.30.
 
This case has settled. The terms of the settlement call for 12 payments of $5,000 per month commencing August 25, 2011 and the issuance of 150,000 shares of common stock.
 
The first three payments have been made but we are currently in default of our payments. The Company has recorded $50,000 in the June 30, 2012 financial statements. Currently the plaintiff is in communication with the Company to work out an arrangement. first three payments have been made but MLH is currently in default of its payments.
  
7. M Line Holdings, Inc. V Pacific Western Bank Los Angeles Superior Court Case No BC448012.
 
The case was filed on 10/21/2010.
 
The Complaint alleges causes of action for Declaratory Relief, Breach of Contract, Fraud, Common Counts, and Negligent Misrepresentation, claiming the Defendant failed to fund against the line of credit when funds were available and also failed to remove two of the personal guarantors after agreeing in writing to do so and MLH is seeking unspecified damages.
 
The Complaint in this case was dismissed with prejudice on October 17, 2011.
 
8. Pacific Western Bank v. M Line Holdings, Inc. Los Angeles County Superior Court Case No BC448012. The case was filed as a cross-complaint on 11/12/2010.
 
The Cross-complaint alleges causes of action basically for breach of written agreement and related claims. Defendant failed to repay a credit line when it became due and is also claiming that defendant must repay two equipment loans even though these loans are current due to the terms of the credit line agreement. Cross-complaint is seeking damages of $300,616.
 
On July 12, 2012 a Writ was issued and on September 24, 2012 an Abstract of Judgment was issued. The Company has recorded approximately $253,000 in the June 30, 2012 financials.
 
9. Neal Kohlhaas v. M Line Holdings, INC. Orange County Superior Court Case No. 30-2011- 00442075.
 
Plaintiff has filed suit against M Line alleging a breach of a consulting agreement and seeking damages in the amount of approximately $20,000. Company has decided to defend the action on the basis that services were not provided as agreed or expected. The case is currently in the discovery phase of litigation.
 
F- 18
 
 
10. Timothy D. Consalvi v. M Line Holdings, Inc. et.al. , Orange County Superior Court Case No, 00308489.
 
A former president of All American CNC Sales, Inc. has filed suit against the Company seeking payment on an alleged severance obligation by the Company. The Complaint does not specify the damages sought. The parties then reached a settlement in the principal sum of $40,000 to be documented in due course. Meanwhile a default was entered against MLH, which management believes was in error because a settlement was already reached by the principal parties involved. The default has since been vacated and Company has answered the complaint and has filed a motion for leave to file a cross complaint.
 
Recently a settlement of $50,000 has been reached in this case, requiring payments commencing on March 11, 2011 for ten months. The first two month’s payment have been made however the Company is currently in default of the terms of this settlement agreement. Mr. Consalvi has filed his stipulated judgment on March 5, 2012. Abstract of judgment and Writ were issued on March 13, 2012.
 
11. Joe Gledhill v. M Line Holdings, Inc., et. al.- Orange County Superior Court Case No. 30-2011-00506723
 
Joseph Gledhill, a former officer and director of the company and its subsidiary Eran Engineering has filed suit within the Pacific Western case seeking indemnity of the Pacific Western claim and various other causes of action. Management has decided to vigorously defend these claims and believes Mr. Gledhill’s suit has no merit. Trial has been set for April 8, 2013.
 
No provision has been made in the June 30, 2012 financials as the Company believes that the case has no merit with little likelihood of any liability being incurred by the Company.
 
12. M Line Holdings, Inc., v. Timothy Consalvi, et. al. - Orange County Superior Court Case No. 30-201100493329
 
M Line has recently filed suit against two of its former directors alleging that they breached their fiduciary duty to the company by mismanaging the corporate affairs of the company and its subsidiaries resulting in damages to the company and its subsidiaries. Defendants have not yet been served or have not answered the complaint at this time.
 
This case is expected to be dismissed at the 10/29/2012 Order to Show Cause Hearing.
  
13. All Direct Travel Services, Inc. Vs Jitu Banker, M Line holdings, Inc., Airworks International, Inc., case number 30-2011-00472824-CL-CO-CJC
 
It has been settled as to the Chief Financial Officer and M Line for $2,000 payable on 25 February.
 
Default Judgment entered on January 6, 2012.
 
Litigation is subject to inherent uncertainties, and unfavorable rulings could occur.  If an unfavorable ruling were to occur in any of the above matters, there could be a material adverse effect on our client’s financial condition, results of operations or liquidity.
 
 
F- 19
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
16. Income Taxes
 
The provision (benefit) for income taxes is comprised of the following for the years ended June 30:
 
   
Year ended
June 30,
   
Year ended
June 30,
 
    2012     2011  
                 
Current tax expense   $ -     $ -  
Federal            
State     2,400       2,400  
                 
Deferrred Federal      -       -  
Deferred State     -       -  
                 
    $ 2,400     $ 2,400  
 
The benefit for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The differences between the federal statutory tax rate of 34% and the effective tax rates are primarily due to state income tax provisions, net operating loss (“NOL”) carry forwards, deferred tax valuation allowance and permanent differences as follows for the years ended June 30:
 
   
Year ended
June 30,
   
Year ended
June 30,
 
    2012     2011  
Federal Tax at statury rate     34 %     34 %
Permanent differences:                
State Income Tax, net of federal benefit     11 %     11 %
Change in valuation allowance/Other     -34 %     -34 %
Other     -3 %     -3 %
      8 %     8 %
 
Deferred income taxes reflect the net tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
 
F- 20
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
DEFERRED TAX ASSETS AND LIABILITIES:            
   
Year ended
June 30,
   
Year ended
June 30,
 
  2012     2011  
Deferred tax asset - current            
Allowances for bad debt   $ 14,816     $ 41,864  
Reserve for inventories     23,147       21,901  
Accrued expenses     14,281       13,748  
Other     14,311       14,311  
                 
    $ 66,555     $ 91,82  
 
NON-CURRENT;            
             
Net Operating loss carry forwards   $ 659,149     $ 208,843  
Depreciation     25,767       25,767 )
Amortization of intangibles     2,800       2,800 )
                 
    $ 687,716     $ 237,410  
                 
TOTAL DEFERRED TAX ASSET   $ 754,271     $ 329,234  
VALUATION ALLOWANCE     (754,271 )     (329,234 )
NET DEFERRED TAX ASSET   $ -     $ -  
                 
Miscellaneous Deferred Tax Liability                
    Non-current   $ 16,710     $ 16,710  
 
The Company’s income tax provision was computed based on the federal statutory rate and the average state statutory rates, net of the related federal benefit. As of June 30, 2012 and 2011 the Company had federal and state net operating loss (“NOL”) carry forwards of approximately $660,000 and $550,000, respectively, net of Internal Revenue Code ("IRC") Section 382 limitations. If not used, these carry forwards will begin expiring between 2012 and 2021. These net operating losses are available to offset future regular and alternative minimum taxable income.
 
The Company has recorded as of June 30, 2012 a valuation allowance of $754,271, as it believes that it is more likely than not that the deferred tax assets will not be realizable in future years. Management has based its assessment on available historical and projected operating results.
 
F- 21
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
17. Shareholders’ Equity
 
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. The Company had no shares of preferred stock issued and outstanding at either June 30, 2012 and 2011.
 
During the year ended June 30, 2011. The company issued the following shares of common stock.
 
990,000 shares of common stock to our stock transfer agent and investor relations/financial advisor in payment of services to the company. The company valued the shares at the market price on the issuance date, in the sum of $28,000
 
3,538,889 shares of common stock to various noteholders in part settlement of the outstanding loans due to them. The company valued the shares at the market price on the issuance date, in the sum of $160,056.  Of the 3,000,000 shares issued to one note-holder, Spagus Capital Partners,LLC (“Spagus”) 1,000,000 million shares were transferred to Spagus by another note-holder, Asher Enterprises.  The funds required to repay Asher were provided by Spagus.  This transfer of stock to Spagus was a part of that loan transaction.
 
The Company also issued 2,800,000 shares of the company common stock in lieu of salaries and expenses due on behalf of related parties,. The shares were valued at $94,000 based on the market price, and the balance was recorded as a contra equity account in the Company’s financial statements as of June 30, 2011. (see Note 4)
 
During the year ended June 30, 2012, the company issued the following shares of common stock.
 
3,650,000 shares of common stock was issued to financial advisors and other parties in payment of services to the company. The company valued the shares at the market price on the issuance date in the sum of $129,000.00.
 
The Company also issued 4,387,500 shares of the company common stock in lieu of salaries and expenses due on behalf of related parties. The shares were valued at $239,750 based on the market price.
 
412,800 shares of common stock was issued to employees of the company as a bonus in lieu of cash payments. The company valued these shares at the market price on the issuance date in the sum of $11,000.
 
Non-Qualified Stock Option Plan
 
In November 2006, the Board of Directors approved a Non-Qualified Stock Option Plan for key managers, which, among other provisions, provides for the granting of options by the board at strike prices at or exceeding market value, and expiration periods of up to ten years. No stock options have been granted under this plan.
 
18. Segments and Geographic Information
 
The Company’s segments consist of individual companies managed separately with each manager reporting to the Board. “Other” represents corporate functions. Sales, and operating or segment profit, are reflected net of inter-segment sales and profits. Segment profit is comprised of net sales less operating expenses and interest. Income taxes are not allocated and reported by segment since they are excluded from the measure of segment performance reviewed by management.
 
Segment information is as follows as of and for the year ended June 30, 2012:
 
    Machine Sales     Precision
Manufacturing     Corporate     Total  
Revenue   $ 5,929,967     $ 4,247,482     $ -     $ 10,177,449  
Interest Income     -       -       -       -  
Interest Expense     10,354       150,545       47,246       208,145  
Depreciation and Amortization     3,000       169,703       20,052       192,755  
Income (loss) before taxes     (57,142 )     (670,597 )     (38,103 )     (765,842 )
Total Assets     284,625       2,779,874       1,232,911       4,297,411  
Capital Expenditure   $ -     $ 337,191     $ -     $ 337,191  
 
Segment Information for the year ended June 30, 2011
 
    Machine Sales     Precision
Manufacturing     Corporate     Total  
Revenue   $ 6,179,472     $ 3,721,228     $ 0     $ 9,900,700  
Interest Income     -       -       21,756       21,756  
Interest Expense     2,171       89,917       11,801       103,889  
Depreciation and Amortization     107,458       255,266       23,610       386,334  
Income (loss) before taxes     12,165       306,296       (140,712 )     232,329  
Total Assets     713,773       2,351,738       682,653       3,748,164  
Capital Expenditure   $ -     $ -     $ -     $ -  
 
F- 22
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
Sales are derived principally from customers located within the United States
 
Long-lived assets consist of property, plant and equipment and intangible assets and are located within the United States.
 
F- 23
 
 
 
M-LINE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Going Concern and Management Plans.
 
The Company's consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has an accumulated deficit of $10,051,106 as of June 30, 2012 and a net loss of $768,242 for the year ended June 30, 2012.
 
The Company recognizes that the very weak economy over the past few years and the difficulty in raising new funds has impacted the working capital needs of the Company.
 
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to retain its current short term financing and ultimately to generate sufficient cash flow to meet its obligations on a timely basis in order to attain profitability.
 
To date the Company has funded its operations from both internally generated cash flow and external sources. The Company will pursue additional external capitalization opportunities, as necessary, to fund its long-term goals and objectives.
 
The Company has taken significant steps to resolve these issues.  The Company has pursued various sources of asset based lending in order to relieve it’s cash flow deficiencies and further information regarding new financing is included in subsequent events, (note 20).
 
20. Subsequent Events
 
In October 2012, the Company refinanced Eran Engineering’s equipment with Utica Leaseco, LLC, resulting in the repayment of the company’s debt to Pacific Western Bank, and other obligations. This has resulted in long term debt replacing short term debt. Additional working capital resulted from this agreement.
 
The company is currently in negotiation for further lines of credit with institutional and private investors, details of which will be made available once they have closed.
 
F- 24
 
 
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
There are no items required to be reported under this Item.
 
Item 9A Controls and Procedures
 
(a)              Disclosure Controls and Procedures
 
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of June 30, 2012, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2012, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in Item 9A(b).
 
(b)             Management Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:
 
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and any disposition of our assets;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on this assessment, Management has identified the following two material weaknesses that have caused management to conclude that, as of June 30, 2012, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:
 
37
 
 
1.           We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
 
2.           We have not documented our internal controls.  We have limited policies and procedures that cover the recording and reporting of financial transactions and accounting provisions.  As a result we were delayed in our ability to calculate certain accounting provisions, such as inventory valuation and deferred taxes.  While we believe these provisions are accounted for correctly in the attached audited financial statements our lack of internal controls led to a delay in the filing of this Annual Report.  We were required to provide written documentation of key internal controls over financial reporting beginning with our fiscal year ending June 30, 2009.  Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
 
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.  Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
 
(c)           Remediation of Material Weaknesses
 
To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness.
 
(d)           Changes in Internal Control over Financial Reporting
 
There are no changes to report during our fiscal quarter ended June 30, 2012.
 
ITEM 9B – OTHER INFORMATION
 
There are no events required to be disclosed by the Item.
 
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PART III
 
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Directors and Executive Officers
 
The following table sets forth the names and ages of our current directors and executive officers, the principal offices and positions held by each person, and the date such person became a director or executive officer. Our executive officers are elected annually by the Board of Directors. The directors serve one year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. Unless described below, there are no family relationships among any of the directors and officers.
 
Name   Age   Position(s)  
           
George Colin   80   Director (3/09), Chief Executive Officer (12/08)  
           
Jitu Banker   73   Chief Financial Officer (3/09) and Director (3/09)  
           
Anthony Anish   64   Secretary (6/11) and Director (6/11)  
 
George Colin has served as one of the Company’s directors since January, 2009.  Since 1994 Mr. Colin has been an independent consultant for numerous businesses regarding general business decisions and investment decisions.  From 1976 to 1994, Mr. Colin was the Chief Executive Officer and majority shareholder of Odyssey Systems.  In this role he managed all aspects of the business, which manufactured and supplied swimming pool equipment.  Mr. Colin also served as a lieutenant in the U.S. Navy.  Mr. Colin received NROTC officer training at Villanova University and obtained a BSCE in 1955.
 
Jitu Banker has served as one of the Company’s directors since January, 2009.  Mr. Banker is currently the President and Chief Financial Officer of Money Line Capital, Inc., the Company’s largest shareholder.  Since 1990, Mr. Banker has also been the owner of Banker & Co., a company specializing in tax, accounting, Internal Revenue Service audits, and other related services.  From 2004 to 2006, Mr. Banker was one of the Company’s Directors and the Company’s Chief Financial Officer.  Mr. Banker has a Bachelor of Arts in Accounting with Economics and is a member of the Institute of Chartered Accountants in England and Wales, the Institute of Management Accountants in London, England, and the American Institute of Certified Public Accountants.
 
Anthony Anish is currently the Company Secretary and General Manager of Money Line Capital, Inc., our largest shareholder.  From 2004 until 2006, Mr. Anish was a consultant to our company.  Mr. Anish resigned in 2006, after completing the project requested by the Company, to pursue other activities in the business financing and consulting industry. Mr. Anish has been the General Manager of M Line Holdings, Inc. since March 2009 and has overseen the recovery of the group during the very difficult economic downturn.  Mr. Anish qualified as a member of the Institute of Chartered Accountants in London, England in 1971.
 
Other Directorships
 
None of our officers and directors are directors of any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940.
 
39
 
 
Audit Committee
 
We do not currently have an audit committee.
 
Compliance with Section 16(a) of the Securities Exchange Act of 1934
 
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company.  Officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
 
During the most recent fiscal year, to the Company’s knowledge, the following delinquencies occurred:
 
        No. of   No. of
    No. of Late   Transactions   Failures to
Name   Reports   Reported Late   File
George Colin   0   0   0
Jitu Banker   0   0   0
Anthony Anish   0   0   0
Gary Augusta   0   0   0
Money Line Capital, Inc.   0   0   0
 
Board Meetings and Committees
 
During the fiscal year ended June 30, 2012, the Board of Directors met on a regular basis and took written action on numerous other occasions.  All the members of the Board attended the meetings.  The written actions were by unanimous consent
 
Code of Ethics
 
We have not adopted a written code of ethics, primarily because we believe and understand that our officers and directors adhere to and follow ethical standards without the necessity of a written policy.
 
40
 
 
ITEM 11 - EXECUTIVE COMPENSATION
 
Executive Officers and Director The following tables set forth certain information about compensation paid, earned or accrued for services by (i) our Chief Executive Officer and (ii) all other executive officers who earned in excess of $100,000 in the fiscal year ended June 30, 2012, 2011 and 2010 (“Named Executive Officers”):
 
                                Non-Equity     Nonqualified              
Name and                   Stock     Option     Incentive Plan     Deferred     All Other        
Principal       Salary     Bonus     Awards     Awards     Compensation     Compensation     Compensation     Total  
Position   Year   ($)     ($)     ($) *     ($) *     ($)     ($)     ($)     ($)  
                                                     
George Colin (1)   2012     0       0       0       0       0       0       0       0  
Chief   2011     0       0       0       0       0       0       0       0  
Executive                                                                    
Officer   2010     0       0       0       0       0       0       0       0  
                                                                     
Jitu Banker (2)   2012     180,000       0       0       0       0       0       0       112,000 (2)
Chief Financial   2011     112,000 (2)     0       0       0       0       0       0       180,000  
Officer   2010     180,000       0       0       0       0       0       0       90,000  
                                                                     
Robert   2011     0       0       0       0       0       0       0       0  
Sabahat (3)   2010     0       0       0       0       0       0       0       0  
  2009     0       0       0       0       0       0       0       0  
                                                                     
Anthony Anish   2012     96,912       0       0       0       0       0       0       96,912  
Secretary (11)     2011     0       0       0       0       0       0       0       0  
                                                                     
Gary Augusta   2012     0       0       0       0       0       0       0       0  
                                                                     
Timothy D. Consalvi (4)   2010     20,770       0       0       0       0       0       0       20,770  
Former President and Chief Executive Officer                                                                    
                                                                     
Joseph Gledhill (5)   2010     -       -       -       -       -       -       -       -  
Former Executive Vice President                                                                    
                                                                     
Lawrence A. Consalvi (6)   2010     -       -       -       -       -       -       -       -  
Former Executive Vice President                                                                    
                                                                     
Stephen M. Kasprisin (7)   2010     -       -       -       -       -       -       -       -  
Former Chief Financial Officer                                                                    
 
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  *
Based upon the aggregate grant date fair value calculated in accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“FAS”) No. 123R, Share Based Payment.  Our policy and assumptions made in valuation of share based payments are contained in the Notes to our June 30, 2012 financial statements.
 
  (1) George M. Colin was hired as our Chief Executive Officer on December 9, 2008.
  (2) Jitu Banker was hired as our Chief Financial Officer on March 31, 2009.  Of the $112,000 of compensation for Mr. Banker in 2011, $98,000 is accrued compensation.
  (3) Robert Sabahat was hired our Secretary effective March 31, 2009 and resigned from his position on June 7, 2011.
  (4) Timothy D. Consalvi resigned from his position as our Chief Financial Officer on December 9, 2009.
  (5) Joseph Gledhill resigned from his position as our Executive Vice President on March 25, 2009.
  (6) Lawrence Consalvi resigned all positions with us and our subsidiaries, effective September 24, 2008.
  (7) Stephen M. Kasprisin was hired on November 13, 2006 as Chief Financial Officer, and resigned on October 17, 2007. In April 2008, Mr. Kasprisin agreed to serve as our interim Chief Financial Officer.  Mr. Kasprisin resigned as our Chief Financial Officer and Secretary on March 31, 2009.
     
  (8) Mr. Anish was hired as our Secretary on June 7, 2011.
  (9) Gary Augusta was appointed as a Director on November 8, 2011 and resigned his position on April 30, 2012. ô
 
Employment Contracts
 
We currently do not have written employment agreements with our executive officers.  We had employment agreements with each of our former principal executives, which provided for participation of the employee in any tax-qualified and nonqualified deferred compensation and retirement plans, group term life insurance plans, short-term and long-term disability plans, employee benefit plans, practices, and programs maintained or to be established.
 
Agreement with Timothy D. Consalvi. In connection with our acquisition of All American from its sole shareholders in September, 2004, Timothy and Kathy Consalvi, All American entered into an employment agreement with Mr. 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 was for one year commencing on October 1, 2004, and with automatic renewals for successive one year terms unless earlier terminated by either party. On February 1, 2007, we entered into a new employment agreement with Mr. Consalvi to serve as our President and Chief Executive Officer at an annual compensation rate of $260,000. The initial term of this employment agreement was for two years commencing February 1, 2007, with automatic renewals for successive two year terms unless terminated by either party. On December 8, 2008, in conjunction with the sale of a portion of his stock to Money Line Capital, Inc., we entered into a new employment agreement with Mr. Consalvi to serve as the President of All American at a compensation rate of $200,000 per annum.  The employment agreement provided that Mr. Consalvi may be terminated for cause with no further compensation. If Mr. Consalvi was terminated without cause, he was entitled to a lump sum severance payment equal to 75% of his annual salary at the date of termination, and medical benefits for a period of nine months after termination. The agreement also provides that for a period of 12 months following termination of the employment agreement, Mr. Consalvi shall not (i) compete with respect to any services or products of the Company which are either offered or are being developed by the Company, (ii) attempt to influence any employee of ours to leave the employ of the Company or to aid any competitor, customer or supplier to hire any employee of ours, (iii) disclose any information about our affairs including trade secrets, know-how, customer lists, business plans, operational methods, policies, suppliers, customers or other such Company information, nor (iv) use or employ any of our information for his own benefit or in any way adverse to our interests. We terminated this agreement effective June 30, 2010, in conjunction with closing down the operations of All American.  At termination we paid Mr. Consalvi $20,769 in cash constituting his final paycheck, and inventory and equipment totaling approximately $155,000, constituting a severance payment.
 
42
 
 
Agreement with Joseph T.W. Gledhill. On February 1, 2007, we entered into an employment agreement with Joseph T. W. Gledhill to serve as our Executive Vice President, and President of our wholly-owned subsidiary, Eran Engineering, Inc., at a compensation rate of $260,000 per annum. The initial term of this employment agreement is for two years commencing February 1, 2007, with automatic renewals for successive two year terms unless terminated by either party. The employment agreement provides that Mr. Gledhill may be terminated for cause. If Mr. Gledhill is terminated without cause, he is entitled to a lump sum severance payment equal to twice his annual salary at the date of termination, and medical benefits for a period of 24 months after termination. The agreement also provides that for a period of 12 months following termination of the employment agreement, Mr. Gledhill shall not (i) compete with respect to any services or products of the Company which are either offered or are being developed by the Company, (ii) attempt to influence any employee of ours to leave the employ of the Company or to aid any competitor, customer or supplier to hire any employee of ours, (iii) disclose any information about our affairs including trade secrets, know-how, customer lists, business plans, operational methods, policies, suppliers, customers or other such Company information, nor (iv) use or employ any of our information for his own benefit or in any way adverse to our interests. The agreement provides that the parties will arbitrate any disputes arising under the agreement.
 
However there is no current employment agreement with Mr. Joseph Gledhill at this time. All prior agreements were terminated effective December 2008. Mr Gledhill is no longer employed with the Company.
 
Agreement with Lawrence A. Consalvi. On February 1, 2007, we entered into an employment agreement with Lawrence A. Consalvi to serve as our Executive Vice President, and President of our wholly-owned subsidiary, E.M. Tool Company, Inc. (doing business as Elite Machine), at a compensation rate of $260,000 per annum. The initial term of this employment agreement is for two years commencing February 1, 2007, with automatic renewals for successive two year terms unless terminated by either party. The employment agreement provides that Mr. Consalvi may be terminated for cause. If Mr. Consalvi is terminated without cause, he is entitled to a lump sum severance payment equal to twice his annual salary at the date of termination, and medical benefits for a period of 24 months after termination. The agreement also provides that for a period of 12 months following termination of the employment agreement, Mr. Consalvi shall not (i) compete with respect to any services or products of the Company which are either offered or are being developed by the Company, (ii) attempt to influence any employee of ours to leave the employ of the Company or to aid any competitor, customer or supplier to hire any employee of ours, (iii) disclose any information about our affairs including trade secrets, know-how, customer lists, business plans, operational methods, policies, suppliers, customers or other such Company information, nor (iv) use or employ any of our information for his own benefit or in any way adverse to our interests. The agreement provides that the parties will arbitrate any disputes arising under the agreement.  Mr. Consalvi resigned, effective September 24, 2008.  We entered into a Separation Agreement with Mr. Consalvi on September 26, 2008.  Under the terms of the agreement, Mr. Consalvi returned 400,000 shares of our common stock to us for cancellation in order to repay certain obligations he owed us.  The shares were cancelled, effective October 6, 2008.  Mr. Consalvi continues to work with us selling CNC machines as President of Elite Machine Tools, Inc.
 
43
 
 
Director Compensation
 
The following table sets forth director compensation as of June 30, 2012:
 
                            Nonqualified              
    Fees Earned                 Non-Equity     Deferred              
    or Paid in                 Incentive Plan     Compensation     All Other        
    Cash     Stock Awards     Option Awards     Compensation     Earnings     Compensation     Total  
Name   ($)     ($) *     ($) *     ($)     ($)     ($)     ($)  
                                           
George Colin (1)     -0-       -0-       -0-       -0-       -0-       -0-       -0-  
                                                         
Jitu Banker (2)     -0-       -0-       -0-       -0-       -0-       -0-       -0-  
                                                         
Anthony Anish     -0-       -0-       -0-       -0-       -0-       -0-       -0-  
 
  * Based upon the aggregate grant date fair value calculated in accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“FAS”) No. 123R, Share Based Payment. Our policy and assumptions made in valuation of share based payments are contained in the notes to our financial statements. The monies shown in the “option awards” column is the total calculated value for each individual.
 
  (1) George M. Colin was appointed to our Board of Directors on January 28, 2009.
  (2) Jitu Banker was appointed to our Board of Directors on January 28, 2009.
  (3) Anthony Anish was appointed to our Board of Directors on June 7, 2011.
 
We do not provide any compensation to our directors for serving as directors.
 
44
 
 
Outstanding Equity Awards at Fiscal Year-End
 
The following table sets forth certain information concerning outstanding stock awards held by the Named Executive Officers as of June 30, 2012:
 
    Option Awards     Stock Awards  
Name  
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
   
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
   
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
   
Option
Exercise
Price
($)
   
Option
Expiration
Date
   
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
   
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
   
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
 Not Vested
(#)
   
Equity
Incentive
Plan
Awards:
 Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
 Not Vested
($)
 
                                                       
George Colin     -       -       -       -       -       -       -       -       -  
                                                                         
Jitu Banker     -       -       -       -       -       -       -       -       -  
                                                                         
Anthony Anish     -       -       -       -       -       -       -       -       -  
 
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
The following table sets forth, as of September 30, 2012, certain information with respect to the Company’s equity securities owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than 10% of each class of the Company’s outstanding equity securities; and (iii) all Directors and Executive Officers as a group.
 
Common Stock  
Title of Class  
Name and Address
of Beneficial Owner (3)
 
Amount and Nature of
Beneficial Ownership
   
Percent
of Class (1)
 
Common Stock   George Colin (2)     2,277,577       4.9 %
Common Stock   Jitu Banker (2)     2,225,000 (4)     4.7 %
Common Stock   Anthony Anish (2)     2,620,000       5.6 %
Common Stock  
Money Line Capital, Inc.
17702 Mitchell North, Suite 201
Irvine, CA  92614
    15,818,476 (6)     33.7 %
Common Stock  
All Directors and Officers
As a Group (3 persons)
    7,122,577 (4)     15.2 %
 
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  (1) Unless otherwise indicated, based on 41,470,845 shares of common stock issued and outstanding.  Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for the purposes of computing the percentage of any other person.
  (2) Indicates one of our officers or directors.
  (3) Unless indicated otherwise, the address of the shareholder is M Line Holdings, Inc.
  (4) Includes 25,000 shares held by Mr. Banker’s son.
  (5) All three of our officers and directors own stock in Money Line Capital, Inc., but none individually or as a group control Money Line’s investment or control decisions, and, therefore, disclaim ownership of Money Line Capital’s stockholdings, including our common stock.
  (6) Includes 1,130,000 shares not owned by Money Line Capital, but controlled by irrevocable proxy.
 
The issuer is not aware of any person who owns of record, or is known to own beneficially, ten percent or more of the outstanding securities of any class of the issuer, other than as set forth above.  There are no classes of stock other than common stock issued or outstanding.
 
Change of Control Transaction
 
On June 30, 2010, we entered into a binding letter of intent (“LOI”) with Money Line Capital, Inc. (“MLCI”), our largest shareholder.  Under the LOI the parties agree to complete a transaction whereby all the MLCI shareholders will exchange their shares of MLCI stock for shares of our stock.  No cash will be exchanged in this transaction.  The parties had agreed to negotiate in good faith to close the transaction on or before January 29, 2010, however due to the downturn in the economy, MLCI’s inability to complete the required audits, and the desire of our Board of Directors to get as favorable a valuation for our common stock as possible, the parties have put the merger transaction on hold indefinitely.  In order for us to finalize the transaction we must be current in our reporting obligations under the Securities and Exchange Act of 1934, as amended, and be publicly-traded at the time of the closing; and MLCI must have its financial statements (and its subsidiaries, as applicable) audited for the period ended June 30, 2012, as well as completing a valuation by a qualified third-party company.  We have re-evaluated the acquisition of MLCI as a whole and now plan to acquire certain subsidiaries of MLCI one at a time in order to reduce the costs associated with this transaction.
 
Technically the transaction will not result in a change of control since the shares currently held by Money Line Capital, Inc., the owner of 38% of our common stock, will be retired and become treasury shares, and the new owners of a majority of our common stock will be the shareholders of Money Line Capital at the time of the closing of the transaction.
 
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Letter of Intent with Money Line Capital, Inc.   On June 30, 2010, we entered into a binding Letter of Intent (the “LOI”) with Money Line Capital, Inc., a California corporation (“MLCI”).  MLCI is our largest shareholder and specializes in business financing transactions and holds equity in a number of operating subsidiaries in various fields, including financing, aerospace, real estate, media, beverage, and technology.  Under the LOI the parties agree to complete a transaction whereby all the MLCI shareholders will exchange their shares of MLCI stock for shares of our stock.  No cash will be exchanged in this transaction.  The parties had agreed to negotiate in good faith to close the transaction on or before January 29, 2010, however due to the downturn in the economy, MLCI’s inability to complete the required audits, and the desire of our Board of Directors to get as favorable a valuation for our common stock as possible, the parties have put the merger transaction on hold indefinitely.  In order for us to finalize the transaction we must be current in our reporting obligations under the Securities and Exchange Act of 1934, as amended, and be publicly-traded at the time of the closing; and MLCI must have its financial statements (and its subsidiaries, as applicable) audited for the period ended June 30, 2011, as well as completing a valuation by a qualified third-party company.
 
We have re-evaluated the acquisition of MLCI as a whole and now plan to acquire certain subsidiaries of MLCI one at a time in order to reduce the costs associated with this transaction.
 
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Assignment of Gledhill Note.   On March 25, 2009, we entered into an Assignment of Promissory Note and Consent Thereto (the “Assignment”) with MLCI, under which MLCI agreed to assume our repayment obligations to Joseph Gledhill and Joyce Gledhill under that certain $650,000 principal amount Promissory Note dated December 8, 2008 (the “Gateway Note”) in exchange for the issuance of 3,250,000 shares of our common stock (the “Shares”).  Mr. Gledhill, one of our former directors, and Joyce Gledhill consented to the Assignment.  Pursuant to the Assignment, MLCI and the Gledhill’s entered into a new $650,000 principal amount secured promissory note, a security agreement and a pledge agreement.  We issued the 3,250,000 shares of our common stock to MLCI on June 30, 2009.
 
MLCI Demand Note.   we entered into a Demand Promissory Note dated March 25, 2009 (the “Note”), evidencing the terms under which MLCI will loan us up to $500,000 on an “as needed” basis for working capital purposes.  The Note accrues interest at a of 10% per annum.  Under the terms of the Note, MLCI is not obligated to loan us any money, but the Note sets forth the terms in the event MLCI elects to loan us money for working capital purposes.  Through June 30, 2011, MLCI loaned us $0 under this Note.  As of June 30, 2012 we had repaid all loan amounts in full and there was $0 outstanding.
 
Leavitt Family Trust Note. We currently have an unsecured note payable to a stockholder payable in monthly installments of $4,505 per month, non-interest bearing, including interest imputed at 12% per annum for financial statement purposes, in the aggregate amount of $139,641. As of June 30, 2011, $31,764 remains outstanding.
 
Joseph Gledhill Note. We had a second unsecured note payable outstanding to Joseph T.W. Gledhill, a former officer and director, and a current stockholder, which was due January, 2009, with interest of 6% per annum, in the aggregate amount of $706,200. This note consolidated earlier promissory notes issued by us in favor of Mr. Gledhill. This loan from Mr. Gledhill was used for working capital requirements. This note was assigned to Money Line Capital, Inc. on March 25, 2009 in exchange for the issuance of 3,250,000 shares of our common stock to Money Line Capital, Inc., which were issued on June 30, 2009.  As a result of the assignment this note is no longer an obligation of the company.
 
We do not have an audit, compensation, or nominating committee, and none of our Directors are considered independent.
 
We have not had a promoter during the last five fiscal years.
 
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
 
Audit and Restated Fees
 
During the year ended June 30, 2012, Kabani & Company charged $120,000, in fees for professional services for the audit of our financial statements in our Form 10-K and review of financial statements included in our Form 10-Q’s, as applicable.  During the year ended June 30, 2011, Kabani & Company charged us $120,000 in fees for professional services for the audit and review of our financial statements.
 
Tax Fees
 
During the year ended June 30, 2012, Kabani & Company billed us $0 for professional services for tax preparation.   During the year ended June 30, 2011, Kabani & Company billed us $0 for professional services for tax preparation.
 
All Other Fees
 
During the year ended June 30, 2012, Kabani & Company did not bill us any amounts for any other fees.  During the year ended June 30, 2011, Kabani & Company did not bill us any amounts for any other fees.
 
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Of the fees described above for the year ended June 30, 2012, 100% were approved by the entire Board of Directors.
 
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PART IV
 
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
(a)(1)           Financial Statements
 
The following financial statements are filed as part of this report:
 
Report of Registered Public Accounting Firm F-1
   
Consolidated Balance Sheet as of June 30, 2012 and 2011 F-2
   
Consolidated Statements of Operations for the years ended June 30, 2012 and 2011 F-3
   
Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2012 and 2011 F-4
   
Consolidated Statements of Cash Flows for the years ended June 30, 2012 and 2011 F-5
   
Notes to Consolidated Financial Statements F-6
 
(a)(2)      Financial Statement Schedules
 
We do not have any financial statement schedules required to be supplied under this Item.
 
(a)(3)      Exhibits
 
Refer to (b) below.
 
(b)           Exhibits
 
Item No.   Description
     
3.1 (1)   Articles of Incorporation of M Line Holdings, Inc., a Nevada corporation, as amended
     
3.2 (5)   Certificate of Amendment of Articles of Incorporation
     
3.3 (1)   Bylaws of M Line Holdings, Inc., a Nevada corporation
     
10.1 (1)   Asset Purchase Agreement with CNC Repos, Inc. and certain of its shareholders dated October 1, 2007
     
10.2 (1)   Commercial Real Estate Lease dated February 15, 2007 for the office space located in Tustin, CA
     
10.3 (1)   Commercial Real Estate Lease dated November 15, 2007 for the office space located in Anaheim, CA
     
10.4 (1)   Employment Agreement with Timothy D. Consalvi dated February 1, 2007
 
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10.5 (1)   Employment Agreement with Joseph T.W. Gledhill dated February 5, 2007
     
10.6 (2)   Employment Agreement with Lawrence A. Consalvi dated February 5, 2007
     
10.7 (1)   Share Exchange Agreement with Gledhill/Lyons, Inc. dated March 26, 2007
     
10.8 (1)   Share Exchange Agreement with Nu-Tech Industrial Sales, Inc. dated March 19, 2007
     
10.9 (1)   Fee Agreement with Steve Kasprisin dated April 30, 2008
     
10.10 (3)   Separation Agreement by and between Gateway International Holdings, Inc., and Mr. Lawrence A. Consalvi dated September 26, 2008
     
10.11 (4)   Sales Agent Agreement by and between Gateway International Holdings, Inc., and Mr. Lawrence A. Consalvi dated September 30, 2008
     
10.12 (4)   Loan Agreements with Pacific Western Bank dated September 20, 2008
     
10.13 (5)   Assignment of Promissory Note and Consent Thereto by and between M Line Holdings, Inc. and Money Line Capital, Inc. dated March 24, 2009
     
10.14 (5)   M Line Holdings, Inc. Demand Note for up to $500,000 dated March 25, 2009
     
10.15 (6)   Letter of Intent by and between M Line Holdings, Inc. and Money Line Capital, Inc. dated June 30, 2010
     
10.16 (8)   Securities Purchase Agreement and Convertible Promissory Note with Asher Enterprises, Inc. dated April 26, 2010 (filed herewith)
     
10.17 (8)   Convertible Promissory Note with Asher Enterprises, Inc. dated May 25, 2010
     
10.18 (8)   Commercial Real Estate Lease with SG&H Partners, L.P. for Anaheim Property dated August 13, 2010
     
10.19 (8)   Business Loan Agreement with Pacific Western Bank dated June 7, 2010
     
10.20 (8)   Loan and Security Agreement and Note with Utica Leaseco, LLC (filed herewith)
     
10.21 (8)   Note and Stock Purchase Agreements with Spagus Capital Partners, LLC (filed herewith)
     
10.22   Addendum No. 2 dated September 30, 2011 to Commercial Real Estate Lease dated February 15, 2007 for the office space located in Tustin, CA
     
10.23   Executive Employee Agreement with Barton Webb dated July 25, 2011
     
21 (7)   List of Subsidiaries
     
31.1   Rule 13a-14(a)/15d-14(a) Certification of George Colin (filed herewith).
     
31.2   Rule 13a-14(a)/15d-14(a) Certification of Jitu Banker (filed herewith).
     
32.1   Section 1350 Certification of George Colin (filed herewith).
     
32.2   Section 1350 Certification of Jitu Banker (filed herewith).
 
(1) Incorporated by reference from our Registration Statement on Form 10-12G filed with the Commission on May 16, 2008.
 
(2) Incorporated by reference from our Registration Statement on First Amended Form 10-12G/A filed with the Commission on July 16, 2008.
 
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(3) Incorporated by reference from our First Amended Current Report on Form 8-K/A filed with the Commission on October 10, 2008.
 
(4)  Incorporated by reference from our Quarterly Report on Form 10-Q for the period ended September 30, 2008, as filed with the Commission on November 13, 2008.
 
(5)  Incorporated by reference from our Current Report on Form 8-K filed with the Commission on April 24, 2009.
 
(6)  Incorporated by reference from our Current Report on Form 8-K filed with the Commission on July 6, 2009.
 
(7)  Incorporated by reference from our Annual Report on Form 10-K for the period ended June 30, 2009, as filed with the Commission on October 13, 2009.
 
(8)  Incorporated by reference from our Annual Report on Form 10-K for the period ended June 30, 2010, as filed with the Commission on November 12, 2010.
 
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SIGNATURES
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  M Line Holdings, Inc.
     
Dated:  October 15, 2012          /s/ George Colin
  By: George Colin
    Chief Executive Officer
    and a Director
     
Dated:  October 15, 2012           /s/ Jitu Banker
  By: Jitu Banker
    Chief Financial Officer
    and a Director
     
Dated:  October 15, 2012           /s/ Anthony Anish
  By: Anthony Anish
    Secretary and a Director
 
In accordance with the 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.
 
Dated:  October 15, 2012           /s/ George Colin
  By: George Colin
    Chief Executive Officer
    and a Director
     
Dated:  October 15, 2012           /s/ Jitu Banker
  By: Jitu Banker
    Chief Financial Officer
    and a Director
     
Dated:  October 15, 2012           /s/ Anthony Anish
  By: Anthony Anish
    Secretary and a Director
 
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