SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




x   QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934




For the
quarterly period ended December 31, 2009




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 Registrant 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)416-362-2121Registrant’s
      telephone number, including area code





Indicate
by check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.   Yes  x
  No   o





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 o    No  
o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a small reporting
company.  See the definition of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.






Large accelerated
      filer    [   ]
            Accelerated
      filer                
      [     ]Non-accelerated
      filer      [   ]
            Smaller reporting
      company   [ X ]




Check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).


Yes 
o
  No   x




Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the last practicable date, 15,567,853 shares of
common stock, par value $0.01 per share as of February 12, 2010.














1




















Element
21 Golf Company and Subsidiaries





INDEX





Page
              NumberPART
      I.
            FINANCIAL
      INFORMATIONItem
      1
            Condensed
      Consolidated Financial Statements:
            3Condensed
      Consolidated Balance Sheets as of December 31, 2009  and June
      30, 2009 (Unaudited)
            3Condensed
      Consolidated Statements of Operations for the Six and Three Months Ended
      December 31, 2009 and 2008 (Unaudited)
            4Condensed
      Consolidated Statements of Cash Flows for the Six Months Ended December
      31, 2009 and 2008 (Unaudited)
            5Notes
      to Condensed Consolidated Financial Statements (Unaudited)
            6Item
      2
            Management's
      Discussion and Analysis of Financial Condition or Results of
      Operations
            14Item
      3
            Quantitative
      and Qualitative Disclosures About Market Risk
            17Item
      4
            Controls
      and Procedures
            17PART
      II
            OTHER
      INFORMATIONItem
      2
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            18Item
      3
            Defaults
      upon Senior Securities
            18Item
      6
            Exhibits
            18SIGNATURES
            19EXHIBITS











2









PART 1 - FINANCIAL INFORMATION


Item
1 - Financial Statements





ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)


December 31, 2009
            
            
            June 30, 2009- ASSETS
      -CURRENT
      ASSETS:Cash
      and cash equivalents
            
            $
            127,309
            
            
            
            1,048,402Short-term
      investments
            
            
            250,730
            
            
            
            -Accounts
      receivable - net of allowance for doubtful accounts of
    $23,328
            
            
            630,798
            
            
            
            515,577Inventories
            
            
            1,515,105
            
            
            
            1,276,891Prepaid
      expenses
            
            
            577,056
            
            
            
            399,604TOTAL
      CURRENT ASSETS
            
            
            3,100,998
            
            
            
            3,240,474FIXED
      ASSETS – NET
            
            
            33,828
            
            
            
            53,690TOTAL
      ASSETS
            
            $
            3,134,826
            
            
            $
            3,294,164- LIABILITIES AND SHAREHOLDERS’
      DEFICIT -CURRENT
      LIABILITIES:Accounts
      payable
            
            $
            689,662
            
            
            $
            815,498Royalty
      payable
            
            
            817,737
            
            
            
            640,564Accrued
      expenses
            
            
            2,095,581
            
            
            
            1,981,432Deferred
      revenue
            
            
            -
            
            
            
            24,000Dividends
      payable
            
            
            60,000
            
            
            
            -Loan
      payable – shareholder
            
            
            525,000
            
            
            
            675,000Convertible
      Debenture, net of debt discount of $0
            
            
            -
            
            
            
            229,546TOTAL
      CURRENT LIABILITIES
            
            
            4,187,980
            
            
            
            4,366,040LONG-TERM
      LIABILITIES:Accounts
      payable - related parties
            
            
            242,076
            
            
            
            242,076Loans
      and advances – officer/shareholder
            
            
            158,718
            
            
            
            156,613TOTAL
      LONG-TERM LIABILITIES
            
            
            400,794
            
            
            
            398,689SHAREHOLDERS’
      DEFICIT:Preferred
      stock, $.10 par value, authorized undesignated 2,447,000 shares, no shares
      issued and outstanding
            
            
            -
            
            
            
            -Series
      A Convertible Preferred stock, $.001 par value, authorized 2,200,000
      shares, 2,113,556 shares issued and outstanding as of December 31 and June
      30, 2009
            
            
            2,114
            
            
            
            2,114Series
      B Convertible Preferred stock, $.10 par value, authorized 353,000 shares,
      352,945 shares  and 294,126 issued and outstanding as
      of  December 31 and June 30, 2009, respectively
            
            
            35,295
            
            
            
            29,413Common
      stock, $.01 par value; 300,000,000 shares authorized, 14,061,747 and
      9,592,363 issued and outstanding at December 31, 2009 and  June
      30, 2009, respectively
            
            
            140,617
            
            
            
            95,924Additional
      paid-in capital
            
            
            26,370,432
            
            
            
            24,065,711Accumulated
      deficit
            
            
            (28,002,406
            )
            
            
            (25,663,727
            )TOTAL
      SHAREHOLDERS’ DEFICIT
            
            
            (1,453,948
            )
            
            
            (1,470,565
            )TOTAL
      LIABILITIES AND SHAREHOLDERS’ DEFICIT
            
            $
            3,134,826
            
            
            $
            3,294,164





See notes
to condensed consolidated financial statements








3







ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


FOR
THE SIX AND THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008


(Unaudited)





Six
      months Ended December 31,
            
            
            Three
      months Ended December 31,2009
            
            
            2008
            
            
            2009
            
            
            2008REVENUES
            
            $
            1,660,453
            
            
            $
            985,907
            
            
            $
            901,635
            
            
            $
            430,651COSTS
      OF SALES
            
            
            867,380
            
            
            
            635,047
            
            
            
            442,915
            
            
            
            285,325GROSS
      PROFIT
            
            
            793,073
            
            
            
            350,860
            
            
            
            458,720
            
            
            
            145,326GENERAL
      AND  ADMINISTRATIVE
              EXPENSES
            
            
            2,048,045
            
            
            
            1,557,816
            
            
            
            1,212,804
            
            
            
            672,118LOSS
      FROM OPERATIONS
            
            
            (1,254,972
            )
            
            
            (1,206,956
            )
            
            
            (754,084
            )
            
            
            (526,792
            )OTHER
      INCOME (EXPENSE)Interest
      income
            
            
            775
            
            
            
            2,629
            
            
            
            473
            
            
            
            1,183Interest
      expense
            
            
            (106,804
            )
            
            
            (41,591
            )
            
            
            (15,975
            )
            
            
            (20,796
            )Derivative
      income
            
            
            -
            
            
            
            103,525
            
            
            
            -
            
            
            
            42,818(106,029
            )
            
            
            64,563
            
            
            
            (15,502
            )
            
            
            23,205LOSS
      BEFORE PROVISION FOR INCOME TAXES
            
            
            (1,361,001
            )
            
            
            (1,142,393
            )
            
            
            (769,586
            )
            
            
            (503,587
            )Provision
      for income taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -NET
      LOSS
            
            $
            (1,361,001
            )
            
            $
            (1,142,393
            )
            
            $
            (769,586
            )
            
            $
            (503,587
            )Basic
      and diluted loss per share
            
            $
            (0.11
            )
            
            $
            (0.15
            )
            
            $
            (0.06
            )
            
            $
            (0.07
            )Basic
      and diluted weighted average shares outstanding
            
            
            12,106,889
            
            
            
            7,535,876
            
            
            
            12,937,354
            
            
            
            7,530,324








See notes
to condensed consolidated financial statements.






4






ELEMENT 21 GOLF COMPANY AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008


(Unaudited)





2009
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
            
            $
            (1,361,001
            )
            
            $
            (1,142,393
            )Adjustments
      to reconcile net loss to net cash (used in) operating
      activities:Compensatory
      common stock and warrants
            
            
            1,077,313
            
            
            
            657,639Depreciation
            
            
            19,862
            
            
            
            37,898Amortization
      of debt discount
            
            
            70,454
            
            
            
            -Non-cash
      foreign exchange
            
            
            2,105
            
            
            
            -Derivative
      liability income
            
            
            -
            
            
            
            (103,525
            )Accrued
      interest
            
            
            (730
            )
            
            
            -Changes
      in:Accounts
      receivable
            
            
            (115,221
            )
            
            
            187,494Inventories
            
            
            (238,214
            )
            
            
            151,669Prepaid
      expenses
            
            
            (177,452
            )
            
            
            (102,192
            )Accounts
      payable, accrued expenses and royalty payable
            
            
            220,740
            
            
            
            (256,346
            )Accrued
      interest
            
            
            -
            
            
            
            54,500Deferred
      revenue
            
            
            (24,000
            )
            
            
            (60,720
            )Net
      cash (used in) operating activities
            
            
            (526,144
            )
            
            
            (575,976
            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of short-term investment
            
            
            (250,000
            )
            
            
            -Net
      cash (used in) investing activities
            
            
            (250,000
            )
            
            
            -CASH
      FLOWS FROM FINANCING ACTIVITIES:Loans
      and advances received by (repaid to) officers/stockholders
            
            
            (150,000
            )
            
            
            66,056Issuance
      of Preferred B Stock
            
            
            51
            
            
            
            -Exercise
      of warrants
            
            
            5,000
            
            
            
            -Net
      cash (used in) provided by financing activities
            
            
            (144,949
            )
            
            
            66,056NET
      (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (921,093
            )
            
            
            (509,920
            )CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            1,048,402
            
            
            
            770,602CASH
      AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            127,309
            
            
            $
            260,682








SUPPLEMENTAL
      CASH FLOW INFORMATION:Interest
      paid
            
            $
            -
            
            
            $
            -Income
      taxes paid
            
            $
            -
            
            
            $
            -





See notes
to condensed consolidated financial statements.






5









ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE
1         NATURE OF BUSINESS AND
OPERATIONS




Element
21 Golf Company and subsidiaries (the “Company” and or “Element 21”) is a
developer of applications of high tech materials used in the sports industry
including advanced Scandium Alloy golf products, bio-fiber fishing equipment and
Zeroloft  Aerogel insulation for apparel and footwear. New materials
applications developed by Element 21 are incorporated by manufacturers and OEMs
into their product lines including Element 21’s own line of Scandium Sc TM golf
and Carrot Stix TM fishing equipment.





Element
21 has developed proprietary Scandium Alloys, bio-fiber composites and ZeroLoft
insulation manufacturing paths and product engineering for various sports,
apparel and footwear applications.  Element 21 secured international
recognition by winning several top honors at shows, and recording wins for
professional athletes using equipment manufactured by Element 21 or
incorporating Element 21 materials.





The first
products manufactured using the Company’s proprietary golf technology have been
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 expanded into recreational fishing equipment. On June 21, 2007,
the Company entered into a non-exclusive, world-wide patent license with
Advanced Light Alloys Corporation, a Barbados corporation (“Advanced”) pursuant
to which Element 21 received a license from Advanced to make, use, and sell
fishing equipment utilizing certain of Advanced’s technologies. The Carrot Stix
line of fishing rods is sold in major box stores (such as Bass Pro, Gander
Mountain, Cabelas and Academy) and smaller retailers across North America and
internationally.





The
Company signed an exclusive Trademark License and Product Distribution Agreement
(“License Agreement”) with Zeroloft Corp. pursuant to which the Company received
an exclusive license effective as of January 1, 2010, for the applications of
the Zeroloft Aspen Aerogels patented technology in the sports apparel and
footwear market.





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.








NOTE
2         BASIS OF
PREPARATION





Pursuant
to the rules and regulations of the Securities and Exchange Commission for Form
10-Q, the financial statements, footnote disclosures and other information
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The financial
statements contained in this report are unaudited but, in the opinion of
management, reflect all adjustments, consisting of only normal recurring
adjustments necessary for a fair presentation of the condensed consolidated
financial statements.  All significant inter-company accounts and
transactions have been eliminated in consolidation. The results of operations
for any interim period are not necessarily indicative of results for the full
year. The balance sheet at June 30, 2009 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.





For
further information, refer to the consolidated financial statements and notes
thereto included in the Company’s Form 10-K for the year ended June 30,
2009.





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,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.








6




















ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE
2         BASIS OF PREPARATION
(continued)




Inventories,
which consist primarily of goods held for resale, are stated at the lower of
cost (first-in, first-out method) or market and are comprised as
follows:








December
      31, 2009
            
            
            June
      30, 2009Finished
      goods
            
            $
            1,470,234
            
            
            $
            1,230,297Components
            
            
            222,871
            
            
            
            224,594Less:
      Provision for obsolescence
            
            
            (178,000
            )
            
            
            (178,000
            )Total
            
            $
            1,515,105
            
            
            $
            1,276,891








NOTE
3         RECENT ACCOUNTING
PRONOUNCEMENTS AFFECTING THE COMPANY





Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards
Codification(the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
All guidance contained in the Codification carries an equal level of authority.
The Codification superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider





ASUs as
authoritative in their own right. ASUs will serve only to update the
Codification, provide background information about the guidance and provide the
bases for conclusions on the change(s) in the Codification. References made to
FASB guidance throughout this document have been updated for the
Codification.





In
September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157, Fair Value
Measurements ("SFAS 157"), which was primarily codified into Topic 820 in
the Accounting Standards Codification ("ASC").  SFAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements required under other accounting pronouncements,
but does not change existing guidance as to whether or not an instrument is
carried at fair value.  It also establishes a fair value hierarchy
that prioritizes information used in developing assumptions when pricing an
asset or liability.  SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years.  In February 2008, FASB issued
Staff Position No. 157-2, which provides a one-year delayed application of
SFAS 157 for nonfinancial assets and liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually).  The Company's adoption of the provisions
of SFAS 157 with respect to the financial assets and liabilities measured at
fair value did not have a material impact on the fair value measurements or the
condensed consolidated financial statements.  In accordance with SFAS
157-2, the Company's adoption did not have a material impact on nonfinancial
assets and nonfinancial liabilities, including, but not limited to, the
valuation of the Company's reporting units for the purpose of assessing goodwill
impairment, the valuation of property and equipment when assessing long-lived
asset impairment, and the valuation of assets acquired and liabilities assumed
in business combinations.  In October 2008, FASB issued SFAS 157-3,
Determining the Fair Value of
a Financial Asset When the Market for That Asset is Not Active, which
became effective upon issuance, including periods for which financial statements
have not been issued.  SFAS 157-3 clarifies the application of SFAS
157.  The Company's adoption of SFAS 157-3 in determination of fair
values did not have a material impact on the condensed consolidated financial
statements





In
December 2007, FASB issued SFAS No. 141R (revised 2007), Business Combinations ("SFAS
141R"), which was primarily codified into Topic 805 Business Combinations in the
ASC.  The statement retains the purchase method of accounting for
acquisitions, but requires a number of changes, including changes in the way
assets and liabilities are recognized in the purchase accounting.  It
also changes the recognition of assets acquired and liabilities assumed arising
from contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred.  SFAS 141R was effective for us beginning July 1,
2009 and will apply prospectively to business combinations completed after that
date.







7






ELEMENT
21 GOLF COMPANY AND SUBSIDIARY


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE
3         RECENT ACCOUNTING
PRONOUNCEMENTS AFFECTING THE COMPANY (Continued)





In
December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB 51 ("SFAS 160"),
which was primarily codified in to Topic 810 Consolidations in the ASC,
and changes the accounting and reporting for minority
interests.  Minority interests will be recharacterized as
noncontrolling interests and will be reported as a component of equity separate
from the parent's equity, and purchases or sales of equity interests that do not
result in a change in control will be accounted for as equity transactions. In
addition, net income attributable to the noncontrolling interest will be
included in condensed consolidated net income on the face of the income
statement and, upon a loss of control, the interest sold, as well as any
interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS 160 was effective for us beginning July 1, 2009 and
did not have a material impact on the condensed consolidated financial
statements.





In March
2008, FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement
No. 133 ("SFAS 161"), which was primarily codified into Topic 815
Derivatives and Hedging
in the ASC.  SFAS 161 requires enhanced disclosures about an entity's
derivative and hedging activities, including (i) how and why an entity uses
derivative instruments, (ii) how derivative instruments and related hedged
items are accounted for under SFAS No. 133, and (iii) how derivative
instruments and related hedged items affect an entity's financial position,
financial performance, and cash flows. SFAS 161 was effective for us beginning
July 1, 2009 and did not have a material impact on the condensed consolidated
financial statements.





In May
2009, FASB issued SFAS No. 165, Subsequent Events,which was
primarily codified into Topic 855 Subsequent Events in the
ASC.  This standard is intended to establish general standards of
accounting for and disclosures of events that occur after the balance sheet date
but before financial statements are issued or are available to be
issued.  Specifically, this standard sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date.  SFAS No. 165 is effective for fiscal years and interim periods
ended after June 15, 2009.  We adopted this statement effective July
1, 2009.





In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments,which were primarily codified into Topic 825
Fair Value Option into
the ASC.  This FSP amends FASB Statement No. 107, to require
disclosures about fair values of financial instruments for interim reporting
periods as well as in annual financial statements. The FSP also amends APB
Opinion No. 28 to require those disclosures in summarized financial
information at interim reporting periods. This FSP was effective for
interim reporting periods ending after June 15, 2009. The adoption of this
FSP did not affect the Company’s condensed consolidated financial
statements.





In
September 2009, the FASB issued ASC 820-10 Measuring Liabilities at Fair Value
(“ASC 820-10”).  ASC 820-10 provides additional guidance on how
companies should measure liabilities at fair value.  Specifically, the
fair value of a liability is not adjusted to reflect the impact of contractual
restrictions that prevent its transfer.  ASC 820-10 will be adopted by
the Company in the third quarter of fiscal year 2010.  The Company is
currently evaluating the impact of ASC 820-10, but does not expect the adoption
to have a material impact on its financial position, results of operations, and
cash flows.











8








ELEMENT
21 GOLF COMPANY AND SUBSIDIARY


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE
4         GOING
CONCERN





These
condensed consolidated 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 began generating revenues in fiscal
2005.  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,
              2009
            
            
            Year
      Ended June 30,
              2009Negative
      working capital
            
            $
            (1,086,982
            )
            
            $
            (1,125,566
            )Net
      loss
            
            $
            (1,361,001
            )
            
            $
            (1,593,160
            )Accumulated
      deficit
            
            $
            (28,002,406
            )
            
            $
            (25,663,727
            )





As shown
in the accompanying condensed consolidated financial statements, during the six
months ended December 31, 2009,  the Company incurred a net loss of
$1,361,001 and cash utilized in operations during this period was $526,144. For
the fiscal year ended June 30, 2009, the Company realized a net loss of
$1,593,160 and utilized cash of $96,224 from operations.





These
factors, among others, raise substantial doubt about the Company’s ability to
continue as a going concern.  The unaudited condensed consolidated
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.





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 proprietary technology golf
development business, the Company has depended on  financings and
consulting services from consultants engaged by the Company some of whom have
agreed to accept full or partial compensation for services with the Company’s
common stock rather than cash.





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, obtaining
additional capital to fund operations and other strategies designed to optimize
stockholder 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.





NOTE
5         RELATED PARTY ADVANCES
AND LOANS PAYABLE





On
November 23, 2009, the Board of Directors resolved to permit $250,000 of debt
due to the President to be converted into shares of common stock of the Company
at $0.45 per share. The Board of Directors further resolved that the remaining
debt due to the President may be converted into shares of common stock of the
Company at $0.45 per shares upon the Company’s common stock reaching a price of
$1.50 per share.  At December 31, 2009, $1,705,726 (which was at June
30, 2009, $1,640,039) was owed by the Company to the President of which $400,794
(which was at June 30, 2009, $398,689) is included in long-term liabilities on
the balance sheet and $1,304,932 (which was at June 30, 2009, $1,241,350) is
included in accrued expenses on the balance sheet.  The President
agreed not to demand, within 12 months of December 31, 2009, the repayment of
$400,794 of the loans and advances due to the President by the Company. Except
as indicated, amounts due to the President are payable on demand, non-interest
bearing and unsecured.





The
Company entered into a new unsecured promissory note of $825,000 with a
stockholder on May 27, 2008 with a stated interest rate of 10% and a repayment
date of November 1, 2008.  The Company went into default; however,
during the quarter ended December 31, 2009, the Company negotiated an extension
of the repayment date until February 23, 2010. During the six months ended
December 31, 2009, the Company repaid $150,000 of the loan.  The
remaining unpaid balance as of December 31, 2009 was $525,000.











9





ELEMENT
21 GOLF COMPANY AND SUBSIDIARY


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE
6         ROYALTY
PAYABLE





During
the six months ended December 31, 2009 the Company incurred a royalty expense of
$227,173 (which was at December 31, 2008, $145,504) for the sale of fishing
equipment which is included in cost of sales. 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. During the six month period ended,
the Company paid $50,000 (2008 - $0) to Advance.  Royalty payable at
December 31, 2009 is $817,737 (which was at June 30, 2009,
$640,564).





NOTE
7         CONVERTIBLE
NOTE





The
Company consummated a Three Hundred Thousand Dollar ($300,000) Convertible
Bridge financing on January 20, 2009 by entering into a Convertible Bridge Loan
Note (“Convertible Note”), Warrant Agreement and Subscription Agreement
(collectively the “Subscription Agreements”).





Pursuant
to the Subscription Agreements, a purchaser made a loan to the Company of
$300,000 in exchange for a six month Convertible Note at the rate of 7% per
annum, payable at maturity.  The Convertible Note can be converted by the
purchaser (“Purchaser”) at anytime prior or on the maturity date at a conversion
price equal to 45 cents per share.  On November 12, 2009, the note was
fully converted into 666,667 shares of common stock.





In
addition the Company issued to the Purchaser a warrant to purchase 857,143
shares of our common stock at $0.35 per share for a period of 12 months,
commencing on January 30, 2009.





The
warrant expires on January 30, 2010.  The exercise price of the
warrant is subject to adjustment in the event of certain dilutive issuances,
stock dividends, stock splits, share combinations or other similar
recapitalization events. The warrant may only be exercised by the payment of the
applicable exercise price to the Company in cash, no cashless exercise is
permitted. The warrant may be exercised in whole or in part for shares of common
stock by payment by the Purchaser of the applicable exercise price in cash prior
to the expiration of the warrant on January 30, 2010.  The warrant was
exercised for stock on January 19, 2010.





The
convertible debentures are accounted for in accordance with Topic 470-20 Debt with conversion and other
options.  The following summarizes the significant terms and
accounting for each convertible debenture entered into by the
Company.





Date
      Issued
            
            1/20/2009Promissory
      Note Amount
            
            $
            300,000Conversion
      Price
            
            $
            0.45Gross
      Proceeds
            
            $
            300,000Net
      Cash Proceeds
            
            $
            300,000Warrants
      Issued to Investors
            
            
            857,143Warrants
      Exercise Price
            
            $
            0.35Warrants
      Fair Value (WFV)
            
            $
            246,017Warrants
      Relative Fair Value
            
            $
            135,170Beneficial
      Conversion Feature (BCF)
            
            $
            101,837Amortization
      of WFV and BCF as non-cash interest expense
            
            $
            237,007





Black-Scholes
Model Assumptions: risk free interest (1.96%); expected volatility (205%);
expected life (12 months); no dividends













10







ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE
8         LOSS PER
SHARE





Basic
loss per share is computed by dividing net loss by the weighted average number
of common shares outstanding for the periods.  Diluted 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
six months ended December 31, 2009 and 2008, the effect of stock options and
other potentially dilutive shares were excluded from the calculation of diluted
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, 2009 and 2008 have been
excluded from the six month diluted loss per share computations:





December 31,
              2009
            
            
            December 31,
              2008Warrants
            
            
            2,435,143
            
            
            
            2,565,939Convertible
      Preferred Stock
            
            
            2,380,326
            
            
            
            1,885,016Stock
      Options
            
            
            -
            
            
            
            160





NOTE
9         SHAREHOLDERS’
DEFICIT




During
the six months ended December 31, 2009, the Company issued 2,211,481 shares of
its common stock to consultants for services rendered by them for an aggregate
fair value of $1,011,858 based on the quoted market price of the shares at time
of issuance.





On July
20, 2009, the Company filed with the Secretary of State of the State of Delaware
an Amended and Restated Certificate of the Powers, Designations, Preferences and
Rights of the Series B Convertible Preferred Stock of the Company dated July 10,
2009 (the “Amendment”).  In connection with the Amendment, the Company
agreed to pay quarterly dividends on the Series B Convertible Preferred Stock of
the Company (the “Series B Stock”) and the current holders of the Series B Stock
(the “Holders”) agreed that such dividends could be paid by delivery of the
Company’s common shares valued at the price that is the average of the closing
price for Common Stock for the 20 trading days immediately preceding the payment
date for such dividends.  In connection with the Amendment, each Series B
Stock is convertible into 5.57 shares of Common Stock.  A Holder
returned to the Company 294,118 unregistered common shares received by reason of
the conversion of its Series B Stock in consideration for the reissuance to the
Holder of 58,823 shares of unregistered post-Amendment Series B
Stock.  On July 16, 2009, the Company issued 1,715,354 shares of its
common stock valued at $857,678 to the holders of the Series B Stock for accrued
dividends through June 30, 2009.Prior to this Amendment
the Holders of the Series B Stock had waived all dividends.





On August
2, 2009, 22,059 warrants with an exercise price of $3.40 expired. On August 3,
2009, 50,000 warrants were exercised at $0.10 per share of common
stock.





At
October 22, 2009 the Company issued 120,000 shares of its common stock valued at
$60,000 to the holders of the Series B Stock for accrued dividends through
September 30, 2009.





On
November 12, 2009 the Convertible Note of $300,000 was fully converted into
666,667 shares of common stock.





On
November 10, 2009, three shares of Series B Convertible preferred stock was
issued for $51.





On
November 15, 2009, 12,500 warrants with an exercise price of $4.00
expired.








11







ELEMENT
21 GOLF COMPANY AND SUBSIDIARY


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE
9         SHAREHOLDERS’ DEFICIT
(continued)




On
December 1, 2009, the Company entered into an Investment Banking Agreement for a
twelve month period. As part of the Agreement, the Company issued 350,000
warrants to the consultant with an exercise price of $0.47 and a term of three
years. 87,500 warrants vested immediately, 87,500 warrants vest in 90 days,
87,500 warrants vest in 180 days and the remaining 87,500 warrants vest in 270
days. The warrants are accounted for in accordance with Topic 505-50 Equity-Based payments to
Non-Employees.  The warrants were initially measured at their
fair value on December 1, 2009 using the following Black-Scholes Model
Assumptions: risk free interest (1.09%); expected volatility (182%); expected
life (36 months); no dividends.  As there is no performance commitment
date before the completion of the performance, the unvested warrants were
re-measured at their fair value on December 31, 2009 using the following
Black-Scholes Model Assumptions: risk free interest (1.09%); expected volatility
(186%); expected life (35 months); no dividends.  Consulting expense
is recognized over the period services are received.  For the period
ended December 31, 2009, the Company recognized $65,457 of expense with a
corresponding increase in additional paid-in-capital.




At
December 31, 2009, the Company reclassified warrants from liabilities to equity
in amount of $55,254.




NOTE
10       RISK MANAGEMENT




Foreign
exchange risk




The
Company is exposed to foreign exchange risks on purchases of inventory, which
are made in US dollars, from two companies. This risk, however, is mitigated by
the fact that a significant portion of its sales to customers are made in US
dollars. The Company does not use derivative instruments to hedge its foreign
exchange risk.




Credit
risk




The
Company is subject to risk of non-payment of its trade accounts receivable. For
the six months ended December 31, 2009, four customers (which was as of
2008, two customers) respectively represent approximately 54.21% of sales
(which was as of 2008, 28.11%) and 59.73% (which was as of 2008, 56.49%) of
the total outstanding accounts receivable. Management continually monitors its
credit terms with customers to reduce credit risk exposure.




NOTE
11       FAIR VALUE MEASUREMENTS





The
Company adopted FASB ASC 820 for all financial assets and liabilities measured
at fair value on a recurring basis.  The Company adopted FASB ASC 820
effective July 1, 2009 for all non-financial assets and
liabilities.  FASB ASC 820 defines fair value as the price that would
be received to sell an asset or paid to transfer a liability (exit price) in an
orderly transaction between market participants at the measurement
date.  The statement establishes market or observable inputs as the
preferred sources of values, followed by assumptions based on hypothetical
transactions in the absence of market inputs.  The statement requires
fair value measurements be classified and disclosed in one of the following
categories:





Level 1 –
Quoted prices in active markets for identical assets and
liabilities.





Level 2 –
Quoted prices in active markets for similar assets and liabilities, quoted
prices for identical or similar instruments in markets that are not active and
model-derived valuations whose inputs are observable or whose significant value
drivers are observable.





Level 3 –
Significant inputs to the valuation model are unobservable.





Financial
assets and liabilities are classified based on the lowest level of input that is
significant to the fair value measurement.





The
carrying amounts on the accompanying condensed consolidated balance sheet for
cash and cash equivalents, short-term investments, accounts receivable, accounts
payable, royalty payable, accrued expenses and current and long-term debt are
carried at cost, which approximates market value. Short-term investments
comprise a redeemable guaranteed investment certificate earning interest at
0.75% per annum and maturing on August 12, 2010.









12












ELEMENT
21 GOLF COMPANY AND SUBSIDIARY


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




NOTE
12       SUBSEQUENT EVENTS




Subsequent
to period end, the Company issued 343,964 shares of its common stock to
consultants, suppliers and Preferred B dividends for an aggregate value of
$299,800 based on the quoted market price of the shares at time of
issuance.





On
January 11, 2010, the Company issued 80,000 shares of its common stock to
holders of Series B Stock for accrued dividends through December 31,
2009.





On
January 11, 2010, 75,000 warrants were exercised at $0.10 per share of common
stock.





On
January 14, 2010, the Company entered into a Trademark License and Product
Distribution Agreement (“License Agreement”) with Zeroloft Corp. (“Zeroloft”),
effective as of January 1, 2010.  Within the field of sport wear
apparel, footwear and related sports specialty items, the Company obtained: (i)
an exclusive license (the “License”) to the Zeroloft Aspen Aerogels trademarks;
and (ii) a limited, worldwide, exclusive right to distribute the products
bearing the Zeroloft Aspen Aerogels Trademark for production and sales of items
in such field.  The License Agreement has a term of five years, which
term is automatically renewable for one year terms unless terminated by either
party pursuant to a notice of termination delivered at least ninety days prior
to any such anniversary date.  In consideration for the License, the
Company will issue to Zeroloft $2 million worth of shares of common stock of the
Company for the period beginning January 1, 2010 at $0.45 cents per share and,
at the sole discretion of Zeroloft, either: (i) an additional $1,000,000 of
shares upon execution of the License Agreement, at the then market price; or
installment payments of $200,000 per year for five years.  Pursuant to
the License Agreement, the Company shall have the right to sublicense and shall
pay to Zeroloft a royalty of 50% of the net license revenue resulting from the
manufacture, distribution or sale of products by
sub-licensees.





On
January 14, 2010, the Company entered into a Management Agreement (“Management
Agreement”) with Zeroloft pursuant to which the Company will render services for
the operation and expansion of Zeroloft’s manufacturing and licensing of its
proprietary, Zeroloft Aspen Aerogels branded weather-resistant fabric, product
made of such fabric, thermal insulation and related insulating
fabrics.  In consideration for providing such services, the Company
will receive a management fee of approximately: (i) five percent (5%) on gross
receipts of sales of items made of Zeroloft product with a value of less than
two (2) US dollars per square foot, less royalties; and (ii) ten percent 10% on
gross receipts of sales of items made of Zeroloft product with a value greater
than $2.00 per square foot, less royalties.  The Management Agreement
has a one year term which is automatically renewable, unless terminated by
either party according to conditions set out in the Management
Agreement.





On
January 15, 2010, 150,000 warrants were exercised at $0.10 per share of common
stock.





On
January 20, 2010, the Company entered into a contract with Moscato, Marsh &
Partners, Inc. (“MMP”), pursuant to which MMP will act as a financial advisor
and consultant to advise the Company on strategic issues over the next twelve
months.  As compensation for services, the Company has agreed to pay
MMP warrants to purchase 1,000,000 shares of Company common stock expiring two
years from issuance.  The warrants are divided among the following
exercise prices: (a) $0.45 – 350,000 warrants (b) $0.75 – 350,000 warrants (c)
$1.00 – 200,000 warrants (d) $1.50 – 100,000 warrants.





On
January 25, 2010, 857,142 warrants were exercised at $0.35 per share of common
stock.





Element
21 has evaluated subsequent events up to the date of filing this Report
(February 12, 2010).








13










ITEM
      2
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR RESULTS OF
      OPERATIONS





CAUTIONARY
NOTE ON FORWARD LOOKING STATEMENTS





In
addition to historical information, this Quarterly Report on Form 10-Q contains
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.  The forward looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in such forward looking statements.  In
some cases, you can identify forward looking statements by terminology such as
“may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “projects,” “potential,” “proposed,” “intended,” or
“continue” or the negative of these terms or other comparable
terminology.  Readers are cautioned not to place undue reliance on
these forward looking statements, which reflect management’s opinions only as of
the date thereof. In evaluating such forward looking statements, readers
should carefully review the discussion of risks and uncertainties in this
Quarterly Report on Form 10-Q and in our most recent Annual Report on Form 10-K
as well as in other filings with the Securities and Exchange Commission
regarding, without limitation, statements about our business plans, statements
about the potential for the development, and public acceptance of new products,
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 condition,
and other statements that are not matters of historical fact.  Our
ability to achieve our goals depends on many known and unknown risks and
uncertainties, including changes in general economic and business
conditions.  Although we believe that the expectations reflected in
the forward looking statements are reasonable, we cannot guarantee future
results, growth rates, and levels of activity, performance or achievements.
Except as expressly required by the federal securities laws, there is no
undertaking to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, changed circumstances or any
other reason.





The
discussion of risks and uncertainties may be found under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” set
forth in this Quarterly Report on Form 10-Q and in our most recent Annual Report
on Form 10-K as well as in other filings with the SEC, is not necessarily a
complete or exhaustive list of all risks facing the Company at any particular
point in time.  These forward looking statements speak only as of the
date of this Form 10-Q and we disclaim any obligation to revise or update any
forward looking statement that may be made from time to time by us or on our
behalf.





Overview





Element
21 designs, develops and markets Scandium alloy golf and fishing
products.  The first products manufactured using the Company’s
proprietary golf technology have been 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 expanded into
recreational fishing equipment.





In
January 2010, the Company entered into a Trademark License, Product Distribution
Agreement and Management Agreement with Zeroloft Corp. Within the field of sport
wear apparel, footwear and related sports specialty items, the Company obtained:
(i) an exclusive license to the Zeroloft Aspen Aerogels trademarks; and (ii) a
limited, worldwide, exclusive right to distribute the products bearing the
Zeroloft Aspen Aerogels Trademark for production and sales of items in such
field. The License Agreement has a term of five years, which term is
automatically renewable for one year. We are currently working with major
footwear and apparel manufacturers to incorporate ZeroLoft into their lines of
products. Russell Athletics, Hanesbrands and Camelbak have tested and
incorporated ZeroLoft into their product lines which we anticipate will be
available to consumers in 2010 and 2011.





Our
business financial condition, cash flows and results from operations are subject
to seasonality resulting from factors as weather and spending
patterns.  Due to seasonality of our business, one quarter’s results
are not indicative of the full fiscal year’s expected financial
results.  A majority of our revenue is earned in the third and fourth
quarters of the year and revenue generally decline in the first and second
quarters.





Due to
the recession currently affecting the global economy and sports equipment and
apparel specifically, we continue to assess our cost structure, including but
not limited to work force reductions, gross margin savings and overall cost
savings in order to sustain our financial position as well as to position
ourselves for future growth.





Results of
Operations





Six
Months Ended December 31, 2009 and 2008





For the
six months ended December 31, 2009, the Company had revenue of $1,660,453, which
includes non-cash barter revenue of $42,109, and incurred costs of sales of
$867,380 and general and administrative expenses of $2,048,045, and interest
income of $775, and interest expense of $106,804. Included in general and
administrative expense is a non-cash charge of $887,118 representing the value
of compensatory common stock and warrants for services provided by
consultants.  This resulted in a net loss of $1,361,001, as compared
with the six months ended December 31, 2008 in which the Company had revenue of
$985,907, incurred costs of sales of $635,047 and general and administrative
expenses of $1,557,816, and interest income of $2,629, and interest expense of
$41,591, offset by derivative income of $103,525, resulting in a net loss of
$1,142,393. The increase in revenues was primarily a result of the launch of the
fishing line in fiscal year 2008.






14







The
Company has expanded its number of stock-keeping units or SKUs in the fishing
rods segment to over 100 SKUs with new lines having higher margins, thus
increasing our overall gross profit.  Compensatory expenses, which are
included in general and administrative expenses, have increased from prior
periods as we have incurred additional consultant and professional fees related
to the rollout of ZeroLoft.





Interest
expense of $106,804 and $41,591 for the six months ended December 31, 2009 and
2008, respectively, primarily relates to paid and accreted interest on the
Convertible Note.





Our net
accounts receivable balances were $630,798 and $515,577 at December 31, 2009 and
June 30, 2009 respectively.  The increase in accounts receivable is
primarily due to growth in revenues in the current fiscal year.The
Company is subject to risk of non-payment of its trade accounts receivable. For
the six months ended December 31, 2009, four customers (which was as of 2008,
two customers) respectively represent approximately 54.21% of sales (which was
as of 2008, 28.11%) and 59.73% (which was as of 2008, 56.49%) of the total
outstanding accounts receivable. Management continually monitors its credit
terms with customers to reduce credit risk exposure.




Our net
inventory balances were $1,515,105 and $1,276,891 at December 31, 2009 and June
30, 2009 respectively.  The increase is due to the seasonality of our
business.  Purchases were made in the second quarter in anticipation
of increasing sales in the third and fourth quarters.  Our inventory
comprises golf and fishing products and components.  We concentrate
our new purchases of inventory on where we anticipate our future sales; golf
shafts and our best selling SKUs.





Our
royalty payable and accrued expenses were in total $2,913,318 and $2,621,996 at
December 31, 2009 and June 30, 2009 respectively.  The increase in the
balances is primarily due to unpaid royalties to Advanced and unpaid
compensation to senior management. The royalty is calculated as 20% of the net
selling price of fishing products sold by the Company and any sub
licensee.





Three
Months Ended December 31, 2009 and 2008





For the
three months ended December 31, 2009, the Company had revenue of $901,635, which
includes non-cash barter revenue of $34,043, and incurred costs of sales of
$442,915 and general and administrative expenses of $1,212,804, and interest
income of $473, and interest expenses of $15,975. Included in general and
administrative expense is a non-cash charge of $525,423 representing the value
of compensatory common stock and warrants for services provided by consultants.
This resulted in a net loss of $769,586, as compared with the three months ended
December 31, 2008 in which the Company had revenue of $430,651, incurred costs
of sales of $285,325 and general and administrative expenses of $672,118, and
interest income of $1,183, and interest expense of $20,796, offset by derivative
income of $42,818, resulting in a net loss of $503,587. The reasons for these
changes are as describe in our Results of Operations for the six months ended
December 31, 2009 and 2008.





In the
third quarter, the Company entered into a Trademark License and Product
Distribution Agreement (“License Agreement”) with Zeroloft Corp. (“Zeroloft”)
pursuant to which the Company diversified its business to include an exclusive
license to the Zeroloft Aspen AerogelsTM and a limited worldwide, exclusive
right to distribute the precuts bearing the Zeroloft Aspen AerogelsTM trademarks
in the field of sports apparel and footwear.  The initial research and
development efforts of the Company with respect to the ZeroLoft product have
been successful.  The Company has also received initial orders for
products incorporating Zeroloft trademarks from Hanesbrands, Russell and
Camelbak and has already resulted in initial orders.  The ZeroLoft
business line is focused on business to business sales and does not require
Element 21 to expend funds on marketing and consumer education.  The
Company expects the Zeroloft business line will provide additional revenues and
growth of the Element 21 brand and its product lines.  The revenue
stream from ZeroLoft will be based on the percentage of sales and royalty
payments, thus the Company expects to have a positive gross margin on every such
contract, which is priced at cost plus basis. The ZeroLoft apparel applications
have been fully developed and no additional R&D costs are expected to be
incurred in the near future. The sole source of the material is made by Aspen
Aerogel, which owns the patented technology on this material.





On
December 1, 2009, the Company entered into an Investment Banking Agreement for a
twelve month period. As part of the Agreement, the Company issued 350,000
warrants to the consultant with an exercise price of $0.47 and a term of three
years. 87,500 warrants vested immediately, 87,500 warrants vest in 90 days,
87,500 warrants vest in 180 days and the remain 87,500 warrants vest in 270
days. The warrants are accounted for in accordance with Topic 505-50
Equity-Based payments to Non-Employees.  The warrants were initially
measured at their fair value on December 1, 2009 using the following
Black-Scholes Model Assumptions: risk free interest (1.09%); expected volatility
(182%); expected life (36 months); no dividends.  As there is no
performance commitment date before the completion of the performance, the
unvested warrants were re-measured at their fair value on December 31, 2009
using the following Black-Scholes Model Assumptions: risk free interest (1.09%);
expected volatility (186%); expected life (35 months); no
dividends.  Consulting expense is recognized over the period services
are received.  For the period ended December 31, 2009, the Company
recognized $65,457 of expense with a corresponding increase in additional
paid-in-capital.






15







Financial Condition,
Liquidity and Capital Resources





The
Company has negative working capital as of December 31, 2009 of
$1,086,982.  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, 2009, we
had a working capital deficiency of $1,125,566. Our working capital deficiency
is due to unpaid management compensation and royalties. Our continuation as a
going concern will require that we raise significant additional capital.
Included in accrued expenses is $1,705,726 owed by the Company to the President
(which was at June 30, 2009, $1,640,039).  There is no assurance that
consultants will continue to accept stock compensation for
services.  If consultants discontinue to accept stock compensation we
may not be able to continue to retain the services of such consultants. The
terms of our contract with our Zeroloft customers will require a prepayment
which will cover our expected upfront costs.





On
January 11, 2010, 75,000 warrants were exercised at $0.10 per share of common
stock resulting in the Company receiving $7,500.  On January 15, 2010,
150,000 warrants were exercised at $0.10 per share of common stock, resulting in
the Company receiving $15,000.  On January 25, 2010, 857,142 warrants
were exercised at $0.35 per share of common stock, resulting in the Company
receiving approximately $300,000.





Absent
continued issuances of common stock for services to 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.





In
consideration for the License Agreement, the Company will issue to Zeroloft $2
million worth of shares of common stock of the Company for the period beginning
January 1, 2010 at $0.45 cents per Share and, at the sole discretion of
Zeroloft, either: (i) an additional $1 million worth of Shares upon execution of
the License Agreement, at the then market price; or installment payments of
$200,000 per year for five years.  Pursuant to the License Agreement,
the Company shall have the right to sublicense and shall pay to Zeroloft a
royalty of 50% of the net license revenue resulting from the manufacture,
distribution or sale of products by sublicensees.  Since payments of
royalties only arrive upon the occurrence of sales, the Company expects that
royalty payments will not have a negative effect on its revenues.





In the
third quarter, the Company entered into a Management Agreement (“Management
Agreement”) with Zeroloft, pursuant to which the Company will render services
for the operation and expansion of Zeroloft’s manufacturing and licensing of its
proprietary, Zeroloft Aspen AerogelsTM branded weather-resistant fabric, product
made of such fabric, thermal insulation and related insulating
fabrics.  In consideration for providing such services, the Company
will receive a management fee of approximately: (i) five percent (5%) on gross
receipts of sales of items made of Zeroloft product with a value of less than
two (2) US dollars per square foot, less royalties; and (ii) ten percent 10% on
gross receipts of sales of items made of Zeroloft product with a value greater
than two (2) US dollars per square foot.  The Company expects to
generate cash fees from services provided pursuant to the Management
Agreement.





Although
the Company has previously been able to raise capital as needed, such capital
may not continue to be available at all, or if available, that the terms of such
financing will not be dilutive to existing stockholders or otherwise on terms
not favorable to the Company or existing stockholders. Further, the current
global financial situation may offer additional challenges to raising the
required capital.  If the Company is unable to secure additional
capital, as circumstances require, it may not be able to continue
operations.





If
adequate funds are not available or not available on acceptable terms, we may be
unable to continue operations; develop enhance and market products, retain
qualified personnel; take advantage of future operations; or respond to
competitive pressures, any of which could have a material adverse effect on our
business; operating results; financial condition and/or liquidity.





With the
introduction of new materials in fishing and apparel markets, Element 21 will be
looking at changing its name from Element 21 Golf to Strategic Elements and
Chemicals, thus expanding our market designation from golf and recreation
products to materials and their applications.






16





Recent
Accounting Pronouncements





See Note
3 “Recent Accounting Pronouncements Affecting the Company” in the Notes to
Condensed Consolidated Financial Statements in Item 1 for a full description of
recent accounting pronouncements, including the expected dates of adoption and
estimated effects on results of operations and financial condition, which is
incorporated herein.





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 stockholders. Therefore, there can be no assurance that
dividends of any kind will ever be paid.  We expect to pay dividends
on Series B Stock with the common stock of the Company.





Effect
of Inflation





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





Critical Accounting Policies





The
preparation of our consolidated financial statements in conformity with U.S.
generally accepted accounting principles (“GAAP”) requires the use of estimates
and assumptions that affect the reported amount of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. We
base our estimates on historical experience and on various other assumptions
that we believe are reasonable under the circumstances, and provide a basis for
making judgments about the carrying value of assets and liabilities that are not
readily available through open market quotes. Estimates and assumptions are
reviewed periodically, and actual results may differ from those estimates under
different assumptions or conditions. We must use our judgment related to
uncertainties in order to make these estimates and assumptions.





For a
description of our critical accounting policies and estimates as well as certain
sensitivity disclosures related to those estimates, see our Annual Report on
Form 10-K for the year ended June 30, 2009. Our critical accounting policies and
estimates have not changed materially during the six months ended December 31,
2009.





Off Balance Sheet
Arrangements





None





ITEM
3         QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK





As a
Smaller Reporting Company, as defined by Rule 12b-2 of the Exchange Act and in
Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting
obligations and therefore are not required to provide the information requested
by this Item.





ITEM
4         CONTROLS AND
PROCEDURES:





Evaluation
of Disclosure Controls and Procedures


Under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, (“together, the “Certifying
Officers”), we carried out an evaluation 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
(the “Exchange Act”). Based on the foregoing, our Certifying Officers concluded
that our disclosure controls and procedures were effective as of the end of the
period covered by this quarterly report.





Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and
forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in our reports filed or submitted under the Exchange Act is
accumulated and communicated to management, including our Certifying Officers,
or persons performing similar functions, as appropriate, to allow timely
decisions regarding required disclosure.




Changes
in Internal Control over Financial Reporting


There
have not been any changes in the Company’s internal control over financial
reporting identified in connection with the evaluation of the Company’s last
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.










17









PART
II - OTHER INFORMATION





Item
2                                UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





During
the three months ended December 31, 2009, the Company issued 780,205 shares of
its common stock to consultants for services rendered and to be rendered by them
and for an aggregate value of $446,492.  The shares were issued in reliance
on exemptions from registration pursuant to Section 4(2) of the Securities Act
of 1933, as amended (the “Act”).  On November 12, 2009 the Promissory
Note Amount of $300,000 was fully converted into 666,667 shares of our common
stock.The shares
were issued in reliance upon the exemption from registration pursuant to Section
3(a)(9) of the Act.





Item
3                                DEFAULT
UPON SENIOR SECURITIES





The Company entered into a
new unsecured promissory note of $825,000 with a stockholder on May 27, 2008
with a stated interest rate of 10% and a repayment date of November 1,
2008.  The loan agreement contains default provisions and the Company
went into default; however, during the quarter ended December 31, 2009, the
Company negotiated an extension of the repayment date until February 23, 2010.
During the six months ended December 31, 2009, the Company repaid $150,000 of
the loan.  The remaining unpaid balance as of December 31, 2009 was
$525,000.





Item
6                                EXHIBITS





Exhibit No.
            
            Exhibit
      Description31.1
            
            Certification
      of principal executive officer pursuant to section 302 of the
      Sarbanes-Oxley Act of 200231.2
            
            Certification
      of principal financial and accounting officer pursuant to Section 302 of
      the Sarbanes Oxley Act of 200232.1
            
            Certification
      of principal executive officer pursuant to Section 906 of the Sarbanes
      Oxley Act of 200232.2
            
            Certification
      of principal financial and executive officer pursuant to Section 906 of
      the Sarbanes Oxley Act of 2002









18







SIGNATURE





Pursuant
to the requirements 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 CompanyFebruary
      12, 2010
            By:
            /s/
       Nataliya HearnNataliya
      Hearn, Ph.D.Chairman,
      Chief Executive Officer and PresidentFebruary
      12, 2010
            By:
            /s/ Philip
      ClarkPhilip
      Clark, CA, CPA, CFA
              Chief
      Financial Officer