SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2007
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________________

Commission File No. 0-15260

Element 21 Golf Company
(Exact name of small business issuer as specified in its charter)

Delaware
 
88-0218411
(State or other jurisdiction of incorporation or organization)
 
(Internal Revenue Service Employer Identification No.)

 
200 Queens Quay East, Unit #1, Toronto, Ontario, Canada, M5A 4K9
 
 
(Address of principal Executive offices Zip Code)
 
 
 
 
 
416-362-2121
 
 
Issuer's telephone number, including area code
 
 
 
 
 
Former name, former address and formal 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 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   o

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

APPLICABLE ONLY TO ISSUERS 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 Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o
 
APPLICABLE ONLY TO CORPORATE ISSUERS:
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date, 135,212,737 shares of common stock, par value $.01 per share as of February 12, 2008.

Transitional Small Business Disclosure Format (Check One) Yes  x   No   o

 
Element 21 Golf Company and Subsidiary

INDEX
 
 
 
  
Page
Number
PART I.
FINANCIAL INFORMATION
  
 
 
 
  
 
Item 1  
Condensed Consolidated Financial Statements:
  
 
 
Balance Sheets as of December 31, 2007 (unaudited) and June 30, 2007
  
3
 
Statements of Operations for the Six and Three Months Ended December 31, 2007 and 2006 (unaudited)
  
4
 
Statements of Cash Flows for the Six Months Ended December 31, 2007 and 2006 (unaudited)
  
5
 
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
  
6
Item 2
Management's Discussion and Analysis or Plan of Operation
  
13
Item 3
Controls and Procedures
  
17
 
 
  
 
PART II
OTHER INFORMATION
  
 
 
 
  
 
Item 1
Legal Proceedings
  
18
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
  
18
Item 3
Defaults upon Senior Securities
  
18
Item 4
Submission of Matters to a Vote of Security Holders
  
18
Item 5
Other Information
  
18
Item 6
Exhibits
  
18
 
 
  
 
SIGNATURES
  
19
 
 
  
 
EXHIBITS
  
 
 
2

 
PART 1 - FINANCIAL INFORMATION
 
Item 1 - Financial Statements
 
ELEMENT 21 GOLF COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

- ASSETS -
 
 
 
December 31, 2007
 
June 30, 2007
 
 
 
(unaudited)
 
 
 
CURRENT ASSETS:
              
Cash
 
$
249,270
 
$
1,751,178
 
Accounts receivable - net of allowance for doubtful accounts of $15,000
 
 
135,108
 
 
123,155
 
Inventories
 
 
1,012,589
 
 
921,820
 
Prepaid expenses and other current assets
 
 
516,463
 
 
158,147
 
TOTAL CURRENT ASSETS
 
 
1,913,430
 
 
2,954,300
 
               
FIXED ASSETS - NET
 
 
104,336
 
 
244,234
 
 
 
 
 
 
 
 
 
TOTAL ASSETS
 
$
2,017,766
 
$
3,198,534
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
Accounts payable and accrued expenses
 
$
1,635,626
 
$
697,649
 
Accrued interest
    
-
    
46,750
  
Deferred revenue
    
5,229
    
17,300
  
Convertible notes
    
-
    
475,000
  
Derivative liability
 
 
439,244
 
 
2,386,011
 
TOTAL CURRENT LIABILITIES
 
 
2,080,099
 
 
3,622,710
 
 
 
 
 
 
 
 
 
LONG-TERM LIABILITIES:
 
 
 
 
 
 
 
Accounts payable - related parties
 
 
482,076
 
 
482,076
 
Loans and advances - officers/shareholders
 
 
115,661
 
 
95,006
 
 
 
 
597,737
 
 
577,082
 
 COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
 
               
SHAREHOLDERS’ DEFICIT:
 
 
 
 
 
 
 
Preferred stock, $.10 par value, authorized 2,447,000 shares, no shares issued and outstanding
 
 
-
 
 
-
 
Series A Preferred stock, $.001 par value, authorized 2,200,000 shares, 2,113,556 shares issued and outstanding
    
2,114
    
2,114
  
Series B Preferred stock, $.01 par value, authorized 353,000 shares, 352,946 shares issued and outstanding
    
35,295
    
35,295
  
Common stock, $.01 par value; 300,000,000 shares authorized, 126,513,857 and 118,882,645 shares issued and outstanding at December 31, and June 30, 2007, respectively
 
 
1,265,139
 
 
1,188,826
 
Additional paid-in capital
 
 
19,958,639
 
 
18,987,733
 
Accumulated deficit
 
 
(21,921,257
)
 
(21,215,226
)
TOTAL SHAREHOLDERS’ DEFICIT
 
 
(660,070
)
 
(1,001,258
)
 
 
 
 
 
 
 
 
 TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT
 
$
2,017,766
 
$
3,198,534
 
 
See notes to condensed consolidated financial statements.
 
3
 
ELEMENT 21 GOLF COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006
(unaudited)

   
Six months Ended December 31,
  
Three months Ended December 31,
  
   
2007
  
2006
  
2007
  
2006
  
REVENUES
  
$
386,932
  
$
26,311
  
$
255,801
  
$
25,084
  
                           
COST OF SALES
    
275,127
    
19,212
    
215,583
    
4,389
  
                           
GROSS MARGIN
    
111,805
    
7,099
    
40,218
    
20,695
  
                           
General and administrative expenses
    
2,854,291
    
3,577,569
    
1,915,031
    
2,325,503
  
                           
LOSS FROM OPERATIONS
    
(2,742,486
)
  
(3,570,470
)
  
(1,874,813
)
  
(2,304,808
)
                           
OTHER INCOME (EXPENSE)
                          
Interest income
    
7,811
    
-
    
6,530
    
-
  
Interest expense
    
-
    
(823,617
)
  
-
    
(269,541
)
Derivative income (expense)
    
2,028,644
    
(1,896,636
)
  
2,675,911
    
(1,681,794
)
     
2,036,455
    
(2,720,253
)
  
2,682,441
    
(1,951,335
)
                           
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
    
(706,031
)
  
(6,290,723
)
  
807,628
    
(4,256,143
)
                           
Provision for income taxes
    
-
    
-
    
-
    
-
  
                           
NET INCOME (LOSS)
    
(706,031
)
  
(6,290,723
)
  
807,628
    
(4,256,143
)
                           
 Accretion of preferred stock dividends
    
-
    
4,000,000
    
-
    
2,000,000
  
                           
INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS
  
$
(706,031
)
$
(10,290,723
)
$
807,628
  
$
(6,256,143
)
                           
Basic weighted average shares
    
122,741,423
    
108,826,111
    
124,818,339
    
112,057,909
  
Diluted weighted average shares
    
122,741,423
    
108,826,111
    
172,848,141
    
112,057,909
  
                           
Basic income (loss) per share
    
($0.01
)
  
($0.09
)
$
0.01
    
($0.00
)
Diluted income (loss) per share
    
($0.01
)
  
($0.09
)
$
0.01
    
($0.00
)
 
See notes to condensed consolidated financial statements.
 
4

ELEMENT 21 GOLF COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 30, 2007 AND 2006
(unaudited)

 
 
2007
 
2006
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
Net loss
 
$
(706,031
)
$
(6,290,723
)
Adjustments to reconcile net loss to net cash (used in) operating activities:
 
 
 
 
 
 
 
Compensatory common stock and warrants
 
 
2,152,260
 
 
2,254,365
 
Depreciation and amortization
 
 
184,600
 
 
176,020
 
Amortization of discount to convertible notes
    
-
    
745,788
  
Excess derivative liability expense (income)
    
(1,966,267
)
  
1,896,636
  
Changes in:
 
 
 
 
 
 
 
Accounts receivable
 
 
(11,953
) 
 
(2,439
) 
Inventories
 
 
(90,769
 )
 
(177,013
) 
Prepaid expenses and other current assets
 
 
(237,616
) 
 
(280,172
) 
Accounts payable and accrued expenses
 
 
(287,763
)
 
508,886
 
Accrued interest
    
(27,250
)
  
21,658
  
Deferred revenue
    
(12,071
)
  
-
  
Net cash (used in) operating activities
 
 
(1,002,860
)
 
(1,146,994
)
 
 
 
 
 
 
 
 
CASH FLOW FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
Purchase of capital assets
 
 
(44,703
)
 
(30,434
)
Net cash (used in) investing activities
 
 
(44,703
)
 
(30,434
)
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
(Repayments to) related parties
 
 
-
 
 
(45,672
) 
Loans and advances made to (repaid by) officers/shareholders
    
20,655
    
(21,925
)
Financing costs
    
-
    
(500,000
)
(Repayments of) net proceeds from bridge loans
    
(475,000
)
  
140,000
  
Proceeds from sale of preferred shares 
 
 
-
 
 
4,000,000
 
Net cash (used in) provided by financing activities
 
 
(454,345
) 
 
3,573,403
 
 
 
 
 
 
 
 
 
NET (DECREASE) INCREASE IN CASH
 
 
(1,501,908
) 
 
2,394,975
 
 
 
 
 
 
 
 
 
CASH, BEGINNING OF PERIOD
 
 
1,751,178
 
 
263,219
 
 
 
 
 
 
 
 
 
CASH, END OF PERIOD
 
$
249,270
 
$
2,658,194
 
SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
 
 
Interest paid
 
$
46,750
 
$
-
 
Taxes paid
 
$
-
 
$
-
 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
              
Issuance of stock to pay expenses and settle accrued expenses
  
$
1,314,400
  
$
    
 
See notes to condensed consolidated financial statements.
 
5
 
ELEMENT 21 GOLF COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)

NOTE 1 NATURE OF BUSINESS AND OPERATIONS:

Element 21 Golf Company and subsidiaries (the “Company” and or “Element 21”) designs, develops and has begun to market, Scandium alloy golf and fishing products.  The first products manufactured using the Company’s proprietary technology have been recently produced and the Company commenced distribution to wholesalers and retail markets during the last quarter of its fiscal year ended June 30, 2006.

In June, 2007 the Company began an expansion into recreational fishing equipment. On June 21, 2007, the Company entered into a non-exclusive, world-wide patent license with Advanced Light Alloys Corporation (Advanced) by which Element 21 was licensed by Advanced to make, use, and sell fishing equipment utilizing certain of Advanced’s patents (see Note 9 - Related party Transaction).

The Company is subject to a number of risks similar to those of other companies in the early stages of operations.  Principal among these risks are dependencies on key individuals, competition from other current or substitute products and larger companies, the successful marketing of its products and the potential need to obtain adequate additional financing necessary to fund future operations.

The accompanying unaudited consolidated condensed financial statements have been prepared from the books and records of Element 21 on the same basis as the annual financial statements and are consistent with the instructions to Form 10-QSB and Rule 310 of Regulation S-B.  Accordingly, the accompanying financial statements do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. All significant inter-company accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the periods ended December 31, 2007 are not necessarily indicative of the results that may be expected for the year ending June 30, 2008. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the year ended June 30, 2007.
 
NOTE 2 FUTURE OPERATIONS/GOING CONCERN:

These interim financial statements have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has only recently begun producing revenues; however, not on any consistent basis.  Even with the generation of revenues from the sale of golf and fishing products now being produced and sold, the Company expects to incur expenses in excess of revenues for an indefinite period.

Key financial information follows:
 
 
  
Six Months Ended December 31,
2007
  
Year Ended June 30,
2007
  
(Negative) working capital
  
$
(166,669
)
$
(668,410
)
Net loss  
  
$
706,031
  
$
4,002,650
  
Accumulated deficit
  
$
21,921,257
  
$
21,215,226
  

As shown in the accompanying financial statements, during the three and six months ended December 31, 2007 the Company earned net income of $807,628 and incurred a net loss of $706,031, respectively, and cash utilized by operations during the six month period was $1,002,860. For the fiscal year ended June 30, 2007, the Company realized a net loss of $4,002,650 and utilized cash of $3,994,796 for operations.

These factors, among others, raise significant doubt about the Company’s ability to continue as a going concern.  The unaudited consolidated condensed financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.  

6

ELEMENT 21 GOLF COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)

NOTE 2 FUTURE OPERATIONS/GOING CONCERN (Continued):

The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow and meet its obligations on a timely basis and ultimately attain profitability.  Since acquiring the Element 21 Technologies golf development business, the Company has depended on advances and consulting services from consultants engaged by the Company as well as the financings described below (See Notes 6 and 7). Absent these continuing advances, services and financings, the Company could not continue with the development and marketing of its golf and fishing products.

Managements’ plans for the Company include more aggressive marketing, raising additional capital and other strategies designed to optimize shareholder value. However, no assurance can be given that management will be successful in fulfilling all components of its plan. The failure to achieve these plans will have a material adverse effect on the Company’s financial position, results of operations and ability to continue as a going concern.

During the six months ended December 31, 2007 the Company issued 7,731,212 shares of its common stock to consultants for services rendered and to be rendered by them for an aggregate value of $1,314,400 based on the market price of the shares at time of issuance. For the six months ended December 31, 2007, the amortized expense aggregated $1,193,200.
 
NOTE 3 RELATED PARTY ADVANCES:

During the six month period ended December 31, 2007, certain related parties advanced a net amount of $20,655. During the six month period ended December 31, 2006, the Company repaid certain related parties a net amount of $45,672 and certain officers and shareholders a net amount of $21,925.  Management does not expect these amounts to be paid within the next 12 months.
 
NOTE 4 FACTORING AGREEMENT:

On March 16, 2007, the Company signed an Accounts Receivable Purchase agreement (commonly described as a factoring agreement). The term of the agreement is one year. The Company is obligated to pay a daily fee based on the face amount of purchased accounts receivable. The maximum borrowing level allowed under this agreement is $1,000,000. As of December 31, 2007, the Company had not borrowed any monies under this agreement.

NOTE 5 NET INCOME (LOSS) PER SHARE:

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the periods.  Diluted net loss per share reflects, in addition to the weighted average number of common shares, the potential dilution of stock options and warrants outstanding, exercised and/or converted into common stock, unless the effect of such equivalent shares was anti-dilutive.

For the three and six months ended December 31, 2006 and the six months ended December 31, 2007, the effect of stock options and other potentially dilutive shares were excluded from the calculation of diluted net loss per common share, as their inclusion would have been anti-dilutive.  Therefore diluted loss per share is equal to basic loss per share. Such securities, shown below, presented on a common share equivalent basis and outstanding as at December 31, 2007 and 2006 have been excluded from the per share computations:

 
  
December 31,
2007
  
December 31,
2006
  
Warrants
    
72,374,114
    
62,683,365
  
Convertible Notes
    
-
    
5,216,256
  
Convertible Preferred Stock
    
43,582,667
    
32,156,863
  

7
 
ELEMENT 21 GOLF COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)

NOTE 5 NET INCOME (LOSS) PER SHARE (Continued):

For the three months ended December 31, 2007, the effect of stock options and other potentially dilutive shares were included in the calculation of diluted net loss per common share. The Series A and Series B Preferred Stock were included into the fully diluted computation on the “if converted” method. All other securities were included based on the economics of their individual terms to determine the likelihood of conversion. The dilutive effect of preferred shares and warrants was 48,029,802.
 
Reconciliation of Basic to Fully Diluted Shares
    
Three months ended 12/31/2007
  
Basic shares
    
124,818,339
  
Dilutive effect of warrants
    
4,447,136
  
Dilutive effect of convertible preferred shares
    
43,582,666
  
Fully diluted shares
    
172,848,141
  

NOTE 6 CONVERTIBLE NOTES:
 
Bridge I Financing:
 
Between January 17 and March 6, 2006, the Company issued 10% Convertible Promissory Notes in the aggregate principal face amount of $540,000 to 15 individual investors. With respect to notes totaling $340,000 (the “$340,000 Notes”), each such investor also received three separate warrants (a warrant exercisable for one year, a warrant exercisable for two years, and a warrant exercisable for three years) to purchase shares of the Company's common stock up to an amount equal to the initial investment in the $340,000 Notes at an exercise price to be determined based on a twenty day trading average of shares of the Company’s Common Stock prior to the date of exercise or from and after the date of an equity financing of at least $5.0 million (the “Equity Financing”) completed within 12 months. With respect to one note for $200,000 (the “$200,000 Note”), the investor received 3,529,413 warrants (1/3 warrants exercisable for one year, 1/3 warrants exercisable for two years, and the remaining 1/3 warrants exercisable for three years) with similar terms, except that the warrants are exercisable at an exercise price which is fixed at $0.17 per share. All of these warrants are subject to certain anti-dilution price adjustments. The $340,000 Notes and the $200,000 Note mature one year after issuance and accrue interest at an annual interest rate equal to 10% per annum, payable at maturity. All the notes and interest are convertible, at the option of the investor, into shares of Company’s Common Stock under the same terms and conditions as the warrants.

During the year ended June 30, 2007, two notes totaling $75,000 and $7,500 in related accrued interest were converted into 485,294 shares of common stock. As a result, the Company charged the remaining balance of $40,625 of unamortized discount to the notes to additional paid-in capital. In order to induce the note holders to convert their notes into stock, the Company offered certain incentives, which included piggy back registration rights for the warrants, payment in full of all interest and an extension of the warrant expiration terms by approximately seven months. As a result of the extension of the warrant expiration date, the Company recorded an additional $122,215 in derivative expense. In addition, two $20,000 notes were cancelled during the year ended June 30, 2007 and the proceeds were returned to the investor and all entries related to the recording of the note were reversed, including $33,549 of derivative liability and all accrued interest. During the year ended June 30, 2007, the remaining $225,000 face value of the $340,000 Notes matured and was paid, along with the requisite accrued interest of 10% per annum, and the original one year warrants expired without being exercised. In January, 2007 the $200,000 Note matured, however, the holder requested, and the Company granted a six month extension to exercise the conversion of the one year warrants and the note. The Company granted the extension of the maturity date on the note to July 15, 2007 without interest. In June, 2007, the holder requested an early payment of the note and in return agreed to the cancellation of all the warrants, to which the Company agreed effective immediately. The Company terminated the related warrants in June, 2007 and recorded the termination as derivative income. In July 2007, the Company paid the $200,000 Note and accrued interest of $20,000.

8

ELEMENT 21 GOLF COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)

NOTE 6  CONVERTIBLE NOTES (Continued):

As of December 31, 2007, all of the remaining unexpired warrants related to the $340,000 Notes financing were revalued and the liability was adjusted to approximately $41,000. The terms of the warrants issued for the $340,000 Notes resulted in the Company losing control over the number of shares to be issued (the “tainting feature”). As such, all warrants and embedded derivatives, if any, related to convertible notes and preferred shares issued subsequently would be affected by this tainting feature and would default to being recorded as derivative liability and not equity. As of December 31, 2007 the Company revalued the warrants using the Black Scholes option-pricing model with the following assumptions: an expected life equal to the contractual term of the conversion option or warrants, as the case may be; no dividends; a risk free rate of return ranging from 2.9% to 3.14% and volatility ranging from 5% to 45% (range in volatility is due to the terms of the remaining warrants). Volatility is based upon the historical volatility of the Company’s stock price.

As of December 31, 2007, the warrants related to the $75,000 of converted notes were revalued and the liability was adjusted to approximately $15,000. As of December 31, 2007 the Company revalued the warrants using the Black Scholes option-pricing model with the following assumptions: an expected life equal to the contractual term of the conversion option or warrants, as the case may be; no dividends; a risk free rate of return ranging from 3.14% to 3.19% and volatility ranging from 32% to 39% (range in volatility is due to the terms of the remaining warrants). Volatility is based upon the historical volatility of the Company’s stock price.

Bridge II Financing:
 
Between May 5 and June 30, 2006, the Company issued additional 10% Convertible Promissory Notes in the aggregate principal face amount of $623,000 to 16 individual investors (the “$623,000 Notes”). Each such investor also received warrants, exercisable for one year, to purchase shares of the Company's common stock up to 150% of the investor’s initial investment in the $623,000 Notes at an exercise price equal to the lesser of (i) $0.175, or (ii) the ten day trading average of shares of the Company’s Common Stock prior to
the date of exercise. All of these warrants are subject to certain anti-dilution price adjustments. The $623,000 Notes mature one year after issuance and accrue interest at an annual interest rate equal to 10% per annum, payable at maturity. The notes and interest are convertible, at the option of the investor, into shares of the Company’s Common Stock under the same terms and conditions as the warrants.

In July, 2006, the Company issued additional 10% Convertible Promissory Notes in the aggregate principal face amount of $180,000 to 6 additional investors (the “$180,000 Notes”). The terms of the notes and warrants are identical to the $623,000 Notes.

The Company accounted for the above convertible notes and warrants as follows: under the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, ("SFAS 133") an embedded conversion option should be bifurcated and accounted for separately as a derivative instrument, unless the specific requirements for equity classification of the embedded conversion option, as stated in EITF 00-19: Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock (“EITF 00-19”) are met. EITF 00-19 provides that an equity classification is appropriate if the settlement criteria set forth therein for such classification are met and that the additional conditions necessary for equity classification, set forth therein, are also met. Warrants are freestanding derivatives and need to be similarly analyzed under EITF 00-19 to determine if equity classification is appropriate.

The Company determined that the conversion option of the notes was required to be bifurcated and accounted for as a derivative. The warrants were also required to be recorded and accounted for as a derivative due to the same tainting feature as the Bridge I Financing and as a result of this tainting feature, the terms of the Bridge II Financing also resulted in similar accounting treatment.
 
The conversion option and the warrants in respect of the Bridge II Financing ($623,000 Notes), were initially valued at approximately $559,800 and $373,200, respectively. The combined liability was restricted to the value of the proceeds of $623,000 and has been recorded as a discount to the convertible notes with a corresponding credit to warrant liability, respectively, on a pro-rata basis. The discount of $623,000 is accreted on a straight-line basis over the maturity period of the notes. The liabilities for the conversion option and the warrants were adjusted to zero as of September 30, 2007 as the conversion option of the notes and the warrant stock purchase option expired.
 
9
 
ELEMENT 21 GOLF COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)

NOTE 6  CONVERTIBLE NOTES (Continued):

The conversion option and the warrants with respect to the Bridge II Financing ($180,000 Notes) were initially valued at a combined approximate amount of $178,400, which has been recorded as a discount to the convertible notes with a corresponding credit to a derivative liability. As of September 30, 2007, as all of the remaining Bridge II financing warrants issued and conversion option expired and the related derivative liability was adjusted to zero.

During the year ended June 30, 2007, notes totaling $300,000 (principal) plus $30,000 in accrued interest of the Bridge II financing $623,000 Notes, were converted into 2,200,000 shares of common stock. As a result of the conversion, the Company charged additional paid-in capital for $250,000 as the remaining unamortized discount on the notes and reversed derivative expense of approximately $150,700 related to the conversion option. In order to induce the note holders to convert their notes into stock, the Company offered certain incentives, which included registration rights for the warrants, payment in full of all interest and an extension of the warrant expiration term by approximately three months. As a result of the extension of the warrant expiration date and setting of the conversion rate, the Company recorded an additional derivative expense of approximately $42,600. As of September 30, 2007, as all of the remaining Bridge II financing warrants issued had expired and the derivative liability was adjusted to zero.
 
NOTE 7 PREFERRED SHARES

Series A Preferred Stock:

In February 2006, the Company issued a total of 2,113,556 shares of newly designated Series A Convertible Preferred Stock in order to settle outstanding debts owed to officers and consultants of the Company (a portion of which were for unpaid consulting fees) in the aggregate amount of $2,113,556. The shares of Series A Convertible Preferred Stock are convertible at the option of the holder, at any time after issuance. Each share of Series A Convertible Preferred Stock is convertible into that number of shares of common stock of the Company as is equal to the Original Issue Price of shares of Series A Convertible Preferred Stock, or $1.00, by the Conversion Price which is initially equal to $0.255 and is subject to adjustment in certain cases. Each share of Series A Convertible Preferred Stock carries with it the right to fifty votes.

Also, in February 2006, the Company issued a warrant to purchase 1,000,000 shares of the Company’s common stock at a price of $0.01 as part of the Company’s repayment of outstanding indebtedness to a creditor of the company. The warrant vested immediately and is exercisable for a three year period from the date of issuance. As of December 31, 2007, the warrant was revalued and the derivative liability was adjusted to approximately $150,000. As of December 31, 2007 the Company revalued the warrant under the Black Scholes option-pricing model with the following assumptions: an expected life equal to the contractual term of the warrant, as the case may be; no dividends; a risk free rate of return of 3.14% and volatility of 55%.

Series B Preferred Stock:

On July 31, 2006 (the “Initial Closing Date”), the Company agreed to a $4 million equity financing by entering into two Series B Convertible Preferred Stock Subscription Agreements (each a “Subscription Agreement” and collectively the “Subscription Agreements”) with two investors (each a “Purchaser” and collectively, the “Purchasers”). Each Subscription Agreement provides for the sale by the Company to the applicable Purchaser of 117,648 shares of the Company’s Series B Convertible Preferred Stock, par value $0.10 per share (the “Series B1 Preferred Stock”), and warrants to purchase an aggregate of 17,647,059 shares of the Company’s common stock, in exchange for and in consideration of an aggregate investment by each Purchaser of $2 million in cash (each Purchaser’s “Investment Amount”), which amount is to be invested by each Purchaser in two equal $1 million installments, the first of which occurred on the Initial Closing Date and the second of which occurred on November 30, 2006 (the “Subsequent Closing Date”).

On the Initial Closing Date, each Purchaser invested $1 million in the Company in return for 58,824 shares of Series B Preferred Stock and two warrants (the terms of which are more fully described below) to purchase an aggregate of 8,823,530 shares of common stock. The Subscription Agreements obligated each Purchaser to invest the remaining $1 million of its Investment Amount (the “Additional Investment Amount”) in the Company no later than November 30, 2006, subject only to the Company converting at least 80% of the aggregate outstanding principal amount evidenced by those certain convertible promissory notes issued by the Company between February 2006 and July 31, 2006 (collectively, the “Promissory Notes”) into shares of common stock prior to the Subsequent Closing Date. On October 31, 2006, both Purchasers had agreed to waive any conditions to the Subsequent Closing. On the Subsequent Closing Date, in exchange for each Purchaser’s Additional Investment Amount, the Company issued to each Purchaser an additional 58,824 shares of Series B Preferred Stock and two additional warrants (the terms of which are more fully described below) to purchase an aggregate of an additional 8,823,529 shares of common stock. 

10
 
ELEMENT 21 GOLF COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)

NOTE 7 - PREFERRED SHARES (Continued):
 
On the Initial Closing Date, the Company granted each Purchaser (i) one warrant to purchase 3,750,000 shares of common stock at an exercise price of $0.22 per share in the event the warrant is exercised on or prior to July 31, 2007, and $0.28 per share in the event the warrant is exercised on or after August 1, 2007, and (ii) one warrant to purchase 5,073,530 shares of common stock at an exercise price of $0.28 per share (each an “Initial Warrant”, and collectively, the “Initial Warrants”). On the Subsequent Closing Date, the Company granted each Purchaser (i) one additional warrant to purchase 3,750,000 shares of common stock at an exercise price of $0.22 per share in the event the warrant is exercised on or prior to July 31, 2007, which increases to $0.28 per share in the event the warrant is exercised on or after August 1, 2007, and (ii) one additional warrant to purchase 5,073,530 shares of common stock at an exercise price of $0.28 per share (each a “Subsequent Warrant”, collectively, the “Subsequent Warrants” and collectively with the Initial Warrants, the “Warrants”). The Warrants expire on January 31, 2009. The exercise prices of the Warrants are subject to adjustment in the event of certain dilutive issuances, stock dividends, stock splits, share combinations or other similar recapitalization events. The Warrants may only be exercised by the payment of the applicable exercise price to the Company in cash, no cashless exercise is permitted. The terms of the Initial Warrants and the Subsequent Warrants are identical.

On June 15, 2007, the Company consummated a $2,000,000 equity financing by entering into two additional Series B Convertible Preferred Stock Subscription Agreements (each a “Series B Subscription Agreement” and collectively the “Series B Subscription Agreements”) with the Purchasers. Each Series B Subscription Agreement provides for the sale by the Company to the applicable Purchaser 58,824 shares of the Company’s Series B Convertible Preferred Stock, par value $0.10 per share (the “Additional Series B Preferred Stock”), and warrants to purchase an aggregate of 5,882,400 shares of the Company’s Common Stock, $.01 par value per share, in exchange for and in consideration of an aggregate investment by each of the Purchasers of $1 million in cash.

On the Closing Date, each Purchaser invested $1 million in the Company in return for 58,824 shares of Additional Series B Preferred Stock and warrants (the terms of which are identical to the Series B Convertible Preferred Stock described above) to purchase an aggregate of 5,882,400 shares of Common Stock. The Company granted each Purchaser one warrant to purchase 5,882,400 shares of common stock at an exercise price of $0.19 per share. The warrants expire on May 31, 2008. The exercise prices of the warrants are subject to adjustment in the event of certain dilutive issuances, stock dividends, stock splits, share combinations or other similar recapitalization events. The warrants may only be exercised by the payment of the applicable exercise price to the Company in cash, no cashless exercise is permitted.

The Company has evaluated the Series B Preferred Stock to determine if there are any embedded derivatives and determined that the Series B Preferred Stock is more akin to equity than debt as it is not redeemable and carries voting rights. As such the Series B Preferred Stock is considered perpetual and the option to convert into shares of Company’s Common Stock is clearly and closely related to the host contract i.e. Series B Preferred Stock and therefore need not be separated. The warrants associated with the issuance of the Series B Preferred Stock have been determined to be a liability due to the tainting feature of the warrants issued with Bridge I and Bridge II Financings. As of June 30, 2007, the warrant issuance was valued at $167,250 using the Black Scholes method. The value of the warrants has been recorded as a dividend with a corresponding discount to the Series B Preferred The Series B Preferred Stock is evaluated further under EITF 98-5: Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, (“EITF 98-5”) and EITF 00-27: Application of Issue No. 98-5 to Certain Convertible Instruments, (“EITF 00-27”) to determine if there is any beneficial conversion feature associated with the conversion. The Company calculated the beneficial conversion to be zero as the conversion price equaled or exceeded the stock price on the date of the agreement.

11
 
ELEMENT 21 GOLF COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)

NOTE 7 - PREFERRED SHARES (Continued):

The Series B Preferred Stock has a conditional 4% dividend attached. The Company has no obligation to pay a dividend except in certain circumstances. The conditional dividend obligation attaches on the anniversary of each issuance whether the Board of Directors declares a dividend payment or not. The Preferred Stock dividend has a priority over junior equity issuances upon the occurrence of a liquidating event. Additionally, no dividends may be paid to holders of common stock unless all Preferred Stock dividends have been paid. As of September 30, 2007, the anniversary date for accrual of dividends had occurred for the Initial Closing Date, but not for the latter closing dates. The earned but not declared dividend at September 30, 2007 was $80,000. If dividends were earned on an accrual basis, then an additional $103,333 in dividends would be entitled to the preference described above. In addition, the holders of the Series B Convertible Preferred Stock have the right to approve certain transactions and certain issues of securities including but not limited to certain mergers, acquisitions, liquidations, sales of equity securities that are senior to the Series B convertible Preferred Stock or the issuance of debt instruments in excess of $1,000,000.

As of December 31, 2007, all of the Series B Preferred Stock warrants were revalued and the liability was adjusted to approximately $155,000. The terms of these warrants resulted in the Company losing control over the number of shares to be issued (the “tainting feature”). As such, all warrants and embedded derivatives, if any, related to convertible notes and preferred shares issued subsequently would be affected by this tainting feature and would default to being recorded as derivative liability and not equity. As of December 31, 2007 the Company revalued the warrants using the Black Scholes option-pricing model with the following assumptions: an expected life equal to the contractual term of the conversion option or warrants, as the case may be; no dividends; a risk free rate of return ranging from 3.23% to 3.34% and volatility ranging from 36% to 44% (range in volatility is due to the terms of the remaining warrants). Volatility is based upon the historical volatility of the Company’s stock price.

NOTE 8 - CONTINGENCIES:

The Company has recently been given notice by a former director and officer of the Company of his claim to 753,858 common shares of the Company’s common stock. The former director/officer alleges that the Company cancelled 753,858 common shares that were in his name and did not replace them. The Company has denied the former director/officer’s claim. The same former director/officer further alleges that he is owed 323,904 common shares of the Company’s common stock for services rendered to the Company pursuant to a contract dated October 12, 2003. Finally, the former director/officer has demanded immediate payment of $251,673 plus $78,045 in interest. The amount demanded represents services that the director/officer (and companies that he controls) provided to the Company in prior years. The Company does not agree that it has any obligation to the former director/officer for any interest or for the issuance of the 323,904 shares for services. The Company further denies the full amount of $251,673 is due and payable upon demand. The Company has recorded sufficient liabilities to cover any impact of these claims.

The Company was recently notified that an individual intended to file suit against the Company for $3,000,000. The claim is for personal injury. The Company has not been served with papers by the court and so it has not had an opportunity to determine the validity of the claim.

NOTE 9 - RELATED PARTY TRANSACTION:

The Company incurred a royalty expense of $16,800 for the sale of fishing equipment. The royalty is calculated as 20% of the net selling price of fishing products sold by the Company and any sub licensee. The royalty is payable to Advanced Light Alloys Corporation, a Barbados corporation that is wholly-owned by David Sindalovsky, a consultant to the Company. The Company is obligated to pay Mr. Sindalovsky $100,000 in royalties for fishing product for the period June 1, 2007 to May 31, 2008. The Company has not paid any royalties to date to Advance Light Alloys Corporation.

NOTE 10 - SUBSEQUENT EVENT:

Subsequent to December 31, 2007 the Company received a request from a Series B Preferred Stock shareholder to convert 58,823 shares to 5,882,353 common shares. The effective date of the conversion is January 31, 2007.

12
 
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Cautionary Statement Regarding Forward-Looking Information

Under the Private Securities Litigation Reform Act of 1995, companies are provided with a “safe harbor” for making forward-looking statements about the potential risks and rewards of their strategies.  Forward-looking statements often include the words “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate” or similar expressions.  In this Form 10-QSB, forward-looking statements also include:

·
statements about our business plans;
 
·
statements about the potential for the development, regulatory approval and public acceptance of new services;
 
·
estimates of future financial performance;

·
predictions of national or international economic, political or market conditions;
 
·
statements regarding other factors that could affect our future operations or financial position; and
 
·
other statements that are not matters of historical fact.

These statements may be found under “Management’s Discussion and Analysis or Plan of Operation” as well as in this Form 10-QSB. Our ability to achieve our goals depends on many known and unknown risks and uncertainties, including changes in general economic and business conditions.  These factors could cause our actual performance and results to differ materially from those described or implied in forward-looking statements.  

These forward looking statements speak only as of the date of this Form 10-QSB.  We believe it is in the best interest of our investors to use forward-looking statements in discussing future events.  However, we are not required to, and you should not rely on us to, revise or update these statements or any factors that may materially affect actual results, whether as a result of new information, future events or otherwise.  You should carefully review the risk factors described in this Form 10-QSB and also review the other documents we file from time to time with the Securities and Exchange Commission (“SEC”).

Results of Operations

Three and Six Months Ended December 31, 2007 and 2006

For the six months ended December 31, 2007 the Company, had revenue of $386,932 and incurred costs of sales of $275,127, general and administrative expenses of $2,854,291, and derivative income of $2,028,644. Included in general and administrative expenses is a non-cash charge of $2,152,260, representing the value of common shares issued for services provided by consultants. This resulted in a net loss of $706,031, as compared with the six months ended December 31, 2006 in which the Company had revenue of $26,311, incurred costs of sales of $19,212, general and administrative expenses of $3,577,569 (including a non-cash charge of $2,254,365 representing the value of common shares issued for services provided by consultants), interest expense of $823,617 and derivative expense of $1,896,636, resulting in a net loss of $6,290,723.  Revenues increased from the prior year period as the Company did not begin full production, and thus sales, until the first quarter of 2007. The primary reason for the significantly smaller net loss from the prior year period is the expiration of a number of the outstanding warrants which resulted in the recognition of derivative income in the current year period versus the recognition of derivative expense in the prior year period. In addition, as the Company’s convertible notes were all extinguished or converted as of December 31, 2006, there was no interest expense recognized in the current year period.

For the three months ended December 31, 2007 the Company, had revenue of $255,801 and incurred costs of sales of $215,583, general and administrative expenses of $1,915,031 and derivative income of $2,675,911. Included in general and administrative expenses is a non-cash charge of $577,687, representing the value of common shares issued for services provided by consultants. This resulted in a net income of $807,628, as compared with the three months ended December 31, 2006 in which the Company had revenue of $25,084 and incurred costs of sales of $4,389, general and administrative expenses of $2,325,503, interest expense of $269,541 and derivative expense of $1,681,794, resulting in a net loss of $4,256,143.  Included in general and administrative expenses was a non-cash charge of $194,027, representing the value of common shares issued for services provided by consultants. Revenues increased from the prior year period as the Company did not begin full production, and thus sales, until the first quarter of 2007. The primary reason for the recognition of net income in the current period versus the net loss in the prior period is the expiration of a number of the outstanding warrants which resulted in the recognition of derivative income in the current year. Offsetting this income was an increase in general and administrative expenses in the current period versus the prior period due to the expenditures incurred in the marketing of our product.

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Financial Condition, Liquidity and Capital Resources

The Company has negative working capital as of December 31, 2007 of $166,669.  The Company retains consultants who are also significant stockholders of the Company to perform development and public company reporting activities in exchange for stock of the Company.  At June 30, 2007, we had a working capital deficiency of $668,410.  Despite this apparent turn-around in the working capital, our continuation as a going concern will require that we raise significant additional capital.

Absent continued issuances of common stock for services by our consultants and continued advances by stockholders of the Company, the Company cannot manufacture its golf shaft or fishing product lines or market its products based on its technologies.  The Company is actively searching for capital to implement its business plans, supply the Company with products for distribution, and develop collateral materials for its potential customer base.  There can be no assurance that such capital will be raised on terms acceptable to the Company and if this capital is raised, it, may cause significant dilution to the Company’s stockholders.
 
Dividend Policy  

The Company has not declared or paid any cash dividends on its common stock since its inception and does not anticipate the declaration or payment of cash dividends in the foreseeable future.  The Company intends to retain earnings, if any, to finance the development and expansion of its business.  The Company is prohibited from paying dividends on common stock as long as there are any unpaid accrued dividends due to the Series B Convertible Stock shareholders. Therefore, there can be no assurance that dividends of any kind will ever be paid.

Effect of Inflation

Management believes that inflation has not had a material effect on its operations for the periods presented.

Risk Factors

We have a limited operating history and a history of substantial operating losses and we may not be able to continue our business.

We have a history of substantial operating losses and an accumulated deficit of $21,921,257 as of December 31, 2007. For the period ended December 31, 2007, our net loss was $706,031. We have historically experienced cash flow difficulties primarily because our expenses have exceeded our revenues. We expect to incur additional operating losses for the immediate near future. These factors, among others, raise significant doubt about our ability to continue as a going concern. If we are unable to generate sufficient revenue from our operations to pay expenses or we are unable to obtain additional financing on commercially reasonable terms, our business, financial condition and results of operations will be materially and adversely affected.

We will need additional financing in order to continue our operations which we may not be able to raise.

We will require additional capital to finance our future operations.  We can provide no assurance that we will obtain additional financing sufficient to meet our future needs on commercially reasonable terms or otherwise.  If we are unable to obtain the necessary financing, our business, operating results and financial condition will be materially and adversely affected.

We have no employees and our success is dependent on our ability to retain and attract consultants to operate our business and there is no assurance that we can do so.

As discussed above, as of December 31, 2007, we have no employees and utilize the services of consultants.  Our consultants are bound by non-compete provisions; however, they are not otherwise prohibited from terminating their consulting relationship with the Company. The loss of the knowledge and management and industry expertise of any of these key consultants could have a material adverse impact on our future prospects, in particular Dr. Nataliya Hearn and David Sindalovsky, who have played a key role in developing scandium technology for golf applications. Once we are sufficiently capitalized, we will need to recruit new executive managers and hire employees to help us execute our business strategy and help manage the growth of our business. Our business could suffer if we were unable to attract and retain additional highly skilled personnel or if we were to lose any key personnel and not be able to find appropriate replacements in a timely manner.

14

Our performance depends on market acceptance of our products and we cannot be sure that our products are commercially viable.

We expect to derive a substantial portion of our future revenues from the sales of Element 21 alloy golf shafts that are only now entering the initial marketing phase. Although we believe our products and technologies will be commercially viable, these are new and untested products.  If markets for our products fail to develop further, develop more slowly than expected or are subject to substantial competition, our business, financial condition and results of operations will be materially and adversely affected.

We depend on strategic marketing relationships and if we fail to maintain or establish them, our business plan may not succeed.

We expect our future marketing efforts will focus in part on developing business relationships with distributors that will market our products to their customers. The success of our business depends on selling our products and technologies to a large number of distributors and retail customers.

Competition from traditional golf equipment providers may increase and we may not be able to adequately compete.

The market for golf shafts is highly competitive.  There are a number of other established providers that have greater resources, including more extensive research and development, marketing and capital than we do and also have greater name recognition and market presence.  These competitors could reduce their prices and thereby decrease the demand for our products and technologies.  We expect competition to intensify in the future, which could also result in price reductions, fewer customer and lower gross margins.

Rapidly changing technology and substantial competition may adversely affect our business.

Our business is subject to rapid changes in technology.  We can provide no assurances that research and development by competitors will not render our technology obsolete or uncompetitive.  We compete with a number of companies that have technologies and products similar to those offered by us and have greater resources, including more extensive research and development, marketing and capital than we do.  If our technology is rendered obsolete or we are unable to compete effectively, our business, operating results and financial condition will be materially and adversely affected.

Litigation concerning intellectual property could adversely affect our business.

We rely on a combination of trade secrets, trademark law, contractual provisions, confidentiality agreements and certain technology and security measures to protect our trademarks, license, proprietary technology and know-how.  However, we can provide no assurance that competitors will not infringe upon our rights in our intellectual property or that competitors will not similarly make claims against us for infringement.  If we are required to be involved in litigation involving intellectual property rights, our business, operating results and financial condition will be materially and adversely affected.
 
It is possible that third parties might claim infringement by us with respect to past, current or future technologies.  We expect that participants in our markets will increasingly be subject to infringement claims as the number of services and competitors in our industry grows.  Any claims, whether meritorious or not, could be time-consuming, result in costly litigation and could cause service upgrade delays or require us to enter into royalty or licensing agreements.  These royalty or licensing agreements might not be available on commercially reasonable terms or at all.

Defects in our products may adversely affect our business.

Complex technologies such as the technologies developed by us may contain defects when introduced and also when updates and new products are released. Our introduction of technology with defects or quality problems may result in adverse publicity, product returns, reduced orders, uncollectible or delayed accounts receivable, product redevelopment costs, loss of or delay in market acceptance of our products or claims by customers or others against us. Such problems or claims may have a material and adverse effect on our business, financial condition and results of operations.

The inability to obtain a sufficient amount of scandium or of scandium alloy would adversely affect our business.

Although we currently believe that we will continue to be able to have access to sufficient amounts of scandium or scandium alloy at feasible prices, there is no assurance of this, and any failure to be able to obtain a sufficient supply of scandium at reasonable prices would have a material adverse affect on our business.
 
15

The large number of shares eligible for public sale could cause our stock price to decline.

The market price of our common stock could decline as a result of the resale of the shares of common stock issuable upon conversion of our Series A Preferred Stock, Series B Preferred Stock and outstanding convertible promissory notes and the exercise of outstanding warrants or the perception that these sales could occur. These sales also might make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate. The conversion of these securities into common stock will also result in substantial dilution of the interests of our current stockholders.

Our stock price can be extremely volatile.

Our common stock is traded on the OTC Bulletin Board. There can be no assurance that an active public market will continue for the common stock, or that the market price for the common stock will not decline below its current price. Such price may be influenced by many factors, including, but not limited to, investor perception of us and our industry and general economic and market conditions. The trading price of the common stock could be subject to wide fluctuations in response to announcements of our business developments or our competitors, quarterly variations in operating results, and other events or factors. In addition, stock markets have experienced extreme price volatility in recent years. This volatility has had a substantial effect on the market prices of companies, at times for reasons unrelated to their operating performance. Such broad market fluctuations may adversely affect the price of our common stock.
 
Trading on the OTC Bulletin Board may be sporadic because it is not a stock exchange, and stockholders may have difficulty reselling their shares.

Our common stock is quoted on the OTC Bulletin Board. Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on the Nasdaq SmallCap.

If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, shares of our common stock could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Our common stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person's account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

16
 
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
 
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

We do not expect to pay dividends on our common stock.

We have not declared dividends on our common stock since our incorporation and we have no present intention of paying dividends on our common stock. The Company is prohibited from paying dividends on common stock as long as there are any unpaid accrued dividends due to the Series B Convertible Stock shareholders.
 
MANY OF THESE RISKS AND UNCERTAINTIES ARE OUTSIDE OF OUR CONTROL AND ARE DIFFICULT FOR US TO FORECAST. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS.
 
ITEM 3 CONTROLS AND PROCEDURES:

(a) Evaluation of disclosure controls and procedures.  Management, including our Chief Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report.  Based on this evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective to provide a reasonable level of assurance that the information required to be disclosed in the reports filed or submitted by us under the Securities Exchange Act of 1934 is recorded, processed and summarized. .

(b) Changes in internal control over financial reporting.  There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

17
 
PART II - OTHER INFORMATION
 
Item 1 LEGAL PROCEEDINGS

None
 
Item 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the six months ended December 31, 2007 the Company issued 2,519,217 shares of its common stock to consultants for services rendered by them and recorded related expense of $948,844.   The shares and warrants were issued in reliance on exemptions from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
 
Item 3 DEFAULT UPON SENIOR SECURITIES

None
 
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None
 
Item 5 OTHER INFORMATION

None
 
Item 6 EXHIBITS
     
Exhibit No.
  
Exhibit Description
31.1
  
Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 2002

31.2
  
Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 2002

 
Certification Pursuant to Section 906 of the Sarbanes Oxley Act of 2002
     
10.1
  
Consulting Agreement with Nataliya Hearn dated as of January 4, 2007.
     
10.2
  
Consulting Agreement with David Sindalovsky dated as of September 15, 2007.
     
10.3
  
Consulting Agreement with John Grippo dated as of January 4, 2007.
     
10.4
  
Common Stock Purchase Warrant agreement with Nataliya Hearn dated as of January 4, 2007.

18
SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
Element 21 Golf Company
 
 
 
 
 
 
February 14, 2008  
By:  
/s/  Nataliya Hearn
 
Nataliya Hearn, Ph.D.
 
President and Director
     
 
 
 
February 14, 2008  
By:  
/s/ John Grippo
 
Chief Financial Officer

19