NOTE 12 CONTINGENCIES

Legal Matters

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

On April 10 2012, a claim was commenced by Paritet Holding Ltd. and Contour Finance Limited (“Plaintiffs”) against Nataliya Hearn, the CEO of the Company, and two wholly subsidiaries of the Company, Element 21 Golf Canada Inc. and Element 21 Sports Inc. (“AREM Defendants”) and against ZT Holding Limited, DIY Group Ltd. Dmitriy Sindalovsky and Ilya Oprenko (“Other Defendants”). The claim is brought in the Ontario Superior Court of Justice Court File No CV-12-450806, Province of Ontario, Canada. The Plaintiffs allege that two of the Other Defendants, Sindalovsky and Oprenko, induced them through misrepresentations to invest approximately $4 million in an aerogel clothing insulation business known as "Zeroloft". They further alleged that money that was supposed to go to increasing Zeroloft's production capacity in South Korea but the funds were misappropriated and sent to other corporations controlled by Sindalovsky or to one of the AREM Defendants (see Note 5). There are no allegations of misrepresentation against the AREM Defendants. While monetary relief is claimed against the Other Defendants, the Plaintiffs are seeking from the AREM Defendants the following:

An accounting of the AREM Defendant’s assets, effects and property and all of the dealings and transaction between AREM Defendants and Other Defendants;

An interlocutory and permanent injunction restraining the AREM Defendants from disposing of any of their assets;

A declaration that the Plaintiffs are entitled to trace any monies obtained from the Plaintiffs in, to and through any financial institution, accounts or deposit facilities in the name of the AREM Defendants and in, to or through any assets purchased by the AREM Defendants with the Plaintiffs money and to recover the same; and

A declaration that to the extent that the AREM Defendants hold any funds, or assets purchased from funds, which have been misappropriated from the Plaintiffs, they do so as constructive trustees.

The Plaintiffs also seek a declaration that they maintain proprietary interests in the any proceeds of funds fraudulently obtained from them by any of the defendants or the proceeds derived from such funds, including any assets purchased with the proceeds. The action is in its very preliminary stages and, as a result, we are unable to estimate a potential loss or range of loss, if any, at this time.

In December 2011, McGuire Tax & Finance Inc. (“McGuire”), filed suit against the Company in the Superior Court of the State of New Hampshire Hillsborough County Southern District. The Plaintiff is seeking cash of $150,961 inclusive of fees and services charges based upon alleged breach of contract. The action is in its very preliminary stages. As a result, we are unable to estimate a potential loss or range of loss, if any, at this time.

In December 2011, Ellenoff Grossman & Schole LLP, former attorney of the Company, (“Ellenoff”) filed suit against the Company in the Supreme Court of the State of New York, County of New York. Ellenoff is seeking cash of $94,419, plus cost and interest based upon alleged breach of contract. While the Company believes that is has meritorious defenses, the ultimate resolution of the matter could result in a loss of up to $17,000 in excess of the amount accrued in the condensed consolidated financial statements.

In March 2011, John Grippo, the former CFO of the Company, and John Grippo Inc. (“Grippo”) filed suit against the Company in the Superior Court in the County of Westchester, New York. Grippo is seeking in excess of $75,000 in damages and prejudgment interest related to allegations involving breach of contract. The Company believes the claim is without merit and is vigorously defending the lawsuit and has filed a counterclaim in excess of $375,000 plus costs. On March 13, 2011, Grippo obtained a temporary restraining order over our bank accounts held at JP Morgan Chase and Bank of America. As such, included in cash and cash equivalents is restricted cash of $81,050 and $79,842 at March 31, 2012 and June 30, 2011, respectively.

In June 2011, Rick Smith Enterprises, Inc. (“Smith”) filed a complaint against the Company in the Circuit Court of the Ninth Judicial Circuit of the State of Florida in and for Orange County Civil Division. Smith is seeking cash of $175,000 and shares of common stock of the Company valued at $175,000 plus costs and interest for allegations involving breach of contract. Smith is also seeking additional cash of $100,000 and shares of common stock of the Company valued at $100,000 for alleged continuing and anticipatory breach of contract. The action is in its very preliminary stages. As a result, we are unable to estimate a potential loss or range of loss, if any, at this time.