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 September 30, 2010


__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





American Rare Earths and Materials, Corp.


(Exact name of Registrant as specified in its charter)


Nevada

98-0669413(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


Element 21 Golf Company


(Former name and former address, if changed since last Report)





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, 23,240,244 shares of common stock, par value $0.001 per share as of November 12, 2010.





1





American Rare Earths and Materials, Corp. and Subsidiaries


(Formerly known as Element 21 Golf Company)





INDEX





Page

NumberPART I.
FINANCIAL INFORMATIONItem 1
Condensed Consolidated Financial Statements:Condensed Consolidated Balance Sheets as of  September 30, 2010  and June 30, 2010 (Unaudited)
3Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2010 and 2009 (Unaudited)
4Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Three Months Ended September 30, 2010 (Unaudited)
5Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2010 and 2009 (Unaudited)
6Notes to Condensed Consolidated Financial Statements (Unaudited)
7Item 2
Management's Discussion and Analysis of Financial Condition and Results of Operations
15Item 3
Quantitative and Qualitative Disclosures About Market Risk
18Item 4
Controls and Procedures
18PART II
OTHER INFORMATIONItem 1
Legal Proceedings
18Item 1A
Risk Factors
18Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
19Item 3
Defaults upon Senior Securities
19Item 4
Removed and Reserved
19Item 5
Other Information
19Item 6
Exhibits
19SIGNATURES
22EXHIBITS








2




PART 1 - FINANCIAL INFORMATION


Item 1 - Financial Statements


AMERICAN RARE EARTHS AND MATERIALS, CORP. AND SUBSIDIARIES


(FORMERLY KNOWN AS ELEMENT 21 GOLF COMPANY)


CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)




September 30, 2010

June 30, 2010- ASSETS -CURRENT ASSETS:Cash and cash equivalents (includes restricted cash of $79,609, Note 13)

$
857,900


$
513,035Short-term investments


-



251,659Accounts receivable - net of allowance for doubtful accounts of $21,037


420,414



789,920Accrued receivable


-



554,143Inventories, net


787,910



919,158Prepaid expenses and other current assets


360,537



625,143TOTAL CURRENT ASSETS


2,426,761



3,653,058INTANGIBLE ASSET SUBJECT TO AMORTIZATION,  NET


3,336,986



3,533,029FIXED ASSETS, NET


55,750



60,900TOTAL ASSETS

$
5,819,497


$
7,246,987- LIABILITIES AND SHAREHOLDERS’ EQUITY -CURRENT LIABILITIES:Accounts payable

$
599,302


$
681,394Royalty payable


1,204,103



1,139,776Accrued expenses


1,005,965



688,996Accrued expenses – related parties


1,406,992



-Deferred revenue


199,721



7,781Dividends payable


60,000



60,000Loan payable – shareholder


150,000



350,000Due to Zeroloft Corp.


334,503



850,000TOTAL CURRENT LIABILITIES


4,960,586



3,777,947LONG-TERM LIABILITIES:Accrued expenses


-



428,505Accrued expenses – related parties


-



1,394,932Accounts payable – related parties


242,076



242,076Loans and advances – officer/shareholder


158,738



158,738TOTAL LONG-TERM LIABILITIES


400,814



2,224,251SHAREHOLDERS’ EQUITY:Preferred stock, $0.10 par value, authorized undesignated 2,447,000 shares, no shares    issued and outstanding


-



-Series A Convertible Preferred stock, $0.001 par value, authorized 2,200,000 shares, 2,113,556 shares issued and outstanding as of September 30, 2010 and June 30, 2010


2,114



2,114Series B Convertible Preferred stock, $0.10 par value, authorized 353,000 shares, 352,945 shares  issued and outstanding as of  September 30, 2010 and June 30, 2010


35,295



35,295Common stock, $0.001 par value; 300,000,000 shares authorized, 22,685,550 and 21,877,608 issued and outstanding at September 30, 2010 and June 30, 2010, respectively


22,686



21,878Additional paid-in capital


32,646,842



32,424,471Accumulated deficit


(32,248,840
)


(31,238,969
)TOTAL SHAREHOLDERS’  EQUITY


458,097



1,244,789TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$
5,819,497


$
7,246,987





See notes to condensed consolidated financial statements




3





AMERICAN RARE EARTHS AND MATERIALS, CORP. AND SUBSIDIARIES


(FORMERLY KNOWN AS ELEMENT 21 GOLF COMPANY)


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009


(Unaudited)




2010


2009REVENUES

$
650,902


$
758,818COSTS OF SALES


425,978



424,465GROSS PROFIT


224,924



334,353GENERAL AND ADMINISTRATIVE EXPENSES


1,171,183



835,241LOSS FROM OPERATIONS


(946,259
)


(500,888
)OTHER INCOME (EXPENSE)Interest income


224



302Interest expense


(3,836
)


(90,829
)(3,612
)


(90,527
)LOSS BEFORE PROVISION FOR INCOME TAXES


(949,871
)


(591,415
)Provision for income taxes


-



-NET LOSS


(949,871
)


(591,415
)Dividends on Series B Preferred Convertible stock


(60,000
)


(917,678
)NET LOSS AVAILABLE TO COMMON STOCKHOLDERS

$
(1,009,871
)

$
(1,509,093
)Basic and diluted net loss available to common stockholders per share

$
(0.04
)

$
(0.13
)Basic and diluted weighted average shares outstanding


22,269,667



11,526,603




See notes to condensed consolidated financial statements.




4





AMERICAN RARE EARTHS AND MATERIALS, CORP. AND SUBSIDIARIES


(FORMERLY KNOWN AS ELEMENT 21 GOLF COMPANY)


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY


FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010


(Unaudited)





Series A Convertible Preferred Stock


Series B Convertible Preferred Stock


Number of Shares in Common Stock


Common Stock


Additional Paid-In Capital


Accumulated Deficit


Total Shareholders’ EquityBalance June 30, 2010

$
2,114


$
35,295



21,877,608


$
21,878


$
32,424,471


$
(31,238,969
)

$
1,244,789Issuance of common stock for services


-



-



616,858



617



146,341



-



146,958Issuance of stock warrants for services


-



-



-



-



16,221



-



16,221Dividends on Series B Convertible Preferred stock, paid in common stock


-



-



191,084



191



59,809



(60,000
)


-Net loss


-



-



-



-



-



(949,871
)


(949,871
)Balance September 30, 2010

$
2,114


$
35,295



22,685,550


$
22,686


$
32,646,842


$
(32,248,840
)

$
458,097




See notes to condensed consolidated financial statements.
  5


AMERICAN RARE EARTHS AND MATERIALS, CORP. AND SUBSIDIARIES


(FORMERLY KNOWN AS ELEMENT 21 GOLF COMPANY)


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009


(Unaudited)




2010


2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(949,871
)

$
(591,415
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Compensatory common stock and warrants


163,179



361,697Depreciation


5,150



9,935Amortization of intangible asset


196,043



-Amortization of debt discount


-



70,454Non-cash foreign exchange


-



1,377Accrued interest


(216
)


-Changes in:Accounts receivable


369,506



277,417Inventories


131,248



(241,624
)Prepaid expenses and other current assets


264,606



30,413Accounts payable, accrued expenses and royalty payable


(117,241
)


(56,589
)Deferred revenue


303,171



(24,000
)Due to Zeroloft


(72,585
)


-Net cash  provided by (used in) operating activities


292,990



(162,335
)CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from short-term investments


251,875



-Net cash provided by financing activities


251,875



-CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of loan payable - shareholder


(200,000
)


(150,000
)Net cash used in financing activities


(200,000
)


(150,000
)INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


344,865



(312,335
)CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


513,035



1,048,402CASH AND CASH EQUIVALENTS, END OF PERIOD

$
857,900


$
736,067SUPPLEMENTAL CASH FLOW INFORMATION:Interest paid

$
-


$
-Income taxes paid

$
-


$
-Issuance of shares of common stock for dividends

$
60,000


$
857,678Repayment of amount due to Zeroloft Corp. through application of receivable from Zeroloft Corp. for certain reimbursable costs

$
442,912


$
-





See notes to condensed consolidated financial statements.




6


AMERICAN RARE EARTHS AND MATERIALS, CORP. AND SUBSIDIARIES


(FORMERLY KNOWN AS ELEMENT 21 GOLF COMPANY)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE 1                                NATURE OF BUSINESS AND OPERATIONS




American Rare Earths and Materials, Corp. and subsidiaries (the “Company” and or “AREM”) 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 sports apparel and footwear. New materials applications developed by AREM are incorporated by manufacturers and original equipment manufacturers (“OEM”) into their product lines including AREM’s own line of Scandium ScTM golf and Carrot StixTM fishing equipment.





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





In September of 2002, BRL Holdings, Inc. (“BRL”) acquired Element 21 Technologies, Inc. (“Technologies”) under an Amended and Restated Agreement (the “Agreement”) wherein BRL issued 106,181 shares of its common stock to shareholders of Technologies and assumed Technologies’ obligations under option agreements allowing for the purchase of 16,080 additional shares of common stock. Technologies was a development stage company formed to design, develop and market AREM alloy golf clubs. This acquisition was accounted for as a reverse acquisition using the purchase method of accounting, as the shareholders of Technologies assumed control immediately following the acquisition.





In October 2003, BRL Holdings, Inc. changed its name to Element 21 Golf Company (“Element 21”).





Upon the closing of the Technologies acquisition, as discussed above, Element 21 reported as a development stage enterprise effective September 17, 2002. During fiscal year 2005, Element 21 commenced active operations and began reporting revenues during the last quarter of the year.





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 May 2007, the Board of Directors adopted resolutions approving an amendment and a majority of shareholders also approved amending the AREM’s Certificate of Incorporation to increase the number of authorized shares of capital stock to 300,000,000 shares of common stock and 5,000,000 shares of preferred stock.





In June 2007, the Company expanded into recreational fishing equipment. On June 21, 2007, the Company entered into a non-exclusive, worldwide patent license with Advanced Light Alloys Corporation, a Barbados Corporation (“Advanced”) pursuant to which AREM received a license from Advanced to make, use, and sell fishing equipment utilizing certain of Advanced’s technologies. The Carrot StixTM line of fishing rods is sold in big box retail stores (such as Bass Pro, Gander Mountain, Cabelas and Academy) and smaller retailers across North America and internationally.





On April 25, 2008, the AREM effected a 1 for 20 reverse stock split. All share and per share amounts in this report have been retroactively restated to reflect the 1 for 20 reverse split.





On January 14, 2010, 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 for the applications of the Zeroloft Aspen Aerogels patented technology in the sports apparel and footwear market.





On July 12, 2010, Element 21 Golf Company effected a re-domestication merger from the State of Delaware to the State of Nevada and changed its name to American Rare Earths and Materials, Corp.





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 need to obtain adequate additional financing necessary to fund future operations.




7


AMERICAN RARE EARTHS AND MATERIALS, CORP. AND SUBSIDIARIES


(FORMERLY KNOWN AS ELEMENT 21 GOLF COMPANY)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE 2                      BASIS OF PREPARATION





Pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q, the condensed consolidated financial statements, footnote disclosures and other information normally included in condensed consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The condensed consolidated 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 on consolidation. The results of operations for any interim period are not necessarily indicative of results for the full year. The condensed consolidated balance sheet at June 30, 2010 has been derived from the audited consolidated 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, 2010.  Interest payable of $137,624 has been reclassified from accounts payable to accrued expenses in the comparative June 30, 2010 condensed consolidated balance sheet presented.




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.





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





September 30, 2010


June 30, 2010Finished goods

$
1,107,590


$
1,238,370Components


222,515



222,983Less: Provision for obsolescence


(542,195
)


(542,195
)Total

$
787,910


$
919,158





NOTE 3                       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, fishing and Zeroloft products now being produced and sold, the Company expects to incur expenses in excess of revenues for an indefinite period.





Key financial information follows:


As at and for the three months ended

September 30,

2010


As at and for the year ended June 30,

2010Negative working capital

$
(2,533,825
)

$
(124,889
)Net loss

$
(949,871
)

$
(4,477,564
)Accumulated deficit

$
(32,248,840
)

$
(31,238,969
)





As shown in the accompanying condensed consolidated financial statements, during the three months ended September 30, 2010, the Company incurred a net loss of $949,871 and generated cash from operations during this period was $292,990.




8


AMERICAN RARE EARTHS AND MATERIALS, CORP. AND SUBSIDIARIES


(FORMERLY KNOWN AS ELEMENT 21 GOLF COMPANY)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE 3                       GOING CONCERN (Continued)





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  share-based compensation 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 and Zeroloft. 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 consolidated financial position, results of operations and ability to continue as a going concern.








NOTE 4                      RECENT ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY





In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-13, “Multiple Deliverable Revenue Arrangements — A Consensus of the FASB Emerging Issues Task Force.” This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company applied this guidance prospectively for revenue arrangements entered into or materially modified after July 1, 2010. The adoption of ASU 2009-13 did not have a material impact on the Company’s condensed consolidated financial statements.





In December 2009, the FASB issued ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASU 2009-17”). ASU 2009-17 changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. The new standard requires a number of new disclosures, including additional disclosures about the reporting entity’s involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity is required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. ASU 2009-17 is effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, or July 1, 2010, for AREM. Based on the Company’s evaluation of ASU 2009-17, the adoption of this update is not expected to impact the Company’s condensed consolidated financial statements.





9


AMERICAN RARE EARTHS AND MATERIALS, CORP. AND SUBSIDIARIES


(FORMERLY KNOWN AS ELEMENT 21 GOLF COMPANY)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE 4                      RECENT ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY (Continued)




In April 2010, the FASB issued ASU No. 2010-13, “Compensation – Stock Compensation (Topic 718): “Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades” (“ASU 2010-13”).  ASU 2010-13 provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. ASU 2010-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010 and is not expected to have a significant impact on the Company’s condensed consolidated financial statements.





NOTE 5                       INTANGIBLE ASSET SUBJECT TO AMORTIZATION, NET





Intangible asset represents a Trademark License and Product Distribution Agreement (“License Agreement”) entered into with Zeroloft Corp. (“Zeroloft”) on January 14, 2010.  License Agreement acquisition costs was $3,888,888 at September 30, 2010 and at June 30, 2010. These costs are presented on the condensed consolidated balance sheet net of accumulated amortization of $551,902 and $355,859 at September 30, 2010 and June 30, 2010, respectively. The Company amortizes the License Agreement using the straight line method over its estimated remaining useful life, which is estimated at 5 years. The Company recorded amortization expense of $196,043 and $0 related to intangible asset subject to amortization during the three month periods ended September 30, 2010 and 2009, respectively. In each of the next five years annualized amortization expense is projected to be $777,778 per year.





The Company evaluates its long-lived assets for indicators of possible impairment. Intangible asset subject to amortization held and used by the Company is reviewed for impairment whenever events or changes in circumstances indicate that its net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets and is recorded in the period in which the determination was made. No impairment was recorded during the three month periods ended September 30, 2010 and, 2009.





NOTE 6                       RELATED PARTY ADVANCES AND LOANS PAYABLE





As of September 30, 2010 and June 30, 2010, $120,627 of trade payables were due to a Series A Convertible Preferred stockholder, ASA Commerce.





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 outstanding at November 23, 2009 of $1,436,415 due to the President may be converted into shares of common stock of the Company at $0.45 per share upon the Company’s common stock reaching a price of $1.50 per share. At September 30, 2010, $1,807,806 (which was at June 30, 2010, $1,795,746) was owed by the Company to the President of which $400,814 (which was at June 30, 2010, $400,814) is included in long-term liabilities on the balance sheet and $1,406,992 is included in accrued expenses classified as current liabilities on the balance sheet (which was at June 30, 2010, $1,394,932 is included in accrued expenses classified as long-term liabilities on the balance).  The President agreed not to demand, within 12 months of June 30, 2010, the payment of $1,795,746 in accrued compensation owning to the President by the Company. Amounts due to the President are payable on demand, non-interest bearing and unsecured. At September 30, 2010, this waiver ceased to cover a 12 month period. Accordingly, the amounts were reclassified to their current presentation.





The Company entered into an 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.  This note went in default However, during the three month period ended September 30, 2010, the Company has been negotiating an extension of the repayment date. During the three month period ended September 30, 2010, the Company repaid $200,000 of the loan.  The remaining unpaid balance as of September 30, 2010 was $150,000 (June 30, 2009 - $350,000).  Subsequent to the period end on October 12, 2010, the Company paid the remaining $150,000 principal due.








10


AMERICAN RARE EARTHS AND MATERIALS, CORP. AND SUBSIDIARIES


(FORMERLY KNOWN AS ELEMENT 21 GOLF COMPANY)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE 7                       ROYALTY PAYABLE





During the three month period ended September 30, 2010, the Company incurred a royalty expense of $64,327 (which was at September 30, 2009, $97,802) 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 three months ended September 30, 2010, the Company paid $0 (September 30, 2009 - $50,000) to Advanced.  Royalty payable at September 30, 2010 is $1,204,103 (which was at June 30, 2010, $1,139,776).





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 three months ended September 30, 2010 and 2009, the effect of stock options and other potentially dilutive shares was 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 September 30, 2010 and 2009 have been excluded from the three month diluted loss per share computations:





September 30, 2010


September 30, 2009Warrants


2,810,000



2,097,643Convertible Preferred stock


2,380,326



2,380,310Convertible Note


-



666,667Due to Related Party


3,747,590



-





NOTE 9                      SHAREHOLDERS’ EQUITY





During the three months ended September 30, 2010, the Company issued 616,858 shares of its common stock to consultants for services rendered by them for an aggregate fair value of $146,958 based on the quoted market price of the shares at time of issuance.





At July 1, 2010, the Company issued 191,084 shares of its common stock valued at $60,000 to the holders of the Series B Convertible Preferred Stock for accrued dividends through June 30, 2010.





On July 1, 2010, the Company issued 75,000 warrants to its CFO with an exercise price of $0.25 and term of three years which vest immediately.  The warrants were measured at their fair value on July 1, 2010 using the following Black-Scholes Model Assumptions: risk free interest (1.01%); expected volatility (172%); expected life (36 months) and no dividends. These warrants were valued at $16,221 and expensed immediately.





On July 12, 2010, the Company reduced the par value of common stock per share from $0.01 to $0.001 upon a redomestication merger from the State of Delaware to the State of Nevada.  The reduction in the par value from $0.01 to $0.001 has been adjusted on a retroactive basis; accordingly, all previous balances have been adjusted.





























11


AMERICAN RARE EARTHS AND MATERIALS, CORP. AND SUBSIDIARIES


(FORMERLY KNOWN AS ELEMENT 21 GOLF COMPANY)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


NOTE 10                     STOCK OPTION PLANS:





As of June 30, 2010, there are three stock option plans in effect; the 1992 Directors' Stock Option Plan (“Directors' Plan”), 1992 Stock Option Plan (“Option Plan”) and the 2006 Equity Incentive Plan (“Incentive Plan”).





Directors’ Plan


The Directors' Plan allows for the grant of options to purchase up to 12,500 shares of the Company’s common stock at an exercise price no less than the stock market price at the date of grant.  Options granted under this Plan vest immediately and expire 10 years from the date of grant. The Board sets vesting and expiration dates.  No stock options have been granted under this plan since 2002.  During the period ended September 30, 2010, 80 options expired and as at September 30, 2010, no stock options to purchase shares of common stock are outstanding under the Directors’ Plan.





Option Plan


The Option Plan allows for the grant of options to employees to purchase up to 10% of the issued and outstanding shares of the Company, not to exceed 50,000 shares, at an exercise price equal to the stock’s market price at the date of grant. The Board sets vesting and expiration dates.  There were no stock options outstanding under the Option Plan at September 30, 2010.  No stock options have been granted under this plan since 2002.





Incentive Plan


The Incentive Plan allows for the grant of options to employees, officers, directors, consultants, advisors of the Company and to any other person who is determined by the Board of Directors to have made (or is expected to make) contributions to the Company.  The number of common stock that may be issued under the Plan is 1,000,000 shares.  No participant of the Plan may be awarded more than 500,000 shares of common stock in any one fiscal year.  The exercise price cannot be less than 100% of the fair market value of the common stock on the date of the grant and may not have a life greater than ten years from the date of grant.  In the case of a shareholder representing more than 10% of the voting power of all classes of shares of the Company, the exercise price cannot be less than 110% of the fair market value of the common stock on the date of the grant and may not have a life greater than five years from the date of grant. At September 30, 2010, options to purchase 425,000 shares of common stock were outstanding under the Incentive Plan.





The following is a summary of the common stock options granted, forfeited or expired and exercised:





Number of

Options


Weighted Average Exercise

Price Per ShareOutstanding – July 1, 2009


160


$
18.75Granted


425,000


$
0.50Forfeited or expired


(80
)

$
12.50Exercised


-



-Outstanding  - June 30, 2010


425,080


$
0.50Granted


-



-Forfeited or expired


(80
)

$
12.50Exercised


-



-Outstanding and exercisable – September 30, 2010


425,000


$
0.50





The following table summarizes information on stock options outstanding and exercisable as of September 30, 2010:


Exercise Price


Number Outstanding atSeptember 30, 2010


Average RemainingLife (Years)


Aggregate

Aggregate Intrinsic Value$
0.50



425,000



1.63



-








12


AMERICAN RARE EARTHS AND MATERIALS, CORP. AND SUBSIDIARIES


(FORMERLY KNOWN AS ELEMENT 21 GOLF COMPANY)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




NOTE 11                     RISK MANAGEMENT




Credit risk




The Company is subject to risk of non-payment of its trade accounts receivable. For the three months ended September 30, 2010, three customers (which was as of 2009, three customers) respectively represent approximately 46.61% of sales (which was as of 2009, 36.59%) and 60.72% (which was as of 2009, 84.15%) of the total outstanding accounts receivable. Management continually monitors its credit terms with customers to reduce credit risk exposure.







NOTE 12                     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, 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 comprised a redeemable guaranteed investment certificate earning interest at 0.75% per annum and matured on August 12, 2010. The proceeds upon maturity from the redeemable guaranteed investment certificate were transferred to cash and cash equivalents.










13


AMERICAN RARE EARTHS AND MATERIALS, CORP. AND SUBSIDIARIES


(FORMERLY KNOWN AS ELEMENT 21 GOLF COMPANY)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE 13                     CONTINGENCIES





Legal Matters





The Company is involved in litigation claims arising in the ordinary course of business. Legal fees and other costs associated with such actions are expensed as incurred. In addition, the Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and contingencies. The Company reserves for costs relating to these matters when a loss is probable and the amount can be reasonably estimated. The Company believes that the ultimate disposition of these matters will not have a material effect on its financial position, results of operations or cash flows. However, the amount of future reserves required associated with these claims, if any, cannot be determined with certainty.





In March 2010, John Grippo, the former CFO of the Company, and John Grippo Inc. (“Plaintiffs”) filed suit against the Company in the Superior Court in the County of Westchester, New York. The Plaintiffs are seeking in excess of $75,000 in damages and prejudgment interest related to allegations involving breach of contract. The Company believes the claim is without merit and is vigorously defending the lawsuit and has filed a counterclaim in excess of $375,000 plus costs. On March 13, 2010, the Plaintiffs obtained a temporary restraining order over our bank accounts held at JP Morgan Chase and Bank of America.  As such, included in cash and cash equivalents is restricted cash of $79,609 and $79,842 at September 30, 2010 and June 30, 2010, respectively.




In June 2010, Rick Smith Enterprises, Inc. (“Plaintiff”), filed a complaint against the Company in the Circuit Court of the Ninth Judicial Circuit of the State of Florida in and for Orange County Civil Division. The Plaintiff is seeking cash of $175,000 and shares of common stock of the Company valued at $175,000 plus costs and interest for allegations involving breach of contract.  The Plaintiff is also seeking additional cash of $100,000 and shares of common stock of the Company valued at $100,000 for alleged continuing and anticipatory breach of contract.  The action is in its very preliminary stages. As a result, we are unable to estimate a potential loss or range of loss, if any, at this time.




NOTE 14                     SUBSEQUENT EVENTS




Subsequent to period end, the Company issued 304,952 shares of its common stock to consultants for an aggregate value of $91,486 based on the quoted market price of the shares at time of issuance.





On October 1, 2010, the Company issued 75,000 warrants to the CFO with an exercise price of $0.30 and a life of three years.





On October 1, 2010, the Company issued 249,742 shares of its common stock to holders of Series B Convertible Preferred Stock for accrued dividends of $60,000 through  September 30, 2010.





Such issuances of securities of the Company were made pursuant to the exemptions from registration contained in Rule 4(2) of the Securities Act of 1933, as amended (the “Securities Act”).







On November 1, 2010, 110,000 warrants were exercised at $0.001 per share of common stock.





14





ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 regarding our business and performance that 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





Since 2002, our Company has been commercializing Rare Earth metals and advanced materials. This led to a vertical integration that began with the extraction of pure Scandium and other Rare Earths applications in the form of extruded, rolled or forged products and components. Today, that expertise has positioned us to become a leader in commercializing Rare Earth metals and advanced materials and quickly delivering revolutionary new products to consumer and industrial markets. Our objective is to become North America’s best, most reliable source for Rare Earth metals and provide solutions to their applications. We are developing opportunities to distribute Rare Earths like Scandium, Neodymium, Europium and Lithium that will help major industries launch major industrial brands such as hybrid cars, flat screen televisions, LED light bulbs and wind turbines. We will also have significant exposure to large market categories such as transportation, shipbuilding, power transmission, automotive and aerospace.





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 its salesinto 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 sportswear 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 yearterms.  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 such 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 second and third quarters of the year and revenues generally decline in the first and fourth quarters. During the current fiscal year, a greater portion of our annual fishing sales took place in the second quarter when compared to the prior year because we moved our production schedule forward and shipping to our customers earlier.




15





Results of Operations





Three Months Ended September 30, 2010 and 2009





For the three months ended September 30, 2010, the Company had revenue of $650,902, which includes non-cash barter revenue of $1,720 and recovery of out of pocket expenses paid on behalf of Zeroloft Corp. of $267,220, and incurred costs of sales of $425,978 and general and administrative expenses of $1,171,183, and interest income of $224, and interest expense of $3,836. Included in general and administrative expense is a non-cash charge of $163,179 representing the value of compensatory common stock and warrants for services provided by consultants.  This resulted in a net loss of $949,871, as compared with the three months ended September 30, 2009 in which the Company had revenue of $758,818, which includes non-cash barter revenue of $8,066, incurred costs of sales of $424,465 and general and administrative expenses of $835,241, and interest income of $302, and interest expense of $90,829, resulting in a net loss of $591,415.





Interest expense of $3,836 and $90,829 for the three months ended September, 2010 and 2009, respectively, primarily relates to paid and accreted interest on the Convertible Debenture and Loan payable to shareholder.





Our net accounts receivable balances were $420,414, $789,920 and $238,160 at September 30, 2010, June 30, 2010 and September 30, 2009, respectively.  The increase in accounts receivable compared to September 30, 2009 is primarily due to the increase in sales in the fourth quarter of the previous fiscal year.  The Company is subject to risk of non-payment of its trade accounts receivable. For the three months ended September 30, 2010, three customers (which was as of comparable prior year period, three customers) respectively represent approximately 46.61% of sales (which was 36.59% as of the comparable prior year period) and 60.72% (or 84.15% for the comparable prior year period) of the total outstanding accounts receivable. Management continually monitors its credit terms with customers to reduce credit risk exposure.





Our net inventory balances were $787,910, $919,158 and $1,518,515 at September 30, 2010, June 30, 2010 and September 30, 2009, respectively.  The decrease in our inventory balance compared to September 30, 2009 is due to an increase in our provision for inventory obsolescence which was $542,196 and $178,000 at September 30, 2010 and September 30, 2009, respectively.  The provision only relates to golf equipment and components other than golf shafts. 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 was $1,204,103 and $738,366 at September 30, 2010 and 2009, respectively.  The increase in the balance is due to royalties on sales in the current period which are unpaid to Advanced.  The royalty is calculated as 20% of the net selling price of fishing products sold by the Company and any sub licensee.





Financial Condition, Liquidity and Capital Resources





The Company has negative working capital as of September 30, 2010 of $2,533,825.  The Company retains consultants to perform development and public company reporting activities in exchange for stock of the Company.  At June 30, 2010, we had a working capital deficiency of $124,889. 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. At September 30, 2010, $1,807,806 (which was at June 30, 2010, $1,795,746) was owed by the Company to the President of which $400,814 (which was at June 30, 2010, $400,814) is included in long-term liabilities on the balance sheet and $1,406,992 is included in accrued expenses classified as current liabilities on the balance sheet (which was at June 30, 2010, $1,394,932 is included in accrued expenses classified as long-term liabilities on the balance).  The President agreed not to demand, within 12 months of June 30, 2010, the payment of $1,795,746 in accrued compensation owing to the President by the Company. Amounts due to the President are payable on demand, non-interest bearing and unsecured. At September 30, 2010, ths waiver ceased to cover a 12 month period. Accordingly, the amounts were reclassified to their current presentation.





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.





Absent continued stockpayment for services to our consultants and continued advances by stockholders of the Company, the Company cannot manufacture its golf shaft, fishing product lines, Zeroloft or market its products based on its technologies.


For the three month period ended September 30, 2010, the Company has generated gross revenue of $267,220, related to the recovery of out-of-pocket expenses paid on behalf of Zeroloft Corp. (September 30, 2009 - $4,883) from Zeroloft. The terms of our contract with our Zeroloft customers will require a prepayment which will cover our expected upfront costs.




16





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.





Recent Accounting Pronouncements





See Note 4 “Recent Accounting Pronouncements Affecting the Company” to 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 Preferred stock stockholders. Therefore, there can be no assurance that dividends of any kind will ever be paid. Pursuant to the Amended and Restated Certificate of the Powers, Designations, Preferences and Rights of the Series B Convertible Preferred stock of the Company, we are required to pay dividends on ourSeries B Stock.  We have this quarter and we expect to continue to pay such dividends in the form of the Company’s common stock.





Effect of Inflation





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





Climate Change





Management believes that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.





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, 2010. See Note 5 to these interim consolidated financial statements for the accounting policy adopted for Intangible Asset Subject to Amortization, Net. Our critical accounting policies and estimates have not changed materially during the three months ended September 30, 2010.





Off Balance Sheet Arrangements


None




17


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.





PART II - OTHER INFORMATION





ITEM 1                                LEGAL PROCEEDINGS





In March 2010, John Grippo, the former CFO of the Company, and John Grippo Inc. (“Plaintiffs”) filed suit against the Company in the Superior Court in the County of Westchester, New York. The Plaintiffs are seeking in excess of $75,000 in damages and prejudgment interest related to allegations involving breach of contract. The Company believes the claim is without merit and is vigorously defending the lawsuit and has filed a counterclaim in excess of $375,000 plus costs. On March 13, 2010, the Plaintiffs obtained a temporary restraining order over our bank accounts held at JP Morgan Chase and Bank of America.





In June 2010, Rick Smith Enterprises, Inc. (“Plaintiff”), filed a complaint against the Company in the Circuit Court of the Ninth Judicial Circuit of the State of Florida in and for Orange County Civil Division. The Plaintiff is seeking cash of $175,000 and shares of common stock of the Company valued at $175,000 plus costs and interest for allegations involving breach of contract.  The Plaintiff is also seeking additional cash of $100,000 and shares of common stock of the Company valued at $100,000 for alleged continuing and anticipatory breach of contract.   The action is in its very preliminary stages. As a result, we are unable to estimate a potential loss or range of loss, if any, at this time.





ITEM 1A                      RISK FACTORS





There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2010.





18


ITEM 2                         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





During the three months ended September 30, 2010, the Company issued 210,000 shares of its common stock to consultants for services rendered and to be rendered by them and for an aggregate value of $46,200.  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”).  At July 1, 2010, the Company issued 191,084 shares of its common stock valued at $60,000 to the holders of the Series B Convertible Preferred stock for accrued dividends through June 30, 2010.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 an 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.  The Company has been negotiating an extension of the repayment date. The Company repaid $675,000 of the loan.  The remaining unpaid balance as of September 30, 2010 was $150,000.





ITEM 4                        REMOVED AND RESERVED





ITEM 5                        OTHER INFORMATION





None





ITEM 6               EXHIBITS





Exhibit No.

Exhibit Description3(i)(1)

Amended Certificate of Incorporation of the Company, incorporated herein by reference to the Company’s   Registration Statement on Form S-1, as amended, File No. 33-43976 filed on November 14, 1991.3(i)(2)

Certificate of Amendment to Amended Certificate of Incorporation of the Company, incorporated herein by reference to Exhibit 3.1 to the Company’s Form 8-K dated May 12, 2006.3(i)(3)

Certificate of the Powers, Designations, Preferences and Rights of the Series A Convertible Preferred Stock, $0.10 par value per share, incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K dated February 24, 2006.3(i)(4)

Certificate of the Powers, Designations, Preferences and Rights of the Series B Convertible Preferred Stock, $0.10 par value per share, incorporated herein by reference to Exhibit 3(i) to the Company’s Form 8-K dated August 3, 2006.





3(i)(5)

Certificate of the Powers, Designations, Preferences and Rights of the Series B Convertible Preferred Stock, $0.10 par value per share, incorporated herein by reference to Exhibit 3(i) to the Company’s Form 8-K dated June 18, 2007.3(i)(6)

Amended and Restated Certificate of the Powers, Designations, Preferences and Rights of the Series B Convertible Preferred Stock, $0.10 par value per share, dated July 10, 2009, incorporated herein by reference to Exhibit 4.12 to the Company’s Form 8-K filed on August 3, 2009.3(ii)(1)

Amended and Restated Bylaws of the Company, incorporated herein by reference to the Company’s   Registration Statement on Form S-1, as amended, File No. 33-43976 filed on November 14, 1991.3(ii)(2)

Certificate of Amendment to the Certificate of Incorporation of the Company to effectuate a 1 for 20 reverse stock split of the Company’s issued and outstanding shares of common stock, incorporated herein by reference to the Company’s  Form 8-K dated April 24, 2008.3(iii)

Audit Committee Charter, incorporated by reference to Exhibit 3(iii) to the Company’s Form 10-K, filed on September 24, 2010.   19
  4.1

Form of Element 21 Golf Company 10% Convertible Promissory Note, incorporated herein by reference to Exhibit 4.2 to the Company’s Form 8-K dated February 24, 2006.4.2

Element 21 Golf Company 10% Convertible Promissory Note issued to Oleg Muzyrya, incorporated herein by reference to Exhibit 4.3 to the Company’s Form 8-K dated February 24, 2006.4.3

Common Stock Purchase Warrant, incorporated herein by reference to Exhibit 4.4 to the Company’s Form 8-K dated February 24, 2006.4.4

Form of Element 21 Golf Company 10% Convertible Promissory Note, incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K dated May 23, 2006.4.5

Common Stock Purchase Warrant, incorporated herein by reference to Exhibit 4.2 to the Company’s Form 8-K dated May 23, 2006.4.6

Form of Warrant for Purchase of 3,750,000 Shares of Common Stock dated July 31, 2006, incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K dated August 3, 2006.4.7

Form of Warrant for Purchase of 5,073,530 Shares of Common Stock dated July 31, 2006, incorporated herein by reference to Exhibit 4.2 to the Company’s Form 8-K dated August 3, 2006.4.8

Form of Warrant for Purchase of 3,750,000 Shares of Common Stock dated July 31, 2006, incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K dated December 1, 2006.4.9

Form of Warrant for Purchase of 5,073,530 Shares of Common Stock dated July 31, 2006, incorporated herein by reference to Exhibit 4.2 to the Company’s Form 8-K dated December 1, 2006.4.10

Common Stock Purchase Warrant, incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K dated June 18, 2006.4.11

Form of Warrant for Purchase of 5,882,400 Shares of Common Stock dated June 15, 2007, incorporated herein by reference to Exhibit 4.2 to the Company’s Form 8-K dated June 18, 2007.





10.1

Series A Convertible Preferred Stock Exchange Agreement and Acknowledgement dated as of February 22, 2006, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated February 24, 2006.10.2

Element 21 Golf Company 2006 Equity Incentive Plan, incorporated herein by reference to Annex C to the Company’s Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 filed on April 7, 2006.10.3

Form of Subscription Agreement for Shares of Series B Convertible Preferred Stock dated as of July 31, 2006, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated August 3, 2006.10.4

Form of Subscription Agreement for Shares of Series B Convertible Preferred Stock dated as of November 30, 2006, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated August 3, 2006.10.5

Form of Subscription Agreement for Shares of Series B Convertible Preferred Stock dated as of June 15, 2007, incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K dated June 18, 2007.10.6

Form of Subscription Agreement for Shares of Common Stock dated as of June, 2007, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated June 18, 2007   20
  10.7

License Agreement with Advanced Light Alloys Corporation dated as of June 21, 2007 incorporated by reference to exhibit 10.1 to the Company’s Form 10K dated June 21, 2007.10.8

Consulting Agreement with Nataliya Hearn dated as of January 4, 2006 incorporated by reference to exhibit 10.4 to the Company’s Form 10K dated October 13, 2006.10.9

Consulting Agreement with John Grippo dated as of November 10, 2005 incorporated by reference to exhibit 10.5 to the Company’s Form 10K dated October 13, 2006.10.10

Extension and Modification of Promissory Note, incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on April 22, 2009.10.11

Investment Banking Agreement with Legend Securities, Inc., incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on December 15, 2009.10.12

Trademark License and Product Distribution Agreement, incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on January 20, 2010.10.13

Management Agreement with Zeroloft Corp., incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on January 20, 200910.14

Consulting Agreement with Gaynell Douglas dated May 1, 2010, incorporated by reference to Exhibit 10.14 to the Company’s Form 10-K/A, filed on October 15, 2010.10.15

Consulting Agreement with Yell Services, dated October 1, 2009, incorporated by reference to Exhibit 10.15 to the Company’s Form 10-K/A, filed on October 15, 2010.10.16

Consulting Agreement with Altaf Kassam, dated October 1, 2009, incorporated by reference to Exhibit 10.16 to the Company’s Form 10-K/A, filed on October 15, 2010.10.17

Consulting Agreement with Tolkun Salieva, dated October 1, 2009, incorporated by reference to Exhibit 10.17 to the Company’s Form 10-K/A, filed on October 15, 2010.10.18

Consulting Agreement with Charles E. Fitzgerald, dated May 1, 2010, incorporated by reference to Exhibit 10.18 to the Company’s Form 10-K/A, filed on October 15, 2010.10.19

Employment Agreement with Nataliya Hearn, Ph.D., dated January 1, 2009, incorporated by reference to Exhibit 10.19 to the Company’s Form 10-K/A, filed on October 15, 2010.10.20

Consulting Agreement with Dorset Solutions, Inc, dated November 19, 2009, incorporated by reference to Exhibit 10.20 to the Company’s Form 10-K/A, filed on October 15, 2010.10.21

Consulting Agreement with Dorset Solutions, Inc, dated January 1, 2010, incorporated by reference to Exhibit 10.20 to the Company’s Form 10-K/A, filed on October 15, 2010.14.1

Code of Conduct and Ethics, incorporated by reference to Exhibit 14.1 to the Company’s Form 10-K, filed on September 24, 2010.31.1

Rule 13a-14(a)/15a-14(a) Certifications of Chief Executive Officer.++31.2

Rule 13a-14(a)/15a-14(a) Certifications of Chief Financial Officer.++32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.++32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.++





21





SIGNATURES





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.




American Rare Earths and Materials, Corp.November 12, 2010
By:
/s/  Nataliya HearnNataliya Hearn, Ph.D.Chairman, Chief Executive Officer and PresidentNovember 12, 2010
By:
/s/ Philip ClarkPhilip Clark, CA, CPA, CFA

Chief Financial Officer