UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from _______________ to _______________.
Commission file number 0-32341
M Line Holdings, Inc.
(Exact Name of Company as Specified in its Charter)
Nevada | 88-0375818 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
2672 Dow Avenue Tustin, CA (Address of principal executive offices) | 92780 (Zip Code) |
(714) 630-6253 |
(Registrant’s telephone number, including area code) |
Gateway International Holdings, Inc. |
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer ¨ | Smaller reporting company x |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ¨ No x.
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.
Yes ¨ No ¨.
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 21, 2010, there were 30,861,956 shares of common stock, par value $0.001, issued and outstanding.
M LINE HOLDINGS, INC.
TABLE OF CONTENTS
3 | |||||
14 | |||||
19 | |||||
19 | |||||
21 | |||||
24 | |||||
24 | |||||
24 | |||||
24 | |||||
24 | |||||
25 |
2
(Formerly Gateway International Holdings, Inc.)
CONSOLIDATED CONDENSED BALANCE SHEETs
(UNAUDITED)
March 31, 2010 | June 30, 2009 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 194,075 | $ | 438,030 | ||||
Accounts receivable, net | 593,395 | 892,718 | ||||||
Inventories | 993,518 | 1,301,421 | ||||||
Due from related party | 170,898 | - | ||||||
Prepaid and other current assets | 9,021 | 80,250 | ||||||
Deferred Income Taxes | 95,617 | 95,617 | ||||||
Current Assets - Discontinued Operations | 12,524 | 116,869 | ||||||
Total current assets | 2,069,050 | 2,924,905 | ||||||
Property and equipment, net | 892,658 | 1,160,318 | ||||||
Intangible Assets,net | 316,855 | 348,192 | ||||||
Deposits and other | 61,145 | 66,146 | ||||||
Deferred Income Taxes | 182,505 | 182,505 | ||||||
Non Current Assets - Discontinued Operations | 23,377 | 63,704 | ||||||
Total Assets | $ | 3,545,589 | $ | 4,745,770 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current Liabilities: | ||||||||
Line of Credit | $ | 440,000 | $ | 440,000 | ||||
Accounts Payable | 801,487 | 502,745 | ||||||
Accrued Expenses and other | 440,555 | 486,951 | ||||||
Notes payable | 243,012 | 265,969 | ||||||
Capital Leases - current | 59,680 | 70,747 | ||||||
Current Liabilities - Discontinued Operations | 704,406 | 717,899 | ||||||
Total Current Liabilities | 2,689,140 | 2,484,311 | ||||||
Notes Payable | 56,250 | 167,165 | ||||||
Capital Leases - long term | 89,970 | 97,351 | ||||||
Deferred Income Taxes | 168,373 | 168,373 | ||||||
Deferred Rent | 47,243 | 65,849 | ||||||
Long Term Liabilities - discontinued operations | - | 29,751 | ||||||
TOTAL LIABILITIES | 3,050,976 | 3,012,800 | ||||||
Shareholders' Equity | ||||||||
Common Stock, $0.001: 100,000,000 shares | ||||||||
Authorized; 30,861,956 shares issued and outstanding | ||||||||
at March 31, 2010 and June 30, 2009, respectively | 30,862 | 30,862 | ||||||
Additional paid in capital | 9,505,812 | 9,505,812 | ||||||
Accumulated deficit | (9,042,060 | ) | (7,803,704 | ) | ||||
Total stockholders' equity | 494,613 | 1,732,970 | ||||||
Total Liabilities and Shareholders' Equity | 3,545,589 | $ | 4,745,770 | |||||
See accompanying Notes to unaudited Consolidated Financial Statements.
3
M LINE HOLDINGS, INC. AND SUBSIDIARIES | ||||||||||||||||
(Formerly Gateway International Holdings, Inc.) | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
FOR THE THREE AND NINE MONTH PERIODS ENDED ENDED MARCH 31, 2010 AND 2009 | ||||||||||||||||
(UNAUDITED) | ||||||||||||||||
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales | $ | 1,166,970 | $ | 1,419,303 | $ | 4,134,052 | $ | 7,459,767 | ||||||||
Cost of sales | 594,868 | 1,143,706 | 2,921,925 | 5,344,304 | ||||||||||||
Gross Profit | 572,101 | 275,597 | 1,212,126 | 2,115,463 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 706,188 | 688,883 | 2,317,142 | 2,565,339 | ||||||||||||
Amortization of intangible assets | 10,447 | 10,447 | 31,337 | 31,337 | ||||||||||||
Total operating expense | 716,634 | 699,330 | 2,348,478 | 2,596,676 | ||||||||||||
Operating loss | (144,533 | ) | (423,733 | ) | (1,136,352 | ) | (481,213 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest Expense | (18,241 | ) | (19,641 | ) | (46,356 | ) | (93,135 | ) | ||||||||
Interest Income | - | (2,923 | ) | - | 1,827 | |||||||||||
Gain on sale of assets | (0 | ) | - | 2,497 | 16,125 | |||||||||||
Total other expense | (18,242 | ) | (22,564 | ) | (43,860 | ) | (75,183 | ) | ||||||||
Loss from continuing operations before income tax | (162,774 | ) | (446,297 | ) | (1,180,212 | ) | (556,396 | ) | ||||||||
Income tax benefit | - | - | - | (800 | ) | |||||||||||
Loss from continuing operations, net of income taxes | (162,774 | ) | (446,297 | ) | $ | (1,180,212 | ) | $ | (557,196 | ) | ||||||
Loss from discontinued operations, net of income taxes | (1,922 | ) | (160,958 | ) | (58,145 | ) | (900,938 | ) | ||||||||
NET LOSS | (164,696 | ) | (607,255 | ) | (1,238,357 | ) | (1,458,134 | ) | ||||||||
NET LOSS PER SHARE: | ||||||||||||||||
Basic and dilutive loss per share: | ||||||||||||||||
Continuing operations | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.02 | ) | ||||
Discontinued Operations | (0.00 | ) | - | (0.00 | ) | (0.03 | ) | |||||||||
Total net loss per share | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.05 | ) | ||||
Weighted average number of common shares under in per share calculations (basic and diluted) | ||||||||||||||||
Basic | 30,861,956 | 27,874,721 | 30,861,956 | 27,874,721 | ||||||||||||
Diluted | 30,861,956 | 27,874,721 | 30,861,956 | 27,874,721 | ||||||||||||
The accompanying notes form an integral part of these unaudited consolidated financial statements |
4
M LINE HOLDINGS, INC. AND SUBSIDIARIES
(Formerly Gateway International Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED MARCH 31, 2010 AND 2009
(UNAUDITED)
March 31, 2010 | March 31, 2009 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (1,238,357 | ) | $ | (1,458,134 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Gain on disposition of assets | (2,497 | ) | (16,125 | ) | ||||
Depreciation | 301,157 | 275,341 | ||||||
Amortization of intangilbe assets | 31,337 | 31,337 | ||||||
Stock-based compensation | - | 13,743 | ||||||
Imputed interest on related party notes | - | 2,458 | ||||||
Impairment of goodwill | - | 198,169 | ||||||
Changes in operating assetsa and liabilities: | ||||||||
Account receivable | 128,425 | 463,886 | ||||||
Inventory | 307,903 | (330,310 | ) | |||||
Prepaid expenses and other assets | 220,902 | 1,529,402 | ||||||
Account payable and accrued expenses | 208,719 | (376,678 | ) | |||||
Customer deposit | - | - | ||||||
Income taxes payable | - | (187,154 | ) | |||||
Deferred rent | (18,606 | ) | (9,959 | ) | ||||
Deferred income taxes | - | - | ||||||
Net cash provided by/(used in) operating activities | (61,018 | ) | 135,975 | |||||
Cash flows from investing activties: | ||||||||
Capital expenditures | (54,551 | ) | (57,022 | ) | ||||
Proceeds from sale of assets | 23,934 | 73,148 | ||||||
Net cash used in investing activities: | (30,617 | ) | 16,126 | |||||
Cash flows from financing activities: | ||||||||
Net borrowings (repayments) on line of credit | - | 190,000 | ||||||
Proceeds from/(payment to) notes payable | (81,044 | ) | 531,007 | |||||
Payments on related party notes payable | - | (848,579 | ) | |||||
Payments on capital leases | (71,276 | ) | (41,839 | ) | ||||
Net cash provided by/(used in) financing activities | (152,320 | ) | (169,411 | ) | ||||
Net increase (decrease) in cash and cash equivalent | (243,955 | ) | (17,311 | ) | ||||
Cash and cash equivalents at beginning of period | 438,030 | 901,707 | ||||||
Cash and cash equivalents at end of period | $ | 194,075 | $ | 884,396 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 46,356 | $ | 93,935 | ||||
Cash paid for income taxes | $ | - | $ | 280,000 | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Stock cancelled for repayment of note receivable | $ | - | $ | 81,000 | ||||
Conversion of accrued interest into related party notes payable | $ | - | $ | 97,817 | ||||
Capital expenditures accquired under capital leases and notes payable | $ | - | $ | 46,531 | ||||
Stock retired upon cancellation of note payable | $ | - | $ | 417 | ||||
Return of capital lease | $ | 21,054 | $ | - | ||||
See accompanying Notes to unaudited Consolidated Financial Statements.
5
M LINE HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY GATEWAY INTERNATIONAL HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(UNAUDITED)
1. | Business |
M. Line Holdings, Inc. (the “Company”) was incorporated in Nevada on September 24, 1997, under the name Gourmet Gifts, Inc. (“Gourmet Gifts”). On December 11, 2001, Gourmet Gifts acquired 100% of the issued and outstanding capital stock of Elite Machine Tool Company (“Elite”).
Due to the change in voting control and change in senior management in Gourmet Gift as a result of the merger, the transaction was recorded as a “reverse-merger” whereby Elite was considered to be the acquirer for accounting purposes. At the closing of the reverse merger, Elite became a wholly-owned subsidiary and the company changed its corporate name to Gateway International Holdings, Inc., effective January 28, 2002. After the merger, through Elite, the Company became engaged in the acquisition, refurbishment, distribution and sales of pre-owned Computer Numerically Controlled (“CNC”) machine tools to manufacturing customers across the United States of America. This was the Company’s sole business until the acquisition of the additional businesses described below.
Gateway International Holdings, Inc. changed its corporate name to M Line Holdings, Inc. effective March 25, 2009.
The Company and its subsidiaries are engaged in the following businesses which represent is business segments:
· | Acquiring, refurbishing and selling used CNC machine-tool equipment (Machine Sales segment). |
· | Manufacturing precision metal component parts for the defense, automotive, aerospace and medical industries through its Eran Engineering, Inc. (“Eran”) subsidiary (Precision Manufacturing segment). |
2. | Basis of Presentation and Significant Accounting Policies |
Basis of Presentation
The consolidated financial statements of M Line Holdings, Inc. are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations for the three and nine month periods ended March 31, 2010 and 2009 are not necessarily indicative of the results to be expected for the full year. All accounts and intercompany transactions have been eliminated in consolidation. In the opinion of management, the consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary to present fairly the Company's financial position, results of operations and cash flows. These statements should be read in conjun ction with the financial statements and related notes which are part of the Company's Annual Report on Form 10-K for the year ended June 30, 2009.
Net Income (Loss) per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average common shares outstanding during the period. Diluted net income (loss) per share reflects the potential dilution to basic EPS that could occur upon conversion or exercise of securities, options or other such items to common shares using the treasury stock method, based upon the weighted average fair value of our common shares during the period. There were no potentially dilutive securities as of March 31, 2010 and June 30, 2009, respectively.
6
Recent Accounting Pronouncements
In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements”, now codified under FASB ASC Topic 605, “Revenue Recognition”, (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. Management is currently evaluating the potential impact of ASU2009-13 on our financial statements.
In October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”, now codified under FASB ASC Topic 470 “Debt”, (“ASU 2009-15”), and provides guidance for accounting and reporting for own-share lending arrangements issued in contemplation of a convertible debt issuance. At the date of issuance, a share-lending arrangement entered into on an entity’s own shares should be measured at fair value in accordance with Topic 820 and recognized as an issuance cost, with an offset to additional paid-in capital. Loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs. The amendments also require several disclosures including a description and the t erms of the arrangement and the reason for entering into the arrangement. The effective dates of the amendments are dependent upon the date the share-lending arrangement was entered into and include retrospective application for arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. Management is currently evaluating the potential impact of ASU 2009-15 on our financial statements.
In December, 2009, under FASB ASC Topic 860, “Transfers and Servicing.” New authoritative accounting guidance under ASC Topic 860, “Transfers and Servicing,” amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC Topic 860 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s financial statements.
3. | Inventories |
Inventories consist of the following at:
March 31, 2010 | June 30, 2009 | |||||||
Finished Goods and components | $ | 714,317 | $ | 843,305 | ||||
CNC Machines held for sale | 112,500 | 183,500 | ||||||
Work in progress | 133,832 | 233,773 | ||||||
Raw Materials and Parts | 32,870 | 40,843 | ||||||
$ | 993,518 | $ | 1,301,421 |
7
4. | Accrued Expenses |
Accrued expenses consist of the following at:
March 31, 2010 | June 30, 2009 | |||||||
Compensation and related benefits | $ | 326,638 | $ | 170,518 | ||||
Other | 113,916 | 316,433 | ||||||
$ | 440,555 | $ | 486,951 |
5. | Capital Leases |
The Company leases certain equipment under capital leases with terms ranging from four to five years. Future annual minimum lease payments are as follows as of March 31, 2010 and June 30, 2009.
March 31, 2010 | June 30, 2009 | |||||||
2010 | $ | 71,880 | $ | 82,519 | ||||
2011 | 65,988 | 53,830 | ||||||
2012 | 35,953 | 50,329 | ||||||
2013 | — | 3,038 | ||||||
Total minimum lease payments | 173,821 | 189,716 | ||||||
Less amount representing interest | 24,171 | 21,618 | ||||||
Present value of future minimum lease payments | 149,650 | 168,098 | ||||||
Less current portion of capital lease obligations | 59,680 | 70,747 | ||||||
Capital Lease obligations, net of current portion | 89,970 | 97,351 |
6. | Line of Credit and Notes Payable |
Pacific Western Bank Credit Agreement
On August 21, 2006, the Company entered into a credit agreement with Pacific Western Bank (“PWB”). The credit agreement provides for borrowings of up to $1,500,000 through a line of credit which is secured by substantially all of the Company’s assets and personal guarantees by two of the executive officers, Joseph Gledhill and Larry Consalvi. On November 15, 2007, the credit agreement was amended to reduce the amount available under the line of credit to $1,000,000 and to convert $500,000 of outstanding principal into a term loan. On September 29, 2008, the credit agreement was renewed through September 21, 2009, and Timothy Consalvi replaced Larry Consalvi as a guarantor. Pacific Western Bank has subsequently renewed the credit line through December 21, 2009. Management has agreed a short term extension for renewal of t he line to March 22, 2010. The Company is making arrangements to repay the line of credit to Pacific Western Bank.
The line of credit has a stated interest rate equal to the lender's referenced prime rate plus 1.5%, or 9.75% and 6.5% per annum at June 30, 2009 March 31, 2010, respectively. Interest is payable monthly with the outstanding principal balance due on November, 2009. The amount available for borrowings is determined based on a monthly basis based on 80% of eligible accounts receivable, as defined. The proceeds are used for general working capital needs.
The term loan provides for borrowings of up to $500,000. The loan has a stated interest rate equal to the lender's referenced prime rate plus 1.5%, or 9.75% and 6.5% per annum at June 30, 2009 and March 31, 2010, respectively. Principal and interest payments are payable monthly.
8
Notes payable consist of the following at March 31 2010, and June 30, 2009:
March 31, 2010 | June 30, 2009 | |||||||
Notes payable to financial institutions, secured by the underlying equipment payable in aggregate monthly installments of $7,292, including interest rates between 7.2% and 9.75% per annum for a period of 50 and 60 months | $ | 111,387 | $ | 151,608 | ||||
Unsecured Loan to an individual in respect of the acquisition of a former subsidiary | $ | - | $ | 31,526 | ||||
Settlement Agreement in respect of a lawsuit with Sunbelt Machine Works Corporation | 76,764 | |||||||
Term loan to PWB payable in monthly installments of $17,120 including interest at a rate of Prime plus 1.50% per annum due November 25, 2010 | 111,111 | $ | 250,000 | |||||
Total | 299,262 | 433,134 | ||||||
Less current portion | 243,012 | 265,949 | ||||||
Long Term portion | $ | 56,250 | $ | 167,185 |
2010 | $ | 37,324 | ||
2011 | 18,926 | |||
Thereafter | — | |||
$ | 56,250 |
7. | Litigation |
1. Onofrio Saputo and Christopher Frisco v. Gateway International Holdings, Inc., Lawrence Consalvi, Timothy Consalvi and Joe Gledhill, Court of the State of California, County of Orange, Case No. 30-2008-00110905. Plaintiffs filed this action on August 21, 2008. A Dismissal with Prejudice was filed with the Court on or about April 24, 2009.
The Complaint, which had causes of action for securities fraud, breach of fiduciary duties, fraud and deceit, and rescission, alleged that the defendants intentionally misrepresented, or failed to disclose, certain facts regarding the company prior to the plaintiffs purchasing Gateway International Holdings, Inc. (now M Line Holdings, Inc.) common stock. The Complaint sought total monetary damages of approximately $188,415, plus interest, and punitive damages. We filed an Answer to the Complaint on October 17, 2008, denying the allegations of the Complaint, denying that plaintiffs are entitled to any relief whatsoever and asserting various affirmative defenses. On January 22, 2009, the parties signed a Settlement Agreement, whereby a party unrelated to the lawsuit, Money Line Capital, Inc., our largest sharehol der, agreed to purchase the plaintiffs’ shares of our common stock for the purchase price, or $289,000. This settlement closed on April 22, 2009. Of the $289,000 settlement money, $189,000 was paid to plaintiffs and we received $100,000 in exchange for the cancellation of a promissory note for $100,000 owed to us by one of the plaintiffs. Per the settlement agreement, a Dismissal with Prejudice was filed by the plaintiffs with the Court on or about April 24, 2009, for the purpose of dismissing this lawsuit.
2. Voicu Belteu v. Mori Seiki Co., Ltd.; Mori Seiki U.S.A., Inc.; All American CNC Sales, Inc. dba Elite Machine Tool Company; Ellison Manufacturing Tech., Superior Court for the State of California, County of Orange, Case No. 30-2008-00103710. Plaintiff filed this action on March 7, 2008.
The Complaint, which has causes of action for strict products liability and negligence, alleges that a CNC machine manufactured by Mori Seiki and sold through our subsidiary, All American CNC Sales, Inc. dba Elite Machine Tool Company, was defective and injured the plaintiff. The Complaint seeks damages in excess of $6,300,000 for medical expenses, future medical expenses, lost wages, future lost wages and general damages. All American CNC Sales filed its Answer and Cross-complaint on July 1, 2008 against several individuals and entities involved in the machine purchase and sales transaction, seeking indemnity and contribution.
Plaintiff has dismissed All American CNC Sales and All American CNC is currently only in the case as to a cross defendant as to the other defendants.
9
Management believes we have meritorious defenses to cross complainant’s claims and plan to vigorously defend against the lawsuit and pursue Mori Seiki, and possibly other entities or individuals, for any damages we incur. However, there can be no assurance as to the outcome of the lawsuit. No provision has been made in our financial statements as we believe that the responsibility for liability, if any, is with the manufacturer.
3. James M. Cassidy v. Gateway International Holdings, Inc., American Arbitration Association, Case No. 73-194-32755-08.
We were served with a Demand for Arbitration and Statement of Claim, which was filed on September 16, 2008.
The Statement of Claim alleges that claimant is an attorney who performed services for us pursuant to an agreement dated April 2, 2007 between us and the claimant. The Statement of Claim alleges that we breached the agreement and seeks compensatory damages in the amount of $195,000 plus interest, attorneys’ fees and costs. We deny the allegations of the Statement of Claim and will vigorously defend against these allegations. An arbitrator has not yet been selected, and a trial date has not yet been scheduled.
The company has a provision in our financial statements of $5,000.00 at March 31, 2010. No further provision is necessary as we feel that the litigation has no merit.
The company is in the process of negotiating a settlement of this matter with Mr. Cassidy.
4. Elite Machine Tool Company v. ARAM Precision Tool and Die, Avi Amichai, Superior Court for the State of California, County of Orange, Case No. 30-2008-00090891. Elite Machine filed this action on August 8, 2008.
The Complaint alleged breach of contract for the defendants failing to pay Elite Machine for a machine the defendants purchased from Elite Machine, and sought damages totaling $16,238. ARAM Precision Tool and Die filed its Answer and Cross-Complaint on October 1, 2008. The Cross-Complaint alleged that Elite Machine failed to deliver certain parts of the machine per the sales contract and seeks damages totaling $25,000. In late June 2009, the parties settled this matter and the lawsuits were dismissed on August 13, 2009. Under the terms of the settlement, Aram is expected to pay Elite Machine Tool Company $4,000 in full and final settlement.
5. CNC Manufacturing v. All American CNC Sales, Inc., Elite Machine Tool Company/Sales & Services, CNC Repos, Superior Court for the State of California, County of Riverside, Case No. RIC 509650. Plaintiff filed this Complaint on October 2, 2008.
The Complaint alleges causes of action for breach of contract and rescission and claims All American breached the agreement with CNC Manufacturing by failing to deliver a machine that conforms to the specifications requested by CNC Manufacturing, and requests damages totaling $138,750. Elite Machine filed an Answer timely, on January 15, 2009. Discovery has commenced in this matter but is not expected to be concluded for several months. The Court has set a Case Management Conference for October 13, 2010. Management intends to aggressively defend itself against this claim. No trial date has been set.and no provision has been made in the attached financial statements as we believe that the litigation has no merit.
6. Elite Machine Tool Co. v. Sunbelt Machine, Orange County Superior Court, Case No. 0-2008-00112502. All American filed the Complaint on September 25, 2008. No trial date has been set.
This case involves a dispute between Elite Machine and Sunbelt regarding the sale of a Mori Seiki MH-63 machine by Elite Machine to Sunbelt. Sunbelt has claimed that it received a machine that does not conform to the specifications it ordered. The amount at issue is approximately $140,000 at this stage. Subsequent to filing of the above-referenced suit, Sunbelt has filed a similar action in Federal District Court in Houston, Texas. As a result, this case was dismissed and the case is being heard in Federal District Court.
7. Sunbelt Machine Works Corp. v. All American CNC Sales, Inc., United States District Court, Southern District of Texas, Case No. 4:09-cv-108. Sunbelt filed the Complaint on January 16, 2009.
This case involved a dispute between All American and Sunbelt regarding the sale of a Mori Seiki MH-63 machine by All American to Sunbelt.
10
Sunbelt claimed that it received a machine that does not conform to the specifications it ordered. The amount sought in the Complaint was approximately $139,000. All American filed its Answer on April 13, 2009. Sunbelt filed a Motion for Summary Judgment, which was granted by the Court. As a result a Judgment has been entered against All American in the amount of $153,000.
In respect to Sunbelt Machine Works Corp. v. Elite Machine Tool Co. and All American CNC Sales, Inc Case no, 0-2008-00112502 (NOTE 7-6) and Case No. 4:09-cv-108 (NOTE 7-7). A satisfaction of judgment agreement was entered into by the parties on January 25, 2010. The settlement amount was $152,802.49 to be paid by a Mori Seki MH-50 machine valued at $59,000, with the balance being paid in 13 monthly instalments of $5,000.00 commencing February 15, 2010 with interest at the rate of 0.44% per annum, the remaining balance being paid in March 2011.
8. 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. A judgment was entered against All American CNC for $366,372 and a provision has been made in the financial statement of All American CNC Sales, Inc. in the sum of $366,372 at March 31, 2010.
9. M Line Holdings, Inc. v. Hwacheon Machinery, Orange County Superior Court, Orange County , California, Case No. 30-2010-00369532. The complaint was filed on May 4, 2010
The complaint against Hwacheon seeks declatory relief from the court relieving M Line Holdings from having to respond to Hwacheon’s harassing, burdensome and voluminous requests for documents relating to Hwacheon’s judgment against All American CNC Sales, Inc. No answer has been filed by Hwacheon and no trial date has been set. Management does not expect a significant financial impact as a result of this lawsuit.
10. Fadal Machining v. All American CNC Sales, et al., Los Angeles Superior Court, Los Angeles, California, Case No. BC415693. The Complaint was filed on June 12, 2009.
The Complaint alleges causes of action for breach of contract and common counts against All American CNC seeking damages in the amount of at least $163,578.88, and arises from a claim by Fadal that All American failed to pay amounts due. On June 26, 2009, Fadal amended the Complaint to include M Line Holdings, Inc. as a Defendant. On or about August 11, 2009, the Court heard oral argument on Fadal’s Motion for Right to Attach Order and Writ of Attachment. The Court granted this Motion in part, issuing a Right to Attach Order against All American CNC in the amount of approximately $164,000. The Court denied the Motion as to M Line Holdings, Inc. On August 12, 2009, All American CNC filed an Answer to the Complaint, and M Line Holdings, Inc., filed a demurrer to the Complaint. 60; On April 9, 2010 Fadl filed an amended complaint against M Line Holdings, Inc. An answer to this complaint will be filed shortly. No trial date has been set and a provision has been made in the financial statement of All American CNC Sales, Inc. in the sum of $163,578.00 at March 31, 2010.
11. Do v. E.M. Tool Company, Orange County Superior Court, Orange County, California, Case No. 30-2009-00123879. The Complaint was filed on June 1, 2009.
The Complaint alleges causes of action for negligence, product liability and breach of warranty, and seeks damages to be determined at time of trial. This lawsuit was tendered by E.M. Tool Company to its insurance company, which is currently providing a defense. We filed an Answer and a Cross-complaint against the manufacturer of the equipment the Mori Seiki Company, Ltd. The case is currently in the discovery phase. A trial date has been set for January 31, 2011. No provision has been made in the financial statements at March 31, 2010 as we believe the litigation has no merit due to the manufacturer’s liability.
12. 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.
11
The damages sought in the Complaint are not less than $30,000. The Defendants filed an Answer on June 5, 2009. Management intends to aggressively defend itself against this claim. A trial date has been set for August 23, 2010. A provision has been made in the financial statements at March 31, 2010 in the sum of $14,540.
13. Laureano v. Eran Engineering, State of California Worker’s Compensation Appeals Board, no case number.
Mr. Laureano has filed a claim with the Worker’s Compensation Appeals Board against Eran Engineering. At this time, Eran Engineering has only been served with a subpoena for business records, requesting Mr. Laureano’s employment file, personnel file, claim file, and payroll documents. Management intends to aggressively defend this claim.
No provision has been made in the financial statements of the company at March 31, 2010. The Company’s management believes that payment(s), if any, will be the responsibility of the Workers Compensation Board.
14. 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 the Company, which management believes was in error because a settlement was already reached by the principal parties involved.
The default has since been vacated and the Company has answered the complaint and is preparing a cross complaint.
We are negotiating a settlement of this case at this time. As a result no provision has been made in the financial statements for this sum at March 31, 2010
Litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur in any of the above matters, there could be a material adverse effect on our financial condition, results of operations or liquidity.
8. | Common Stock |
During the three and nine month periods ended March 31, 2010, the Company did not have any transactions relating to common stock.
9. | Related Party Transaction |
There was no related party transaction during the quarter ended March 31, 2010 as all related party notes were repaid or settled during the fiscal year ended June 30, 2009.
10 | Segments and Geographic Information |
The Company’s segments consist of individual companies managed separately with each manager reporting to the Board. “Other” represents corporate functions. Sales, and operating or segment profit, are reflected net of inter-segment sales and profits. Segment profit is comprised of net sales less operating expenses and interest. Income taxes are not allocated and reported by segment since they are excluded from the measure of segment performance reviewed by management.
12
The summary of assets and revenue are as follows:
March 31, 2010 | June 30, 2009 | |||||||
Machine Sales | $ | 525,641 | $ | 583,596 | ||||
Precision Manufacturing | 2,350,981 | 3,275,471 | ||||||
Corporate | 668,966 | 886,703 | ||||||
$ | 3,545,588 | $ | 4,745,770 |
Machine Sales | Precision Manufacturing | Corporate | TOTAL | |||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Revenues | $ | 1,932,141 | $ | 3,629,917 | $ | 2,202,296 | $ | 3,829,850 | $ | (385 | ) | $ | — | $ | 4,134,052 | $ | 7,459,767 | |||||||||||||||
Income (Loss) before taxes | (376,333 | ) | (333,495 | ) | (552,941 | ) | (492,903) | (309,083 | ) | (630,936) | (1,238,357 | ) | (1,457,334 | ) |
Machine Sales | Precision Manufacturing | Corporate | TOTAL | |||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Amortization | $ | 31,337 | $ | 31,337 | $ | — | $ | — | $ | — | $ | — | $ | 31,337 | $ | 31,337 | ||||||||||||||||
Depreciation | 4,856 | 3,214 | 293,583 | 271,242 | 2,718 | 885 | 301,157 | 275,341 |
Interest expense:
Machine Sales | Precision Manufacturing | Corporate | TOTAL | |||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Interest | $ | 1,996 | $ | 224 | $ | 9,949 | $ | 18,895 | $ | 34,411 | $ | 74,016 | $ | 46,356 | $ | 93,135 |
Capital expenditure:
Machine Sales | Precision Manufacturing | Corporate | TOTAL | |||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Capital expenditure | $ | 54,551 | $ | — | $ | — | $ | 57,022 | $ | — | $ | — | $ | 54,551 | $ | 57,022 |
Sales are derived principally from customers located within the United States.
11. Discontinued Operations
The following is the combined, condensed balance sheet of All American CNC as of March 31, 2010 and June 30, 2009.
March 31, 2010 | June 30, 2009 | |||||||
Cash | $ | — | $ | — | ||||
Accounts receivable and other (net) | 12,524 | 116,868 | ||||||
Property and equipment, net | 23,377 | 63,704 | ||||||
Total assets | $ | 35,901 | $ | 180,572 | ||||
Accounts payable and accrued liabilities | $ | (700,356 | ) | $ | (703,133 | ) | ||
Capital lease obligations | (4,050 | ) | (44,517 | ) | ||||
Total liabilities | $ | (704,406 | ) | $ | (747,650 | ) |
13
The following represents the results of discontinued operations for the period ended March 31, 2010:
March 31, 2010 | March 31, 2009 | |||||||
Net sales | $ | — | $ | 5,524,023 | ||||
Loss from discontinued operations before income taxes | (58,145 | ) | 900,938 | ) | ||||
Income tax | — | — | ||||||
Loss from discontinued operations after income taxes | $ | (58,145 | ) | $ | (900,938 | ) |
12. | Subsequent Events |
The company has subsequent to March 31, 2010 repaid Pacific Western Bank the sum of $360,000.00 leaving a balance as follows:
Line of Credit | $ | 80,000 | ||
Term Loan | 138,888 | |||
TOTAL | $ | 218,888 |
The company has reached an agreement with Pacific Western Bank for an extension until July 31, 2010, to repay this balance of $ 218,888. The balance outstanding carries a stated interest rate equal to the lender’s referenced prime rate plus 1.50%. At the time of repayment the Company will also per the extension agreement repay any balance due on the equipment loans due the bank. The current balance outstanding on these loans as of March 31, 2010 is $111,387.
On April 26, 2010 the Company signed a convertible promissory note agreement in the amount of $50,000. This note carries an interest rate of 8% per annum. After ninety days the lender has the option to convert to shares at a discount of 40% off the average of the average of the lowest three trading days during the ten day trading period ending one day prior to the date the conversion notice is sent. At any time prior to that conversion notice the company may pay off the note at a 50% premium plus any outstanding interest.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This quarterly report on Form 10-Q of M Line Holdings, Inc. (formerly known as Gateway International Holdings, Inc., and referred to herein as “MLH”, “we,” “us” or “Company”) for the nine months ended March 31, 2010, contains forward-looking statements, principally in this Section and “Business.” Generally, you can identify these statements because they use words like “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These statements reflect only our current expectations. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy and actual results may differ materially from those we ant icipated due to a number of uncertainties, many of which are unforeseen, including, among others, the risks we face as described in this filing. You should not place undue reliance on these forward-looking statements which apply only as of the date of this quarterly report. These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation of belief will be accomplished.
14
We believe it is important to communicate our expectations to our investors. There may be events in the future, however, that we are unable to predict accurately or over which we have no control. The risk factors listed in this filing, as well as any cautionary language in our annual report on Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results or events to differ materially from those anticipated, include, but are not limited to: our ability to successfully develop new products; the ability to obtain financing for product development; changes in product strategies; general economic, financial and business conditions; changes in and compliance with governmental heal thcare and other regulations; changes in tax laws; and the availability of key management and other personnel.
Overview
Our business comprises of two segments, our Machine Sales Group and our Precision Manufacturing Group.
Our Machine Sales Group is in the business of acquiring and selling computer numerically controlled (“CNC”) machines, and related tools, to manufacturing customers. We specialize in the purchase, refurbishment and sales of used CNC machines. We also serve as a manufacturer sales representative firm selling new CNC machines we purchase from third party manufacturers into certain geographic territories.
Our Precision Manufacturing Group is a manufacturer of precision components used in equipment and machinery in the commercial aviation, medical, aerospace and defense industries. Sales within this segment are highly concentrated within one customer, Panasonic Avionics Corporation (“Panasonic”). The loss of all or a substantial portion of sales to this customer would cause us to lose a substantial portion of our sales within this segment and on a consolidated basis, and have a corresponding negative impact on our operating profit margin due to operation leverage this customer provides. This could lead to sales volumes not being high enough to cover our current cost structure or provide adequate operating cash flows. Panasonic has been a customer of ours for approximately 15 years and we believe our relationship is good.
Trends Affecting Our Business
The recent tightening of the capital markets has hurt our ability to sell used CNC machines. Historically, as capital markets tighten, companies that purchase large machines on credit, such as CNC machines, have more difficulty in obtaining credit and, therefore, are unable to purchase machines that they may be able to purchase in better financial times. Although the economy has had a negative impact on our customers’ ability to purchase machines which could negatively impact our business we have seen an improving trend during the quarter ended march 31, 2010.
The primary components sold by our Precision Manufacturing segment during the quarters ended March 31, 2010 and, 2009, were parts sold to Panasonic, a leading provider of in-flight entertainment systems for commercial aircraft. The decline in economic activity has an adverse effect on our business. This has had an effect on Panasonic’s orders to us, and, therefore, there has been an adverse effect on our business. With improvements in the economy we expect our manufacturing business in general and specifically our aviation business to continue its improvement.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of sales and expenses during the reporting period. Significant estimates made by management are, among others, realization of inventories, collectability of accounts receivable, litigation, impairment of goodwill, and long-lived assets other than goodwill. We regularly evaluate our estimates and assumptions based upon historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities tha t are not readily apparent from other sources. To the extent actual results differ from these estimates; our future results of operations may be affected.
15
Inventories
Within our Precision Manufacturing segment, we seek to purchase and maintain raw materials at sufficient levels to meet lead times based on forecasted demand. We generally manufacture parts based on purchase orders. Within our Machine Tools segment, we purchase machines held for resale based upon management’s judgment of current market conditions and demand for used machines. If forecasted demand exceeds actual demand, we may need to provide an allowance for excess or obsolete quantities on hand. We also review our inventories for changes demand patterns and in the market prices of machines held in inventory and provide reserves as deemed necessary. If actual market conditions are less favorable than those projected by management, additional inventory reserves for CNC machines and parts may be required. We state our inventories at the lower of cost, using the first-in, first-out method on an average costs basis, or market.
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. Prior to 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 included in the accompanying financial statements as discontinued operations.
All American generated revenues of $0 and $5,524,023 during the nine months ended March 31, 2010 and 2009, respectively.
We recorded losses from discontinued operations, net of income tax of $58,145 and $900,938 during the nine months ended March 31, 2010 and 2009, respectively.
Results of Operations for the Three Months Ended March 31, 2010 Compared to the Three Months Ended March 31, 2009
Three Months ended March 31, | ||||||||||||||||
2010 | 2009 | Change ($) | Change (%) | |||||||||||||
Sales by segment | ||||||||||||||||
Machine Sales | $ | 404,375 | $ | 591,410 | $ | (187,035 | ) | (32 | )% | |||||||
Precision Manufacturing | 762,595, | 827,893 | (65,298 | ) | (8 | )% | ||||||||||
1,166,970 | 1,419,303 | (252,333 | ) | (18 | )% | |||||||||||
Gross profit by segment | ||||||||||||||||
Machine Sales | 166,421 | 49,074 | 117,347 | 239 | % | |||||||||||
Precision Manufacturing | 405,680 | 226,522 | 179,158 | 79 | % | |||||||||||
572,101 | 275,596 | 296,505 | 107 | % |
Sales for the three months ended March 2010 period decreased by 18% compared to the comparable period in 2009. The change is attributable to sales in the Machine Sales Group. Sales declined by 18% in the Precision Manufacturing Group; the decline was due to a reduction of orders from our main customer, Panasonic Avionics Corporation. Sales in the Machine Sales Group declined by 32% due to a lack of orders from customers due to a recession in this industry.
Gross Margin
Gross profit increased by 107 % compared to the comparable period in 2009. The increase within the Precision Manufacturing Group resulted from higher margins for product in the 2010 period, primarily from our main customer, Panasonic Avionics Corporation, due to higher margins on sales in the aerospace industry. The machine tool business achieved a profit due to higher margin on lower sales volume plus commissions earned on sales of equipment owned by an equipment vendor.
16
Selling, General & Administrative
Selling, general and administrative costs for the three months ended March 31, 2010 increased by $ 17,305 compared to the comparable period in 2009. The changes are due primarily to an increase in overheads.
Amortization of Intangible Assets
Amortization expense for intangible assets was $10,447 compared to $10,447 for the comparable period in fiscal 2009.
Interest Expense
Interest expense for the three months ended March 31, 2010 decreased by $1,400 compared to the comparable period in 2008. The change is attributable to lower average debt balances and decreases in the interest rates on our debt obligations.
Gain on Sale of Assets
During the current three month period ending 2010 and 2009 periods, there were no gains as no assets were sold.
Results of Operations for the Nine Months Ended March 31, 2010 Compared to the Nine Months Ended March 31, 2009
Nine Months ended March 31, | ||||||||||||||||
2010 | 2009 | Change ($) | Change (%) | |||||||||||||
Sales by segment | ||||||||||||||||
Machine Sales | $ | 1,932,141 | $ | 3,629.538 | $ | 1,697,397 | 47 | % | ||||||||
Precision Manufacturing | 2,201,911 | 3,830,229 | (1,628,338 | ) | (43 | )% | ||||||||||
4,134,052 | 7,459,767 | (3,325,715 | ) | (46 | )% | |||||||||||
Gross profit by segment | ||||||||||||||||
Machine Sales | 381,459 | 671,976 | 290517 | 43 | % | |||||||||||
Precision Manufacturing | 830,667 | 1,443,487 | (612,820 | ) | (42 | )% | ||||||||||
1,212,126 | 2,115,463 | (903,337 | ) | (43 | )% |
Sales
Sales for the nine months ended March 2010 period decreased by 46% compared to the comparable period in 2009. The change is attributable to a decrease in sales in the Precision Manufacturing Group and Machinery Sales Group. Sales declined by 43% in the Precision Manufacturing Group. The sales decline in the Precision manufacturing group was due to reduced orders from our main customer, Panasonic Avionics Corporation due to a mild recession in the aerospace industry. Sales in the Machine Sales Group decreased by 47% due to a decrease of orders from customers due to a mild recession compared to the previous periods.
Gross Margin
Gross profit decreased by 43% compared to the comparable period in fiscal 2010. The gross profit for Machine Sales Group decreased by 43%; the reason for the decrease was due to the lower volume of machines sold during the period. The decrease within the Precision Manufacturing Group resulted from lower customer demand for product in the 2010 period, Orders from our largest customer, Panasonic Avionics Corporation, were lower due to a mild recession in the Aerospace industry.
Selling, General & Administrative
Selling, general and administrative costs for the nine months ended March 31, 2010 decreased by $248,197 compared to the comparable period in 2009. The changes are due primarily to a decrease in overhead costs during the period.
17
Amortization of Intangible Assets
Amortization expense for intangible assets was $31,337 compared to $31,337 for the comparable period in fiscal 2009.
Interest Expense
Interest expense for the nine months ended March 31, 2010 decreased by $46,779 compared to the comparable period in 2009. The change is attributable to lower average debt balances and computation of interest on the lower debt obligations.
Gain on Sale of Assets
During the current nine month period ending March 31, 2010, there was a gain of $2,497 as an automobile was disposed of during this period as compared to $16,125 due to sales of machinery in the precision manufacturing group in 2009
Liquidity and Capital Resources
Our principal sources of liquidity consist of cash and cash equivalents, cash generated from operations and borrowing from various sources, including Pacific Western Bank. At March 31, 2010, our cash and cash equivalents and working capital decreased by $243,955 and $1,060,685, respectively to June 30, 2009 amounts.
The term loan provides for borrowings of up to $500,000. The loan bears interest at the lender's referenced prime rate plus 1.5% with principal and interest payments due monthly.
Cash Flows
The following table sets forth our cash flows for the six months ended December 31:
Provided by (used in) | 2010 | 2009 | Change | |||||||||
Operating activities | $ | (61,018 | ) | $ | 135,975 | $ | (196,993 | ) | ||||
Investing activities | (30,617 | ) | 16,126 | (46,743 | ) | |||||||
Financing activities | (152,320 | ) | (169,411 | ) | 17,091 | |||||||
$ | (243,955 | ) | $ | (17,311 | ) | $ | (226,645 | ) |
Operating Activities:
Operating cash flows during the nine months ended March 31, 2010 and 2009 period reflect our results of operations, offset by net cash provided by operating assets and liabilities and non-cash items (depreciation, amortization and stock-based compensation). During the 2010 period, non-cash expenses included in our net income and in operating activities totaled $329,997 compared to $504,922 in the 2009 period.
The increase (decrease) in operating assets and liabilities for the 2010 and 2009 periods were $(1,005,749) and $763,904, respectively. During the 2010 period, the decrease was primarily attributable to losses incurred by the company offset by contributions from inventory, accounts receivable, accounts payable, and non cash items.
Investing Activities
We made capital expenditures of $(54,551) and $(57,022) during the nine month periods ended March 31, 2010 and 2009, respectively.
Financing Activities
During the first nine months of the fiscal 2010 and 2009 periods, we repaid (net of borrowings) $(152,320) and $(169,411), respectively of outstanding debt and capital lease obligations. We repaid $0 on our line of credit in the 2010 period, as compared to $190,000 during the 2009 period.
18
Off Balance Sheet Arrangements
We have no off balance sheet arrangements.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
As a smaller reporting company we are not required to provide the information required by this Item. However, we opted to include the following information.
The only financial instruments we hold are cash and cash equivalents. We also have a floating interest rate credit agreement with Pacific Western Bank. Changes in market interest rates will impact our interest costs.
We are currently billed by the majority of our vendors in U.S. dollars and we currently bill the majority of our customers in U.S. dollars. However, our financial results could be affected by factors such as changes in foreign currency rates or changes in economic conditions.
ITEM 4. Controls and Procedures.
(a) Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2009, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2009, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in Item 4T.
(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.
19
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2010. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, Management has identified the following two material weaknesses that have caused management to conclude that, as of March 31, 2010, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:
1. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
2. We have not documented our internal controls. We have limited policies and procedures that cover the recording and reporting of financial transactions. Although providing this report in this Annual Report is optional for us at this time, written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. We will be required to provide written documentation of key internal controls over financial reporting beginning with our fiscal year ending June 30, 2010. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
3. Prior to Spring/Summer 2008, we did not have adequate internal controls, or policies and procedures, with respect to our travel and expense reports. As a result, it was discovered that certain expense reimbursements were paid to our officers and directors even though complete expense reimbursement paperwork had not been submitted with adequate documentation surrounding the nature of the expense. These expense
reimbursements were paid based on the incomplete paperwork. To the extent these expenses could not subsequently be substantiated we requested reimbursement from that officer and director.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only our management’s report in this Quarterly Report.
(c) Remediation of Material Weaknesses
Being aware of these material weaknesses our management will be vigilant about ensuring they do not affect our reporting obligations and will seek to remedy these issues when it is financially feasible to do so.
(d) Changes in Internal Control over Financial Reporting
There have been no changes to our internal control over financial reporting during our most recently completed fiscal quarter.
20
7. | Litigation |
1. Onofrio Saputo and Christopher Frisco v. Gateway International Holdings, Inc., Lawrence Consalvi, Timothy Consalvi and Joe Gledhill, Court of the State of California, County of Orange, Case No. 30-2008-00110905. Plaintiffs filed this action on August 21, 2008. A Dismissal with Prejudice was filed with the Court on or about April 24, 2009.
The Complaint, which had causes of action for securities fraud, breach of fiduciary duties, fraud and deceit, and rescission, alleged that the defendants intentionally misrepresented, or failed to disclose, certain facts regarding the company prior to the plaintiffs purchasing Gateway International Holdings, Inc. (now M Line Holdings, Inc.) common stock. The Complaint sought total monetary damages of approximately $188,415, plus interest, and punitive damages. We filed an Answer to the Complaint on October 17, 2008, denying the allegations of the Complaint, denying that plaintiffs are entitled to any relief whatsoever and asserting various affirmative defenses. On January 22, 2009, the parties signed a Settlement Agreement, whereby a party unrelated to the lawsuit, Money Line Capital, Inc., our largest sharehol der, agreed to purchase the plaintiffs’ shares of our common stock for the purchase price, or $289,000. This settlement closed on April 22, 2009. Of the $289,000 settlement money, $189,000 was paid to plaintiffs and we received $100,000 in exchange for the cancellation of a promissory note for $100,000 owed to us by one of the plaintiffs. Per the settlement agreement, a Dismissal with Prejudice was filed by the plaintiffs with the Court on or about April 24, 2009, for the purpose of dismissing this lawsuit.
2. Voicu Belteu v. Mori Seiki Co., Ltd.; Mori Seiki U.S.A., Inc.; All American CNC Sales, Inc. dba Elite Machine Tool Company; Ellison Manufacturing Tech., Superior Court for the State of California, County of Orange, Case No. 30-2008-00103710. Plaintiff filed this action on March 7, 2008.
The Complaint, which has causes of action for strict products liability and negligence, alleges that a CNC machine manufactured by Mori Seiki and sold through our subsidiary, All American CNC Sales, Inc. dba Elite Machine Tool Company, was defective and injured the plaintiff. The Complaint seeks damages in excess of $6,300,000 for medical expenses, future medical expenses, lost wages, future lost wages and general damages. All American CNC Sales filed its Answer and Cross-complaint on July 1, 2008 against several individuals and entities involved in the machine purchase and sales transaction, seeking indemnity and contribution.
Plaintiff has dismissed All American CNC Sales and All American CNC is currently only in the case as to a cross defendant as to the other defendants. Management believes we have meritorious defenses to cross complainant’s claims and plan to vigorously defend against the lawsuit and pursue Mori Seiki, and possibly other entities or individuals, for any damages we incur. However, there can be no assurance as to the outcome of the lawsuit. No provision has been made in our financial statements as we believe that the responsibility for liability, if any, is with the manufacturer.
3. James M. Cassidy v. Gateway International Holdings, Inc., American Arbitration Association, Case No. 73-194-32755-08.
We were served with a Demand for Arbitration and Statement of Claim, which was filed on September 16, 2008.
The Statement of Claim alleges that claimant is an attorney who performed services for us pursuant to an agreement dated April 2, 2007 between us and the claimant. The Statement of Claim alleges that we breached the agreement and seeks compensatory damages in the amount of $195,000 plus interest, attorneys’ fees and costs. We deny the allegations of the Statement of Claim and will vigorously defend against these allegations. An arbitrator has not yet been selected, and a trial date has not yet been scheduled.
The company has a provision in our financial statements of $5,000.00 at March 31, 2010. No further provision is necessary as we feel that the litigation has no merit.
21
The company is in the process of negotiating a settlement of this matter with Mr. Cassidy.
4. Elite Machine Tool Company v. ARAM Precision Tool and Die, Avi Amichai, Superior Court for the State of California, County of Orange, Case No. 30-2008-00090891. Elite Machine filed this action on August 8, 2008.
The Complaint alleged breach of contract for the defendants failing to pay Elite Machine for a machine the defendants purchased from Elite Machine, and sought damages totaling $16,238. ARAM Precision Tool and Die filed its Answer and Cross-Complaint on October 1, 2008. The Cross-Complaint alleged that Elite Machine failed to deliver certain parts of the machine per the sales contract and seeks damages totaling $25,000. In late June 2009, the parties settled this matter and the lawsuits were dismissed on August 13, 2009. Under the terms of the settlement, Aram is expected to pay Elite Machine Tool Company $4,000 in full and final settlement.
5. CNC Manufacturing v. All American CNC Sales, Inc., Elite Machine Tool Company/Sales & Services, CNC Repos, Superior Court for the State of California, County of Riverside, Case No. RIC 509650. Plaintiff filed this Complaint on October 2, 2008.
The Complaint alleges causes of action for breach of contract and rescission and claims All American breached the agreement with CNC Manufacturing by failing to deliver a machine that conforms to the specifications requested by CNC Manufacturing, and requests damages totaling $138,750. Elite Machine filed an Answer timely, on January 15, 2009. Discovery has commenced in this matter but is not expected to be concluded for several months. The Court has set a Case Management Conference for October 13, 2010. Management intends to aggressively defend itself against this claim. No trial date has been set.and no provision has been made in the attached financial statements as we believe that the litigation has no merit.
6. Elite Machine Tool Co. v. Sunbelt Machine, Orange County Superior Court, Case No. 0-2008-00112502. All American filed the Complaint on September 25, 2008. No trial date has been set.
This case involves a dispute between Elite Machine and Sunbelt regarding the sale of a Mori Seiki MH-63 machine by Elite Machine to Sunbelt. Sunbelt has claimed that it received a machine that does not conform to the specifications it ordered. The amount at issue is approximately $140,000 at this stage. Subsequent to filing of the above-referenced suit, Sunbelt has filed a similar action in Federal District Court in Houston, Texas. As a result, this case was dismissed and the case is being heard in Federal District Court.
7. Sunbelt Machine Works Corp. v. All American CNC Sales, Inc., United States District Court, Southern District of Texas, Case No. 4:09-cv-108. Sunbelt filed the Complaint on January 16, 2009.
This case involved a dispute between All American and Sunbelt regarding the sale of a Mori Seiki MH-63 machine by All American to Sunbelt. Sunbelt claimed that it received a machine that does not conform to the specifications it ordered. The amount sought in the Complaint was approximately $139,000. All American filed its Answer on April 13, 2009. Sunbelt filed a Motion for Summary Judgment, which was granted by the Court. As a result a Judgment has been entered against All American in the amount of $153,000.
In respect to Sunbelt Machine Works Corp. v. Elite Machine Tool Co. and All American CNC Sales, Inc Case no, 0-2008-00112502 (NOTE 7-6) and Case No. 4:09-cv-108 (NOTE 7-7). A satisfaction of judgment agreement was entered into by the parties on January 25, 2010. The settlement amount was $152,802.49 to be paid by a Mori Seki MH-50 machine valued at $59,000, with the balance being paid in 13 monthly instalments of $5,000.00 commencing February 15, 2010 with interest at the rate of 0.44% per annum, the remaining balance being paid in March 2011.
8. 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. A judgment was entered against All American CNC for $366,372 and a provision has been made in the financial statement of All American CNC Sales, Inc. in the sum of $366,372 at March 31, 2010.
22
9. M Line Holdings, Inc. v. Hwacheon Machinery, Orange County Superior Court, Orange County , California, Case No. 30-2010-00369532. The complaint was filed on May 4, 2010
The complaint against Hwacheon seeks declatory relief from the court relieving M Line Holdings from having to respond to Hwacheon’s harassing, burdensome and voluminous requests for documents relating to Hwacheon’s judgment against All American CNC Sales, Inc. No answer has been filed by Hwacheon and no trial date has been set. Management does not expect a significant financial impact as a result of this lawsuit.
10. Fadal Machining v. All American CNC Sales, et al., Los Angeles Superior Court, Los Angeles, California, Case No. BC415693. The Complaint was filed on June 12, 2009.
The Complaint alleges causes of action for breach of contract and common counts against All American CNC seeking damages in the amount of at least $163,578.88, and arises from a claim by Fadal that All American failed to pay amounts due. On June 26, 2009, Fadal amended the Complaint to include M Line Holdings, Inc. as a Defendant. On or about August 11, 2009, the Court heard oral argument on Fadal’s Motion for Right to Attach Order and Writ of Attachment. The Court granted this Motion in part, issuing a Right to Attach Order against All American CNC in the amount of approximately $164,000. The Court denied the Motion as to M Line Holdings, Inc. On August 12, 2009, All American CNC filed an Answer to the Complaint, and M Line Holdings, Inc., filed a demurrer to the Complaint. 60; On April 9, 2010 Fadl filed an amended complaint against M Line Holdings, Inc. An answer to this complaint will be filed shortly. No trial date has been set and a provision has been made in the financial statement of All American CNC Sales, Inc. in the sum of $163,578.00 at March 31, 2010.
11. Do v. E.M. Tool Company, Orange County Superior Court, Orange County, California, Case No. 30-2009-00123879. The Complaint was filed on June 1, 2009.
The Complaint alleges causes of action for negligence, product liability and breach of warranty, and seeks damages to be determined at time of trial. This lawsuit was tendered by E.M. Tool Company to its insurance company, which is currently providing a defense. We filed an Answer and a Cross-complaint against the manufacturer of the equipment the Mori Seiki Company, Ltd. The case is currently in the discovery phase. A trial date has been set for January 31, 2011. No provision has been made in the financial statements at March 31, 2010 as we believe the litigation has no merit due to the manufacturer’s liability.
12. Fox Hills Machining v. CNC Repos, Orange County Superior Court, Orange County, California, Case No. 30-2009-00121514. The Complaint was filed on April 14, 2009.
The Complaint alleges causes of action for Declaratory Relief, Breach of Contract, Fraud, Common Counts, and Negligent Misrepresentation, claiming the Defendant failed to pay Fox Hills Machining for the sale of two machines from Fox Hills to CNC Repos. The damages sought in the Complaint are not less than $30,000. The Defendants filed an Answer on June 5, 2009. Management intends to aggressively defend itself against this claim. A trial date has been set for August 23, 2010. A provision has been made in the financial statements at March 31, 2010 in the sum of $14,540.
13. Laureano v. Eran Engineering, State of California Worker’s Compensation Appeals Board, no case number.
Mr. Laureano has filed a claim with the Worker’s Compensation Appeals Board against Eran Engineering. At this time, Eran Engineering has only been served with a subpoena for business records, requesting Mr. Laureano’s employment file, personnel file, claim file, and payroll documents. Management intends to aggressively defend this claim.
No provision has been made in the financial statements of the company at March 31, 2010. The Company’s management believes that payment(s), if any, will be the responsibility of the Workers Compensation Board.
23
14. 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 the Company, which management believes was in error because a settlement was already reached by the principal parties involved.
The default has since been vacated and the Company has answered the complaint and is preparing a cross complaint.
We are negotiating a settlement of this case at this time. As a result no provision has been made in the financial statements for this sum at March 31, 2010
Litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur in any of the above matters, there could be a material adverse effect on our financial condition, results of operations or liquidity.
ITEM 1A. Risk Factors.
As a smaller reporting company we are not required to provide the information required by this Item. However, we did include risk factors in our Annual Report on Form 10-K for the year ended June 30, 2009, as filed with the Commission on October 13, 2009.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There have been no events required to be reported under this Item.
ITEM 3. Defaults upon Senior Securities.
There have been no events required to be reported under this Item.
ITEM 4. Submission of Matters to a Vote of Security Holders.
There have been no events required to be reported under this Item.
ITEM 5. Other Information.
Money Line Capital Letter of Intent
On June 30, 2009, we entered into a binding Letter of Intent (the “LOI”) with Money Line Capital, Inc., a California corporation (“MLCI”), and our largest shareholder. Under the LOI the parties agreed to complete a transaction whereby all the MLCI shareholders will exchange their shares of MLCI stock for shares of our stock. The parties agreed to negotiate in good faith to close the transaction on or before January 29, 2010. The LOI is predicated on us being current in our reporting obligations under the Securities and Exchange Act of 1934, as amended, and being publicly-traded at the time of the closing; and MLCI having its financial statements (and its subsidiaries, as applicable) audited for the period ended June 30, 2010, as well as completing a valuation by a qualified third-p arty company.
On November 5, 2009, we agreed with MLCI to amend the LOI to reset the anticipated closing date of the transaction from January 29, 2010 to April 30, 2010, as well as some other preliminary dates in the LOI. We agreed to reset the anticipated closing date of the transaction in order to allow MLCI time to complete the audit of its financial statements, and certain of its subsidiaries, for the period ended June 30, 2009, as well the review of the financial statements for the interim quarters.
24
(a) 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 | |
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, 2009 | |
10.16 (7) | Amendment No. 1 to Letter of Intent by and between M Line Holdings, Inc. and Money Line Capital, Inc. dated June 30, 2009 | |
21 (8) | 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) |
25
32.1 | Section 1350 Certification of George Colin (filed herewith). | |
32.2 | Section 1350 Certification of Jitu Banker (filed herewith). |
(1) Incorporated by reference from our Registration Statement on Form 10-12G filed with the Commission on May 16, 2008.
(2) Incorporated by reference from our Registration Statement on First Amended Form 10-12G/A filed with the Commission on July 16, 2008.
(3) Incorporated by reference from our First Amended Current Report on Form 8-K/A filed with the Commission on October 10, 2008.
(4) Incorporated by reference from our Quarterly Report on Form 10-Q for the period ended September 30, 2008, as filed with the Commission on November 13, 2008.
(5) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on April 24, 2009.
(6) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on July 6, 2009.
(7) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on November 6, 2009.
(8) 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.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
M Line Holdings, Inc. | ||
Dated: May 21, 2010 | /s/ George Colin | |
By: | George Colin | |
President, Chief Executive | ||
Officer and a Director | ||
Dated: May 21, 2010 | /s/ Jitu Banker | |
By: | Jitu Banker | |
Chief Financial Officer, | ||
Secretary and a Director |
26