Attached files
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
_X_QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended September 30, 2009
__TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
transition period from __________ to __________________
Commission
File No. 0-15260
Element
21 Golf Company
(Exact
name of Registrant as specified in its charter)
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Delaware
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88-0218411
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|
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(State
or other jurisdiction of incorporation or organization)
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(Internal
Revenue Service Employer Identification
No.)
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200
Queens Quay East, Unit #1, Toronto, Ontario, Canada, M5A
4K9
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||
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(Address
of Principal Executive Offices)
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||
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416-362-2121
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||
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Registrant’s
telephone number, including area code
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||
Check
whether the Registrant (1) filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes x
No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a small reporting
company. See the definition of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| [ ] | Smaller reporting company | [X] | |
| Non-accelerated filer | |||
Check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No x
APPLICABLE
ONLY ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS
Check
whether the registrant filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court
Yes
o
No o
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the last practicable date, 13,144,647 shares of
common stock, par value $.01 per share as of November 13, 2009.
INDEX
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Page
Number
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PART
I.
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FINANCIAL
INFORMATION
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Item
1
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Condensed
Consolidated Financial Statements:
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3 |
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Condensed
Consolidated Balance Sheets as of September 30, 2009 and June
30, 2009 (Unaudited)
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3
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|
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Condensed
Consolidated Statements of Operations for the Three Months Ended September
30, 2009 and 2008 (Unaudited)
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4
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|
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Condensed
Consolidated Statements of Cash Flows for the Three Months Ended September
30, 2009 and 2008 (Unaudited)
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5
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|
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Notes
to Condensed Consolidated Financial Statements (Unaudited)
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6
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Item
2
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Management's
Discussion and Analysis or Plan of Operation
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13
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Item
3
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Quantitative
and Qualitative Disclosures About Market Risk
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14
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Item
4
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Controls
and Procedures
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14
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PART
II
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OTHER
INFORMATION
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Item
1
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Legal
Proceedings
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14
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Item
2
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Unregistered
Sales of Equity Securities and Use of Proceeds
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15
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Item
3
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Defaults
upon Senior Securities
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15
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Item
4
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Submission
of Matters to a Vote of Security Holders
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15
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Item
5
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Other
Information
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15
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Item
6
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Exhibits
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15
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SIGNATURES
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17
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EXHIBITS
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2
Item
1 - Financial Statements
ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30, 2009
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June 30, 2009
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|||||||
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- ASSETS
-
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||||||||
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CURRENT
ASSETS:
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||||||||
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Cash
and cash equivalents
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$ |
736,067
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$
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1,048,402
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||||
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Accounts
receivable - net of allowance for doubtful accounts of
$5,180
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238,160
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515,577
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||||||
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Inventories
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1,518,515
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1,276,891
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||||||
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Prepaid
expenses
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369,191
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399,604
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||||||
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TOTAL
CURRENT ASSETS
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2,861,933
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3,240,474
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||||||
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FIXED
ASSETS – NET
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43,754
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53,690
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||||||
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TOTAL
ASSETS
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$ |
2,905,687
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$
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3,294,164
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||||
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CURRENT
LIABILITIES:
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||||||||
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Accounts
payable
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$ |
636,060
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$
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815,498
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||||
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Royalty
payable
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738,366
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640,564
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||||||
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Accrued
expenses
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2,006,479
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1,981,432
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||||||
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Deferred
revenue
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-
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24,000
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||||||
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Dividends
payable
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60,000
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-
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||||||
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Loan
payable – shareholder
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525,000
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675,000
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||||||
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Convertible
note
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300,000
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229,546
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||||||
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TOTAL
CURRENT LIABILITIES
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4,265,905
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4,366,040
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||||||
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LONG-TERM
LIABILITIES:
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Accounts
payable - related parties
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242,076
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242,076
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||||||
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Loans
and advances – officer/shareholder
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157,989
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156,613
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TOTAL
LONG-TERM LIABILITIES
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400,065
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398,689
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SHAREHOLDERS’
DEFICIT:
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||||||||
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Preferred
stock, $.10 par value, authorized 2,447,000 shares, no shares issued and
outstanding
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-
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-
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||||||
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Series
A Convertible Preferred stock, $.001 par value, authorized 5,000,000
shares, 2,113,556 shares issued and outstanding as of September 30 and
June 30, 2009
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2,114
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2,114
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||||||
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Series
B Convertible Preferred stock, $.10 par value, authorized 353,000 shares,
352,942 shares and 294,126 issued and outstanding as
of September 30 and June 30, 2009 respectively
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35,295
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29,413
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||||||
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Common
stock, $.01 par value; 300,000,000 shares authorized, 12,003,260 and
9,592,363 issued and outstanding at September 30, 2009 and June 30,
2009 respectively
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120,033
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95,924
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||||||
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Additional
paid-in capital
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25,255,095
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24,065,711
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||||||
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Accumulated
deficit
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(27,172,820
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) |
(25,663,727
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)
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||||
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TOTAL
SHAREHOLDERS’ DEFICIT
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(1,760,283
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) |
(1,470,565
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)
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||||
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TOTAL
LIABILITIES AND SHAREHOLDERS’ DEFICIT
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$ |
2,905,687
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$
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3,294,164
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||||
See notes
to condensed consolidated financial statements
3
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
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2009
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2008
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|||||||
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REVENUES
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$ | 758,818 | $ | 555,256 | ||||
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COSTS
OF SALES
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424,465 | 349,722 | ||||||
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GROSS
PROFIT
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334,353 | 205,534 | ||||||
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GENERAL
AND ADMINISTRATIVE EXPENSES
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835,241 | 885,698 | ||||||
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LOSS
FROM OPERATIONS
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(500,888 | ) | (680,164 | ) | ||||
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OTHER
INCOME (EXPENSE)
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||||||||
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Interest
income
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302 | 1,446 | ||||||
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Interest
expense
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(90,829 | ) | (20,795 | ) | ||||
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Derivative
income (expense)
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- | 60,707 | ||||||
| (90,527 | ) | 41,358 | ||||||
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LOSS
BEFORE PROVISION FOR INCOME TAXES
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(591,415 | ) | (638,806 | ) | ||||
| - | - | |||||||
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NET
LOSS
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$ | (591,415 | ) | $ | (638,806 | ) | ||
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Basic
and diluted loss per share
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$ | (0.05 | ) | $ | (0.09 | ) | ||
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Basic
and diluted weighted average shares outstanding
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11,526,603 | 7,224,771 | ||||||
See notes
to condensed consolidated financial statements.
4
ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
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2009
|
2008
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|||||||
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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||||||||
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Net
loss
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$ | (591,415 | ) | $ | (638,806 | ) | ||
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Adjustments
to reconcile net loss to net cash (used in) operating
activities:
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||||||||
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Compensatory
common stock and warrants
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361,697 | 317,601 | ||||||
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Depreciation
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9,935 | 18,967 | ||||||
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Amortization
of debt discount
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70,454 | - | ||||||
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Non-cash
foreign exchange
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1,377 | - | ||||||
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Derivative
liability expense (income)
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- | (60,707 | ) | |||||
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Changes
in:
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||||||||
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Accounts
receivable
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277,417 | 114,287 | ||||||
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Inventories
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(241,624 | ) | 203,300 | |||||
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Prepaid
expenses
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30,413 | (5,342 | ) | |||||
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Accounts
payable. accrued expenses and royalty payable
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(56,589 | ) | (457,425 | ) | ||||
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Accrued
interest
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- | 20,795 | ||||||
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Deferred
revenue
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(24,000 | ) | (58,770 | ) | ||||
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Net
cash (used in) operating activities
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(162,335 | ) | (546,100 | ) | ||||
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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||||||||
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Loans
and advances received from (repaid to) officer
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(150,000 | ) | 31,113 | |||||
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Net
cash (used in) provided from financing activities
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(150,000 | ) | 31,113 | |||||
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NET
(DECREASE) IN CASH AND CASH EQUIVALENTS
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(312,335 | ) | (514,987 | ) | ||||
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CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
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1,048,402 | 770,602 | ||||||
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CASH
AND CASH EQUIVALENTS, END OF PERIOD
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$ | 736,067 | $ | 255,615 | ||||
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SUPPLEMENTAL
CASH FLOW INFORMATION:
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||||||||
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Interest
paid
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$ | - | $ | - | ||||
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Income
taxes paid
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$ | - | $ | - | ||||
See notes
to condensed consolidated financial statements.
5
ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 NATURE
OF BUSINESS AND OPERATIONS
Element
21 Golf Company and subsidiaries (the “Company” and or “Element 21”) designs,
develops and markets Scandium alloy golf and fishing products. The
first products manufactured using the Company’s proprietary technology have been
produced and the Company commenced distribution to wholesalers and retail
markets during the last quarter of its fiscal year ended June 30,
2006.
In June,
2007 the Company expanded into recreational fishing equipment. On June 21, 2007,
the Company entered into a non-exclusive, world-wide patent license with
Advanced Light Alloys Corporation (Advanced) by which Element 21 was licensed by
Advanced to make, use, and sell fishing equipment utilizing certain of
Advanced’s patents.
The
Company is subject to a number of risks similar to those of other companies in
the early stages of operations. Principal among these risks are
dependencies on key individuals, competition from other current or substitute
products and larger companies, the successful marketing of its products and the
potential need to obtain adequate additional financing necessary to fund future
operations.
NOTE
2 BASIS
OF PREPARATION
Pursuant
to the rules and regulations of the Securities and Exchange Commission for Form
10-Q, the financial statements, footnote disclosures and other information
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The financial
statements contained in this report are unaudited but, in the opinion of
management, reflect all adjustments, consisting of only normal recurring
adjustments necessary for a fair presentation of the condensed consolidated
financial statements. All significant inter-company accounts and
transactions have been eliminated in consolidation. The results of operations
for any interim period are not necessarily indicative of results for the full
year. The balance sheet at June 30, 2009 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.
For
further information, refer to the consolidated financial statements and notes
thereto included in the Company’s Form 10-K for the year ended June 30,
2009.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
On April
25, 2008, the Company effected a 1 for 20 reverse stock split. All
share and per share amounts in this report have been retroactively restated to
reflect the 1 for 20 reverse split.
Inventories,
which consist primarily of goods held for resale, are stated at the lower of
cost (first-in, first-out method) or market and are comprised as
follows:
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September
30, 2009
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June
30, 2009
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|||||||
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Finished
goods
|
$ | 1,472,417 | $ | 1,230,297 | ||||
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Components
|
224,098 | 224,594 | ||||||
|
Less:
Provision for obsolescence
|
(178,000 | ) | (178,000 | ) | ||||
|
Total
|
$ | 1,518,515 | $ | 1,276,891 | ||||
6
ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
3 RECENT
ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards
Codification (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
All guidance contained in the Codification carries an equal level of authority.
The Codification superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.
In
September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157, Fair Value
Measurements ("SFAS 157"), which was primarily codified into Topic 820 in
the Accounting Standards Codification ("ASC"). SFAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements required under other accounting pronouncements,
but does not change existing guidance as to whether or not an instrument is
carried at fair value. It also establishes a fair value hierarchy
that prioritizes information used in developing assumptions when pricing an
asset or liability. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. In February 2008, FASB issued
Staff Position No. 157-2, which provides a one-year delayed application of
SFAS 157 for nonfinancial assets and liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). The Company's adoption of the provisions
of SFAS 157 with respect to the financial assets and liabilities measured at
fair value did not have a material impact on the fair value measurements or the
consolidated financial statements. In accordance with SFAS 157-2, the
Company's adoption did not have a material impact on nonfinancial assets and
nonfinancial liabilities, including, but not limited to, the valuation of the
Company's reporting units for the purpose of assessing goodwill impairment, the
valuation of property and equipment when assessing long-lived asset impairment,
and the valuation of assets acquired and liabilities assumed in business
combinations. In October 2008, FASB issued SFAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active, which
became effective upon issuance, including periods for which financial statements
have not been issued. SFAS 157-3 clarifies the application of SFAS
157. The Company's adoption of SFAS 157-3 in determination of fair
values did not have a material impact on the consolidated financial
statements.
In
December 2007, FASB issued SFAS No. 141R (revised 2007), Business Combinations ("SFAS
141R"), which was primarily codified into Topic 805 Business Combinations in the
ASC. The statement retains the purchase method of accounting for
acquisitions, but requires a number of changes, including changes in the way
assets and liabilities are recognized in the purchase accounting. It
also changes the recognition of assets acquired and liabilities assumed arising
from contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS 141R was effective for us beginning July 1,
2009 and will apply prospectively to business combinations completed after that
date.
In
December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB 51 ("SFAS 160"),
which was primarily codified in to Topic 810 Consolidations in the ASC,
and changes the accounting and reporting for minority
interests. Minority interests will be recharacterized as
noncontrolling interests and will be reported as a component of equity separate
from the parent's equity, and purchases or sales of equity interests that do not
result in a change in control will be accounted for as equity transactions. In
addition, net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement and,
upon a loss of control, the interest sold, as well as any interest retained,
will be recorded at fair value with any gain or loss recognized in earnings.
SFAS 160 was effective for us beginning July 1, 2009 and did not have a material
impact on the consolidated financial statements.
In March
2008, FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement
No. 133 ("SFAS 161"), which was primarily codified into Topic 815
Derivatives and Hedging
in the ASC. SFAS 161 requires enhanced disclosures about an entity's
derivative and hedging activities, including (i) how and why an entity uses
derivative instruments, (ii) how derivative instruments and related hedged
items are accounted for under SFAS No. 133, and (iii) how derivative
instruments and related hedged items affect an entity's financial position,
financial performance, and cash flows. SFAS 161 was effective for us beginning
July 1, 2009 and did not have a material impact on the consolidated financial
statements.
7
ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
3 RECENT
ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY (continued)
In May
2009, FASB issued SFAS No. 165, Subsequent Events, which was
primarily codified into Topic 855 Subsequent Events in the
ASC. This standard is intended to establish general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be
issued. Specifically, this standard sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date. SFAS No. 165 is effective for fiscal years and interim periods
ended after June 15, 2009. We adopted this statement effective July
1, 2009.
In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which were primarily codified into Topic 825
Fair Value Option into
the ASC. This FSP amends FASB Statement No. 107, to require
disclosures about fair values of financial instruments for interim reporting
periods as well as in annual financial statements. The FSP also amends APB
Opinion No. 28 to require those disclosures in summarized financial
information at interim reporting periods. This FSP was effective for
interim reporting periods ending after June 15, 2009. The adoption of this
FSP did not affect the Company’s consolidated condensed financial
statements.
In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles, which was primarily codified into Topic 105 Generally Accepted Accounting
Standards in the ASC. This standard will become the single source of
authoritative nongovernmental U.S. generally accepted accounting principles
("GAAP"), superseding existing FASB, American Institute of Certified Public
Accountants ("AICPA"), Emerging Issues Task Force ("EITF"), and related
accounting literature. This standard reorganizes the thousands of GAAP
pronouncements into roughly 90 accounting topics and displays them using a
consistent structure. Also included is relevant Securities and Exchange
Commission guidance organized using the same topical structure in separate
sections. This guidance will be effective for financial statements issued for
reporting periods that end after September 15, 2009. Beginning in the first
quarter of 2010, this guidance impacts the Company's financial statements
and related disclosures as all references to authoritative accounting literature
reflect the newly adopted codification.
NOTE
4 GOING
CONCERN
These
interim financial statements have been presented on the basis that the Company
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The
Company has only recently begun generating revenues. Even with the
generation of revenues from the sale of golf and fishing products now being
produced and sold, the Company expects to incur expenses in excess of revenues
for an indefinite period.
|
Three
Months Ended
September
30,
2009
|
Year
Ended June 30,
2009
|
|||||||
|
Negative
working capital
|
$ | (1,403,973 | ) | $ | (1,125,566 | ) | ||
|
Net
loss
|
$ | (591,415 | ) | $ | (1,593,160 | ) | ||
|
Accumulated
deficit
|
$ | (27,172,820 | ) | $ | (25,663,727 | ) | ||
As shown
in the accompanying financial statements, during the three months ended
September 30, 2009, the Company incurred a net loss of $591,415 and cash
utilized by operations during this period was $162,335. For the fiscal year
ended June 30, 2009, the Company realized a net loss of $1,593,160 and $96, 224
of cash was provided by operations.
These
factors, among others, raise significant doubt about the Company’s ability to
continue as a going concern. The unaudited condensed consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
8
ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4 GOING
CONCERN (continued)
The
Company’s continuation as a going concern is dependent upon its ability to
generate sufficient cash flow and meet its obligations on a timely basis and
ultimately attain profitability. Since acquiring the golf development
business, the Company has depended on financings and consulting
services from consultants engaged by the Company who agree to be compensated
with the Company’s common stock rather than cash.
Absent
these continuing advances, services and financings, the Company could not
continue with the development and marketing of its golf and fishing products.
Managements’ plans for the Company include more aggressive marketing, obtaining
additional capital to fund operations and other strategies designed to optimize
shareholder value. However, no assurance can be given that management will be
successful in fulfilling all components of its plan. The failure to achieve
these plans will have a material adverse effect on the Company’s financial
position, results of operations and ability to continue as a going
concern.
NOTE
5 RELATED
PARTY ADVANCES AND LOANS PAYABLE
During
the three months period ended September 30, 2009, an officer advanced a net
amount of $1,376 to the Company. The officer will not require repayment of
the $157,989 loans balance at September 30, 2009 within the next 12
months.
During
the three months ended September 30, 2009 the Company incurred a royalty expense
of $97,802 (September. 30, 2008 -$77,622) for the sale of fishing
equipment. The royalty is calculated as 20% of the net selling price of fishing
products sold by the Company and any sub licensee. The royalty is payable to
Advanced Light Alloys Corporation, a British Virgin Island corporation that is
wholly-owned by David Sindalovsky, a consultant to the Company. Royalty payable
at September 30, 2009 is $738,366 (June 30, 2009 - $640,564). The Company has
not paid any royalties to date to Advance Light Alloys Corporation.
The
Company entered into a new unsecured promissory note of $825,000 with a
shareholder on May 27, 2008 with a stated interest rate of 10% and a repayment
date of November 1, 2008. The loan agreement contains default
provisions and the Company went into default; however, during the quarter ended
September 30, 2009, the Company negotiated an extension of the repayment date
until February 23, 2010. During the three months ended September 30, 2009, the
Company repaid $150,000 of the loan and the unpaid balance remains $525,000 as
of September 30, 2009.
NOTE
6 CONVERTIBLE
NOTE
The
Company consummated a Three Hundred Thousand Dollar ($300,000) Convertible
Bridge financing on January 20, 2009 by entering into a Convertible Bridge Loan
Note (“Convertible Note”), Warrant Agreement and Subscription Agreement
collectively the (“Subscription Agreements”).
The
Subscription Agreement provides for the Purchaser to loan to the Company
$300,000 in exchange for a Convertible Note which provides for repayment within
6 months from January 20, 2009 at the rate of 7% per annum due and payable upon
maturity. The Convertible Note can be converted by the Purchaser at
anytime during or at the expiration of 6 months at a conversion price equal to
45 cents per share (See Note 10 - Subsequent Events).
In
addition the Company issued to the Purchaser a warrant to purchase 857,143
shares of our common stock at $0.35 each for a period of 12 months from January
30, 2009.
The
Warrant expires on January 30, 2010. The exercise price of the Warrant is
subject to adjustment in the event of certain dilutive issuances, stock
dividends, stock splits, share combinations or other similar recapitalization
events. The Warrant may only be exercised by the payment of the applicable
exercise price to the Company in cash, no cashless exercise is permitted. The
Warrant may be exercised in whole or in part for shares of common stock by
payment by the Purchaser of the applicable exercise price in cash prior to the
expiration of the Warrant on January 30, 2010.
9
ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
6 CONVERTIBLE
NOTE (continued)
The
convertible debentures are accounted for in accordance with Topic 470-20 Debt with conversion and other
options. The following summarizes the significant terms and
accounting for each convertible debenture entered into by the
Company.
| Date Issued | 1/20/2009 | |||
| Promissory Note Amount | $ | 300,000 | ||
| Conversion Price | $ | 0. | 45 | |
| Gross Proceeds | $ | 300,000 | ||
| Net Cash Proceeds | $ | 300,000 | ||
| Warrants Issued to Investors | 857,143 | |||
| Warrants Exercise Price | $ | 0. | 35 | |
| Warrants Fair Value (WFV) | $ | 246,017 | ||
| Warrants Relative Fair Value | $ | 135,170 | ||
| Beneficial Conversion Feature (BCF) | $ | 101,837 | ||
| Amortization of WFV and BCF as non-cash interest expense | $ | 237,007 | ||
Black-Scholes
Model Assumptions: risk free interest (1.96%); expected volatility (205%);
expected life (12 months); no dividends
NOTE
7 (LOSS)
PER SHARE
Basic net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding for the
periods. Diluted net income (loss) per share reflects, in addition to
the weighted average number of common shares, the potential dilution of stock
options and warrants outstanding, exercised and/or converted into common stock,
unless the effect of such equivalent shares was anti-dilutive.
For the
three months ended September 30, 2009 and 2008, the effect of stock options and
other potentially dilutive shares were excluded from the calculation of diluted
net loss per common share, as their inclusion would have been
anti-dilutive. Therefore diluted loss per share is equal to basic
loss per share. Such securities, shown below, presented on a common share
equivalent basis and outstanding as at September 30, 2009 and 2008 have been
excluded from the three month diluted loss per share computations:
|
September 30,
2009
|
September 30,
2008
|
|||||||
|
Warrants
|
2,097,643 | 2,565,939 | ||||||
|
Convertible
Preferred Stock
|
2,380,310 | 1,885,016 | ||||||
|
Convertible
Note
|
666,667 | - | ||||||
10
ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
8 SHAREHOLDERS’
EQUITY
During
the three months ended September 30, 2009, the Company issued 989,661 shares of
its common stock to consultants for services by them for an aggregate value of
$361,697 based on the quoted market price of the shares at time of
issuance.
On July
20, 2009, the Company filed with the Secretary of State of the State of Delaware
an Amended and Restated Certificate of the Powers, Designations, Preferences and
Rights of the Series B Convertible Preferred Stock of the Company dated July 10,
2009 (the “Amendment”). In connection with the Amendment, the Company
agreed to pay dividends on the Series B Convertible Preferred Stock of the
Company (the “Series B Stock”) quarterly and the current holders of the Series B
Stock (the “Holders”) agreed that such dividends could be paid by delivery of
the Company’s common shares valued at the price that is the average of the
closing price for Common Stock for the 20 trading days immediately preceding the
payment date for such dividends. In connection with the Amendment, each
Series B Stock is convertible into 5.57 shares of Common Stock and one of the
holders returned to the Company 294,118 unregistered common shares received by
reason of the conversion of its Series B Stock in consideration for the
reissuance to the Holder of 58,823 shares of unregistered Series B
Stock.
On July
16, 2009, the Company issued 1,715,354 shares of its common stock valued at
$857,678 to the holders of the Series B Convertible Preferred Stock (“Series B
Stock”) for accrued dividends through June 30, 2009. At September 30, 2009,
the Company recorded $60,000 for dividends payable for accrued dividends on the
Series B Stock.
On August
2, 2009, 22,059 warrants with an exercise price of $3.40 expired. On August 3,
2009, 50,000 warrants were exercised at $0.10 per share of common
stock.
Foreign
exchange risk
The
Company is exposed to foreign exchange risks on purchases of inventory, which
are made in US dollars, from two companies. This risk, however, is mitigated by
the fact that a significant portion of its sales to customers are made in US
dollars. The Company does not use derivative instruments to hedge its foreign
exchange risk.
Credit
risk
The
Company is subject to risk of non-payment of its trade accounts receivable. For
the three months ended September 30, 2009, three customers (2008 – three
customers) respectively represent approximately 36.59% sales (2008 – 63.47%) and
84.15% (2008 – 66.4%) of the total outstanding account receivable.
Management continually monitors its credit terms with customers to reduce credit
risk exposure.
11
ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
10 SUBSEQUENT
EVENTS
Subsequent
to period end, the Company issued 354,720 shares of its common stock to
consultants for services by them for an aggregate value of $171,928 based on the
quoted market price of the shares at time of issuance.
On
October 22, 2009, 120,000 shares in common stock valued at $60,000 were issued
for accruing dividends at September 30, 2009 on Series B Stock.
On
November 12, 2009, 666,667 shares of common stock were issued upon conversion of
$300,000 of principal of the Secured Convertible Note (See Note 6 - Convertible
Note).
Subsequent
event have been reviewed up to the date of filing the Report (November 13,
2009)
12
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-Q, forward-looking
statements also include:
▪
statements about our business
plans;
▪
statements about the potential for the
development, regulatory approval and public acceptance of new
services;
▪
estimates of future financial
performance;
▪
predictions of national or
international economic, political or market conditions;
▪
statements regarding other factors
that could affect our future operations or financial position; and
▪
other statements that are not matters of
historical fact.
These
statements may be found under “Management’s Discussion and Analysis or Plan of
Operation” as well as in this Form 10-Q. 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-Q. We
believe it is in the best interest of our investors to use forward-looking
statements in discussing future events. However, we are not required
to, and you should not rely on us to, revise or update these statements or any
factors that may materially affect actual results, whether as a result of new
information, future events or otherwise. You should carefully review the
risk factors described in this Form 10-Q and also review the other documents we
file from time to time with the Securities and Exchange Commission
(“SEC”).
Results of
Operations
Three
Months Ended September 30, 2009 and 2008
For the
three months ended September 30, 2009 the Company had revenue of $758,818, which
includes non-cash barter revenue of $8,066, and incurred costs of sales of
$424,465 and general and administrative expenses of $835,241. Included in
general and administrative expense is a non-cash charge of $361,697,
representing the value of compensatory common stock and warrants for services
provided by consultants. This resulted in a net loss of $591,415, as compared
with the three months ended September 30, 2008 in which the Company had revenue
of $555,256, incurred costs of sales of $349,722 and general and administrative
expenses of $885,698, and interest income of $1,446, and interest expense of
$20,795, offset by derivative income of $60,707, resulting in a net loss of
$638,806.
Financial
Condition, Liquidity and Capital Resources
The
Company has negative working capital as of September 30, 2009 of
$1,403,973. The Company retains consultants who are also significant
stockholders of the Company to perform development and public company reporting
activities in exchange for stock of the Company. At June 30, 2009, we
had a working capital deficiency of $1,125,566. Our continuation as a going
concern will require that we raise significant additional capital.
Absent
continued issuances of common stock for services to our consultants and
continued advances by stockholders of the Company, the Company cannot
manufacture its golf shaft or fishing product lines or market its products based
on its technologies. The Company is actively searching for capital in
addition to $300,000 that management has raised in January 2009 to implement its
business plans, supply the Company with products for distribution, and develop
collateral materials for its potential customer base. There can be no
assurance that such capital will be raised on terms acceptable to the Company
and if this capital is raised, it, may cause significant dilution to the
Company’s stockholders.
Recent
Accounting Pronouncements
See Note
3 “Recent Accounting Pronouncements Affecting the Company” in the Notes to
Condensed Consolidated Financial Statements in Item 1 for a full description of
recent accounting pronouncements, including the expected dates of adoption and
estimated effects on results of operations and financial condition, which is
incorporated herein.
13
Dividend
Policy
The
Company has not declared or paid any cash dividends on its common stock since
its inception and does not anticipate the declaration or payment of cash
dividends in the foreseeable future. The Company intends to retain
earnings, if any, to finance the development and expansion of its
business. The Company is prohibited from paying dividends on common
stock as long as there are any unpaid accrued dividends due to the Series B
Convertible Stock shareholders. Therefore, there can be no assurance that
dividends of any kind will ever be paid.
Effect
of Inflation
Management
believes that inflation has not had a material effect on its operations for the
periods presented.
he
preparation of our consolidated financial statements in conformity with U.S.
generally accepted accounting principles (“GAAP”) requires the use of estimates
and assumptions that affect the reported amount of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. We
base our estimates on historical experience and on various other assumptions
that we believe are reasonable under the circumstances, and provide a basis for
making judgments about the carrying value of assets and liabilities that are not
readily available through open market quotes. Estimates and assumptions are
reviewed periodically, and actual results may differ from those estimates under
different assumptions or conditions. We must use our judgment related to
uncertainties in order to make these estimates and assumptions.
For a
description of our critical accounting policies and estimates as well as certain
sensitivity disclosures related to those estimates, see our Annual Report on
Form 10-K for the year ended June 30, 2009. Our critical accounting policies and
estimates have not changed materially during the three months ended
September 30, 2009.
ITEM
3 QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
Company is exposed to foreign exchange risks on purchases of inventory, which
are made in US dollars, from two companies. This risk, however, is mitigated by
the fact that a significant portion of its sales to customers are made in US
dollars. The Company does not believe that this risk is material. The
Company does not use derivative instruments to hedge its foreign exchange
risk.
ITEM
4 CONTROLS
AND PROCEDURES:
(a) Evaluation of disclosure controls
and procedures. As required by Rule 13a-15 under the Securities
Exchange Act of 1934, as of the end of the period covered by this report, we
have carried out an evaluation of the effectiveness of the design and operation
of our company’s disclosure controls and procedures. Under the direction of our
Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure
controls and procedures and internal control over financial reporting and
concluded that our disclosure controls and procedures were effective as
of September 30, 2009.
Disclosure
controls and procedures and other procedures are designed to ensure that
information required to be disclosed in our reports or submitted under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time period specified in the Securities and Exchange Commission’s
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934 is
accumulated and communicated to management including our president and financial
officer as appropriate, to allow timely decisions regarding required
disclosure.
(b) Changes in internal control over
financial reporting. There were no changes in our internal
control over financial reporting that occurred during the last fiscal quarter
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
14
Item
1 LEGAL
PROCEEDINGS
None
Item
2 UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During
the three months ended September 30, 2009, the Company issued 989,661 shares of
its common stock to consultants for services rendered and to be rendered by them
and for an aggregate value of $361,697. On July 16, 2009, the Company
issued 1,715,354 shares of its common stock valued at $857,678 to the holders of
the Series B Convertible Preferred Stock (“Series B Stock”) for accrued
dividends through June 30, 2009. On August 3, 2009,
50,000 warrants were exercised at $0.10 per share of common stock. The shares
were issued in reliance on exemptions from registration pursuant to Section 4(2)
of the Securities Act of 1933, as amended.
None
Item
4 SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item
5 OTHER
INFORMATION
None
Item
6 EXHIBITS
|
Exhibit No.
|
Exhibit
Description
|
|
3(i)(1)
|
Amended
Certificate of Incorporation of the Company, incorporated herein by
reference to the Company’s Registration Statement on Form S-1, as
amended, File No. 33-43976 filed on November 14, 1991.
|
|
3(i)(2)
|
Certificate
of Amendment to Amended Certificate of Incorporation of the Company,
incorporated herein by reference to Exhibit 3.1 to the Company’s Form 8-K
dated May 12, 2006.
|
|
3(i)(3)
|
Certificate
of the Powers, Designations, Preferences and Rights of the Series A
Convertible Preferred Stock, $0.10 par value per share, incorporated
herein by reference to Exhibit 4.1 to the Company’s Form 8-K dated
February 24, 2006.
|
|
3(i)(4)
|
Certificate
of the Powers, Designations, Preferences and Rights of the Series B
Convertible Preferred Stock, $0.10 par value per share, incorporated
herein by reference to Exhibit 3(i) to the Company’s Form 8-K dated August
3, 2006.
|
|
3(i)(5)
|
Certificate
of the Powers, Designations, Preferences and Rights of the Series B
Convertible Preferred Stock, $0.10 par value per share, incorporated
herein by reference to Exhibit 3(i) to 3(iix9x1) to the Company’s Form 8-K
dated June 18, 2007.
|
|
3(i)(6)
|
Amended
and Restated Certificate of the Powers, Designations, Preferences and
Rights of the Series B Convertible Preferred Stock, $0.10 par value per
share, dated July 10, 2009, incorporated herein by reference to Exhibit
4.12 to the Company’s Form 8-K filed on August 3, 2009.
|
|
3(ii)(1)
|
Amended
and Restated Bylaws of the Company, incorporated herein by reference to
the Company’s Registration Statement on Form S-1, as amended,
File No. 33-43976 filed on November 14, 1991.
|
|
3(ii)(2)
|
Certificate
of Amendment to the Certificate of Incorporation of the Company to
effectuate a 1 for 20 reverse stock split of the Company’s issued and
outstanding shares of common stock, incorporated herein by reference to
the Company’s Form 8-K dated April 24, 2008.
|
|
4.1
|
Form
of Element 21 Golf Company 10% Convertible Promissory Note, incorporated
herein by reference to Exhibit 4.2 to the Company’s Form 8-K dated
February 24, 2006.
|
|
4.2
|
Element
21 Golf Company 10% Convertible Promissory Note issued to Oleg Muzyrya ,
incorporated herein by reference to Exhibit 4.3 to the Company’s Form 8-K
dated February 24, 2006.
|
|
4.3
|
Common
Stock Purchase Warrant, incorporated herein by reference to Exhibit 4.4 to
the Company’s Form 8-K dated February 24, 2006.
|
|
4.4
|
Form
of Element 21 Golf Company 10% Convertible Promissory Note, incorporated
herein by reference to Exhibit 4.1 to the Company’s Form 8-K dated May 23,
2006.
|
|
4.5
|
Common
Stock Purchase Warrant, incorporated herein by reference to Exhibit 4.2 to
the Company’s Form 8-K dated May 23, 2006.
|
|
4.6
|
Form
of Warrant for Purchase of 3,750,000 Shares of Common Stock dated July 31,
2006, incorporated herein by reference to Exhibit 4.1 to the Company’s
Form 8-K dated August 3, 2006.
|
|
4.7
|
Form
of Warrant for Purchase of 5,073,530 Shares of Common Stock dated July 31,
2006, incorporated herein by reference to Exhibit 4.2 to the Company’s
Form 8-K dated August 3, 2006.
|
|
4.8
|
Form
of Warrant for Purchase of 3,750,000 Shares of Common Stock dated July 31,
2006, incorporated herein by reference to Exhibit 4.1 to the Company’s
Form 8-K dated December 1, 2006.
|
|
4.9
|
Form
of Warrant for Purchase of 5,073,530 Shares of Common Stock dated July 31,
2006, incorporated herein by reference to Exhibit 4.2 to the Company’s
Form 8-K dated December 1, 2006.
|
|
4.10
|
Common
Stock Purchase Warrant, incorporated herein by reference to Exhibit 4.1 to
the Company’s Form 8-K dated June 18, 2006.
|
|
4.11
|
Form
of Warrant for Purchase of 5,882,400 Shares of Common Stock dated June 15,
2007, incorporated herein by reference to Exhibit 4.2 to the Company’s
Form 8-K dated June 18, 2007.
|
15
|
10.1
|
Series
A Convertible Preferred Stock Exchange Agreement and Acknowledgement dated
as of February 22, 2006, incorporated herein by reference to Exhibit 10.1
to the Company’s Form 8-K dated February 24, 2006.
|
|
10.2
|
Element
21 Golf Company 2006 Equity Incentive Plan, incorporated herein by
reference to Annex C to the Company’s Proxy Statement Pursuant to Section
14(a) of the Securities Exchange Act of 1934 filed on April 7,
2006.
|
|
10.3
|
Form
of Subscription Agreement for Shares of Series B Convertible Preferred
Stock dated as of July 31, 2006, incorporated herein by reference to
Exhibit 10.1 to the Company’s Form 8-K dated August 3,
2006.
|
|
10.4
|
Form
of Subscription Agreement for Shares of Series B Convertible Preferred
Stock dated as of November 30, 2006, incorporated herein by reference to
Exhibit 10.1 to the Company’s Form 8-K dated August 3,
2006.
|
|
10.5
|
Form
of Subscription Agreement for Shares of Series B Convertible Preferred
Stock dated as of June 15, 2007, incorporated herein by reference to
Exhibit 10.2 to the Company’s Form 8-K dated June 18,
2007.
|
|
10.6
|
Form
of Subscription Agreement for Shares of Common Stock dated as of June,
2007, incorporated herein by reference to Exhibit 10.1 to the Company’s
Form 8-K dated June 18, 2007.
|
|
10.7
|
License
Agreement with Advanced Light Alloys Corporation dated as of June 21, 2007
incorporated by reference to exhibit 10.1 to the Company’s Form 10KSB
dated June 21, 2007.
|
|
10.8
|
Consulting
Agreement with Nataliya Hearn dated as of January 4, 2006 incorporated by
reference to exhibit 10.4 to the Company’s Form 10KSB dated October 13,
2006.
|
|
10.9
|
Consulting
Agreement with John Grippo dated as of November 10, 2005 incorporated by
reference to exhibit 10.5 to the Company’s Form 10KSB dated October 13,
2006.
|
|
10.10
|
Consulting
Agreement with Nataliya Hearn dated as of January 4, 2009, incorporated by
reference to exhibit 10.10 to the Company’s Form 10-Q, filed on May 15,
2009.
|
|
10.11
|
Consulting
Agreement with David Sindalovsky dated as of September 15,
2008, incorporated by reference to exhibit 10.11 to the
Company’s Form 10-Q, filed on May 15, 2009.
|
|
10.12
|
Consulting
Agreement with John Grippo dated as of January 1,
2008, incorporated by reference to exhibit 10.12 to the
Company’s Form 10-Q, filed on May 15, 2009.
|
|
32.1
|
Certification
of principal executive officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification
of principal financial and accounting officer pursuant to Section 302 of
the Sarbanes Oxley Act of 2002
|
|
32.1
|
Certification
of principal executive officer pursuant to Section 906 of the Sarbanes
Oxley Act of 2002
|
|
32.2
|
Certification
of principal financial and executive officer pursuant to Section 906 of
the Sarbanes Oxley Act of 2002
|
16
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
Element
21 Golf Company
|
||
|
November
13, 2009
|
By:
|
/s/
Nataliya Hearn
|
|
Nataliya
Hearn, Ph.D.
|
||
|
President
and Director
|
||
|
November
13, 2009
|
By:
|
/s/ Philip
Clark
|
|
Philip
Clark, CA, CPA, CFA
Chief
Financial Officer
|
||