Ok, so I fought those 3 factory dudes, and I didn't have any problem with any of them... except the last one, MAN HE WAS SO ANNOYING!!!
Then, I had to fight an even tougher opponent. The ninja chef and his machine-monster thingy who can use Breaker Beam. As soon as the ninja dude is gone, to battle is really easy. But as long as the ninja dude is still there, it's insanely tough. A pretty weird battle, were you constantly pray that the ninja only will use blockable attacks, and then you pray that you will successfully block them. Otherwise, the ninja's attacks= OHKO.
Anyways... after a few attempts, I finally beat that annoying thing... and the path to Smithy is finally open.
However... there's a small problem. Smithy will always get the first strike, and he will always use "Sledge" on your un-Crystalined party. My Geno will survive with exactly 1 HP left. Mario and Peach both dies. So... I basically start off the battle with 1 character with only 1 HP left. Ouch. This problem can quickly be solved though, but it's still a big handicap. After a very few turns, Smithy summoned one of those small bounch-dudes. The bounch-dude use Sword Rain, and then Smithy used Sledge. Geno survived with 1 HP left. Yeah... and then I didn't last long, so I got Game Over.
After my first failed battle with Smithy, I decided to get out of the factory and pick up the last 2 Red Essences, which you get in one of the dreams in Nimbu's Land.
Now, I'll just return to Smithy and keep trying.