Unassociated Document
U.
S. Securities and Exchange Commission
Washington,
D.C. 20549
FORM
10-KSB
| x |
ANNUAL
REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
fiscal year
ended
June 30, 2005
| o |
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
|
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88-0218411
|
|
(State
or Other Jurisdiction of incorporation or
organization)
|
|
(I.R.S.
Employer I.D. No.)
|
| |
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207
Queens Quay W. #455, Toronto, Ontario, Canada, M5J 2A7
(Address
of Principal Executive Offices)
Registrant’s
Telephone Number: 800-710-2021
Not
Applicable
(Former
name and former address, if changed
since
last Report)
200
Perimeter Road, Manchester, NH 03103
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 (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
State
Issuer’s revenues for its most recent fiscal year: June 30, 2005 =
$65,633.
State
the
aggregate market value of the voting and non-voting common stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. As of October 5, 2005 there were approximately 83,073,582
shares of our common voting stock held by non-affiliates having a market value
of $6,645,887 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.
State
the
number of outstanding shares of each of the Registrant’s classes of common
equity, as of the latest practicable date. As of October 5, 2005, there were
90,924,046 shares of common stock of the Issuer outstanding.
Element
21 Golf Company
10-KSB
for the Year Ended June 30, 2005
Table
of Contents
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PART
I
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1
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ITEM
1.
|
DESCRIPTION
OF BUSINESS
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1
|
|
ITEM
2.
|
DESCRIPTION
OF PROPERTY
|
14
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|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
14
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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15
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PART
II
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15
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ITEM
5.
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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15
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ITEM
6.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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17
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ITEM
7.
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FINANCIAL
STATEMENTS
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22
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ITEM
8.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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22
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ITEM
8A
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CONTROLS
AND PROCEDURES
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22
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ITEM
8B
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OTHER
INFORMATION
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22
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PART
III
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22
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ITEM
9.
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION
16(a) OF THE EXCHANGE ACT
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22
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ITEM
10.
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EXECUTIVE
COMPENSATION
|
25
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ITEM
11.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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26
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ITEM
12.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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27
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ITEM
13.
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EXHIBITS
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28
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ITEM
14.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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28
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Signatures
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31
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Financial
Statements
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F-1
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| |
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PART
I
|
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 engaged
in
the business of biotechnology from 1992 through 1995. From mid-1995 through
September 2001, the Company sponsored a number of early-stage
ventures.
In
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.
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, 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.
In
October 2003, the Company issued 12,287,082 shares to consultants in exchange
for liabilities owed.
In
May
2004, the Company issued 20,460,010 shares of the Company’s common stock to
consultants in exchange for liabilities owed in the amount of $1,841,401. This
issuance increased the outstanding shares of the Company from 49,906,220 at
June
30, 2003 to 82,653,312 at June 30, 2004.
During
the fiscal year of 2005, the Company issued an aggregate of 4,833,929 shares
of
common stock to consultants in exchange for liabilities owed in the amount
of
$318,238.
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 scandium alloy golf club
shafts and golf heads. Scandium is Element No. 21 in the Periodic Table of
Elements. Scandium alloys 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%. Scandium alloys are 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 1980s. 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 plans to commercialize Scandium’s use in golf shafts and golf heads.
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 a specified range of
scandium metal alloy for golf club shafts and golf heads. Although these rights
do not cover all mixes of scandium metal 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
serves as Vice President and Principal Financial Officer of the
Company.
In
March
2005, the Company began 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 scandium 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.
The
Company operates 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. Consultants Jim Morin, who is also our Vice-President, Secretary
and Treasurer, and Frank Gojny, both
of whom
are
based in
California, oversee the development, testing and USGA approval for the golf
products. David Sindalovsky is another consultant responsible for supervising
the engineering and design of the golf club components. 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. 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 for business development and building retail distribution channels
are
consulting. Professional player relations are handled by Jack Curry and 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 scandium
golf shafts and club components exclusively for the Company in South Korea.
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.
Golf
Products
We
believe that scandium golf products have outstanding potential in the industry
based on several factors:
| · |
Results
of player and robotic testing indicate scandium’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 scandium has been supported by several performance and marketing
features:
| · |
Scandium
alloys 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;
|
| · |
Scandium
alloys are softer than titanium providing superior feel and workability
for the player;
|
| · |
Scandium
alloys are lower in cost and easier to fabricate than
titanium;
|
| · |
The
specific yield strength advantage of scandium alloys over steel and
high-end aluminum alloys enables the design of shafts at substantially
reduced weight and higher
performance;
|
| · |
The
homogeneous nature of scandium alloys allow for consistent shaft
production, a problem inherent with graphite
shafts.
|
Golf
Shafts
Scandium
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 scandium shafts
with
several flex strengths that have been tested initially with irons and accepted
as complying with the rules of golf by the USGA.
We
believe the E21 scandium metal alloy shafts show improved performance in a
number of respects to graphite and stainless steel shafts. Scandium'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 scandium 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 scandium 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 scandium 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 ShockBlokTM
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. Shock energy transferred 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’. The Company believes, based on test results only, that
scandium improves shock absorption by up to 300%. The Company also believes
that
most users of its shafts would immediately notice the superior shock absorption
and that scandium also contributes to a measurably superior feel as compared
with steel and graphite clubs.
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 30.60
foot-pounds of force. This
can
significantly reduce fatigue during the course of the day, as well as reduce
the
incidence of shock related injury over the long-term.
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 market size of the high performance premium shafts that the Company’s
scandium shaft will initially be targeting represents approximately 27 million
units worldwide.
The
Company currently markets shafts designed for irons through select channels.
Design and engineering of shafts for all other club heads (drivers, wedges,
hybrids and putters) is complete and prototypes 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. 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 scandium
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 largest face areas of any driver on the market, and
because the head and shaft are
both
made of the same patented scandium alloy, the Company believes that players
should experience True Contact Signature™ at impact with the ball. The energy
passes from the head to the shaft at the same frequency providing the golfer
with a fully “harmonized” golf club. Shots are consistent 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
scandium 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 proprietary software to optimize the head design, which
includes a bulge and roll and the center of gravity. Additional software was
then used to optimize the performance of the clubhead to E21’s unique scandium
metal alloy shafts. A number of patents on the special design features of the
club have been filed.
The
Company’s Low Gravity LogicTM
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’s patented new scandium metal 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 clubmakers 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
will also feature the revolutionary new Eagle One shafts made from E21's new
Scandium alloy.
The
wedges use E21’s patented new Contact Signature Tuned system (CST
SystemTM)
that
uses advanced proprietary software to calculate and match the club head
performance to E21’s advanced scandium metal 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.
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 scandium metal alloy in both the shaft
and head of the new putter. The putter head incorporates a scandium metal alloy
insert, which is milled for superior contact with the ball. Scandium’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
scandium metal alloy in both the shaft and putter head take advantage of
scandium’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.
Scandium
Alloys Evolution in the Golf Industry
The
Company derives its name from the 21st
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 and 50% more strength than
typical high-strength 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 shaft
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
21st
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 a capacity of processing
in
excess of 100,000 lbs of material per month which equates to approximately
450,000 golf shafts. The manufacturer has negotiated a $50,000US credit line
with preferential payment terms to begin full production of its 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 Scandium
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.
In
September 2005, the Company completed negotiations with Pan Osprey Golf
Apparatus
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 significant inventory of scandium metal 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 clubmakers around the world. The Company is also
pursuing the possible development of traditional retail channels of
distribution.
Dependent
in part on its ability to obtain the necessary funding, of which there is no
assurance, the Company intends to commence the production and roll-out of its
proprietary scandium metal wood driver with a scandium 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. Again, depending on financing and marketing conditions, 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 TemperR
and GrafalloyR.
|
| 9. |
Advanced
proprietary clubhead designs that take full advantage of the unique
properties of scandium metal 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
ShockBlokTM
shock reduction system in scandium metal 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.
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 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. As of September 2003, Easton has
sold in excess of $800,000,000 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
shaft, metal wood drivers, putters, lacrosse sticks, bicycle seat posts and
handlebars, and hockey stick prototypes have been developed.
Scandium
Metal Alloy Product Advantages
Scandium
alloys have 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.
|
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 scandium 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 scandium alloy golf
products to the market place.
Currently,
E21 scandium metal alloy shafts are available to clubmakers and fabricators
through the Golfworks catalogue and web site. Some initial inroads have also
been made on a limited basis to retail golf chains. As a product line unfolds,
the Company will pursue a more aggressive stance to developing retail channels.
This is, to a significant extent, dependent upon the Company raising additional
capital to finance these activities of which there is no guarantee. Sales
executives have been retained on a consulting basis to develop these retail
channels of distribution.
Final
testing of the various prototypes 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 at Golf Labs Inc. in San Diego.
Upon
raising additional financing, of which there is no assurance, the Company
intends to introduce its scandium driver through the production and airing
of an
infomercial. The Company has entered into an agreement with Incredible
Discoveries of Deerfield Beach, Florida
(www.incrediblediscoveries.com
)
to
produce a 28-minute infomercial on scandium golf club products. Incredible
Discoveries’ direct response team is responsible for generating over $50 million
in direct response television sales. If the Company is able to finance the
infomercial, Incredible Discoveries would co-fund the venture to promote and
sell the scandium golf clubs through multimedia venues. Based on positive
performance and marketing features afforded by scandium, and the general market
condition of golf, the Company believes this approach would
be
successful.
To
assist in this process, the Company has access to consultants with experience
in
infomercials from both marketing and production aspects. We believe that we
would be in a position to introduce a number of new scandium golf products
over
time, including putters, fairway metal woods,
and
irons.
According
to Golfdatatech, in 1999 the world retail golf club (metal woods, irons,
putters) market was worth approximately $4.8 billion. Golfdatatech estimates
that the US market represents about 50% of the world market, with approximately
$2.4 billion in sales, including over $1.0 billion in metal wood sales.
Scandium
Raw Material Supply
The
raw
material that goes into production of scandium alloys 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. These are known as scandium
alloys, which have 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 consultants,
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,
contains
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).
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. These factors, among
others, will make it difficult for us to compete with these manufacturers.
In
the event that the Company completes and airs its infomercial, of which there
is
no assurance, the Company anticipates that the infomercial campaign will not
only promote the sale of the Company’s scandium golf clubs, but will also help
to generate additional media awareness through write ups in various major golf
publications. However, there is no assurance that the infomercial will generate
additional media coverage.
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 scandium 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 products
will
achieve general market adoption. As of the date of this report, we have not
raised funds sufficient to significantly penetrate the golf market.
Patents,
Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor
Contracts
The
Company has direct title to no 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 Dr. Hearn.
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.
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 new
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:
| · |
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.”
Research
and Development Expenses during Past Two Fiscal Years
During
the fiscal year ended 2005 and 2004 there were no research and development
costs
incurred by the Company. During the fiscal year ended 2003, the Company spent
approximately $2,445 for research and development associated with the Element
21
golf technology. This amount does 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
scandium 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 expect to spend additional amounts on research and development during fiscal
year 2006.
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 scandium 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, 2005 we have
no
employees. Consultants Nataliya Hearn, PhD, who is our CEO and President, based
in Toronto, Canada, oversees the engineering, alloy supply and production.
David
Sindalovsky is also responsible for engineering and work with overseas strategic
partners. Consultants Jim Morin, who is also our Vice-President, Secretary
and
Treasurer, and Frank Gojny, both of whom are based in California, oversee the
development, testing and USGA compliance for the golf products. Jack Curry
and
Andy Harris are additional consultants assisting with player relations. 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.
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, regulatory approval 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 the Quarterly Reports on Form 10-QSB.
|
ITEM
2.
|
DESCRIPTION
OF PROPERTY
|
We
occupy
space leased from Brookfield Properties in Toronto. The Company entered into
a
one-year lease in April 2005. The lease calls for monthly payments of $2,180
for
finished offices measuring a total of 821 square feet. There is an additional
office located in Irvine, California of approximately 900 square feet. The
premises are leased for a three-year period ending August 31, 2007, at a monthly
rate of $1,343.
|
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
|
None.
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 have
not
been adjusted to reflect the October 2002 stock dividend, and are inter-dealer
quotations as reported by the NQB, LLC, and do not necessarily reflect
transactions, retail markups, mark downs or commissions.
| |
High
|
Low
|
|
Fiscal
Year Ended June 30, 2004
|
|
|
|
First
Quarter
|
$0.31
|
$0.04
|
|
Second
Quarter
|
$0.16
|
$0.09
|
|
Third
Quarter
|
$0.26
|
$0.12
|
|
Fourth
Quarter
|
$0.16
|
$0.08
|
|
Fiscal
Year Ended June 30, 2005
|
|
|
|
First
Quarter
|
$0.11
|
$0.07
|
|
Second
Quarter
|
$0.10
|
$0.08
|
|
Third
Quarter
|
$0.09
|
$0.06
|
|
Fourth
Quarter
|
$0.06
|
$0.06
|
| |
|
|
|
Interim
Quarter Ended September 30, 2005
|
$0.14
|
$0.05
|
Holders
The
number of record holders of our common stock as of September 30, 2005 was
approximately 1,850. 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.
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.
All
holders of shares and options issued or exchanged under the Element 21
Acquisition waived any right to the spun-off shares of AssureTec Holdings,
Inc.
Recent
Sales of Unregistered Securities
On
August
31, 2004, the Company issued an aggregate of 4,000,000 shares of common stock
to
two consultants in consideration for services rendered.
On
April
22, 2005, the Company issued 100,000 shares of common stock to a consultant
in
consideration for services rendered.
On
May 4,
2005, the Company issued an aggregate of 530,000 shares of common stock to
six
consultants in consideration for services rendered.
On
June
8, 2005, the Company issued 203,929 shares of common stock to a consultant
in
consideration for services rendered.
Subsequent
to the fiscal year ended June 30, 2005, the Company issued a total of 11,287,265
shares of common stock to 24 consultants for services rendered.
Each
of
the above
issuances was made pursuant to Section 4(2) of the Securities Act of 1933 and
pursuant to Regulation D promulgated thereunder.
Securities
Authorized for Issuance Under Equity Compensation Plans
[PLEASE
COMPLETE TABLE FOR 6/30/05]
|
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
|
|
N/a
|
0
|
|
Equity
compensation plans not approved by security holders
|
52,800
|
N/a
|
1,197,200
|
|
Total
|
52,800
|
|
1,197,200
|
|
*
At June 30, 2005
|
|
|
|
|
ITEM
6.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
|
Overview
Fiscal
2005 has been a transitional year for the Company - from development stage
status to purchases of actual products and subsequent sales. The Company has
established a sales structure with internal and field sales representatives,
who
manage current sales. 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 scandium shafted driver and
similar metal headed woods built with our Element 21 shaft technology, through
the production and airing of a program of infomercials to the general public,
retail sales and manufacturing of components to the OEMs.
The
use
of infomercials
has been
successful
for
a number
of new golf technology product roll-outs such as Taylor Made’s Burner Bubble
fairway woods, Pure Spin Diamond Face Scoring Wedge, and Adams Golf Tight Lies
clubs. In the event the Company’s planned infomercial is launched and subject to
the Company’s raising sufficient funds, of which there can be no assurance, the
Company expects to commence a program to engage an experienced infomercial
managing agent to oversee the production, media purchase and follow-up
fulfillment services for packaging, shipment and account collection of our
golf
product activities. Golf industry infomercial experience suggests that this
infomercial approach generates initial cash flows almost immediately and
generates a slow but steady retail revenue component independent of the
continuing infomercial media response. The Company expects to continue to invest
in this infomercial approach for at least one year after
its
initial product introduction followed by an increasing emphasis and support
of
the retail product introduction. There can be no assurance that this product
introduction strategy will be successful. At the present time, the Company
does
not have sufficient cash or binding cash commitments to implement its business
plan; however, management believes that it will be able to raise additional
funding to pursue the Company’s business plan. There is no assurance that the
Company will be able to raise these funds.
Fiscal
2005 Compared to Fiscal 2004
During
fiscal year 2005, we had $65,635 in revenues as compared to no revenues during
fiscal year 2004. During the last fiscal year, our costs of sales were $39,380.
During fiscal year 2005, our general and administrative costs were $1,379,186.
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, employee
compensation of $500,000 which is unpaid, and consulting fees valued at
$288,000, which was satisfied through the issuance of our common stock. During
fiscal 2004, general and administrative expenses aggregated $2,226,294 and
consisted primarily of consulting fees which were paid through the issuance
of
our common stock. Net loss for fiscal 2005 was $1,352,931 ($0.02 per share)
as
compared to a net loss of $2,229,011 ($0.04 per share) for fiscal 2004. The
decrease in net loss is largely attributable to a decrease in consulting costs
net of an increase in marketing expenses.
Liquidity
and Capital Resources
From
our
inception through October 2002 our primary source of funds has been the proceeds
from private offerings of our common stock and advances from affiliates of
Dr.
Reeves, 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 September 2, 2005, there is
substantial doubt about our Company’s ability to continue as a going
concern.
During
fiscal 2005, we utilized $414,754 for our operations compared to $537,556 used
for fiscal 2004. During fiscal 2005, the Company purchased inventory and
accounts payable increased by $319,701. As of June 30, 2005, we had accrued
and
unpaid compensation to our officers of $500,000. To fund our operation, our
officers have advanced funds and paid expenses on our behalf. For fiscal 2005,
funds generated from sources aggregated $426,567 compared to $540,261 generated
in fiscal 2004.
New
Accounting Pronouncements
In
November 2004, the FASB issued Statement No. 151, “Inventory Costs.” This
statement amends the guidance in ARB 43 (Chapter 4 - Inventory Pricing) to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material (spoilage). SFAS No. 151 requires that such
items be recognized as current period charges. SFAS 151 is effective for fiscal
years beginning after June 15, 2005 and is not expected to have a material
impact on the Company’s financial statements and results of
operations.
In
December 2004, the FASB issued SFAS No. 153 “Exchange of Non-monetary Assets -
an amendment of APB Opinion No. 29.” Statement 153 eliminates the exception to
fair value for exchanges of similar productive assets and replaces it with
a
general exception for exchange transactions that do not have commercial
substance, defined as transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. This statement
is
effective for exchanges of non-monetary assets occurring after June 15, 2005.
The application of this statement is not expected to have an impact on the
Company’s financial statements considering the Company’s intermittent
participation in exchanges of non-monetary assets.
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.
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 1(k) above for information related to the pro forma effects on our
reported net income and net income per share of applying the fair value
recognition provisions of the previous SFAS 123 to stock-based employee
compensation.
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, 2005 and 2004.
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
$12,716,481 as of June 30, 2005, of which $3,261,401 represents development
stage losses and $8,102,149 represents accumulated losses. For the year ended
June 30, 2005, our net loss was $1,352,931. We have historically experienced
cash flow difficulties primarily because our expenses have exceeded our
revenues. We expect to incur additional operating losses for the immediate
near
future. These factors, among others, raise significant doubt about our ability
to continue as a going concern. If we are unable to generate sufficient revenue
from our operations to pay expenses or we are unable to obtain additional
financing on commercially reasonable terms, our business, financial condition
and results of operations will be materially and adversely
affected.
We
will need additional financing in order to continue our operations which we
may
not be able to raise.
We
will
require additional capital to finance our future operations. We
can
provide no assurance that we will obtain additional financing sufficient to
meet
our future needs on commercially reasonable terms or otherwise. If
we
are unable to obtain the necessary financing, our business, operating results
and financial condition will be materially and adversely affected.
We
have no employees and our success is dependent on our ability to retain and
attract consultants to operate our business and there is no assurance that
we
can do so.
As
of
June 30, 2005, we have no employees. Nataliya Hearn, PhD, who
is our
CEO and President, and is based in Toronto, Canada, oversees the Company’s
engineering, alloy supply and production. Jim Morin, who is
also our
Vice-President, Secretary and Treasurer, and Frank Gojny, both of whom are
based
in California, oversee the development, testing and United States Golf
Association compliance for golf products.
The
Duran
Group was added in December 2004 to consult on the sales and marketing of the
Company. Our future success will depend in large part upon our
ability to attract and retain highly skilled technical, managerial, sales and
marketing personnel and consultants. There is significant competition
for such personnel in our industry. There can be no assurance
that we
will continue to be successful in attracting and retaining the consultants
and/or personnel we require to develop new and enhanced technologies and to
grow
and operate profitably.
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
Scandium alloy golf shafts that are only now entering the initial marketing
phase. On May 10, 2005 the Company announced the receipt of a significant
purchase order from GolfWorks, a distributor and retailer of golf equipment
and
during the last quarter the Company generated revenues of $65,635. 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.
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.
|
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, 2005. 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.
|
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, 2004, 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.
|
|
38
|
|
President,
CEO and Director
|
|
October
4, 2002
|
|
Jim
Morin
|
|
56
|
|
Secretary,
Treasurer, CFO and Director
|
|
October
4, 2002
|
|
Gerald
Enloe
|
|
57
|
|
Director
|
|
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., and Director of R&D at Materials Service Life LLC. 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.
|
Jim
Morin
of
Mission Viejo, California, serves as Executive Vice President of Product
Development, Treasurer and Secretary of our Company. He has been associated
with
the golf industry for the past 21 years. Mr. Morin is an owner of, and since
1989 has been an officer of, Hyper Industries, a golf development and marketing
company. In his capacity with Hyper Industries, Mr. Morin has worked with Tommy
Armour, Cleveland, Echelon, Calloway, Cobra, McHenry Metals Golf, Taylor Made,
Lynx and other golf companies. Mr. Morin has extensive experience in high
performance golf alloys, design, testing and production of clubs and shafts
that
will be of particular value to us in our planned operations.
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:
|
Name
|
|
Description
of Form or Schedule
|
|
Required
Filing Date
|
|
Filing
Date
|
|
Number
of Reportable Transactions
|
| |
|
|
|
|
|
|
|
|
|
Nataliya
Hearn, Ph.D.
|
|
4
|
|
08/14/04
|
|
*
|
|
1
|
| |
|
|
|
|
|
|
|
|
|
Gerald
Enloe
|
|
4
|
|
08/14/04
|
|
*
|
|
1
|
| |
|
|
|
|
|
|
|
|
|
Jim
Morin
|
|
4
|
|
08/14/04
|
|
*
|
|
1
|
|
*
|
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.
|
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”).
|
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)
|
06/30/05
06/30/04
06/30/03
|
0
0
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 and Jim Morin
serves
as Treasurer and Secretary without compensation. Both Ms. Hearn and
Mr.
Morin began serving as an executive officer of the Company on October
4,
2002.
|
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
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 employment 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
|
Security
Ownership of Certain Beneficial Owners
The
following table sets forth the beneficial owners of more than 5% of the
Company’s outstanding voting common stock as of October 5, 2005:
|
At
October 5, 2005
|
|
Name
and Address of Beneficial Owner
|
Number
of Shares Beneficially Owned (1)
|
Percent
of Common Stock Outstanding
|
|
Officers
& Directors
|
|
|
|
Gerald
Enloe, Director and Chairman
PO
Box 14391
Humble
TX 77347
|
2,950,460
|
3.4%
|
|
Nataliya
Hearn, Ph.D., President, CEO and Director
3173
Sandwich Street, 37
Windsor,
Ontario H3A P7S
Canada
|
4,900,000
|
5.6%
|
|
Jim
Morin, Vice President, Secretary/Treasurer and Director
27672
Pasatiempo Drive
Mission
Viejo, CA 92692
|
-0-
|
0%
|
|
All
Officers, Directors as a Group (3 Persons)
|
7,850,460(1)
|
9.0%
|
|
Beneficial
owners of 5% or more of common stock
|
0
|
0
|
|
Total
owned by Directors, Executive Officers and 5% or greater
shareholders:
|
7,850,460
|
9.0%
|
|
(1)
|
Except
as indicated in the footnotes below, each person has sole voting
and
dispositive power over the shares indicated. Percentages are based
upon
90,924,046
shares
issued and outstanding and no options are exercisable for the above
named
persons, as of the date hereof.
|
Changes
in Control
As
described in Part 1, Item 1(a) above, effective October 4, 2002, the Company
issued 42,472,420 shares of restricted common stock and options to acquire
6,432,000 shares of the Company’s common stock for 100% of the outstanding
common stock of Element 21 Technologies, Inc.
Prior
to
the Closing of the Acquisition, excluding shares underlying options, none of
which were exercisable, Dr. R. Bruce Reeves, our then President and CEO,
including the shares owned by Sandra J. Reeves, his wife, beneficially owned
2,688,312 shares or 49.5% of our outstanding voting securities. Immediately
following the Acquisition, and also excluding shares underlying outstanding
options, none of which are deemed to be owned by our “affiliates,” Dr. Reeves
controlled 9.4% of our outstanding voting securities at October 4, 2002.
Currently, he currently owns less than 5% of our outstanding voting securities.
Dr. Reeves was the founding director of Element 21, and was instrumental in
its
acquisition of the Element 21 golf technology. For these services, he was issued
2,100,000 shares of restricted common stock of Element 21, and was granted
options to acquire an additional 900,000 shares of common stock for aggregate
consideration of $900, payable in cash or services.
Also
prior to our closing of the Acquisition, Richard F. Schubert, our Chairman,
Richard Whitney, one of our directors, R. Bruce Reeves, our President and Kevin
T. McGuire, our Secretary/Treasurer, respectively owned 144,422 shares, or
approximately 2.6%; 131,564 shares or approximately 2.4%; 2,688,312 shares
or
approximately 49.5%; and 122,886 shares or approximately 2.3% of the Company’s
issued and outstanding common stock.
Management
and directors of our Company immediately following the Acquisition resigned
effective October 4, 2002, and designated the members of management and
directors and executive officers of Element 21 as directors and executive
officers of our Company who now hold all three seats on our Board of Directors
and currently comprise all of our officers.
Following
the Acquisition, Dr. Nataliya Hearn, our new President and a director, owned
4,950,000 shares or 10.2% of our outstanding voting securities; and Gerald
Enloe, a director and our Chairman, owned 2,950,460 shares or 6.15% of our
outstanding voting securities. Jim Morin, our third director and
Secretary/Treasurer, does not own any of our securities. These securities were
acquired in exchange for securities of Element 21 under the Acquisition. The
control of the present members of our management is based upon stock ownership
and their present respective positions with us, as directors and executive
officers. No loans of any kind were a part of the consideration for the
Acquisition, or any of the securities previously issued to the stockholders
of
Element 21 that were exchanged under the Acquisition.
|
ITEM
12.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
|
Transactions
with Management and Others
AssureTec
Systems is a Delaware company that was originally a wholly owned subsidiary
of
the Company and is now a wholly owned subsidiary of AssureTec. Dr. Reeves
currently serves as President and sole director of AssureTec. Dr. Reeves also
serves at Chairman and CEO of AssureTec Systems and currently beneficially
owns
approximately 42.4% of AssureTec. Dr. Reeves is under a three-year employment
contract with Systems providing a salary of $162,000 for the year ending June
2004 which is currently being accrued until substantial profitability or
capitalization occurs.
Kevin
T.
McGuire currently serves as Treasurer and Secretary of AssureTec and Systems.
He
serves without compensation. Through a family owned business Mr. McGuire serves
the company is the area of regulatory advisor for accounting, tax and regulatory
services.
Except
as
disclosed above in the section “Changes of Control,” and as described above in
this section, there were no material transactions, or series of similar
transactions, during our last two fiscal years, or any currently proposed
transactions, or series of similar transactions, to which we 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 executive officer, any security holder who
is
known to us to own of record or beneficially more than 5% of any class of our
common stock, or any member of the immediate family of any of the foregoing
persons, or any promoter had a material interest, except as
follows:
|
Exhibit
No.
|
|
Exhibit
Description
|
| |
|
|
|
31
|
|
Rule
13a-14(a)/15a-14(a) Certifications of Chief Executive Officer and
Chief
Financial Officer. Filed herewith.
|
|
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. Filed
herewith.
|
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
|
Audit
Fees
Lazar
Levine and Felix LLP is the
Company’s independent auditors. Audit and review fees for the years ended June
30, 2005 and 2004 aggregated $51,000 and $25,000, respectively. LLF was hired
effective October 27, 2004.
Audit-Related
Fees
For
the
year ended June 30, 2005, the Company was billed $1,700 for fees related
to a
registration statement. No similar costs were incurred for the fiscal 2004
year.
Tax
Fees
For
the
years ended June 30, 2005 and 2004, 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, 2005 and 2004, 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.
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 11, 2005 |
By: |
/s/ Nataliya
Hearn |
| |
Nataliya
Hearn, Ph.D. |
| |
President
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
11, 2005 |
By: /s/Nataliya
Hearn |
|
| |
Nataliya Hearn, Ph.D. |
|
| |
President and Director |
|
| |
|
|
| Date: October
11, 2005 |
By: /s/
Gerald Enloe |
|
| |
Gerald Enloe |
|
| |
Director |
|
| |
|
|
| Date: October
11, 2005 |
By /s/
Jim Morin |
|
| |
Jim Morin |
|
| |
Secretary/Treasurer, |
|
| |
CFO and Director |
|
ELEMENT
21 GOLF COMPANY AND SUBSIDIARIES
INDEX
| |
Page
|
| |
|
|
Report
of Registered Public Accounting firm
|
F-2
|
| |
|
|
Consolidated
Balance Sheets as of June 30, 2005
|
F-3
|
| |
|
|
Consolidated
Statements of Operations For The Years Ended June 30, 2005 and
2004
|
F-4
|
| |
|
|
Consolidated
Statements of Shareholders’ Deficit For The Years Ended June 30, 2005 and
2004
|
F-5
|
| |
|
|
Consolidated
Statements of Cash Flows For The Years Ended June 30, 2005 and
2004
|
F-6
|
| |
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
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, 2005 and the consolidated
statements of operations, shareholders’ deficit and cash flows for the two years
in the period ended June 30, 2005. 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, 2005 and 2004 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
September
2, 2005
ELEMENT
21 GOLF COMPANY
CONSOLIDATED
BALANCE SHEET
JUNE
30, 2005
| |
|
|
|
|
|
|
-
ASSETS -
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash
|
|
|
|
|
$
|
1,148
|
|
|
Accounts
receivable - net of allowance for doubtful accounts of $0
|
|
|
|
|
|
36,451
|
|
|
Inventories
|
|
|
|
|
|
170,928
|
|
|
Prepaid
expenses and other current assets
|
|
|
|
|
|
6,380
|
|
|
TOTAL
CURRENT ASSETS
|
|
|
|
|
|
214,907
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
FIXED
ASSETS - NET
|
|
|
|
|
|
12,712
|
|
| |
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
|
|
$
|
227,619
|
|
| |
|
|
|
|
|
|
|
| |
|
-
LIABILITIES AND SHAREHOLDERS’ DEFICIT -
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
$
|
416,446
|
|
|
Accrued
expenses
|
|
|
|
|
|
543,000
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
|
|
|
959,446
|
|
| |
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable - related parties
|
|
$
|
483,764
|
|
|
|
|
|
Loans
and advances - officers/shareholders
|
|
|
484,251
|
|
|
968,015
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
SHAREHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
Preferred
stock, $.10 par value, authorized 5,000,000 shares, no shares issued
and
outstanding
|
|
|
-
|
|
|
-
|
|
|
Common
stock, $.01 par value; 100,000,000 shares authorized 87,487,241
shares
issued and outstanding
|
|
|
874,872
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
10,141,767
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(12,716,481
|
)
|
|
(1,699,842
|
)
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
$
|
227,619
|
|
See
notes to consolidated financial
statements.
ELEMENT
21 GOLF COMPANY
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED JUNE 30, 2005 AND 2004
| |
|
Year
Ended June 30,.
|
|
| |
|
2005
|
|
2004
|
|
| |
|
|
|
|
|
|
REVENUES
|
|
$
|
65,635
|
|
$
|
-
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
Costs
of sales
|
|
|
39,380
|
|
|
-
|
|
|
General
and administrative
|
|
|
1,379,186
|
|
|
2,226,294
|
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
1,418,566
|
|
|
2,226,294
|
|
| |
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(1,352,931
|
)
|
|
(2,226,294
|
)
|
| |
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
-
|
|
|
(2,717
|
)
|
| |
|
|
|
|
|
|
|
|
LOSS
BEFORE PROVISION FOR INCOME TAXES
|
|
|
(1,352,931
|
)
|
|
(2,229,011
|
)
|
| |
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(1,352,931
|
)
|
$
|
(2,229,011
|
)
|
| |
|
|
|
|
|
|
|
|
Basic
and diluted weighted average shares
|
|
|
86,089,275
|
|
|
62,531,532
|
|
| |
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
See
notes to consolidated financial
statements.
ELEMENT
21 GOLF COMPANY
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR
THE YEARS ENDED JUNE 30, 2005 AND 2004
| |
|
Shares
|
|
Common
Stock
|
|
Additional
Paid-In Capital
|
|
Deficit
Accumulated During the Development Stage
|
|
Accumulated
Deficit
|
|
Total
Shareholders’ Equity (Deficit)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2003
|
|
|
49,906,220
|
|
$
|
499,062
|
|
$
|
7,826,135
|
|
$
|
(1,032,390
|
)
|
$
|
(8,102,149
|
)
|
$
|
(809,342
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued in lieu of compensation
|
|
|
2,000,000
|
|
|
20,000
|
|
|
38,808
|
|
|
-
|
|
|
-
|
|
|
58,808
|
|
|
Issuance
of common stock in settlement of liabilities
|
|
|
102,165
|
|
|
1,022
|
|
|
19,412
|
|
|
-
|
|
|
-
|
|
|
20,434
|
|
|
Issuance
of common stock for services
|
|
|
30,644,927
|
|
|
306,449
|
|
|
1,987,513
|
|
|
-
|
|
|
-
|
|
|
2,293,962
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,229,011
|
)
|
|
-
|
|
|
(2,229,011
|
)
|
|
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
|
|
|
-
|
|
|
-
|
|
|
318,238
|
|
|
Reclass
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
|
)
|
See
notes
to consolidated financial statements.
ELEMENT
21 GOLF COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED JUNE 30, 2005 AND 2004
| |
|
2005
|
|
2004
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,352,931
|
)
|
$
|
(2,229,011
|
)
|
|
Adjustments
to reconcile net loss to net cash (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Loss
on investment
|
|
|
-
|
|
|
2,717
|
|
|
Compensatory
stock
|
|
|
318,238
|
|
|
2,373,204
|
|
|
Depreciation
|
|
|
747
|
|
|
-
|
|
|
Changes
in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(36,451
|
)
|
|
-
|
|
|
Inventories
|
|
|
(170,928
|
)
|
|
-
|
|
|
Prepaid
expenses and other current assets
|
|
|
(4,193
|
)
|
|
(2,187
|
)
|
|
Accounts
payable
|
|
|
319,701
|
|
|
(155,445
|
)
|
|
Accrued
expenses
|
|
|
511,063
|
|
|
(526,834
|
)
|
|
Net
cash (used in) operating activities
|
|
|
(414,754
|
)
|
|
(537,556
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of capital assets
|
|
|
(13,459
|
)
|
|
-
|
|
|
Net
cash (used in) investing activities
|
|
|
(13,459
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Advances
from related parties
|
|
|
(29,866
|
)
|
|
513,630
|
|
|
Loans
proceeds from shareholders
|
|
|
456,433
|
|
|
26,631
|
|
|
Net
cash provided from financing activities
|
|
|
426,567
|
|
|
540,261
|
|
| |
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH
|
|
|
(1,646
|
)
|
|
2,705
|
|
| |
|
|
|
|
|
|
|
|
CASH,
BEGINNING OF YEAR
|
|
|
2,794
|
|
|
89
|
|
| |
|
|
|
|
|
|
|
|
CASH,
END OF YEAR
|
|
$
|
1,148
|
|
$
|
2,794
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
$
|
-
|
|
|
Taxes
paid
|
|
|
-
|
|
|
-
|
|
See
notes to consolidated financial
statements.
ELEMENT
21 GOLF COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED JUNE 30, 2005 AND 2004
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 scandium 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
the current fiscal year, 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.
ELEMENT
21 GOLF COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED JUNE 30, 2005 AND 2004
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 the current fiscal year, the Company commenced sales
of its products and has begun generating revenue. However, as of June 30, 2005,
the Company continues to have negative working capital of $744,539, an
accumulated deficit of $12,716,481 ($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 $1,699,842 and for the year ended June 30, 2005
incurred a net loss of $1,352,931, 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.
ELEMENT
21 GOLF COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED JUNE 30, 2005 AND 2004
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
years
|
|
Computer
equipment
|
3
years
|
|
Office
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.
ELEMENT
21 GOLF COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED JUNE 30, 2005 AND 2004
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,
|
|
| |
|
2005
|
|
2004
|
|
|
Net
loss, as reported
|
|
$
|
(1,352,931
|
)
|
$
|
(2,229,011
|
)
|
|
Add
back: stock-based compensation costs included in the determination
of net
loss, as reported
|
|
|
-
|
|
|
58,808
|
|
|
Less:
Stock-based compensation had all options been recorded at fair at
fair
value
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Adjusted
net loss
|
|
$
|
(1,352,931
|
)
|
$
|
(2,170,203
|
)
|
| |
|
|
|
|
|
|
|
|
Weighted
average shares outstanding, basic and diluted
|
|
|
86,089,275
|
|
|
62,531,532
|
|
| |
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted, as reported
|
|
$
|
(0.04
|
)
|
$
|
(0.04
|
)
|
| |
|
|
|
|
|
|
|
|
Adjusted
net loss per share, basic and diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.04
|
)
|
Basic
and
diluted losses per share of common stock are the same for 2005 and 2004 since
there are no potentially dilutive stock options at June 30, 2005 or June 30,
2004.
(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
November 2004, the FASB issued Statement No. 151, “Inventory Costs.” This
statement amends the guidance in ARB 43 (Chapter 4 - Inventory Pricing) to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material (spoilage). SFAS No. 151 requires that such
items be recognized as current period charges. SFAS 151 is effective for fiscal
years beginning after June 15, 2005 and is not expected to have a material
impact on the Company’s financial statements and results of
operations.
In
December 2004, the FASB issued SFAS No. 153 “Exchange of Non-monetary Assets -
an amendment of APB Opinion No. 29.” Statement 153 eliminates the exception to
fair value for exchanges of similar productive assets and replaces it with
a
general exception for exchange transactions that do not have commercial
substance, defined as transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. This statement
is
effective for
ELEMENT
21 GOLF COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED JUNE 30, 2005 AND 2004
NOTE
1 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(m) New
Accounting Pronouncements Affecting the Company
(Continued):
exchanges
of non-monetary assets occurring after June 15, 2005. The application of this
statement is not expected to have an impact on the Company’s financial
statements considering the Company’s intermittent participation in exchanges of
non-monetary assets.
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.
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.
ELEMENT
21 GOLF COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED JUNE 30, 2005 AND 2004
NOTE
2 - FIXED
ASSETS:
Fixed
assets consists of the following:
| |
|
|
|
|
|
Furniture
and fixtures
|
|
$
|
3,530
|
|
|
Computer
equipment
|
|
|
929
|
|
|
Office
equipment
|
|
|
9,000
|
|
| |
|
|
13,459
|
|
|
Less:
accumulated depreciation
|
|
|
747
|
|
| |
|
$
|
12,712
|
|
Depreciation
expense for the fiscal 2005 year aggregated $747.
NOTE
3 - RELATED
PARTY TRANSACTIONS:
(a) Accounts
Payable - Non-Current:
Since
April of 1996, the Company has 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 charged $135,000 in administrative management oversight plus $9,449
in
billable expenses to the Company and its subsidiaries. During the fiscal year
ended June 30, 2004, Robertson and/or Advisors charged $75,000 in administrative
management oversight plus $3,044 in billable expenses to the Company and its
subsidiaries. At June 30, 2005, $117,468 was owed to Robertson, $178,807 was
owed to Advisors, $35,376 was owed to Dr. Reeves and the balance of $152,113
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 $484,251. 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 $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.
ELEMENT
21 GOLF COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED JUNE 30, 2005 AND 2004
NOTE
4 - SHAREHOLDERS’
EQUITY/STOCK OPTION PLANS:
During
fiscal 2005, the Company issued 4,833,929 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
$318,238.
During
fiscal 2004, the Company issued 32,747,092 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
$2,373,204.
As
of
June 30, 2005 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:
|
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
|
|
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
|
|
|
$0.17
|
|
|
40,000
|
|
| |
|
|
52,800
|
|
ELEMENT
21 GOLF COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED JUNE 30, 2005 AND 2004
NOTE
4 - 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:
| |
|
2005
|
|
2004
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
|
$
|
1,429,990
|
|
$
|
888,990
|
|
| |
|
|
|
|
|
|
|
|
Less
valuation allowance
|
|
|
(1,429,990
|
)
|
|
(888,990
|
)
|
|
|
|
$ |
- |
|
$
|
-
|
|
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
5 - COMMITMENTS:
In
April
2005, the Company entered into a one-year lease for office space in Toronto,
Canada, for a monthly payment of $2,180. The Company is also obligated under
a
three-year lease for space in Irvine, California. This lease, which requires
monthly payments of $1,343, expires on August 31, 2007. Rent expense for the
years ended June 30, 2005 and 2004 aggregated $22,906 and $0,
respectively.