**UNITED
      STATES**


**Securities
      and Exchange Commission**


**Washington,
      D.C. 20549**




**FORM
      10-KSB**




x
            ANNUAL
                REPORTUNDER
                SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      the
      fiscal yea r
      ended
      June 30, 2006





o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      the
      transition period from _________________ to __________________




Commission
      File No. 000-15260




**Element
      21 Golf Company**


(Name
      of
      Small Business Issuer in its Charter)





Delaware
            
            88-0218411(State
                or Other Jurisdiction of incorporation or
                organization)
            
            (I.R.S.
                Employer I.D.
                No.)





**200
      Queens Quay East, Unit #1, Toronto, Ontario, Canada, M5A
      4K9**


(Address
      of Principal Executive Offices)





Registrant’s
      Telephone Number: **416-362-2121**





Not
      Applicable


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





Securities
      Registered under Section 12(b) of the Exchange Act: None.





Securities
      Registered under Section 12( g)
      of the
      Exchange Act: Common Stock, one-cent ($0.01) Par Value





Check
      whether the issuer is not required to give reports pursuant to Section 13 or
      15(d) of the Exchange Act. o





Check
      whether the Issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 o   No
x





Check
      if
      disclosure of delinquent filers in response to Item 405 of Regulation S-B is
      not
      contained in this form, and no disclosure will be contained, to the best of
      Registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10- KSB or any amendment
      to
      this Form 10-KSB. o





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





Issuer’s
      revenues for its most recent fiscal year: June 30, 2006 = $51,569





As
      of
      October 12, 2006 there were approximately ( **OPEN
      - need non-affiliated shares** )
      shares
      of our common voting stock held by non-affiliates having a market value of
      approximately **** $xx
      on
      such date. Without asserting that any director or executive officer of the
      issuer, or the beneficial owner of more than five percent of the issuer’s common
      stock, is an affiliate, the shares of which they are the beneficial owners
      have
      been deemed to be owned by affiliates solely for this calculation.





As
      of
      October 12, 2006, there were 99,630,554 shares of common stock of the Issuer
      outstanding.









**Element
      21 Golf Company**




**10-KSB
      for the Year Ended June 30, 2006**





**Table
      of Contents**





**Will
      need to be re-paginated once completed.**





PART
                  I
              
              
              
              1ITEM
                  1.
              
              DESCRIPTION
                  OF BUSINESS
              
              1ITEM
                  2.
              
              DESCRIPTION
                  OF PROPERTY
              
              17ITEM
                  3.
              
              LEGAL
                  PROCEEDINGS
              
              17ITEM
                  4.
              
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              17PART
                  II
              
              
              
              18ITEM
                  5.
              
              MARKET
                  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
              
              18ITEM
                  6.
              
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              
              21ITEM
                  7.
              
              FINANCIAL
                  STATEMENTS
              
              27ITEM
                  8.
              
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              
              27ITEM
                  8A
              
              CONTROLS
                  AND PROCEDURES
              
              27ITEM
                  8B
              
              OTHER
                  INFORMATION
              
              28PART
                  III
              
              
              
              28ITEM
                  9.
              
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16(a) OF THE EXCHANGE ACT
              
              28ITEM
                  10.
              
              EXECUTIVE
                  COMPENSATION
              
              30ITEM
                  11.
              
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
              
              32ITEM
                  12.
              
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              
              35ITEM
                  13.
              
              EXHIBITS
              
              35ITEM
                  14.
              
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              
              37Signatures
              
              
              
              38Financial
                  Statements
              
              
              
              F-1





**PART
      I**




**CAUTIONARY
      STATEMENT REGARDING**




**FORWARD-LOOKING
      INFORMATION**




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




·
            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 position; and




·
            other
                statements that are not matters of historical
                fact.




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




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




**ITEM
      1.**  **DESCRIPTION
      OF BUSINESS**




**Business
      Development.**




Element
      21 Golf Company (the “Company,” “E21,” “we,” “us” or terms of similar meaning)
      was originally formed as OIA, Inc., a Delaware corporation, in 1986. In 1992,
      the Company changed its name to Biorelease Corp., and was e ngaged
      in
      the business of biotechnology from 1992 through 1995. From mid-1995 through
      September 2001, the Company sponsored a number of early-stage
      ventures .
      I n
      June
      2001, the Company changed its name from Biorelease Corp. to BRL Holdings,
      Inc.




Effective
      November 9, 2001, we acquired 100% of the outstanding common stock of AssureTec
      Systems, Inc., a Delaware corporation (“Systems”), in a stock-for-stock
      transaction. We issued 6,354,000 shares of restricted common stock and converted
      outstanding options to acquire 4,750,000 shares of Systems common stock into
      options to acquire 4,750,000 shares of the Company’s common stock.




1


On
      April
      1, 2002, we exchanged 2,852,000 shares of Systems common stock that had been
      issued in connection with the Systems acquisition for
      5,704,000 shares of our common stock , from
      substantially all the founders and consultants from whom our interest in Systems
      was initially acquired. In addition, options to acquire 4,750,000 shares of
      our
      common stock then held by these individuals were cancelled. As a result of
      these
      transactions and the issuance of additional shares of Systems to employees
      upon
      the exercise of stock options, our ownership of Systems decreased to 34.2%
      of
      Systems as of June 30, 2003.




On
      June
      12, 2002 we incorporated Tech Ventures, Inc. (now named AssureTec Holdings,
      Inc.
      or “AssureTec”) and transferred all our assets and liabilities to AssureTec in
      exchange for 100% ownership of AssureTec common stock. At that time, our only
      business was the business of AssureTec.




Effective
      October 3, 2002, **[Note
      1 to financials says Sept, 2002 - which is it?]** we
      acquired 100% of the outstanding common stock of Element 21 Golf Company, a
      Delaware corporation (“Element 21”), in exchange
      for 42,472,420 restricted shares of our common stock (“the
      Acquisition”). We also converted options
      to acquire 6,432,000 shares of Element 21 common stock into options to acquire
      6,432,000 shares of our common stock. This Acquisition has been accounted for
      as
      a “reverse” acquisition using the purchase method of accounting, as the
      shareholders of Element 21 owned
      a
      majority of the outstanding stock of our
      Company immediately following the Acquisition. Following the Acquisition, we
      changed our name to Element 21 Golf Company.




We
      now
      own approximately 5.1% of the issued and outstanding stock of AssureTec, which,
      as a result of a share exchange with the prior stockholders of Systems, now
      owns
      100% of the outstanding stock of Systems. We have agreed to distribute these
      shares on a pro rata basis to our shareholders of record as of October 4, 2002
      (excluding shareholders who received shares of our common stock in connection
      with the Acquisition). We anticipate that this distribution will occur as soon
      as possible after all appropriate documentation has been prepared and filed
      with
      the Securities and Exchange Commission.




During
      the fiscal year of 2006, the Company issued an aggregate of 12,143,313 shares
      of
      common stock to consultants as payment for services rendered.




**Recent
      Events**




On
      July
      31, 2006 (the “Initial Closing Date”), the Company agreed to a $4 million equity
      financing by entering into two Series B Convertible Preferred Stock Subscription
      Agreements (each a “Subscription Agreement” and collectively the “Subscription
      Agreements”) with each of Clearline Capital, LLC and Vladimir Goryunov (each a
“Purchaser” and collectively, the “Purchasers”). Each Subscription Agreement
      provides for the sale by the Company to the applicable Purchaser of 117,648
      shares of the Company’s Series B Convertible Preferred Stock, par value $0.10
      per share (the “Series B Preferred Stock”), and warrants to purchase an
      aggregate of 17,647,059 shares of the Company’s common stock, in exchange for
      and in consideration of an aggregate investment by each Purchaser of $2 million
      in cash (each Purchaser’s “Investment Amount”), which amount is to be invested
      by each Purchaser in two equal $1 million installments, the first of which
      occurred on the Initial Closing Date and the second of which will occur at
      a
      subsequent closing to occur on or before November 30, 2006 (the “Subsequent
      Closing”, and the date of such Subsequent Closing, the “Subsequent Closing
      Date”); provided that the Company satisfies the necessary condition precedent to
      the Subsequent Closing as described below.





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





2


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




**Business
      of the Issuer**




Element
      21 was formed on September 18, 2002 to acquire partially-developed golf
      technology and to design, develop and bring to market golf club shafts and
      golf
      heads made from a patented scandium alloy exclusively licensed to the Company
      (the “E21 Alloy”). The active ingredient in the E21 Alloy is Scandium, which is
      element No. 21 in the Periodic Table of Elements. E21 Alloy shafts are believed
      to exhibit properties that out-perform titanium with a higher strength-to-weight
      ratio of up to 25% and a specific density advantage of 55%. The E21 Alloy is
      lighter, stronger and more cost effective than titanium. This advanced metal
      technology was originally developed in the former Soviet Union for military
      applications during the 1970s. Scandium alloys have been used in
      intercontinental ballistic missiles, jet aircraft, the Mir space station and
      most recently, in the International Space Station. The Company is attempting
      to
      commercialize Scandium’s use in golf shafts and golf heads. During the past
      year, we solidified our sales and marketing strategies and initiated an
      international public relations event that has generated coverage in over 100
      publications worldwide. Our team was bolstered by the hiring of addition golf
      executives, including industry veteran Bill Dey, who was hired to run the
      company’s golf program. E21’s Eagle One shafts made their first appearance on
      the PGA Tour and were tested by a large number of PGA Tour professionals and
      are
      now in play on the tour on regular basis. In addition, the Company received
      over
      150 applications to distribute E21 golf equipment.





In
      September, 2002, Element 21 acquired from Dr. Nataliya Hearn, our current Chief
      Executive Officer, and David Sindalovsky, a consultant to the Company (the
      “Assignors”), the exclusive right to use, produce and sell the E21 Alloy for
      golf club shafts and golf heads. Although these rights do not cover all mixes
      of
      scandium alloy, the Company believes that any scandium alloy outside the range
      of its patent-protected rights cannot be used to produce golf club shafts or
      heads in an economically feasible manner. Upon completion of the Acquisition,
      the previous officers and directors of the Company resigned and Dr. Hearn became
      the Company’s President/ CEO and a Director and Jim Morin and Gerald Enloe also
      became Directors. Mr. Morin also served as Vice President and Chief Financial
      Officer of the Company prior to his resignation from the Board on July 31,
      2006.




3




To
      date,
      the Company has operated solely through strategic consultants and without
      full-time employees. Consultant Nataliya Hearn, PhD, who is our CEO and
      President, is based in Toronto, Canada, and oversees the Company’s engineering,
      alloy supply and production. Consultant David Sindalovsky is responsible for
      material sourcing, manufacturing and production path developments, and
      supervising the engineering and design of the golf club components. Bill Dey,
      who joined the Company in January, 2006, as Executive Vice President and General
      Manager, is an accomplished golf industry executive who has been involved in
      the
      industry since the late 1980’s. John Grippo, a consultant to the Company who was
      appointed as the Company’s Chief Financial Officer in March, 2006, has over 15
      years experience as a CFO for public and private companies ranging in size
      up to
      $250 million in annual revenues. This past year, the Company also retained
      the
      services of Mark Myrhum as Senior Designer. Mr. Myrhum has been providing club
      design solutions to the golf industry for more than 15 years. Golf clubs
      designed by Mr. Myrhum have been played by U.S. and British Open champions,
      Masters and PGA champs, top-ranked PGA players and leading LPGA and Senior
      PGA
      money winners. After an 8-year career as the Principle Engineer and Chief
      Designer for Wilson Golf, Mark Myrhum started MCM Golf, Inc. in 1996. His
      clients have included Wilson Sporting Goods, McHenry Metals, Carbite Golf,
      MasterGrip, Tour Edge and others. After earning a Bachelors of Science degree
      in
      Engineering Mechanics from the University of Wisconsin-Madison, Mr. Myrhum's
      career began at NASA Ames Research Center and the Goodyear Tire and Rubber
      Company. Consultant Howard
      Butler, PhD, is one of the world’s leading golf designers. Dr. Butler has done
      extensive design work on the various types of clubs incorporating the Company’s
      advanced scandium technology as well as laboratory testing and informal player
      testing and assessments. Consultant Stephen Meldrum has 17 years senior
      executive experience in international sales and licensing, and is handling
      investor relations for the Company.




Additionally,
      several sales executives have been retained as consultants tasked with business
      development and building retail distribution channels. Professional player
      relations are handled by Andy Harris.




The
      Company believes that this structure is advantageous because it allows the
      Company to avoid having large marketing, administrative and development
      organizations in order to be responsive to fluctuations in the marketplace
      that
      have plagued other start-up golf companies.




The
      Company has a strategic supply agreement with an affiliate of Kamensk-Uralsky
      Metallurgical Works Joint Stock Company, located in a number of locations in
      Russia, also known as OAO KUMZ. Under this agreement, concentrated scandium
      will
      be produced to the specification of the Company by the KUMZ affiliate. KUMZ
      will
      also transfer the latest innovations in scandium alloys to the Company as they
      become available. KUMZ is a well-established, diversified producer of aluminum,
      aluminum alloys and products for aerospace, shipbuilding, automotive, and other
      industries. KUMZ is also the world’s largest facility specializing in scandium
      alloy products **.** Work in
      scandium initially began 20-25 years ago with the development of scandium
      aerospace alloys for fighter aircraft.




The
      second strategic partner of the Company is Yunan Aluminum, which is in the
      business of manufacturing precision tubing for outdoor recreation and sporting
      markets. Yunan Aluminum was established in 1979 in South Korea, and now
      manufactures, for parties other than the Company, about 80,000 pounds per month
      of high quality products made of high strength aluminum alloys. In August 2003
      the company reached an agreement with Yunan Aluminum to produce E21
      Alloy
      golf shafts and club components exclusively for the Company in South Korea.




4


Pan
      Osprey, a Chinese manufacturer of OEM golf equipment specializing in high-end
      golf clubs manufactured under license for some of the leading brand names in
      golf, will manufacture a full line of clubs with proprietary designs from
      Element 21's design labs when the Company begins commercial production of its
      clubs, of which there can be no assurance. The planned lineup includes drivers,
      fairway woods, a full range of irons, wedges, hybrid clubs, and putters.
      Pursuant to the Company’s exclusive manufacturing agreement with Pan Osprey, the
      Company will provide the raw materials from which Pan Osprey will manufacture
      a
      full line of clubs under the E21 brand name. The Company is also seeking to
      expand its manufacturing capabilities in China to include other top tier
      production facilities.




**Golf
      Products**




We
      believe that E21 Alloy golf products have outstanding potential in the industry
      based on several factors:




·
            Results
                of player and robotic testing indicate E21 Alloy’s improved performance
                over leading titanium clubs, and


·
            Improved
                distance and less dispersion, allowing longer more accurate results,
                which
                are impossible to achieve with current metals.




The
      interest in the E21 Alloy has been supported by several performance and
      marketing features:




·
            The
                E21 Alloy is strategically incorporated into the production of metal
                woods, irons and putters can result in heads with a larger “sweet spot”
                for more consistency and accuracy;


·
            If
                increased club head size is not required, the reduced density and
                improved
                strength allows flexibility in placing perimeter weighting that can
                affect
                the trajectory (flight path) of the
                ball;


·
            The
                E21 Alloy is softer than titanium providing superior feel and workability
                for the player;


·
            The
                E21 Alloy is lower in cost and easier to fabricate than
                titanium;


·
            The
                specific yield strength advantage of the E21 Alloy over steel and
                high-end
                aluminum alloys enables the design of shafts at substantially reduced
                weight and higher performance;


·
            The
                homogeneous nature of the E21 Alloy allows for consistent shaft
                production, a problem inherent with graphite
                shafts.




During
      the early part of this past fiscal year, we completed the design and development
      of several golf new products. These products included irons, wedges, putters,
      hybrid clubs and a driver.


Robotic
      and player testing was carried out and a limited volume of product was ordered
      in late 2005. E21’s irons and hybrids clubs both won Player’s Choice Awards
      given out in the spring of 2006 by Golfing Magazine.





In
      December our new E21 Alloy driver received approval from the United States
      Golf
      Association (USGA). Subsequent robotic testing conducted at an independent
      laboratory demonstrated repeatedly that the E21 Alloy driver was approximately
      3
      times more accurate than titanium drivers. The average dispersion for E21’s
      driver was less than 7 yards off center compared to 22 yards for the titanium
      drivers tested E21's driver, which has a much larger ball response hitting
      area,
      produced the lowest recorded angle of deviation off-center of just 1.6 degrees
      compared to 4.2 degrees for titanium driver heads.





In
      March
      2005, the Company began test marketing full iron sets to retailers and golf
      pro
      shops. In April 2005, the Company entered into an agreement with The GolfWorks
      for the sale of the Company’s E21 Alloy metal shafts for irons, utility clubs
      and wedges. The GolfWorks has been providing club makers and other golf
      equipment experts with a complete complement of proprietary club head designs,
      and a full selection of brand name shafts and grips for more than 25
      years.




5





**Golf
      Shafts**




E21
      Alloy
      golf shafts provide the light weight and flexibility of graphite with the
      favorable playing characteristics of steel. Steel dominates the shaft market
      for
      irons, while graphite is the most popular shaft material for metal woods.
      Graphite shafts are generally more expensive than steel, and golfers often
      experience inconsistency from club to club due to reproducibility problems
      inherent with graphite. The Company has produced prototype E21 Alloy shafts
      with
      several flex strengths that have been tested initially with irons and accepted
      as complying with the rules of golf by the United States Golf Association. In
      an
      effort to bring the Company’s shafts to the PGA Tour, E21 retained the services
      of Andy Harris as its PGA Tour Director. During the year Mr. Harris attended
      most PGA Tour events providing custom fitted E21 shafts to over 30 PGA Tour
      players. To date several players have used E21 shafts in official PGA,
      Nationwide and Champions Tour events.




We
      believe E21 Alloy shafts show improved performance in a number of respects
      to
      graphite and stainless steel shafts. E21 Alloy's inherent metallurgical
      properties combined with a proprietary 25-step seamless production process
      results in a shaft that is nearly perfectly symmetrical, unlike graphite and
      stainless steel shafts. Many golf customers do not realize that steel shafts
      are
      welded creating a seam or spine that is not visible to the eye. The difference
      in the tube wall thickness at the point of welding creates an imbalance, which
      affects the consistency of shots. Similarly, the production process for graphite
      shafts also results in inconsistencies through the shaft with similar associated
      problems. The Company believes that the E21 Alloy provides greater accuracy
      and
      improved consistency from club to club.




The
      tests
      conducted by Golf Labs Inc. on behalf of the Company showed remarkable 10-20
      yard distance improvement when E21 Alloy shafts are tested against the best
      Graffaloy graphite and True Temper steel shafts. Of
      even
      greater significance were the test results that showed superior accuracy
      afforded by this new E21 Alloy technology. The dispersion pattern of shots
      hit
      with a robotic arm yielded a dispersion factor that was 250% smaller than
      popular steel and graphite shafts, when measured by the total square footage
      of
      the footprint of hit balls and their dispersion off-center. Although testing
      results cannot predict actual performance with certainty, the Company believes
      that these test results are meaningful.




Concurrent
      with the development of the overall shaft design, the Company has developed
      a
      shock absorbing system under the trademark ShockBlok TM which
      redirects shaft vibration back into the club head, generating an added energy
      kick for extra distance and reducing the amount of vibration transfer to the
      player's hands. Golfing
      has a negative effect on the body. High shock energy transferred by the steel
      shafts to the player’s hands during a round of golf creates fatigue. For
      frequent golfers, this can lead to stress injuries to a player’s hands, wrist,
      elbows or shoulders, much like ‘tennis elbow’. According to an analysis
      commissioned by a consultant to the Company, Dr. Howard Butler, along with
      two
      orthopedic physicians, during a typical round of golf, the extra energy
      transmitted to the hands of a golfer using steel shafts is 300% higher than
      the
      E21 Alloy shafts. The Company also believes that most users of its shafts would
      immediately notice the superior shock absorption and that the E21 Alloy also
      contributes to a measurably superior feel as compared with steel and graphite
      clubs.




The
      market for golf shafts was estimated by Golfdatatech to be close to 30 million
      units in the US and 60 million units worldwide in 1999. Golfdatatech estimates
      that the size of the market for high performance premium shafts that the
      Company’s E21 Alloy shafts will initially be targeting represents approximately
      27 million units worldwide.




6


The
      Company is currently test marketing shafts designed for irons through the
      Clubmakers and GolfWorks catalogues and website. Design and engineering of
      shafts for all other club heads (drivers, wedges, hybrids and putters) is
      complete and limited production runs are currently being tested.




**Clubhead
      Designs and Features**




The
      Company has completed the design and engineering process for a full line of
      clubs, from drivers to putters. Under the guidance of Mark **** Myrhum
      and David Sindalovsky, design improvements are being made to streamline mass
      production of the various golf components. Prototypes of these various clubs
      are
      now undergoing testing, and production tooling is well underway. The golf shafts
      have undergone lab testing, including testing with a robotic arm at
      Golf
      Laboratories, Inc. in San Diego. These
      tests conducted to date have demonstrated favorable results for our E21 Alloy
      clubs as compared with competitive products, including greater distance,
      significant improvements in accuracy and consistency, and the “feel” of the
      clubs themselves. Although test results cannot predict actual performance
      results, the Company believes these test results are meaningful.




The
      E21
      driver has one of the most responsive face areas of any driver on the market,
      and because the head and shaft are
      both
      made of the same patented E21 Alloy, the energy passes from the head to the
      shaft at the same frequency, providing the golfer with a fully “harmonized” golf
      club. This harmonization is a unique feature of the E21 golf clubs and has
      been
      trademarked as E21’s True Contact SignatureTM Shots are consistently both “off
      the centerline” and “along the centerline” giving the golfer a very tight,
      concise landing pattern resulting in a high level of control and repeatability.
      The E21 Alloy club head also creates less ball spin at the point of impact
      for
      greater distance.




The
      Company believes its club will be distinctly recognizable due to its unique
      design features that include a louvered effect on the crown plate of the club.
      These features create a corrugated effect that provides additional strength
      to
      the clubhead design and allows more freedom to move weight to strategic points
      within the sole of the clubhead to improve distance and accuracy. As with any
      object moving at a high speed, louvers provide aerodynamic stabilization
      benefits. The Company used advanced modeling software to optimize clubhead
      design **.**




The
      Company’s Low Gravity Logic TM irons
      have a cavity back design with a hollow body filled with a patented high rebound
      aerospace polymer insert that transfers more energy to the ball for livelier
      performance and maintains a low center of gravity. The head geometry is designed
      to leverage maximum performance from E21 Alloy shafts. The clubs also feature
      variable face thickness with over six square inches of playing surface to
      maximize the sweet spot of the clubface. A large sole plate helps the player
      avoid hitting the ball fat. The mass of the head is closely aligned with the
      launch angles delivered by the shaft during contact with the ball. To maximize
      this benefit, the crown is back slanted by 15°.




The
      clubs
      are designed to allow professional club makers and PGA tour players to fine-tune
      the club to their unique preferences. This is accomplished by removing the
      E21
      insignia on the back of the club, gaining access to a  tubular
      weight port to add
      up to 28 grams of additional weight to the clubhead while maintaining its low
      center of gravity.




The
      E21
      line of wedges includes clubs with 52 degree, 56 degree and 60 degree lofts
      that
      also feature the revolutionary new Eagle One shafts made from E21's patented
      alloy.




The
      wedges use E21’s patented new Contact Signature Tuned system (CST
      System TM )
      that
      uses advanced modeling software to calculate and match the club head performance
      to E21’s advanced E21 Alloy shafts in order to provide enhanced head
      responsiveness. Through
      an optimum balance of launch angle and spin rate, E21 has developed what it
      believes are easy-to-hit wedges that provide improved feel, accuracy and
      consistency from club to club. These wedges with the E21 shafts will offer
      players a greater spin rate with a higher launch angle enabling them to stop
      the
      ball on the green.




7


The
      muscle back design, with Twin Peaks elongated on the center axis of the club
      back, offers a solid feel with an extremely consistent ball flight and
      trajectory. This peaked muscle back design actually raises the center of gravity
      behind the sweet spot for more carry distance on center hit shots. This design
      acts to focus the transfer of energy into the sweet spot of the club face.
      An
      additional benefit from the element gated Twin Peaks design is its ability
      to
      track straight through sand or turf by controlling the displacement of the
      ground beneath the club as contact is being made with the golf
      ball.




The
      weighted sole plate affords the capability to cut through even the worst rough,
      and get the ball up in the air. Simultaneously, the
      leading edge  radius
      insures a true contact signature with the ball even from a poor
      lie.




Element
      21’s first putter is a traditional and proven Newport design. The new putter
      incorporates the advanced properties of the E21 Alloy in both the shaft and
      head
      of the new putter. The putter head incorporates an E21 Alloy insert, which
      is
      milled for superior contact with the ball. The E21 Alloy’s superior strength to
      weight ratio over existing golf metals has allowed E21 to redistribute weight
      in
      the head of the putter to create a larger sweet spot, which in turn provides
      substantial forgiveness on mis-hits.




The
      E21
      Alloy in both the shaft and putter head take advantage of the E21 Alloy’s soft
      feel and spin reduction, which translates to reduced ball “skid” upon contact
      with the ball, and allows the ball to begin rolling more quickly and easily
      off
      the face of the club. The Company believes that these features provide enhanced
      distance control and a more accurate ball trajectory. Initial player testing
      of
      these new clubs has provided very positive feedback on the improved “feel” that
      the putter provides over competitive offerings.




**Element
      21 Alloys Evolution in the Golf Industry**




The
      Company derives its name from the 21 st element
      in the “Periodic Table of the Elements,” which is the unique metal “scandium”
(the beginning of a new millennium). Scandium, when mixed with other metals,
      has
      a higher strength-to-weight ratio than titanium, graphite, steel or aluminum
      alloys. The
      rights to develop other products not related to the golf industry were retained
      by the Assignors solely for their own benefit. All applications of scandium
      to
      golf products that are covered by the Assignors’ patents have been acquired by
      the Company.




In
      August
      2003, the Company finalized its golf sha ft
      design
      criteria through the use of the most advanced CAD/CAM computer software programs
      available. These systems are used by the major aerospace companies to produce
      aircraft such as the Advanced Tactical Fighter, America’s fighter jet for the
      21 st century.
      Utilizing the designs created and analyzed with this software, the Company’s
      Korean manufacturer can produce golf shafts to the exacting standards of
      advanced aerospace products. The manufacturer has capacity to process in excess
      of 100,000 lbs of material per month which equates to approximately 450,000
      golf
      shafts. The manufacturer has negotiated a $50,000 credit line with preferential
      payment terms to begin full production of E21’s golf shafts. In return, the
      Company has purchased and provided to the manufacturer the semi-automatic
      testing and calibration equipment necessary to produce high quality golf
      products on a full production basis.




In
      April
      2004, the Company announced the full implementation of a new Linear Forging
      Process, a proprietary method utilized in the mass product ion of E21 Alloy
      golf
      shafts. The unique “Linear Forging Process” utilizes a pulsed energy system in
      matching the structures’ natural frequency resonance to elongate the metals
      grains with the least dimensional change to the golf shaft’s design. The
      process’ secondary benefit is in providing aligned straightness. All of these
      benefits are realized in just a few seconds, which results in high production
      rates and significant cost reduction in an otherwise labor-intensive
      operation.




8


In
      September 2005, the Company completed negotiations with Pan Osprey Golf
      Appara tus
      Co, Limited,
      a Chinese manufacturer of high-end golf equipment that manufactures golf clubs
      under license for a number of leading OEMs. The Company will provide Pan Osprey
      with the raw materials, as well as the necessary knowledge transfer, to properly
      work with this advanced metal alloy.




To
      date,
      the Company has produced a test inventory of E21 Alloy shafts under the E21
      brand name, and Eagle One sub brand. The shafts are currently available for
      sale
      through catalog and online via the Golfworks, a company that sells wholesale
      parts to club makers around the world. The Company is also pursuing the possible
      development of traditional retail channels of distribution.




With
      the
      proceeds from its recently completed financings, the Company intends to commence
      the production and roll-out of its proprietary E21 Alloy metal wood driver
      with
      an E21 Alloy shaft to be sold to the retail golfer through a direct marketing
      program. Ultimately, the complete lineup of clubs will be made available through
      traditional retail channels of distribution. In the alternative, the Company
      may
      choose to license its products to other OEMs rather than develop the E21 brand
      name on its own.




**Element
      21’s Competitive Advantage**




We
      believe that we have a competitive advantage in our industry for the following
      reasons:




1.
            License
                and supply agreements for scandium metal alloys in place.


2.
            Longtime
                association with the world’s largest producer of the highest quality
                scandium master alloy.


3.
            Strategic
                association with the world’s largest producer of scandium products, which
                has over 20 years of experience in producing scandium metal alloy
                billet,
                extruded products, and forged products. Lowest production costs due
                to
                location, size, and experience, as well as the advantage of waste
                control
                during the production process.


4.
            Experienced
                team of alloy developers, processing specialists, production specialists,
                light metal sports equipment designers, and product marketing
                specialists.


5.
            Knowledge
                and association with several production paths of semi-finished and
                finished scandium products.


6.
            Consulting
                agreements with leading golf product development and marketing
                experts.


7.
            Growing
                demand for high performance golf
                products.


8.
            Added
                value to an OEM’s golf club products providing for a longer and more
                accurate golf shots as tested against steel and graphite shafts
                manufactured by Royal Precision, Apollo, AldilaR,
                UST, PenleyR,
                True TemperRand GrafalloyR.


9.
            Advanced
                proprietary clubhead designs that take full advantage of the unique
                properties of the E21 Alloy, and offer superior performance to existing
                alternatives.


10.
            Significant
                barriers to entry due to the complex nature of working with scandium,
                and
                patent protection for golf
                applications.


11.
            Trademarked
                ShockBlokTMshock reduction system in E21 Alloy
                shafts.




**Scandium
      Metal - “Element 21”**




Scandium,
      a little-known element, was developed primarily in secret aerospace programs
      in
      the former Soviet Union. It was used as an additive to traditional aluminum
      alloys to create the highest strength scandium metal alloys and alloys with
      significantly enhanced weldability. These super-alloys were used in missiles
      and
      MIG-29 aircraft and are currently used in MIG-31 and Sukhoi-27 aircraft. We
      believe that the rights we have acquired from the Assignors cover scandium
      metal
      alloys that have achieved the highest “strength-to-weight ratio” for golf
      applications.




9


Scandium
      is most often found in nature as an oxide in relatively low concentrations,
      from
      5 to 100 parts per million. It is rarely concentrated in nature due to its
      lack
      of affinity to combine with the common ore-forming anions. Therefore, it is
      usually derived as a by-product from uranium and other mineral leaching
      operations. The cost of scandium is directly related to the relatively high
      cost
      of processing and its lack of widespread use in commercial products. It has
      not
      been commercially mined in the United States or Europe because only small
      quantities have been used, primarily in high intensity halide lamps, lasers,
      electronics, high tech ceramics, and research applications.




However,
      in the former Soviet Union, scandium has been produced in significantly larger
      quantities since it was an additive to traditional aluminum alloys to produce
      ultra high strength scandium metal alloys for military aerospace uses. In
      Russia, there is now less scandium production due to reduced military spending.
      Currently however, Russia still possesses the world’s largest stockpile of pure
      scandium oxide, which is available to the Company through the rights it acquired
      from Assignors. When the current supply is exhausted, scandium can be obtained
      through reactivating production of various waste streams of already identified
      ore processing sites in Russia. In addition, several possible North American
      scandium production sites have also been identified, if there is sufficient
      demand to justify the investment.




**History
      of Commercial Scandium Metal Alloys**




Scandium
      metal alloys for sports applications were developed using the expertise of
      Russian and Ukrainian scientific institutes. To date, more than 75 tons of
      scandium metal master alloy have been sold for the production of over 2,500,000
      pounds of final product, including several sports products, and for a variety
      of
      civil and government funded transportation related development
      programs.




In
      1997,
      Easton Sports’ baseball and softball bats constituted the first production of a
      large-scale scandium alloy sports product. The ultra light high-strength Easton
      bats, known as the Scandium/Sc 7000 Redline series, quickly became the most
      successful new product launch in Easton’s 75-year history. **To
      date, the Company believes that** Easton
      has sold in excess of $1 billion of scandium metal alloy baseball and softball
      bats. Easton then produced a weldable scandium metal alloy for use in bicycle
      frames, and handle bars. Both products have been highly successful and the
      frame
      is now considered one of the lightest in the industry and used by many
      top-racing teams. In addition to baseball bats and bicycle frames, scandium
      golf
      shafts, metal wood drivers, putters, lacrosse sticks, bicycle seat posts and
      handlebars and hockey stick prototypes have been developed.




**E21
      Alloy - Product Advantages**




The
      E21
      Alloy has advantages over other high strength aluminum and titanium alloys
      and
      composite materials, especially in heavily drawn and worked
      products:




·
            Up
                to 50% strength increase over high-strength aluminum
                alloys;


·
            Over
                20% specific strength advantage over titanium
                alloys;


·
            Significant
                cost and design advantages over composite
                materials;


·
            Reduction
                and elimination of surface
                re-crystallization;


·
            Increase
                in weldability and weld strength;


·
            Increase
                in weld fatigue life of 200%;


·
            Reduction
                and elimination of hot-cracking in
                welds;


**·**
            Increased
                plasticity, durability, and
                formability.




10


**Sports
      Equipment**




As
      athletes and marketers demand improvement in sports equipment, designers push
      material limitations when using existing metals and alloys. Most aluminum
      products in the sports market today have alloy development origins from the
      1930s, while other high-performance alloys were developed in the 1960s. Titanium
      and composite materials have replaced aluminum in some sporting goods; however,
      these materials are more expensive and more difficult to process. Consequently,
      they have found major acceptance only in the highest end of the
      market.




Our
      objective is to develop and market new golf products with E21 alloys which
      can
      provide measurable advantages over existing high-end aluminum alloys, stainless
      steel, titanium and composite materials.




**Sales
      and Marketing**




This
      product development effort has provided the Company with several sales and
      marketing options. These options include the sale of semi-finished products
      to
      other original equipment manufacturers (OEMs), the sale of finished heads to
      OEMs, and/or the Company’s own direct sale of branded E21 Alloy golf products to
      the market place.




Currently,
      E21 Alloy shafts are available to club makers and fabricators through the
      Clubmakers and **** Golfworks
      catalogues and web sites. Some initial inroads have also been made on a limited
      basis to retail golf chains. As a product line unfolds, the Company will more
      aggressively pursue the development of additional retail channels and sales
      strategies.




As
      the
      various club designs and shafts are being updated, testing of these updated
      products using a robotic arm will allow the company to validate the performance
      improvements available through this advanced material design, and provide
      documentation necessary to make substantive claims regarding the performance
      of
      the E21 lineup of clubs. It is anticipated that this testing will be conducted
      on a regular basis at Golf Labs Inc. in San Diego. ****




E21
      is
      focused on attracting key retailers to carry its products, and for this reason
      the Company’s previous plan to use an infomercial to introduce its products has
      been postponed.




In
      January 2006, E21 reported on its plans to drive a golf ball into orbit around
      the Earth in celebration of the 35th anniversary of Alan B. Shepard Jr’s.
      historic Apollo 14 Mission. Through the collaborative efforts of six nations
      and
      members of NASA, Canadian and Russian space agencies and the Rocket Building
      Corporation Energia, every single record for distance in the golf industry
      will
      be shattered when one of the International Space Station’s astronauts will hit
      an E21 golf ball around the world - using an E21, pure gold plated club. In
      July
      2006, a Flight Safety Certificate was signed by NASA approving the event for
      Thanksgiving 2006. E21 expects that the event will continue to generate
      international media coverage and interest from golfers around the world which
      will in turn assist in the sale of E21 products in the future.





During
      this past fiscal year, the Company contracted with two important international
      distributors for the sale of its products in Australia and Europe. Headquartered
      in Hamburg, Germany, Golf Professional Service GMBH (GPS) began selling E21
      products in Germany, Austria, Switzerland, Spain and Portugal this summer.
      GPS
      has been marketing golf products in Europe and currently sells to over 1,200
      pro
      shops and retail outlets. In the summer edition of Golf House Golf Equipment
      Catalogue, GPS placed an E21 driver on the full back cover of the catalogue's
      customer address label side, calling the "Shock" Driver a Sensation. In
      Australia and New Zealand, E21 also contracted with Power Sports International
      (PSI). With their head office and warehouse located in Queensland, PSI has
      13
      sales representatives in South Australia, New South Wales, Queensland, Tasmania,
      Northern Territory, Victoria, Western Australia and New Zealand. PSI is setting
      up an extensive advertising program including the placement of ads in three
      major golf publications, as well as in local press and state magazines. PSI
      will
      also be establishing a major Demo Day program with their agents, and will be
      implementing a Tour program on the popular Australian PGA Tour.




11


Based
      on
      interest in the Company’s products from retailers, other golf companies and club
      and shaft manufacturers in Asia, E21 management devised its future sales and
      marketing strategy. Because E21 is in control of alloy production, product
      manufacturing, patent protection, product design, and sales and marketing it
      has
      implemented a three-tiered marketing strategy that it feels will maximize
      profits while maintaining control over its proprietary E21 Alloy. The
      three-tiered strategy targets:




·
            Retail
                Sales -- equipment sales to a variety of domestic and international
                retailers;




·
            Component
                Sales -- the selective sale of shafts and heads to other golf club
                companies; and




·
            Technology
                Licensing -- limited licenses to off-shore golf component manufacturers.






In
      preparation for sales, the Company established a new call-in and customer
      service center, full assembly facilities, warehousing, and shipping and
      receiving capabilities in March 2006. All business data generated can be
      integrated into a comprehensive computerized tracking / database management
      solution. This integrated system provides access to key information specific
      to
      running large-scale operations tailored to our needs as a golf company. The
      Company has created a very cost-effective solution that will be highly scalable
      in order to manage future growth.




**Scandium
      Raw Material Supply**




The
      raw
      material that goes into production of the E21 Alloy comes from scandium oxide,
      which has about 60% scandium metal content. Scandium oxide is used in the
      production of “master alloy,” which is then added to nine other metals and other
      alloy ingredients to create a concentration of approximately 0.001% - 10.00
      %
      scandium in the final alloy used in products. This is known as the E21 Alloy,
      which has the technical advantages needed for production of high performance
      equipment for sports, transportation, military and aerospace applications and
      are the subject of the Assignors’ patents.




Because
      of the experience and access to economic supply of scandium raw materials and
      experience with the scandium alloys, the Company will initially rely on KUNZ
      and
      Yunan as sole suppliers and reprocessors of its precursor materials. However,
      through its c onsultants,
      over time and with additional resources, of which there is no assurance, the
      Company intends to develop an independent resource for supplying these materials
      and services.




**Status
      of Any Publicly Announced New Product or Service**




The
      Company’s web site, at *www.e21golf.com* *,* c ontains
      its most recent press releases and financial reports as well as independent
      test
      results of the Company’s shafts against the leading high-performance golf shafts
      in the world. For additional information or earlier press releases go to any
      website’s financial bulletin board for Element 21 Golf Company (formerly BRL
      Holdings, Inc. (OTCBB EGLF). None of the information contained on the Company’s
      website is incorporated in this Form 10-KSB.




12


**Competitive
      Business Conditions**




All
      major
      manufacturers of golf clubs, shafts and related equipment will be major
      competitors of our planned business operations, and all have greater resources,
      marketing capabilities and name recognition than we do. However, the Company
      believes that it would be impossible for a competitor to use scandium alloys
      in
      golf club production without infringing on the two US patents exclusively
      licensed to E21. The marketing and branding of the E21 Alloy has also received
      a
      high volume of world-wide media coverage, due to the upcoming golf shot from
      the
      International Space Station.




**Sources
      and Availability of Raw Materials**




The
      Company has a strategic supply agreement with an affiliate of OAO KUMZ. Under
      this agreement, concentrated scandium alloy shall be produced to the
      specification of the Company by the KUMZ affiliate. KUMZ also will transfer
      the
      latest innovations in scandium alloys to the Company as they become available.
      KUMZ is a well-established, diversified producer of aluminum, aluminum alloys
      and products for aerospace, shipbuilding, automotive, and other industries.
      KUMZ
      is also the world’s largest facility specializing in scandium alloy products.
      Scandium work initially began 20-25 years ago with the development of scandium
      aerospace alloys for fighter aircraft.




The
      second strategic partner of the Company is Yunan Aluminum, which is in the
      business of manufacturing precision tubing for outdoor recreation and sporting
      markets. Yunan Aluminum was established in 1979 in South Korea, and now
      manufactures, for customers other than the Company, about 80,000 pounds per
      month of high quality products made of high strength aluminum alloys. Yunan
      Aluminum intends to reprocess, in South Korea, alloy concentrate shipped by
      KUNZ
      on behalf of the Company and also intends to produce E21Alloy golf shafts
      exclusively for the Company.




**Shift
      from Development to Sales**




The
      Company’s golf products are new to the market. The Company’s main focus is
      shifting from the development to actual sales of scandium golf clubs. While
      the
      market is large, we cannot be sure that the Company’s prod ucts
      will
      achieve general market adoption. As of the date of this report, we have not
      raised funds sufficient to significantly penetrate the golf market, although
      our
      recent financing will allow sufficient inventory production to supply key
      retailers and introduce the E21 Alloy golf clubs to consumers across North
      America.




**Patents,
      Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor
      Contracts**




The
      Company does not hold direct title to any patents. However, when it acquired
      Element 21, it acquired the exclusive right to use, produce and sell a specified
      range of scandium alloy for golf club shafts and golf heads. Although these
      rights do not cover all mixes of scandium alloy, the Company believes that
      any
      scandium alloy outside the range of its patent protected rights cannot be used
      to produce golf club shafts or heads in an economically feasible manner. The
      golf applications under these patent rights acquired by us in the Element 21
      Acquisition are U. S. Patent Nos. 5,597,529 issued on January 28, 1997, and
      5,620,662, issued on April 15, 1997, initially filed by Ashurst Technologies,
      Inc. and acquired on January 7, 2001 by Nataliya Hearn and David Sindalovsky.




**Need
      for any Government Approval of Principal Products or
      Services**




We
      believe there is no need for any government approval or regulation of our
      products. The game of golf in the United States is regulated by the USGA. To
      date the Company’s products are in compliance with USGA regulations. There may
      be a need to comply with certain trade agreements with our strategic partners
      outside of the United States of America.




13


**Effects
      of Existing or Probable Governmental Regulations**




***Sarbanes-Oxley
      Act***




On
      July
      30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the
      “Sarbanes-Oxley Act”). The Sarbanes-Oxley Act imposes a wide variety of
      regulatory requirements on publicly held companies and their insiders. Many
      of
      these requirements will affect us. For example:




·
            Our
                chief executive officer and chief financial officer must now certify
                the
                accuracy of all of our periodic reports that contain financial
                statements;




·
            Our
                periodic reports must disclose our conclusions about the effectiveness
                of
                our disclosure controls and procedures;
                and




·
            We
                may not make any loan to any director or executive officer and we
                may not
                materially modify any existing
                loans.




The
      Sarbanes-Oxley Act has required us to review our current procedures and policies
      to determine whether they comply with the Sarbanes-Oxley Act and the new
      regulations promulgated there under. We will continue to monitor our compliance
      with all future regulations that are adopted under the Sarbanes-Oxley Act and
      will take whatever actions are necessary to ensure that we are in
      compliance.




***Penny
      Stock***




Our
      common stock is “penny stock” as defined in Rule 3a51-1 of the Securities and
      Exchange Commission (“SEC”). Penny stocks are stocks:




·
            with
                a price of less than five dollars per share;




·
            that
                are not traded on a “recognized” national exchange;




·
            whose
                prices are not quoted on the NASDAQ automated quotation system; or




·
            in
                issuers with net tangible assets less than $2,000,000, if the issuer
                has
                been in continuous operation for at least three years, or $5,000,000,
                if
                in continuous operation for less than three years, or with average
                revenues of less than $6,000,000 for the last three years.




Section
      15(g) of the Exchange Act and Rule 15g-2 of the Securities and Exchange
      Commission require broker/dealers dealing in penny stocks to provide potential
      investors with a document disclosing the risks of penny stocks and to obtain
      a
      manually signed and dated written receipt of the document before making any
      transaction in a penny stock for the investor’s account. You are urged to obtain
      and read this disclosure carefully before purchasing any of our shares.




Rule
      15g-9 of the Securities and Exchange Commission requires broker/dealers in
      penny
      stocks to approve the account of any investor for transactions in these stocks
      before selling any penny stock to that investor. This procedure requires the
      broker/dealer to:




14




·
            get
                information about the investor’s financial situation, investment
                experience and investment goals;




·
            reasonably
                determine, based on that information, that transactions in penny
                stocks
                are suitable for the investor and that the investor can evaluate
                the risks
                of penny stock transactions;




·
            provide
                the investor with a written statement setting forth the basis on
                which the
                broker/dealer made his or her determination; and




·
            receive
                a signed and dated copy of the statement from the investor, confirming
                that it accurately reflects the investors’ financial situation, investment
                experience and investment goals.




Compliance
      with these requirements may make it harder for our stockholders to resell their
      shares.




**Reporting
      Obligations**




Section
      14(a) of the Exchange Act requires all companies with securities registered
      pursuant to Section 12(g) of the Exchange Act to comply with the rules and
      regulations of the Securities and Exchange Commission regarding proxy
      solicitations, as outlined in Regulation 14A. Matters submitted to stockholders
      of our Company at a special or annual meeting thereof or pursuant to a written
      consent will require our Company to provide our stockholders with the
      information outlined in Schedules 14A or 14C of Regulation 14; preliminary
      copies of this information must be submitted to the Securities and Exchange
      Commission at least 10 days prior to the date that definitive copies of this
      information are forwarded to our stockholders.




We
      are
      also required to file annual reports on Form 10-KSB and quarterly reports on
      Form 10-QSB with the Securities Exchange Commission on a regular basis, and
      will
      be required to timely disclose certain material events (e.g., changes in
      corporate control; acquisitions or dispositions of a significant amount of
      assets other than in the ordinary course of business; and bankruptcy) in a
      Current Report on Form 8-K.




You
      may
      read and copy any materials filed with the SEC at the SEC’s Public Reference
      Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
      information on the operation of the Public Reference Room by calling the SEC
      at
      1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy
      and information statements, and other information regarding issuers that file
      electronically with the SEC at *www.sec.gov* ** .




**Small
      Business Issuer**




The
      integrated disclosure system for small business issuers adopted by the SEC
      in
      Release No. 34-30968 and effective as of August 13, 1992, substantially modified
      the information and financial requirements of a “Small Business Issuer,” defined
      to be an issuer that has revenues of less than $25,000,000; is a U.S. or
      Canadian issuer; is not an investment company; and if a majority-owned
      subsidiary, the parent is also a small business issuer; provided, however,
      an
      entity is not a small business issuer if it has a public float (the aggregate
      market value of the issuer’s outstanding securities held by non-affiliates) of
      $25,000,000 or more. We are deemed to be a “small business issuer.”




15


**Research
      and Development Expenses during Past Two Fiscal Years**




During
      the fiscal years ended 2006 and 2005 there were no research and development
      costs incurred by the Company. Research and development costs do not include
      unallocated consulting fees paid to consultants, nor development of production
      and manufacturing paths. We anticipate that research and development funds
      will
      be required with respect to our planned business operations of the development
      manufacture and sale of E21 Alloy golf clubs.




To
      date,
      the Company has relied on its consultants and their existing infrastructure
      to
      develop its initial products and has reflected these costs as operating costs.
      We anticipate increased spending related to research and development during
      fiscal year 2007.




**Costs
      and Effects of Compliance with Environmental Laws**




Neither
      we nor any of our subsidiaries have yet
      reached the stage of development where environmental issues have arisen;
      however, we cannot yet determine what, if any, of these types of regulations
      will affect our planned business operations of the development, manufacture
      and
      sale of E21 Alloy golf clubs.




Further,
      because the existing agreements with KUNZ and Yunan do not require the Company
      to retain responsibility for any environmental compliance and/or impact, the
      Company believes it has no significant exposure to environmental compliance
      nor
      any other governmental regulation or oversight




**Number
      of Employees**




As of
      September 30, 2006 we h ave
      no
      employees with all individuals instead engaged as consultants to the Company.
      The key individuals include:




·
            Nataliya
                Hearn, PhD, our CEO and President, is based in Toronto, Canada and
                oversees day to day operations of the Company including financing,
                administration and engineering.




·
            John
                Grippo, CPA, our CFO, is based in Scarsdale, New York, and oversees
                the
                financial aspects of the Company.




·
            Bill
                Dey, Executive Vice President, is based in Toronto, Canada, and operates
                as the Company’s General Manager and is responsible for all aspects of the
                Company’s sales and marketing
                strategy.




·
            David
                Sindalovsky, based in Toronto, Canada, is responsible for material
                sourcing, manufacturing, engineering and the Company’s relationship with
                strategic partners in Asia and
                Russia.




·
            Mark
                Myrhum operates as the company’s Senior Designer and is the main liaison
                with Chinese manufacturers.




·
            Andy
                Harris is responsible for PGA tour presence and PGA player relations.




·
            Joe
                Wieczorek of The Media Group develops golf related publications and
                exposure for the Company’s
                products.




·
            Howard
                Butler of The Golf Science provides R&D design, engineering and
                modeling services to the Company.




16


This
      consultant structure allows the Company to avoid having large fixed-cost
      marketing, administrative and development organizations in order to be
      responsive to fluctuations in the marketplace that have plagued other start-up
      golf companies.




**ITEM
      2. DESCRIPTION OF PROPERTY**




In
      April
      2006, the Company moved into new offices at 200 Queens Quay East, Unit #1,
      Toronto, Canada. The new space is leased from Queens Quay Investments, Inc.
      for
      a three year lease. The lease calls for monthly payments of $1,927 plus GST
      for
      finished offices measuring a total of approximately 1,927 square feet.




The
      Company’s inventory is currently managed by Horton’s and Sons, located in
      Markham, Canada. Horton’s will manage E21’s call-in and customer service center
      (including credit checks), and also provides complete assembly facilities,
      warehousing, and shipping and receiving capabilities.




**ITEM
                3.**
            **LEGAL
                PROCEEDINGS**




We
      are
      not a party to any pending legal proceedings, our property is not the subject
      of
      a pending legal proceeding and to the knowledge of our management, no
      proceedings are presently contemplated against us by any federal, state or
      local
      governmental agency.




Further,
      to the knowledge of our management, no director or executive officer is party
      to
      any action in which any has an interest adverse to us.




**ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**




The
      Company held a Special Meeting of Stockholders (the “Special Meeting”) on May 8,
      2006.




(a)
      At
      the Special Meeting, the Company’s shareholders voted on a proposal to amend the
      Company’s Amended Certificate of Incorporation to increase the number of
      authorized shares of our common stock from 100 million to 300 million shares.
      (The Certificate of Amendment is attached as Annex A to the Company’s Proxy
      Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
      filed
      on April 7, 2006.) The shareholders voted to approve the proposal by a vote
      of:
      168,745,480 shares for and 2,767,613 shares against with no shares abstaining
      from voting.




(b)
      In
      addition, at the Special Meeting, the Company’s shareholders voted on a proposal
      to authorize the Board of Directors, in its discretion, to amend the Company’s
      Amended Certificate of Incorporation to effect a reverse stock split of our
      outstanding shares of common stock. (The Certificate of Amendment is attached
      as
      Annex B to the Company Proxy Statement Pursuant to Section 14(a) of the
      Securities Exchange Act of 1934 filed on April 7, 2006.) The shareholders voted
      to approve the proposal by a vote of: 163,440,185 shares for and 7,802,908
      shares with no shares abstaining from voting.




(c)
      In
      addition, at the Special Meeting, the Company’s shareholders voted on a proposal
      to authorize the Board of Directors, in its discretion, to approve the Element
      21 Golf Company 2006 Equity Incentive Plan (“Plan”) and to authorize 20,000,000
      shares of the Company’s common stock for issuance thereunder. (The Plan is
      attached as 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.) The shareholders
      voted to approve the Plan by a vote of: 129,997,800 shares for and 4,177,143
      shares against. A total of 37,068,150 shares abstained from voting or were
      broker non-votes.




17


**PART
      II**




**ITEM
                5.**
            **MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS**




**Market
      Information**




There
      has
      never been any established trading market for our shares of common stock and
      there is no assurance that a trading market will develop. Our common stock
      is
      presently quoted on the Over-the-Counter Bulletin Board (“OTCBB”) of the
      National Association of Securities Dealers under the symbol “EGLF” as reflected
      below. No assurance can be given that any market for our common stock will
      develop in the future or be maintained. If an established trading market ever
      develops in the future, the sale of our common stock pursuant to Rule 144 of
      the
      Securities and Exchange Commission, or otherwise, by members of our management
      or others may have a substantial adverse impact on any such market.




The
      range
      of high and low bid quotations for our common stock during each of the last
      two
      fiscal years and the most recent interim quarter is shown below. Prices shown
      in
      the table represent inter-dealer quotations, without adjustment for retail
      markup, markdown, or commission, and do not necessarily represent actual
      transactions.




**High**
            
            **Low****Fiscal
                Year Ended June 30, 2005**First
                Quarter
            
            $
            0.11
            
            $
            0.07Second
                Quarter
            
            $
            0.10
            
            $
            0.08Third
                Quarter
            
            $
            0.09
            
            $
            0.06Fourth
                Quarter
            
            $
            0.06
            
            $
            0.06**Fiscal
                Year Ended June 30, 2006**First
                Quarter
            
            $
            0.14
            
            $
            0.04Second
                Quarter
            
            $
            0.11
            
            $
            0.06Third
                Quarter
            
            $
            0.43
            
            $
            0.08Fourth
                Quarter
            
            $
            0.24
            
            $
            0.14**Interim
                Period Ended October 11, 2006**
            
            $
            0.20
            
            $
            0.17







**Holders**




The
      number of record holders of our common stock as of September 30, 2006 was
      approximately 1,866 registered shareholders. **** This
      number does not include an undetermined number of stockholders whose shares
      are
      held in brokerage accounts or by other nominee holders.




**Dividends**




We
      effected a two-for-one stock split in the form of a stock dividend on all our
      outstanding shares of common stock (including shares issued in connection with
      the Acquisition) on the record date of October 4, 2002, which also resulted
      in
      similar adjustments to all of our shares of common stock underlying our
      outstanding options. Except as otherwise indicated herein, all share and per
      share data reflected in this Annual Report has been retroactively restated
      to
      reflect this dividend.




18


We
      also
      resolved to effect, by exemption from registration under the Securities Act
      of
      1933, as amended (the “Securities Act”) or by registration under the Securities
      Act, a spin-off of our interests in AssureTec Holdings, Inc. to our shareholders
      of record as of October 4, 2002 (excluding shareholders who received shares
      of
      the Company’s common stock in connection with the Acquisition of Element 21).
      The Company currently is preparing the documentation necessary to implement
      this
      distribution.




At
      a
      Special Meeting of the Company’s stockholder on May 8, 2006, the stockholders
      approved a resolution unanimously adopted by the Board of Directors to authorize
      a series of 19 separate amendments to the Company's Certificate of Incorporation
      in order to effect a reverse stock split of the outstanding shares of the
      Company's common stock at each ratio of a minimum of 1 for 2, a maximum of
      1 for
      20, and at a ratio equal to 1 for each whole number between 2 and 20. The Board
      of Directors was thereby given the discretion to unilaterally determine an
      appropriate stock split ratio within a range of 1 for 2 and 1 for 20 and to
      give
      effect to the corresponding amendment of the Company's Certificate of
      Incorporation which effects such stock split and to abandon each other amendment
      adopted relating to the reverse stock split. Because the aggregate number of
      shares of common stock would be reduced as a result of the reverse stock split,
      if and when effected, the monetary per share value of each remaining share
      of
      common stock would increase and we anticipate that the number of holders of
      the
      Company’s common stock would decrease as a result of fractional shares created
      by the reverse stock split. Consequently, any cash dividend that were to be
      paid
      per share would increase proportionately on a per share basis as compared to
      the
      cash dividend paid prior to the reverse stock split.




We
      have
      not paid any cash dividends on our common stock, and it is not anticipated
      that
      any cash dividends will be paid in the foreseeable future. The Board of
      Directors intends to follow a policy of using retained earnings, if any, to
      finance our growth. The declaration and payment of dividends in the future
      will
      be determined by the Board of Directors in light of conditions then existing,
      including our earnings, if any, financial condition, capital requirements and
      other factors.




**Recent
      Sales of Unregistered Securities**




During
      the three months ended September 30, 2005, the Company issued an aggregate
      of
      11,281,265 shares of common stock to twenty-four consultants in consideration
      for services rendered in the aggregate amount of $779,539. The Company also
      sold
      warrants to purchase 1,000,000 shares of its common stock at a price of $0.08
      per warrant, realizing proceeds of $80,000. The exercise price for shares
      purchased under this warrant is $.15 per share. The shares and warrants were
      issued in reliance on exemptions from registration pursuant to Section 4(2)
      of
      the Securities Act of 1933, as amended.




In
      February 2006, the Company issued a warrant to purchase 1,000,000 shares of
      the
      Company's common stock at a price of $0.01 as part of the Company's repayment
      of
      outstanding indebtedness to a creditor of the company. The warrants vested
      immediately and are exercisable for a three year period from the date of
      issuance.




Between
      January 17 and March 6, 2006, the Company issued 10% Convertible Promissory
      Notes in the aggregate principal face amount of $540,000 to 15 individual
      investors. Each such investor also received three separate warrants (a warrant
      exercisable for one year, a warrant exercisable for two years, and a warrant
      exercisable for three years) to purchase shares of the Company's common stock
      entitling the investor to invest an amount equal to the investor’s investment in
      the Notes in additional shares of the Company's common stock subject to certain
      price adjustments. The Notes mature one year after issuance and accrue interest
      at an annual interest rate equal to 10% per annum, payable at
      maturity.




19


Between
      May 5 and June 29th, 2006, the Company issued 10% Convertible Promissory Notes
      in the aggregate principal face amount of $623,000 to 16 individual investors.
      Each such investor also received warrants, exercisable for one year, to purchase
      shares of the Company's common stock entitling the investor to invest an amount
      equal to 150% of the investor’s investment in the Notes in additional shares of
      the Company's common stock subject to certain price adjustments. The Notes
      mature one year after issuance and accrue interest at an annual interest rate
      equal to 10% per annum, payable at maturity.




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




As
      described above in Item 1 under the heading “Recent Events”, on July 31, 2006
      (the “Initial Closing Date”), the Company sold an aggregate of 117,648 shares of
      Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and issued
      warrants to purchase an aggregate of 17,647,060 shares of common stock for
      an
      aggregate purchase price of $2,000,000. The Company paid 15% commissions **to
      ???** in
      connection with its issuance of shares of Series B Preferred Stock and the
      accompanying warrants. The shares of Series B Preferred Stock are convertible
      into shares of Common Stock at the election of the Purchasers. Each share of
      Series B Preferred Stock is initially convertible into 100 shares of Common
      Stock, with such conversion ratio subject to adjustment in the event of dilutive
      issuances, stock splits, combinations, certain dividends and distributions,
      and
      mergers, reorganizations or other similar recapitalization events. The warrants
      may be exercised in whole or in part for shares of Common Stock by payment
      by
      the Purchasers of the applicable exercise price in cash prior to the expiration
      of the warrants on January 31, 2009.




All
      of
      the above securities issuances were made upon reliance on the exemption from the
      Securities Act registration requirements contained in Section 4(2) of the
      Securities Act of 1933 and pursuant to Regulation D promulgated thereunder.




The
      Company relied on the following facts in determining that the offer and sale
      of
      the above listed securities qualified for the exemption provided by Rule
      506:





o
            The
                offer and sale satisfied the terms and conditions of Rule 501 and
                502
                under the Securities Act; and





o
            Pursuant
                to Rule 506 under the Securities Act, no more than 35 purchasers
                purchased
                any of the securities offered, as determined in accordance with Rule
                501(e) under the Securities Act.





20




**Securities
      Authorized for Issuance Under Equity Compensation Plans**




Equity
                Compensation Plan Information


Plan
                Category
            
            Number
                of Securities to
              be
                Issued Upon
              Exercise
                of Outstanding
              Options,
                Warrants and Rights
            
            Weighted-Average
              Exercise
                Price of
              Outstanding
                Options,
              Warrants
                and Rights
            
            Number
                of Securities
              Remaining
                Available
              for
                Future Issuance
              under
                Equity
              Compensation
                Plans
              (Excluding
                Securities
              Reflected
                in Column (a))*(a)
            
            (b)
            
            (c)Equity
                compensation plans approved by security holders
            
            0
            
            N/A
            
            20,000,000Equity
                compensation plans not approved by security holders
            
            5,012,800
            
            $0.203
            
            N/ATotal
            
            5,012,800
            
            
            
            20,000,000




*
                At June 30, 2006







**ITEM
                6.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -**




**Overview**




Fiscal
      2006 has been a transitional year for the Company - from development stage
      status to sales of actual products. As of the beginning of fiscal 2006, the
      Company required financing in order to produce inventory required to supply
      retail channels in North America. Through July 2006, the Company was able to
      secure funding from several sources in the aggregate amount of approximately
      $5.15 million. These financings allowed the Company to continue its efforts
      to
      develop distribution channels for its upcoming products. The Company has
      established a sales structure with internal and field sales representatives,
      who
      manage current sales and has been actively building the foundation of sales
      and
      distribution systems for the Company’s products. To date, the Company has
      introduced its products through golf shows, catalogue sales though the GolfWorks
      publication, advertisings with the Professional Club Builder’s Society and
      various other publications managed by the Media Group. Subject to raising
      necessary additional funds, of which there can be no assurance, we intend to
      introduce our E21 Alloy shafted driver and similar metal headed woods built
      with
      our Element 21 shaft technology, through retail sales and manufacturing of
      components to the OEMs.




21


**Fiscal
      2006 Compared to Fiscal 2005**




During
      fiscal year 2006, we had $51,569 in revenues as compared to $65,635 in revenues
      during fiscal year 2005. During fiscal year 2006, our costs of sales
      were **** $25,615 **.** During
      fiscal year 2006, our general and administrative costs were **** $3,628,210
      These general and administrative costs primarily consist of marketing costs,
      including trade shows, legal and accounting expenses necessary to maintain
      the
      Company’s reporting requirements to be a publicly traded entity, and consulting
      fees which was satisfied through the issuance of our common stock. During fiscal
      2005, general and administrative expenses aggregated $1,379,186 and consisted
      primarily of marketing costs, including trade shows, legal and accounting
      expenses necessary to maintain the Company’s reporting requirements to be a
      publicly traded entity, consultant compensation of $500,000 and consulting
      fees
      valued at $288,000, which was satisfied through the issuance of our common
      stock. Net loss for fiscal 2006 was $4,754,727 ($0.05 per share) as compared
      to
      a net loss of $1,352,931 ($0.02 per share) for fiscal 2005. The increase in
      net
      loss is largely attributable to an increase in consulting costs.




**Liquidity
      and Capital Resources**




From
      our
      inception through the end of fiscal year 2005, our primary source of funds
      has
      been the proceeds from private offerings of our common stock and advances from
      Dr. Hearn, other consultants, related parties and loans from
      stockholders.  The
      Company’s need to obtain capital from outside investors is
      expected to continue until we are able to achieve profitable operations, if ever. There is no assurance that management will
      be
      successful in fulfilling all or any elements of its plans. The failure to
      achieve these plans will have a material adverse effect on our Company’s
      financial position, results of operations and ability to continue as a going
      concern. As noted in our auditor’s report dated October 13, 2006, there is
      substantial doubt about our Company’s ability to continue as a going
      concern.




During
      fiscal 2006, we utilized **** $1,525,584
      for our operations compared to $414,754 used for fiscal 2005. During fiscal
      2006, the Company’s accounts payables decreased by $267,259 while it’s accrued
      expenses increased by $2,277,803 As of June 30, 2006, we had accrued and unpaid
      compensation to our officers of approximately $500,000. To fund our operation,
      our officers have advanced funds and paid expenses on our behalf. For fiscal
      2006, funds generated from financing sources aggregated $2,464,540 **** compared
      to $426,567 generated in fiscal 2005.




**New
      Accounting Pronouncements affecting the Company**




In
      December 2004, the FASB issued SFAS No. 123 (revised 2004), or SFAS 123R,
“Share-Based Payment.” This statement replaces SFAS 123, “Accounting for
      Stock-Based Compensation” and supersedes Accounting Principles Board’s Opinion
      No. 25 (ABP 25), “Accounting for Stock Issued to Employees.” SFAS 123R will
      require us to measure the cost of our employee stock-based compensation awards
      granted after the effective date based on the grant date fair value of those
      awards and to record that cost as compensation expense over the period during
      which the employee is required to perform services in exchange for the award
      (generally over the vesting period of the award). SFAS 123R addresses all forms
      of share-based payments awards, including shares issued under employee stock
      purchase plans, stock options, restricted stock and stock appreciation rights.
      In addition, we will be required to record compensation expense (as previous
      awards continue to vest) for the unvested portion of previously granted awards
      that remain outstanding at the date of adoption. SFAS 123R is effective for
      fiscal years beginning after June 15, 2005. Therefore, we are required to
      implement the standard no later than our first fiscal quarter which begins
      on
      March 1, 2006. SFAS 123R permits public companies to adopt its requirements
      using the following methods: (1) a “modified prospective” method in which
      compensation cost is recognized beginning with the effective date (a) based
      on
      the requirements of SFAS 123R for all share-based payments granted after the
      effective date and (b) based on the requirements of SFAS 123 for all awards
      granted to employees prior to the effective date of SFAS 123R that remain
      unvested on the effective date; or (2) a “modified retrospective” method which
      includes the requirements of the modified prospective method described above,
      but also permits entities to restate their financial statements based on the
      amounts previously recognized under SFAS 123 for purposes of pro forma
      disclosures for either (a) all prior periods presented or (b) prior interim
      periods of the year of adoption.




22


In
      June
      2005, the FASB issued Statement of Financial Accounting Standard No. 154, *Accounting
      Changes and Error Corrections* ,
      ("SFAS
      154"). SFAS 154 replaces Accounting Principle Bulletin No. 20 ("APB 20"), and
      Statement of Financial Accounting Standard No. 3, *Reporting
      Accounting Changes in Interim Financial Statements* ("SFAS
      3"), and applies to all voluntary changes in accounting principle, and changes
      the requirements for accounting for and reporting of a change in accounting
      principle. APB 20 previously required that most voluntary changes in accounting
      principle be recognized by including in net income of the period of change
      a
      cumulative effect of changing to the new accounting principle, whereas SFAS
      154
      requires retrospective application to prior periods' financial statements of
      a
      voluntary change in accounting principle unless it is impracticable. SFAS 154
      enhances the consistency of financial information between periods. SFAS 154
      is
      effective for fiscal years beginning after December 15, 2005. Our adoption
      of
      SFAS 154 is not expected to have a material impact on our results of operations
      or financial position.





In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (FIN
      48), which, among other things, requires applying a "more likely than not"
      threshold to the recognition and derecognition of tax positions. The provisions
      of FIN 48 will be effective for us on July 1, 2007. We are currently evaluating
      the impact of adopting FIN 48 on the financial statements, but we do not expect
      its adoption to have a significant transition effect.







**Critical
      Accounting Policies and Estimates**




The
      following estimates used in the preparation of our Company’s Consolidated
      Financial Statements had a significant effect on those statements.




Our
      Company has established a reserve against our deferred tax asset reducing the
      carrying value to $0 at June 30, 2006 and 2005.




**Risk** **Factors**




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




We
      have a
      history of substantial operating losses and an accumulated deficit of **$17,471,208** as of
      June 30, 2006, of which $3,261,401 represents development stage losses and
      $xx
      represents accumulated losses. For the year ended June 30, 2006, our net loss
      was **$4,754,727.** We have
      historically experienced cash flow difficulties primarily because our expenses
      have exceeded our revenues. We expect to incur additional operating losses
      for
      the immediate near future. These factors, among others, raise significant doubt
      about our ability to continue as a going concern. If we are unable to generate
      sufficient revenue from our operations to pay expenses or we are unable to
      obtain additional financing on commercially reasonable terms, our business,
      financial condition and results of operations will be materially and adversely
      affected.




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




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




23


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




As
      of
      June 30, 2006, as discussed above, we have no employees and utilize the services
      of consultants.  Our consultants are bound by non-compete provisions;
      however, they are not otherwise prohibited from terminating their consulting
      relationship with the Company. The loss of the knowledge and management and
      industry expertise of any of these key consultants could have a material adverse
      impact on our future prospects, in particular Dr. Hearn and David Sindalovsky,
      who have played a key role in developing scandium technology for golf
      applications. In addition, once we are sufficiently capitalized, we will need
      to
      recruit new executive managers and hire employees to help us execute our
      business strategy and help manage the growth of our business. Competition for
      executive and other skilled personnel in the golf equipment industry is intense,
      and we may not be successful in attracting and retaining such personnel. Our
      business could suffer if we were unable to attract and retain additional highly
      skilled personnel or if we were to lose any key personnel and not be able to
      find appropriate replacements in a timely manner.




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




We
      expect
      to derive a substantial portion of our future revenues from the sales of E21
      alloy golf shafts that are only now entering the initial marketing phase.
      Although we believe our products and technologies will be commercially viable,
      these are new and untested products.  If markets for our products fail
      to develop further, develop more slowly than expected or are subject to
      substantial competition, our business, financial condition and results of
      operations will be materially and adversely affected.




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




We
      expect
      our future marketing efforts will focus in part on developing business
      relationships with distributors that will market our products to their
      customers. The success of our business depends on selling our products and
      technologies to a large number of distributors and retail customers. Our
      inability to enter into and retain strategic relationships, or the inability
      to
      effectively market our products, could materially and adversely affect our
      business, operating results and financial condition.




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




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




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




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




24


*Litigation
      concerning intellectual property could adversely affect our
      business.*




We
      rely
      on a combination of trade secrets, trademark law, contractual provisions,
      confidentiality agreements and certain technology and security measures to
      protect our trademarks, license, proprietary technology and
      know-how.  However, we can provide no assurance that competitors will
      not infringe upon our rights in our intellectual property or that competitors
      will not similarly make claims against us for infringement.  If we are
      required to be involved in litigation involving intellectual property rights,
      our business, operating results and financial condition will be materially
      and
      adversely affected.




It
      is
      possible that third parties might claim infringement by us with respect to
      past,
      current or future technologies.  We expect that participants in our
      markets will increasingly be subject to infringement claims as the number of
      services and competitors in our industry grows.  Any claims, whether
      meritorious or not, could be time-consuming, result in costly litigation and
      could cause service upgrade delays or require us to enter into royalty or
      licensing agreements.  These royalty or licensing agreements might not
      be available on commercially reasonable terms or at all.




*Defects
      in our products may adversely affect our business.*




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




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




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




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




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




***Our
      stock price can be extremely volatile.***




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




25


***Trading
      on the OTC Bulletin Board may be sporadic because it is not a stock exchange,
      and stockholders may have difficulty reselling their
      shares*** **.**




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




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




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




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




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




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




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




26


Generally,
      brokers may be less willing to execute transactions in securities subject to
      the
“penny stock” rules. This may make it more difficult for investors to dispose of
      our common stock and cause a decline in the market value of our
      stock.




Disclosure
      also has to be made about the risks of investing in penny stocks in both public
      offerings and in secondary trading and about the commissions payable to both
      the
      broker-dealer and the registered representative, current quotations for the
      securities and the rights and remedies available to an investor in cases of
      fraud in penny stock transactions. Finally, monthly statements have to be sent
      disclosing recent price information for the penny stock held in the account
      and
      information on the limited market in penny stocks.




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




We
      have
      not declared dividends on our common stock since our incorporation and we have
      no present intention of paying dividends on our common stock.




**MANY
      OF THESE RISKS AND UNCERTAINTIES ARE OUTSIDE OF OUR CONTROL AND ARE DIFFICULT
      FOR US TO FORECAST. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED
      OR
      IMPLIED IN THE FORWARD-LOOKING STATEMENTS.**




**ITEM
                7.**
            **FINANCIAL
                STATEMENTS**




The
      Consolidated Financial Statements and schedules that constitute Item 7 are
      attached at the end of this Annual Report on Form 10-KSB.




**ITEM
                8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**




None




**ITEM
                8A**
            **CONTROLS
                AND PROCEDURES**




We
      maintain “disclosure controls and procedures” (as defined in the Securities
      Exchange Act of 1934 Rules 13a-15(e) and 15(d)-15(e)) designed to ensure that
      information required to be disclosed in reports filed under the Securities
      Exchange Act of 1934, as amended, is recorded, processed, summarized and
      reported within the specified time periods. Our chief executive officer and
      chief financial officer, with the participation of our management, have
      evaluated the effectiveness of the design and operation of our disclosure
      controls and procedures as of June 30, 2006. Based upon that evaluation, the
      chief executive officer and chief financial officer concluded that our
      disclosure controls and procedures are effective in timely alerting them to
      material information required to be included in our periodic filings with the
      Securities and Exchange Commission.




To
      date,
      and during the first quarter of fiscal year 2006, there have been no changes
      in
      our internal control over financial reporting that have materially affected
      or
      are reasonably likely to materially affect our internal control over financial
      reporting.




27




**ITEM
                8B**
            **OTHER
                INFORMATION**




None.




**PART
      III**




**ITEM
                9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION
                16(a) OF THE EXCHANGE ACT**




**Identification
      of Directors and Executive Officers**




The
      following table sets forth the names and the nature of all positions and offices
      held by all directors and executive officers of our Company for the fiscal
      year
      ended June 30, 2006, all of whom are consultants to the Company and not
      employees, and the period or periods during which each such director or executive
      officer has served in his or her respective positions.




**Name**
            
            **Age**
            
            **Position
                with the Company**
            
            **Date
                of Election or Designation**Nataliya
                Hearn, Ph.D.
            
            39
            
            President,
                CEO and Director
            
            October
                4, 2002John
                Grippo
            
            50
            
            CFO
            
            March
                1, 2006Gerald
                Enloe
            
            58
            
            Director,
                Chairman
            
            October
                4, 2002





**Term
      of Office**




The
      term
      of office of the current Directors shall continue until the annual meeting
      of
      our stockholders, which is scheduled in accordance with the direction of the
      Board of Directors. The annual meeting of our Board of Directors immediately
      follows the annual meeting of our stockholders, at which officers for the coming
      year are elected.




**Business
      Experience**




**Nataliya
      Hearn, Ph.D., P. Eng** .,
      is a
      Canadian citizen with a Ph.D. in Civil Engineering from Cambridge University
      and
      is a registered professional engineer. Dr. Hearn serves as President and CEO
      of
      the Company. Since 1999, Dr. Hearn has been an Associate Professor at the
      University of Windsor and since 1994 has been an Adjunct Professor at the
      University of Toronto. Dr. Hearn is currently a Director of MagIndustries Corp.
      MAA.U TSX-V, Director of New Product Development and Marketing at Link -Pipe
      Inc.. Dr. Hearn has considerable experience in technology transfer, evaluation,
      and government/industry grants. Dr. Hearn’s managing experience involves:




·
            evaluation,
                exploration and organization of Ukrainian gold deposits, by the Canadian
                geologists together with the Ukrzoloto and Ashurst
                teams;


·
            management
                of teams for testing and evaluation of damaged concrete in construction
                defects litigation in the USA; and


·
            management
                of concept development, implementation, financing and marketing of
                new
                products in trenchless technology repair
                business.




**John
      Grippo** of
      Scarsdale, New York, serves as Chief Financial Officer of the Company. Mr.
      Grippo has been the president of his own financial management practice, John
      Grippo, Inc. since 2000. His firm provides services as the CFO to small to
      mid-sized public and private companies and also provides other related
      accounting and consulting services. Prior to that, Mr. Grippo served for ten
      years as a Chief Financial Officer to companies in housewares, electric vehicles
      and financial services industries. He worked for five years as an auditor with
      Arthur Andersen, LLP, followed by seven years in various accounting positions
      in
      the financial services industry. He is a member of the New York Society of
      Certified Public Accountants and the American Institute of Certified Public
      Accountants.




28


**Gerald
      Enloe** of
      Houston, Texas, serves as a Director and our Chairman of our Board. Mr. Enloe
      has served as President and CEO of Houston Industrial Materials, Inc. since
      1991.




**Family
      Relationships**




There
      are
      no family relationship among the Directors and executive officers named
      above.




**Involvement
      in Certain Legal Proceedings**




To
      the
      knowledge of management and during the past ten years, no present director,
      person nominated to become a director, executive officer, promoter or control
      person of the Company:




(1)
            Was
                a general partner or executive officer of any business by or against
                which
                any bankruptcy petition was filed, whether at the time of such filing
                or
                two years prior thereto;




(2)
            Was
                convicted in a criminal proceeding or named the subject of a pending
                criminal proceeding (excluding traffic violations and other minor
                offenses);




(3)
            Was
                the subject of any order, judgment or decree, not subsequently reversed,
                suspended or vacated, of any court of competent jurisdiction, permanently
                or temporarily enjoining him from or otherwise limiting his or her
                involvement in any type of business, securities or banking activities;




(4)
            Was
                found by a court of competent jurisdiction in a civil action, the
                Securities and Exchange Commission or the Commodity Futures Trading
                Commission to have violated any federal or state securities law or
                commodities law, and the judgment has not been subsequently reversed,
                suspended, or vacated.




**Audit
      Committee**




The
      Board
      of Directors serves as the Company’s audit committee. Currently none of the
      Company’s directors qualifies as a “financial expert” pursuant to Item 401 of
      Regulation S-B. The Company has not sought to add a director to its board who
      qualifies as a “financial expert” because although the Company believes it would
      be desirable to have a financial expert on its audit committee, the costs of
      retaining such an expert would be prohibitive, given the Company’s resources at
      this time.




**Compliance
      with Section 16(a) of the Exchange Act**




The
      following reports on Forms 3, 4 or 5 were required to be filed by our directors,
      executive officers, and 10% or greater stockholders under the rules and
      regulations promulgated by the Securities and Exchange Commission under the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”), on the
      following dates; and as indicated, were filed later than required by the
      applicable rules and regulations: (Needs to be updated)




29




**Name**
            
            **Description
                of Form or Schedule**
            
            **Required
                Filing Date**
            
            **Filing
                Date**
            
            **Number
                of Reportable Transactions**Nataliya
                Hearn, Ph.D.
            
            4
            
            02/26/06
            
            
            
            1Gerald
                Enloe
            
            4
            
            02/26/06
            
            *
            
            1Jim
                Morin
            
            4
            
            **
            
            **
            
            **





*
            Management
                will use its best efforts to cause any forms listed above which are
                required to be filed and which have not yet been filed to be filed
                as soon
                as practicable.




**
            It
                came to the Company’s attention during fiscal year 2006 that Mr. Morin, a
                former Director of the Company, engaged in multiple sales of the
                Company’s
                common stock over the course of several years that, to the knowledge
                of
                management, have not been reported on Form
                4.




**Code
      of Ethics**




The
      Company has not yet adopted a code of ethics for its principal executive
      officer, principal financial officers, principal accounting officer or
      controller due to the small number of executive officers involved with the
      Company and due to the fact that the Company operates through strategic
      consultants with no employees. The Board of Directors will continue to evaluate,
      from time to time, whether a code of ethics should be developed and
      adopted.




**ITEM
                10.**
            **EXECUTIVE
                COMPENSATION**




**EXECUTIVE
      COMPENSATION**




The
      following table sets forth in summary form the compensation of the Company’s
      current Chief Executive Officer and each other executive officer that received
      total salary and bonus exceeding $100,000 since its inception (“Named Executive
      Officers”).




**Summary
      Compensation Table**




The
      following table sets forth the aggregate executive compensation paid by our
      Company for services rendered during the periods indicated (each person is
      referred to in this Item 10 as a “Named Executive Officer”).(Needs to be updated
      for stock compensation agreements)




30




**SUMMARY
                COMPENSATION TABLE**




**Long-Term
                Compensation****Annual
                Compensation**
            
            
            
            
            
            **Awards**
            
            **Payouts****(a)**
            
            **(b)**
            
            **(c)**
            
            **(d)**
            
            **(e)**
            
            **(f)**
            
            **(g)**
            
            **(h)**
            
            **(i)****Name
                and Principal Position**
            
            **Years
                of Periods Ended**
            
            **$**
              **Salary**
            
            **$**
              **Bonus**
            
            **Other
                Annual Compensation**
            
            **Restricted
                Stock Awards $**
            
            **Option/**
              **SAR’s
                #**
            
            **LTIP
                Payouts $**
            
            **All
                Other Compensation**Nataliya
                Hearn, PhD,
              President,
                CEO and Director (1)
            
            
            06/30/06
              06/30/05
              06/30/04
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            1,500,000
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0Jim
                Morin, Treasurer and Secretary (2)
            
            
            06/30/06
              06/30/05
              06/30/04
            
            
            125,000
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0John
                Grippo, Chief Financial Officer (3)
            
            
            06/30/06
              06/30/05
              06/30/04
            
            
            32,000
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0Bill
                Dey
              VP
                of Sales, General Manager
            
            
            06/30/06
              06/30/05
              06/30/04
            
            
            60,000
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0





(1)
            Nataliya
                Hearn serves as the CEO and President of the Company without cash
                compensation. The Company has agreed to grant Dr. Hearn options to
                purchase 1,500,000 common shares at a purchase price of $0.08 per
                share.
                These options have not yet been granted. Ms. Hearn began serving
                as an
                executive officer of the Company on October 4,
                2002.




(2)
            Mr.
                Morin resigned as an officer of the Company on July 31, 2006. Mr.
                Morin
                received 125,000 shares Series A Convertible Preferred Stock of the
                Company valued at $1 per share in exchange for services renbdrered
                to the
                Company.




(3)
            Mr.
                Grippo was hired as an executive officer on March 1, 2006. Of the
                compensation of $32,000, $9,000 was paid in cash, $3,000 remains
                to be
                paid by the Company and $20,000 of which was paid through the grant
                of
                unrestricted shares of the Company’s common
                stock.




(4)
            Mr.
                Dey was hired as Vice President of Sales and General Manager on January
                1,
                2006.




31


Except
      as
      indicated above, no cash compensation, deferred compensation or long-term
      incentive plan awards were issued or granted to our Company’s management during
      the years ended June 30, 2005, or 2004, or the period ending on the date of
      this
      Annual Report. Further, except as indicated above, no member of our Company’s
      management has been granted any option or stock appreciation right; accordingly,
      no tables relating to such items have been included within this Item.




**Compensation
      Committee**




The
      Board
      of Directors serves as the Company’s compensation committee. The Company does
      not have any employees and its officers serve the Company without compensation.
      When the Company determines that compensation for services will commence, the
      Board of Directors expects to nominate a Compensation Committee.




**Compensation
      of Directors**




There
      are
      no standard arrangements pursuant to which our Company’s directors are
      compensated for any services provided as director. No additional amounts are
      payable to our Company’s directors for committee participation or special
      assignments.




**Termination
      of Employment and Change of Control Arrangement**




Except
      for the Company’s Agreement with Dr. Hearn, a copy of which is attached hereto
      as Exhibit 10.4, there are no compensatory plans or arrangements, including
      payments to be received from our Company, with respect to any person named
      in
      the Summary Compensation Table set out above which would in any way result
      in
      payments to any such person because of his or her resignation, retirement or
      other termination of such person’s consulting relationship with our Company or
      our subsidiaries, or any change in control of our Company, or a change in the
      person’s responsibilities following a change in control of our
      Company.




**ITEM
                11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT**




**(a)
      Security Ownership of Certain Beneficial Owners.**




All
      tables as of September 30, 2006.





**Title
                of Class**
            **Name
                and Address of**
              **Beneficial
                Owner**
            **Amount
                and Nature of**
              **Beneficial
                Owner**
            **Percent
                of Class(2)**Common
                Stock, par value $0.01 per share
            Clearline
                Capital LLC
              86
                Clearview Lane
              New
                Canaan, CT 06840
            29,411,300
                (1)
            18.6%Vladimir
                Goryunov Alderstasse 31
              Zurich
                8008,Switzerland
            29,411,300
                (1)
            18.6%




(1)
            Includes
                8,823,530 shares of Common Stock that may be acquired within sixty
                (60)
                days of September 30, 2006 upon the exercise of outstanding warrants
                held
                by the holder. Includes 5,882,400 shares of Common Stock issuable
                upon the
                conversion of the 58,824 shares of Series B Convertible Preferred
                Stock
                held by the holder. Includes 8,823,530 shares of Common Stock issuable
                upon the exercise of warrants to purchase 8,823,530 shares of Common
                Stock
                that may be acquiredby
                the holder from the Company at any time prior to November 30, 2006
                and5,882,400
                shares of Common Stock issuable upon the conversion of 58,824 shares
                of
                Series B Convertible Preferred Stock that may be acquiredby
                the holder from the Company at any time prior to November 30,
                2006.




32




(2)
            Calculated
                based on 99,530,554 shares of Common Stock outstanding as of September
                30,
                2006 plus an aggregate of 58,822,600 shares of Common Stock issuable
                to
                Clearline Capital LLC and Vladimir Goryunov as described
                above.




**Title
                of Class**
            **Name
                and Address of**
              **Beneficial
                Owner**
            **Amount
                and Nature of**
              **Beneficial
                Owner**
            **Percent
                of Class**Series
                A Convertible Preferred Stock,
              par
                value $0.10 per share
            Nataliya
                Hearn(1)
            971,910
            46%ASA
                Commerce
              [Add
                Address]
            891,646
            42%Jim
                Morin
              [Add
                Address]
            125,000
            6%Gerald
                Enloe(1)
            125,000
            6%





(1)
      Address is c/o Element 21 Golf Company, 200 Queens Quay East, Unit #1, Toronto,
      Ontario, Canada, M5A 4K9







**Title
                of Class**
            **Name
                and Address of Beneficial Owner**
            **Amount
                and Nature of Beneficial Owner**
            **Percent
                of Class**Series
                B Convertible Preferred Stock,
              par
                value $0.10 per share
            Clearline
                Capital LLC
              86
                Clearview Lane
              New
                Canaan, CT 06840
            117,649
                (1)
            50%VladimirGoryunov
                Alderstasse 31,
              Zurich
                8008,Switzerland
            117,649
                (1)
            50%





(1)
      Includes 58,825 shares of Series B Convertible Preferred Stock which may be
      acquired by the holder from the Company at any time prior to November 30, 2006.




33


**(b)
      Security Ownership of Management.** Except
      as
      indicated in the footnotes below, each person has sole voting and dispositive
      power over the shares indicated.




**Title
                of Class**
            **Name
                and Address of Beneficial Owner**
            **Amount
                and Nature of Beneficial Owner**
            **Percent
                of Class(4)**Common
                Stock, par value $0.01 per share
            Gerald
                Enloe, Director and Chairman (3)
            3,440,656
                (1)
            3.2%Nataliya
                Hearn, Ph.D., President, Chief Executive Officer and Director
                (3)
            9,721,215
                (2)
            9.2%John
                Grippo
              Chief
                Financial Officer (3)
            395,833
            *%Bill
                Dey,
              Executive
                Vice President and General Manager (3)
            0
            0%All
                Officers, Directors as a Group (4 Persons)
            
            13,557,704
            12.9%







(1)
            Includes
                490,196 shares of Common Stock issuable upon the conversion of 125,000
                shares of Series A Convertible Preferred Stock held by the
                holder.




(2)
            Includes
                1,500,000 shares of Common Stock issuable upon the exercise of stock
                options to be granted to the holder, which when granted will be
                immediately exercisable. Includes 3,811,411 shares of Common Stock
                issuable upon the conversion of 971,910 shares of Series A Convertible
                Preferred Stock held by the holder.




(3)
            Address
                is c/o Element 21 Golf Company, 200 Queens Quay East, Unit #1, Toronto,
                Ontario, Canada, M5A 4K9




(4)
            Calculated
                based on 99,530,554 shares of Common Stock outstanding as of September
                30,
                2006 plus an aggregate of 5,801,607 shares of Common Stock issuable
                upon
                the exercise of to be granted stock options and the conversion of
                outstanding shares of Series A Convertible Preferred Stock as described
                above.




*  Less
      than
      1%.




34


**Changes
      in Control**




Two
      stockholders, Clearline Capital LLC and Vladimir Goryunov ,
      as a
      group, beneficially own over 25% of our common stock. As a result, they may
      be
      able to control our company and direct our affairs, including the election
      of
      directors and approval of significant corporate transactions. This concentration
      of ownership may also delay, defer or prevent a change in control of our
      company, and make some transactions more difficult or impossible without their
      support. These transactions might include proxy contests, tender offers, open
      market purchase programs or other share purchases that could give our
      shareholders the opportunity to realize a premium over the then prevailing
      market price of our common stock. As a result, this concentration of ownership
      could depress our stock price.




Currently,
      no known change of control is anticipated.







**ITEM
                12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED
                TRANSACTIONS**




**Transactions
      with Management and Others**




There
      have been no material transactions, series of similar transactions or currently
      proposed transactions, to which the Company or any of our subsidiaries was
      or is
      to be a party, in which the amount involved exceeded $60,000 and in which any
      director or executive officer, promoter or founder or any security holder who
      is
      known to us to own of record or beneficially more than five percent of our
      common stock, or any member of the immediate family of any of the foregoing
      persons, or any promoter or founder had a material interest.






**ITEM
                13.**
            **EXHIBITS**




**Exhibit
                No.**
            
            **Exhibit
                Description**3(i)(1)
            
            Amended
                Certificate of Incorporation of the Company, incorporated
                herein by reference to the Company’sRegistration
                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(ii)
            
            Amended
                and Restated Bylaws of the Company, incorporated
                herein by reference to the Company’sRegistration  Statement
                on Form S-1, as amended, File No. 33-43976 filed on November 14,
                1991.




35




**Exhibit
                No.**
            
            **Exhibit
                Description**


4.1
            
            Form
                of Element 21 Golf Company 10% Convertible Promissory Note, incorporated
                herein by reference to Exhibit4.2to
                the Company’s Form 8-K datedFebruary
                24,2006.4.2
            
            Element
                21 Golf Company 10% Convertible Promissory Note issued to Oleg
                Muzyrya,
                incorporated herein by reference to Exhibit4.3to
                the Company’s Form 8-K datedFebruary
                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, 2006.10.1
            
            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
            
            Consulting
                Agreement with Nataliya Hearn dated as of January 4,
                2006.10.5
            
            Consulting
                Agreement with John Grippo dated as of November 10,
                200510.6
            
            Lease
                Agreement with Queens Quay Investments, Inc. for 200 Queens Quay
                East,
                Unit #1, Toronto, Canada.31
            
            Rule
                13a-14(a)/15a-14(a) Certifications of Chief Executive Officer and
                Chief
                Financial Officer.32
            
            Certification
                of Chief Executive Officer and Chief Financial Officer Pursuant to
                18
                U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.





36




**ITEM
                14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES**




**Audit
      Fees**




Lazar
      Levine and Felix LLP (“LLF”) is the
      Company’s independent auditors. Audit and review fees for the years ended June
      30, 2006 and 2005 aggregated $59,560 ( **Julie
      - please confirm)** and
      $51,000, respectively. LLF was hired effective October 27, 2004.




**Audit-Related
      Fees**




For
      the
      years ended June 30, 2006 and 2005, the Company was billed $1,500 and $1,700,
      respectively, for fees related to a registration statement.




**Tax
      Fees**




For
      the
      years ended June 30, 2006 and 2005, the Company did not receive any tax
      compliance, tax advice, and tax planning services for which we were
      billed.




**All
      Other Fees**




For
      the
      years ended June 30, 2006 and 2005, the Company was not billed for products
      and
      services other than those described above.




**Audit
      Committee Pre-Approval Policies**




The
      Board
      of Directors, which is performing the equivalent functions of an audit
      committee, has
      pre-approved all audit services provided by the independent auditors, and the
      compensation, fees and terms for such services. No permitted non-audit
      services were
      provided or approved by the Board of Directors.




37




**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this Report to be signed on its behalf
      by
      the undersigned, hereunto duly authorized.




**ELEMENT
              21 GOLF COMPANY**Date:
              October xx, 2006
            By:
            /s/ Nataliya
              HearnNataliya
              HearnPresident
              and Director







Pursuant
      to the requirements of the Securities Exchange Act of 1934, as amended, this
      Report has been signed below by the following persons on behalf of the
      Registrant and in the capacities and on the dates indicated:





Date:
              October
              13, 2006
            By:
            /s/ Nataliya
              HearnNataliya
              Hearn, Ph.D.President,
              Chief
              Executive Officer and Director


Date:
                October
                13, 2006
              By:
              /s/ Gerald
                EnloeGerald
                EnloeDirector  Date:
                  October
                  13, 2006
                By:
                /s/ John
                  GrippoJohn
                  GrippoChief
                  Financial Officer




38




**ELEMENT
      21 GOLF COMPANY AND SUBSIDIARIES**







**INDEX**





PageReport
                of Registered Independent Public Accounting Firm
            
            F-2Consolidated
                Balance Sheets as of June 30, 2006 and 2005
            
            F-3Consolidated
                Statements of Operations For The Years Ended June 30, 2006 and
                2005
            
            F-4Consolidated
                Statements of Shareholders’ Deficit For The Years Ended June 30, 2006 and
                2005
            
            F-5Consolidated
                Statements of Cash Flows For The Years Ended June 30, 2006 and
                2005
            
            F-6Notes
                to Consolidated Financial Statements
            
            F-7







F-1




**REPORT
      OF REGISTERED PUBLIC ACCOUNTING FIRM**








To
      the
      Shareholders and Board of Directors


Element
      21 Golf Company


Toronto,
      Canada








We
      have
      audited the accompanying consolidated balance sheet of Element 21 Golf Company
      and subsidiaries, (the “Company”) as of June 30, 2006 and the consolidated
      statements of operations, shareholders’ deficit and cash flows for the two years
      in the period ended June 30, 2006. These consolidated financial statements
      are
      the responsibility of the Company’s management. Our responsibility is to express
      an opinion on these consolidated financial statements based on our
      audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      also
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, assessing the accounting principles
      used and significant estimates made by management, as well as evaluating the
      overall financial statement presentation. We believe that our audits provide
      a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present
      fairly ,
      in all
      material respects, the consolidated financial position of Element 21 Golf
      Company and subsidiaries as of June 30, 2006 and 2005 and the results of its
      operations and its cash flows for the years then ended and, in conformity with
      accounting principles generally accepted in the United States of
      America.





The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. As discussed in Note 1(b), the
      Company’s recurring losses from operations and its dependency on future
      financing raise substantial doubt about its ability to continue as a going
      concern. Management’s plans concerning these matters are also discussed in Note
      1(b). The consolidated financial statements do not include any adjustments
      that
      might result from the outcome of these uncertainties.







**LAZAR
              LEVINE & FELIX
              LLP**




New
      York,
      New York


October
      13, 2006





F-2




**ELEMENT
      21 GOLF COMPANY**


**CONSOLIDATED
      BALANCE SHEETS**


**JUNE
      30, 2006 AND 2005**





**-
                  ASSETS -****CURRENT
                  ASSETS:**
              
              2006
              
              2005Cash
              
              $
              263,219
              
              $
              1,148Accounts
                  receivable - net of allowance for doubtful accounts of $0
              
              
              11,994
              
              
              36,451Inventories
              
              
              128,382
              
              
              170,928Prepaid
                  expenses and other current assets
              
              
              17,907
              
              
              6,380**TOTAL
                  CURRENT ASSETS**
              
              
              421,502
              
              
              214,907**FIXED
                  ASSETS - NET**
              
              
              510,530
              
              
              12,712**TOTAL
                  ASSETS**
              
              $
              932,032
              
              $
              227,619**-
                  LIABILITIES AND SHAREHOLDERS’ DEFICIT -****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              157,191
              
              $
              416,446Accrued
                  expenses
              
              
              1,054,858
              
              
              543,000Accrued
                  interest
              
              
              31,485Convertible
                  notes
              
              
              348,581****Derivative
                  liability
              
              
              1,491,945**TOTAL
                  CURRENT LIABILITIES**
              
              
              3,084,060
              
              
              959,446**LONG-TERM
                  LIABILITIES:**Accounts
                  payable - related parties
              
              
              104,162
              
              
              483,764Loans
                  and advances - officers/shareholders
              
              
              504,001
              
              
              484,251**TOTAL
                  LONG-TERM LIABILITIES**
              
              
              608,163
              
              
              968,015**COMMITMENTS
                  AND CONTINGENCIES****SHAREHOLDERS’
                  DEFICIT**Preferred
                  stock, $.10 par value, authorized 5,000,000 shares, no shares issued
                  and
                  outstanding
              
              
              -
              
              
              -Series
                  A Preferred stock, $.001 par value, authorized 5,000,000 shares,
                  2,113,556
                  shares issued and outstanding
              
              
              2,114Common
                  stock, $.01 par value; 300,000,000 shares authorized 99,630,554
                  shares
                  issued and outstanding
              
              
              996,308
              
              
              874,872Additional
                  paid-in capital
              
              
              13,727,963
              
              
              10,141,767Accumulated
                  deficit
              
              
              (17,486,576
              )
              
              (12,716,481
              )(
                  2,760,191
              )
              
              (1,669,842
              )**TOTAL
                  LIABILITIES AND SHAREHOLDERS’ DEFICIT**
              
              $
              932,032
              
              $
              227,619





See
      notes to consolidated financial
      statements.


F-3


**ELEMENT
      21 GOLF COMPANY**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**FOR
      THE YEARS ENDED JUNE 30, 2006 AND 2005**







Year
                  Ended June 30,.2006
              
              2005**REVENUES**
              
              $
              51,569
              
              $
              65,635**COSTS
                  AND EXPENSES**Costs
                  of sales
              
              
              25,722
              
              
              39,380General
                  and administrative
              
              
              4,232,371
              
              
              1,379,186Depreciation
                  expense
              
              
              171,704
              
              
              -Interest
                  expense
              
              
              382,818
              
              
              -**TOTAL
                  COSTS AND EXPENSES**
              
              
              4,812,615
              
              
              1,418,566**LOSS
                  FROM OPERATIONS**
              
              
              (4,761,046
              )
              
              (1,352,931
              )**OTHER
                  INCOME (EXPENSE):**Other
                  expense, net
              
              
              (9,409
              )
              
              -**LOSS
                  BEFORE PROVISION FOR INCOME TAXES**
              
              
              (4,770,095
              )
              
              (1,352,931
              )Provision
                  for income taxes
              
              
              -
              
              
              -**NET
                  LOSS**
              
              $
              (4,770,095
              )
              $
              (1,352,931
              )Basic
                  and diluted weighted average shares
              
              
              97,764,539
              
              
              86,089,275Basic
                  and diluted loss per share
              
              **$**
              (0.05
              )
              $
              (0.02
              )




See
      notes to consolidated financial
      statements.


F-4


**ELEMENT
      21 GOLF COMPANY**


**CONSOLIDATED
      STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT**


**FOR
      THE YEARS ENDED JUNE 30, 2006 AND 2005**




Shares
              
              Series
                  A Preferred Stock
              
              Common
                  Stock
              
              Additional
                  Paid-In Capital
              
              Deficit
                  Accumulated During the Development Stage
              
              Accumulated
                  Deficit
              
              Total
                  Shareholders’ Equity (Deficit)Balance,
                  June 30, 2004
              
              
              82,653,312
              
              $
              -
              
              $
              826,533
              
              $
              9,871,868
              
              $
              3,261,401
              )
              $
              (8,102,149
              )
              $
              (665,149
              )Issuance
                  of common stock for services
              
              
              4,833,929
              
              
              
              
              
              48,339
              
              
              269,899
              
              
              -
              
              
              -
              
              
              318,238Reclass
                  development stage deficit
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              3,261,401
              
              
              (3,261,401
              )
              
              -Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,352,931
              )
              
              (1,352,931
              )Balance,
                  June 30, 2005
              
              
              87,487,241
              
              $
              -
              
              $
              874,872
              
              $
              10,141,767
              
              $
              -
              
              $
              (12,716,481
              )
              $
              (1,699,842
              )Issuance
                  of Series A Preferred Stock
              
              
              
              
              
              2,114
              
              
              
              
              
              2,111,442
              
              
              
              
              
              
              
              
              2,113,556Beneficial
                  conversion feature of convertible preferred stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              543,512Deemed
                  dividend
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (543,512
              )Issuance
                  of warrants for services
              
              
              
              
              
              
              
              
              
              
              
              219,020
              
              
              
              
              
              
              
              
              219,020Issuance
                  of convertible notes
              
              
              
              
              
              
              
              
              
              
              
              63,234
              
              
              
              
              
              
              
              
              63,234Compensatory
                  warrants
              
              
              
              
              
              
              
              
              
              
              
              274,000
              
              
              
              
              
              
              
              
              274,000Sale
                  of warrants
              
              
              
              
              
              
              
              
              
              
              
              80,000
              
              
              
              
              
              
              
              
              80,000Issuance
                  of common stock for services
              
              
              12,143,313
              
              
              
              
              
              121,436
              
              
              838,500
              
              
              -
              
              
              -
              
              
              959,936Net
                  loss
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,770,095
              )
              
              (4,770,095
              )Balance,
                  June 30, 2006
              
              
              99,630,554
              
              $
              2,114
              
              $
              996,308
              
              $
              13,727,963
              
              $
              -
              
              $
              (17,486,576
              )
              $
              (2,760,191
              )





See
      notes to consolidated financial
      statements.





F-5


**ELEMENT
      21 GOLF COMPANY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED JUNE 30, 2006 AND 2005**







2006
              
              2005**CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (4,770,095
              )
              $
              (1,352,931
              )Adjustments
                  to reconcile net loss to net cash (used in) operating
                  activities:Compensatory
                  common stock and warrants
              
              
              1,233,936
              
              
              318,238Compensatory
                  preferred stock
              
              
              777,397Depreciation
              
              
              171,704
              
              
              747Amortization
                  of discount to convertible notes
              
              
              348,581Excess
                  derivative liability expense
              
              
              392,179Changes
                  in:Accounts
                  receivable
              
              
              24,457
              
              
              (36,451
              )Inventories
              
              
              42,546
              
              
              (170,928
              )Prepaid
                  expenses and other current assets
              
              
              (11,527
              )
              
              (4,193
              )Accounts
                  payable
              
              
              (259,255
              )
              
              319,701Accrued
                  interest
              
              
              31,485Derivative
                  liability
              
              
              1,491.945Accrued
                  expenses
              
              
              511,858
              
              
              511,063Net
                  cash provided by (used in) operating activities
              
              
              (14,789
              )
              
              (414,754
              )**CASH
                  FLOW FROM INVESTING ACTIVITIES:**Purchase
                  of capital assets
              
              
              (669,522
              )
              
              (13,459
              )Net
                  cash (used in) investing activities
              
              
              (669,522
              )
              
              (13,459
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Advances
                  from related parties
              
              
              (379,602
              )
              
              (29,866
              )Beneficial
                  conversion feature of convertible notes
              
              
              63,234Proceeds
                  from sale of warrants
              
              
              80,000Proceeds
                  from issuance of convertible notes
              
              
              1,163,000Loan
                  proceeds from shareholders
              
              
              19,750
              
              
              456,433Net
                  cash provided from financing activities
              
              
              946,382
              
              
              426,567**NET
                  (DECREASE) INCREASE IN CASH**
              
              
              262,071
              
              
              (1,646
              )**CASH,
                  BEGINNING OF YEAR**
              
              
              1,148
              
              
              2,794**CASH,
                  END OF YEAR**
              
              $
              263,219
              
              $
              1,148


**SUPPLEMENTAL
                  CASH FLOW INFORMATION:**Interest
                  paid
              
              **$**
              **-**
              
              $
              -Taxes
                  paid
              
              
              **-**
              
              
              -


See
      notes to consolidated financial
      statements.


F-6


**ELEMENT
      21 GOLF COMPANY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED JUNE 30, 2006 AND 2005**





**NOTE
      1 -**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES:**





***(a)***
            ***Organization
                and Basis of
                Presentation:***




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 42,472,420 shares of its common stock to shareholders of
      Technologies and assumed Technologies’ obligations under option agreements
      allowing for the purchase of 6,432,000 additional shares of common stock.
      Technologies was a development stage company formed to design, develop and
      market E21 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.





Immediately
      following the closing of the Technologies acquisition BRL declared: 1) a 2
      for 1
      split of its common stock effected in the form of a dividend and 2) a dividend
      of 100% of its ownership of TVI (now named AssureTec Holdings, Inc.
      (“AssureTec”) and Advanced Conductor Technologies, Inc. (“ACT”) which
      collectively represented substantially all of BRL’s assets prior to its
      acquisition of Technologies (the “Spin-Off”) and the officers and directors
      immediately prior to the acquisition resigned. The shareholders who received
      common stock in connection with the Technologies acquisition have received
      the
      stock dividend, but have waived their rights to receive distributions associated
      with the planned Spin-Off. The Spin-Off has not yet been effected and will
      only
      occur after compliance with Securities and Exchange Commission
      regulations.





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





In
      May
      2001, the Company declared a reverse split of the then outstanding common stock
      of the Company on a one-for-12.5 basis. In July of 2001 the Company formed
      Advanced Conductor Technologies, Inc (“ACT”) and I-JAM Entertainment, Inc.
      (I-JAM) as wholly owned subsidiaries. These entities were formed in anticipation
      of certain merger and acquisition transactions, which were never consummated.
      These entities currently have no operating business and no sources of revenue.
      In November 2001, the Company issued 6,354,000 shares of its common stock under
      an Acquisition Agreement (the “Acquisition”) with AssureTec wherein the Company
      received 100% of AssureTec’s common stock. Effective April 1, 2002 the Company
      repurchased 5,704,000 shares of its common stock issued in connection with
      the
      Acquisition from founding shareholders of AssureTec in exchange for a like
      number of AssureTec common stock held by the Company. As a result of these
      transactions and the issuance of additional shares of AssureTec to employees
      on
      the exercise of stock options, the Company’s ownership fell to 34.2 % of
      AssureTec as of June 30, 2002. As of June 2005, this investment has been written
      down to zero as a result of losses incurred by AssureTec.





Upon
      the
      closing of the Technologies acquisition, as discussed above, the Company
      reported as a development stage enterprise effective September 17, 2002. During
      fiscal year 2005, the Company commenced active operations and began reporting
      revenues during the last quarter of the year. As such, the Company is no longer
      reporting as a development stage entity.








F-7


**ELEMENT
      21 GOLF COMPANY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED JUNE 30, 2006 AND 2005**





**NOTE
      1 -**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued):**


***(b)***
              ***Going
                Concern:***




These
      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’s subsidiaries are
      inactive and are not expected to produce significant revenues or generate cash.
      During the last quarter of fiscal year 2005, the Company commenced sales of
      its
      products and has begun generating revenue. However, as of June 30, 2006, the
      Company continues to have negative working capital of $xx, an accumulated
      deficit of **$17,471,208** ($3,261,401 of which was realized during the development stage period from
      September 17, 2002 to June 30, 2004), a total shareholders’ deficit of **$OPEN** and for
      the year ended June 30, 2006 incurred a net loss of **$4,754,727** ,
      all of
      which raise substantial doubt about the Company’s ability to continue as a going
      concern.





Managements’
      plans for the Company include more aggressive marketing, raising additional
      capital and other strategies designed to optimize shareholder value. However,
      no
      assurance can be made 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.


***(c)***
                ***Principles of
                  Consolidation:***


The
      accompanying consolidated financial statements include the accounts of the
      company and its wholly owned, inactive subsidiaries (Element 21 Technologies,
      Inc. and Advanced Conductor Technologies, Inc.). All significant inter-company
      accounts and transactions have been eliminated.


***(d)***
                  ***Use of
                    Estimates:***





The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States of America requires management to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities and 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.


***(e)***
                    ***Fair Value of Financial
                      Instruments:***


The
      Company’s financial instruments consist of cash, short-term receivables and
      payables. The carrying value of all instruments approximates their fair
      value.


***(f)***
                      ***Cash and Cash
                        Equivalents:***




For
      purposes of the statements of cash flows, the Company considers all highly
      liquid investments purchased with a remaining maturity of three months or less
      to be cash equivalents.


***(g)***
                        ***Inventories:***




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




F-8


**ELEMENT
      21 GOLF COMPANY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED JUNE 30, 2006 AND 2005**





**NOTE
      1 -**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued):**


***(h)***
                          ***Fixed Assets and
                            Depreciation:***


Fixed
      assets are recorded at cost. Expenditures for major additions and improvements
      are capitalized and minor replacements, maintenance and repairs are expensed
      as
      incurred. Depreciation is provided over the estimated useful lives of the
      related assets using the straight-line method for financial statement purposes.
      The estimated useful lives are as follows:





Furniture
                and fixtures
            5
                yearsComputer
                equipment
            3
                yearsOffice
                equipment
            5
                years




***(i)***
                            ***Revenue
                              Recognition:***


The
      Company recognizes revenue in accordance with the Securities and Exchange
      Commission Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”).
      Under SAB 104, revenue is recognized when there is persuasive evidence of an
      arrangement, delivery has occurred or services have been rendered, the sales
      price is determinable, and collectibility is reasonably assured. Revenues
      from product sales are recognized when title passes to customers, which is
      when
      goods are shipped.


***(j)***
                            ***Income
                              Taxes:***


Deferred
      income taxes are recognized for the tax consequences in future years for
      differences between the tax bases of assets and liabilities and their financial
      reporting amounts at each year-end based on enacted tax laws and statutory
      tax
      rates applicable to the periods in which the differences are expected to affect
      taxable income. Valuation allowances are established when necessary to reduce
      deferred tax assets to the amount expected to be realized. Income tax expense
      is
      the tax payable for the period and the change during the period of deferred
      tax
      assets and liabilities.


***(k)***
                            ***Stock-Based
                              Compensation:***


The
      Company accounts for employee stock-based compensation arrangements in
      accordance with the provisions of Accounting Principles Board (“APB”) Opinion
      No. 25, “Accounting for Stock Issued to Employees,” Financial Accounting
      Standards Board Interpretation (“FASB”) No. 44 (“FIN 44”), “Accounting for
      Certain Transactions Involving Stock Compensation — an Interpretation of APB
      Opinion No. 25,” and complies with the disclosure provisions of Statement of
      Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for
      Stock-Based Compensation.” The Company accounts for equity instruments issued to
      non-employees in accordance with the provisions of SFAS No. 123 and Emerging
      Issues Task Force (“EITF”) No. 96-18, “Accounting for Equity Instruments That
      Are Issued to Other Than Employees for Acquiring, or in Conjunction with
      Selling, Goods or Services.”





The
      Company does not maintain a formal incentive compensation plan covering its
      employees, directors and independent contractors. Options to purchase the
      Company’s common stock vest at varying intervals, but in general, typically vest
      over two to four year periods. An option’s maximum term is ten years. See Note 3
      for additional information regarding the Company’s stock options.


IS
      THIS STILL ACCURATE?? NEW EQUITY COMPENSATION PLAN APPROVED - SEE ITEM 5 IN
      10-KSB






F-9


**ELEMENT
      21 GOLF COMPANY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED JUNE 30, 2006 AND 2005**





**NOTE
      1 -**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued):**


***(k)***
                            ***Stock-Based Compensation
                              (Continued):***


If
      compensation cost for the Company’s stock-based compensation plans had been
      determined in a manner consistent with the fair value approach described in
      SFAS
      No. 123, the Company’s net loss and net loss per share as reported would have
      been reduced to the pro forma amounts indicated below:





Year
                Ended June 30,**2006**
            
            2005Net
                loss, as reported
            
            **$**
            **(4,754,727**
            **)**
            $
            (1,352,931
            )Add
                back: stock-based compensation costs included in the determination
                of net
                loss, as reported
            
            
            **-**
            
            
            -Less:
                Stock-based compensation had all options been recorded at fair at
                fair
                value
            
            
            -
            
            
            -Adjusted
                net loss
            
            **$**
            **(**
            **)**
            $
            (1,352,931
            )Weighted
                average shares outstanding, basic and diluted
            
            
            
            
            
            86,089,275Net
                loss per share, basic and diluted, as reported
            
            **$**
            **(0.xx**
            **)**
            $
            (0.02
            )Adjusted
                net loss per share, basic and diluted
            
            **$**
            **(0.xx**
            **)**
            $
            (0.02
            )





Basic
      and
      diluted losses per share of common stock are the same for 2006 and 2005 since
      there are no potentially dilutive stock options at June 30, 2006 or June 30,
      2005.


***(l)***
                            ***Net Loss Per Common
                              Share:***


Basic
      net
      loss per common share is computed by dividing the net loss applicable to common
      shareholders by the weighted average number of common shares outstanding during
      the period. Diluted net loss per common share reflects, in addition to the
      weighted average number of common shares, the potential dilution if common
      stock
      options were exercised into common stock, unless the effects of such exercises
      would have been antidilutive.


***(m)***
                            ***New Accounting Pronouncements
                              Affecting the
                              Company:***





In
      December 2004, the FASB issued SFAS No. 123 (revised 2004), or SFAS 123R,
“Share-Based Payment.” This statement replaces SFAS 123, “Accounting for
      Stock-Based Compensation” and supersedes Accounting Principles Board’s Opinion
      No. 25 (ABP 25), “Accounting for Stock Issued to Employees.” SFAS 123R will
      require us to measure the cost of our employee stock-based compensation awards
      granted after the effective date based on the grant date fair value of those
      awards and to record that cost as compensation expense over the period during
      which the employee is required to perform services in exchange for the award
      (generally over the vesting period of the award). SFAS 123R addresses all forms
      of share-based payments awards, including shares issued under employee stock
      purchase plans, stock options, restricted stock and stock appreciation rights.
      In addition, we will be required to record compensation expense (as previous
      awards continue to vest) for the unvested portion of previously granted awards
      that remain outstanding at the date of adoption. SFAS 123R is effective for
      us
      (a small business issuer) beginning
      with the first interim or annual reporting period that begins after December
      15,
      2005.
      Therefore, we are required to implement the standard no later than the fiscal
      quarter which begins on January 1, 2006. SFAS 123R permits public companies
      to
      adopt its requirements using the following methods: (1) a “modified prospective”
method in which compensation cost is recognized beginning with the effective
      date (a) based on the requirements of SFAS 123R for all share-based payments
      granted after the effective date and (b) based on the requirements of SFAS
      123
      for all awards granted to employees prior to the effective date of SFAS 123R
      that remain unvested on the effective date; or (2) a “modified retrospective”
method which includes the requirements of the modified prospective method
      described above, but also permits entities to restate their financial statements
      based on the amounts previously recognized under SFAS 123 for purposes of pro
      forma disclosures for either (a) all prior periods presented or (b) prior
      interim periods of the year of adoption.




F-10


**ELEMENT
      21 GOLF COMPANY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED JUNE 30, 2006 AND 2005**


***(m)***
                              ***New Accounting Pronouncements
                                Affecting the
                                Company
                                (Continued):***


We
      are
      currently evaluating the alternative methods of adoption as described above.
      As
      permitted by SFAS 123, we currently account for share-based payments to
      employees using APB 25’s intrinsic value method and, as such, generally
      recognize no compensation cost for employee stock options. Accordingly, the
      adoption of SFAS 123R’s fair value method will have a significant impact on our
      results of operations, although it will have no negative impact on our cash
      flow. The impact of adoption of SFAS 123R cannot be predicted at this time
      because it will depend on levels of share-based payments granted in the future.
      See “Note 2k above for information related to the pro forma effects on our
      reported net loss and net loss per share of applying the fair value recognition
      provisions of the previous SFAS 123 to stock-based employee compensation.




In
      June
      2005, the FASB issued Statement of Financial Accounting Standard No. 154, *Accounting
      Changes and Error Corrections* ,
      ("SFAS
      154"). SFAS 154 replaces Accounting Principle Bulletin No. 20 ("APB 20"), and
      Statement of Financial Accounting Standard No. 3, *Reporting
      Accounting Changes in Interim Financial Statements* ("SFAS
      3"), and applies to all voluntary changes in accounting principle, and changes
      the requirements for accounting for and reporting of a change in accounting
      principle. APB 20 previously required that most voluntary changes in accounting
      principle be recognized by including in net income of the period of change
      a
      cumulative effect of changing to the new accounting principle, whereas SFAS
      154
      requires retrospective application to prior periods' financial statements of
      a
      voluntary change in accounting principle unless it is impracticable. SFAS 154
      enhances the consistency of financial information between periods. SFAS 154
      is
      effective for fiscal years beginning after December 15, 2005. Our adoption
      of
      SFAS 154 is not expected to have a material impact on our results of operations
      or financial position.





In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (FIN
      48), which, among other things, requires applying a "more likely than not"
      threshold to the recognition and derecognition of tax positions. The provisions
      of FIN 48 will be effective for us on July 1, 2007. We are currently evaluating
      the impact of adopting FIN 48 on the financial statements, but we do not expect
      its adoption to have a significant transition effect.








F-11


**ELEMENT
      21 GOLF COMPANY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED JUNE 30, 2006 AND 2005**





**NOTE
      2 -**  **FIXED
      ASSETS:**





Fixed
      assets consists of the following:




Furniture
                and fixtures
            
            $
            
            
            $Computer
                equipmentOffice
                equipmentLess:
                accumulated depreciation**$**
            **510,530**
            
            **$**





Depreciation
      expense for the fiscal 2006 year aggregated $171,704.





**NOTE
      3 -**  **RELATED
      PARTY TRANSACTIONS:**


***(a)***
                                ***Accounts Payable
                                  -
                                  Non-Current:***


Since
      April of 1996 and until June 30, 2005, the Company had engaged R T Robertson
      Consultants, Inc. (“Robertson”) and Robertson Advisors, LLC (‘Advisors”),
      consulting firms controlled by family members of Dr. R. Bruce Reeves, to perform
      the executive duties of the Company without specific compensation. Mr. Reeves
      was a member of the Board of Directors, President, and Chief Executive Officer
      of the Company until October 4, 2002. In this capacity and as an employee of
      the
      consulting firm, Dr. Reeves managed ongoing business activities of the Company
      until the transaction in September 2002. During the fiscal year ended June
      30,
      2005, Robertson and/or Advisors charged $135,000 in administrative management
      oversight plus $9,049 in billable expenses to the Company and its subsidiaries.
      At June 30, 2006, **$117,468** was owed
      to Robertson, **$132,329** was owed
      to Advisors, **$1,876** was owed
      to Dr. Reeves and the balance of **$OPEN** was owed
      to other related parties. All parties have indicated that payment of these
      balances is not expected during the next fiscal year.


***(b)***
                                ***Loans and Advances
                                  -
                                  Officers/Shareholders:***


During
      the current fiscal year, the CEO and President of the Company advanced monies
      to
      and paid expenses on behalf of the Company, aggregating $yy. Such payments
      were
      made on a non-interest bearing basis and the officer has agreed to not demand
      payment during the next fiscal year.





Included
      in Accrued Expenses is approximately $500,000 of compensation accrued for our
      officers and directors. Depending on the financial condition of the Company,
      this liability may be converted into Company common stock at a future
      date.





F-12


**ELEMENT
      21 GOLF COMPANY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED JUNE 30, 2006 AND 2005**





**NOTE
      4          CONVERTIBLE
      NOTES:**





*Bridge
      I Financing:*




Between
      January 17 and March 6, 2006, the Company issued 10% Convertible Promissory
      Notes in the aggregate principal face amount of $540,000 to 15 individual
      investors. In respect of notes totaling $340,000 (“$340,000 Notes”), each such
      investor also received three separate warrants (a warrant exercisable for one
      year, a warrant exercisable for two years, and a warrant exercisable for three
      years) to purchase shares of the Company's common stock up to an amount equal
      to
      the initial investment in the Notes at an exercise price to be determined based
      on a twenty day trading average of shares of the Company’s Common Stock prior to
      the date of exercise or from and after the date of an equity financing of at
      least $5.0 million (“Equity Financing”), if that at all occurs, the price per
      share paid by participants in the equity financing. In respect of one note
      for
      $200,000 (“200,000 Note”), the investor received 3,243,243 warrants (1/3
      warrants exercisable for one year, 1/3 warrants exercisable for two years,
      and
      remaining 1/3 warrants exercisable for three years) with similar terms, except
      that the warrants are exercisable at an exercise price which is fixed at $0.17
      per share. All these warrants are subject to certain anti-dilution price
      adjustments. The Notes mature one year after issuance and accrue interest at
      an
      annual interest rate equal to 10% per annum, payable at maturity. The notes
      are
      convertible, at the option of the investor, into shares of Company’s Common
      Stock, upon the consummation by the Company of an Equity Financing, at a price
      equal to the price per share paid by participants in the equity financing in
      respect of the $340,000 Notes and at $0.17 per share in respect of the $200,000
      Note.




*Bridge
      II Financing:*




Between
      May 5 and June 29th, 2006, the Company issued additional 10% Convertible
      Promissory Notes in the aggregate principal face amount of $638,000 to 16
      individual investors. Each such investor also received warrants, exercisable
      for
      one year, to purchase shares of the Company's common stock up to 150% of the
      investor’s initial investment in the Notes at an exercise price equal to lesser
      of (i) $0.175, or (ii) the ten day trading average of shares of the Company’s
      Common Stock prior to the date of exercise. All these warrants are subject
      to
      certain anti-dilution price adjustments. The Notes mature one year after
      issuance and accrue interest at an annual interest rate equal to 10% per annum,
      payable at maturity. The notes are convertible, at the option of the investor,
      into shares of Company’s Common Stock at a conversion price equal to the lesser
      of (i) $0.175, or (ii) the ten day trading average of shares of the Company’s
      Common Stock prior to the date of conversion.




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





The
      Company has analyzed the convertible notes and warrants under the two Bridge
      financings and has made the following determination:





F-13


The
      conversion option in respect of Bridge I Financing -$340,000 Notes was not
      valued as management determined that the probability of a Equity Financing
      of
      $5.0 million was remote. Even if the option had some value, in absence of a
      conversion price it was not possible to value the conversion option, if any.
      The
      corresponding warrants were determined to be a liability due to a theoretical
      exercise price that could be very small to cause the number of shares to be
      issued to be indeterminate and hence outside the control of the Company. This
      is
      as per paragraph 20 of EITF 00-19. These warrants were initially valued at
      $560,610 and have been recorded as discount to the convertible notes with a
      corresponding credit to warrant liability. The excess of the discount recorded
      over the face value of the note of $220,610______ has been charged to other
      expense and the remaining discount of $340,000 is accreted on a straight-line
      basis over the maturity period of the note. As a result of the Company losing
      control over the number of shares to be issued (tainting feature”), all embedded
      derivatives and warrants related to convertible notes issued subsequently
      defaulted to being a derivative liability.





The
      conversion option in respect of Bridge I Financing -$200,000 Notes was not
      valued as management determined that the probability of a Equity Financing
      of
      $5.0 million was remote. The corresponding warrants were determined to be a
      liability due to the tainting feature stated above. These warrants were
      initially valued at $269,690 and have been recorded as discount to the
      convertible notes with a corresponding credit to warrant liability. The excess
      of the discount recorded over the face value of the note of $69,690 has been
      charged to other expense and the remaining discount of $200,000 is accreted
      on a
      straight-line basis over the maturity period of the note.





The
      conversion option and the warrants in respect of Bridge II Financing were
      determined to be a liability due to due to the tainting feature stated above.
      The conversion option and warrants were initially valued at $_____and $_______,
      respectively and have been recorded as discount to the convertible notes with
      a
      corresponding credit to conversion liability and warrant liability,
      respectively. The excess of the discount recorded over the face value of the
      note of $_______ has been charged to other expense and the remaining discount
      of
      $________ is accreted on a straight-line basis over the maturity period of
      the
      note.





The
      company values the conversion option and the warrants under the Black Scholes
      option-pricing model with the following assumptions: an expected life equal
      to
      the contractual term of the conversion option or warrants, as the case may
      be;
      no dividends; a risk free rate of return of ranging from ___ to ____, and
      volatility of between ______ and _____.




EITF
      00-19 requires that the Company revalue the derivative instruments periodically
      to compute the value in connection with changes in the underlying stock price
      and other assumptions, with the change in value recorded as interest expense
      or
      interest income. Upon the earlier of the warrant exercise or their expiration
      date, the warrant liability will be reclassified into shareholders’ equity.
      Until that time, the warrant liability will record at fair value based on the
      methodology described above. Changes in the fair value during each period will
      be recorded as other income or other expense. The Company similarly revalues
      the
      conversion option each reporting period with the change in value recorded as
      interest expense or interest income.





As
      of
      June 30 2006, all warrants issued were revalued and the change in fair value
      of
      these warrants from $________ to $_______ or $_______ has been recorded as
      other **expense/income** .
      Similarly, the conversion option was revalued as of June 30, 2006 and the change
      in fair value of the conversion option from $________ to $_______ or $_______
      has been recorded as other **expense/income** .





F-14


**NOTE
      5          PREFERRED
      SHARES:**





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





Also,
      in
      February 2006, the Company issued a warrant to purchase 1,000,000 shares of
      the
      Company’s common stock at a price of $0.01 as part of the Company’s repayment of
      outstanding indebtedness to a creditor of the company. The warrants vested
      immediately and are exercisable for a three year period from the date of
      issuance.





All
      of
      the foregoing securities were issued upon reliance on the exemption from the
      Securities Act registration requirements contained in Section 4(2) of the
      Securities Act.





**NOTE
      6 -**  **SHAREHOLDERS’
      EQUITY/STOCK OPTION PLANS:**





During
      fiscal 2006, the Company issued 12,143,313 shares of its common stock to various
      consultants for marketing and investor relations services provided. Such shares
      were valued at the market price as of the date of issuance, aggregating
      $1,296,242.





During
      fiscal 2005, the Company issued 4,833,929 shares of common stock for consulting
      and legal services and in settlement of liabilities. The value recorded was
      based on the market price at the time of issuance and aggregated
      $318,238.





As
      of
      June 30, 2006 there are two stock option plans in effect; the 1992 Directors'
      Stock Option Plan (Directors' Plan) and the 1992 Stock Option Plan (Option
      Plan). The Directors' Plan allows for the grant of options to purchase up to
      250,000 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 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 1,000,000 shares, at an
      exercise price equal to the stock’s market price at the date of grant. The Board
      sets vesting and expiration dates.





The
      following table summarizes information about stock options outstanding, all
      of
      which were granted under the Directors’ Plan and are exercisable: (needs to be
      updated through June 30, 2006)





Outstanding
                as of June 30, 2003
            
            
            **57,200**Granted/exercised/expired
            
            
            -Outstanding
                as of June 30, 2004
            
            
            **57,200**Expired
            
            
            **(4,400**
            **)**Outstanding
                as of June 30, 2005
            
            
            **52,800****Granted/exercised/expired**
            
            
            **(40,000)-****Outstanding
                as of June 30, 2006**
            
            
            **12,800**





Exercise
      prices of the outstanding options are as follows:





**Exercise
                  Prices**
              
              **Number
                  of****Options**$
              1.06
              
              
              6,400$
              0.32
              
              
              **3,200**$
              0.63
              
              
              3,200**12,800**





F-15


**ELEMENT
      21 GOLF COMPANY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED JUNE 30, 2006 AND 2005**





**NOTE
      7 -**  **INCOME
      TAXES:**





The
      Company has not filed federal or state tax returns for any of the tax years
      subsequent to December 31, 1993. Management intends to cure this deficiency
      as
      soon as possible and expects there will be no federal tax liability (based
      on
      continued losses) for these delinquent years. Deferred tax assets and
      liabilities consist of the following as of June 30:








**2006**
            
            2005**Deferred
                tax assets:**Net
                operating loss carry forwards
            
            **$**
            
            
            $
            1,429,990Less
                valuation allowance
            
            
            **(**
            **)**
            
            (1,429,990
            )**$**
            -
            
            $
            -





A
      valuation allowance equivalent to 100% of the deferred tax asset has been
      established since, at the current time, it is not more probable than not, that
      the Company will be able to recognize a tax benefit for the asset. The net
      operating losses expire at various dates through 2024.





**NOTE
      8 -**  **COMMITMENTS:**





In
      April
      2006, the Company entered into a three-year lease for office space in Toronto,
      Canada, for a monthly payment of $1,927 plus GST. The Company also terminated
      negotiated a final settlement on it’s lease in Irvine, California for $1,992.
      Rent expense for the years ended June 30, 2006 and 2005 aggregated $35,474
      and
      $22,906, respectively.




**NOTE
      9 -**  **SUBSEQUENT
      EVENT:**




On
      July
      31, 2006 (the “Initial Closing Date”), the Company agreed to a $4 million equity
      financing by entering into two Series B Convertible Preferred Stock Subscription
      Agreements (each a “Subscription Agreement” and collectively the “Subscription
      Agreements”) with each of Clearline Capital, LLC and Vladimir Goryunov (each a
“Purchaser” and collectively, the “Purchasers”). Each Subscription Agreement
      provides for the sale by the Company to the applicable Purchaser of 117,648
      shares of the Company’s Series B Convertible Preferred Stock, par value $0.10
      per share (the “Series B Preferred Stock”), and warrants to purchase an
      aggregate of 17,647,059 shares of the Company’s common stock, in exchange for
      and in consideration of an aggregate investment by each Purchaser of $2 million
      in cash (each Purchaser’s “Investment Amount”), which amount is to be invested
      by each Purchaser in two equal $1 million installments, the first of which
      occurred on the Initial Closing Date and the second of which will occur at
      a
      subsequent closing to occur on or before November 30, 2006 (the “Subsequent
      Closing”, and the date of such Subsequent Closing, the “Subsequent Closing
      Date”); provided that the Company satisfies the necessary condition precedent to
      the Subsequent Closing as described below.





F-16


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





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




F-17