UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
———————
FORM
10-K
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| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended: June 30, 2009 | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the
transition period from: _____________ to _____________
| Ghost Technology, Inc. | ||
| (Exact name of registrant as specified in its charter |
|
Delaware
|
000-31705
|
91-2007477
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(State
or Other Jurisdiction
of
Incorporation
or Organization)
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(Commission
File
Number)
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(I.R.S.
Employer
I
dentification
No.)
|
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20801
Biscayne Blvd., Suite 403
Aventura,
Florida 33180
|
||
| (Address of Principal Executive Office) (Zip Code) | ||
| ( 786) 923-5954 | ||
| (Registrant’s telephone number, including area code) | ||
| N/A | ||
| (Former name or former address, if changed since last report) |
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Securities
registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| None | None |
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock
(Title
of Class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
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| o |
Yes
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þ
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No
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Indicate
by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act.
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| o |
Yes
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þ
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No
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Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was
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required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
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| o | Yes | þ | No | |||||
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Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this
chapter)
is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or
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information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this
Form
10-K.
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o | |||||||
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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
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Large
accelerated filer
|
o |
Accelerated
filer
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o | |||||
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Non-accelerated
filer
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o |
Smaller
reporting company
|
þ
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
|
o |
Yes
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þ
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No
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State
the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant’s most recently
completed second fiscal quarter. Market value of approximately
$207,240,046 based on December 31, 2008 closing price of $1.20 per
share.
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Indicate
the number of shares outstanding of each of the registrant’s classes of
common stock, as of the latest practicable date. 175,396,122
shares outstanding as of February 11, 2010.
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APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
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PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
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Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan
confirmed by
a
court.
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o |
Yes
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o |
No
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DOCUMENTS
INCORPORATED BY REFERENCE
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| PART I | ||
| Item 1. | Business. | 1 |
| Item 1A. | Risk Factors. | 3 |
| Item 1B. | Unresolved Staff Comments. | 3 |
| Item 2. | Properties. | 3 |
| Item 3. | Legal Proceedings. | 3 |
| Item 4. | Submission of Matters to a Vote of Security Holders. | |
| PART II | ||
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | 4 |
| Item 6. | Selected Financial Data. | 5 |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 5 |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. | 15 |
| Item 8. | Financial Statements. | 15 |
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. | 15 |
| Item 9A(T). | Controls and Procedures. | 16 |
| Item 9B. | Other Information. | 19 |
| PART III | ||
| Item 10. | Directors, Executive Officers and Corporate Governance. | 20 |
| Item 11. | Executive Compensation. | 23 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | 23 |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence. | 25 |
| Item 14. | Principal Accounting Fees and Services. | 26 |
| PART IV | ||
| Item 15. | Exhibits. | 27 |
| SIGNATURES | ||
History
Ghost
Technology, Inc. (“Ghost” or the “Company”) was organized on November 12, 1999
as a Nevada corporation under the name General Telephony.com, Inc.
(“GTI”). On July 17, 2002, I.A. Europe Group, Inc. (“I.A. Europe”)
was formed as a Delaware corporation. On December 2, 2002, GTI merged
with and into I.A. Europe, leaving I.A. Europe as the surviving corporation and
on April 8, 2008, the Company amended its certificate of incorporation to change
its name. From 2002, Ghost was a shell corporation with no assets,
revenues or operations until January 2008 when it acquired rights to its only
product, the Defender.
Current
Status
We have not generated any current
revenues, have minimal assets and are relying on the ability to raise the
necessary capital to exploit the license we acquired to the Defender for the
United States, Canada and Mexico.
Our management and most of our
directors are based in Italy. We have no employees. Our
Chief Executive Officer practices law in Italy and other countries in the
European Union.
Acquisition
of License to the Defender
As of January 2008, the Company
acquired an exclusive license to the Defender for the United States, Canada and
Mexico in exchange for 102,000,000 shares of common stock. The Agreement
provides a patent assignment (of the patent pending) only for the United States
but the rights for each of the three countries. The Company believes
that under Italian law, which governs the Agreement, it acquired ownership of
the intellectual property rights for the United States, Canada and
Mexico.
1
The
Defender
The
Defender is a software program that operates with and is integrated into a
television set. It enables subscribers to control the commercial
advertisements being broadcast. The Company’s plan is to provide
subscribers with a free 42-inch television set that contains software through
which the Defender operates. These televisions will contain all the
normal functions of a modern television set as well as Internet connectivity by
which the Defender technology is accessed. This technology allows the
Defender to recognize when regular advertising comes on and automatically
switches to its own advertisements. Subscribers can choose to have
the ads appear on either one-eighth or one-half of the screen and receive a set
payment for each advertisement that they view. Furthermore, the
subscribers have the ability by simply pushing a button on the remote control
that comes with the television to receive more information about a product seen
in any of the ads that they are interested in. This feature provides
instant feedback to the users about the product or service, as well as to the
advertiser about who is interested in their product. Using the
innovative logic of frame memory management, the Defender offers many other
services beyond customized advertising including surveys and questions, home
banking, as well as its own digital video recording (“DVR”)
service. The remote control that comes with the TV enables the
subscriber to not only use the television in its ordinary fashion, but also
provides an interactive experience where the subscriber can send answers to
surveys or quizzes displayed and allows the individual to return to the program
he or she has been watching whenever they want, just by pressing the
deactivation key.
The
Defender will provide advertisers with accurate information as to the number of
viewers and reach targeted audiences rather than the general
public. Through viewers acting interactively, the advertisers will
know what viewers want to see and how viewers react to advertisements they
see.
Future
Marketing
Ghost plans to commence marketing the
Defender in the four counties in Florida after it obtains the necessary
financing, which it estimates to be $85,000.
Competition
The Defender will compete directly with
broadcast television networks, cable networks and local television stations, all
of which sell advertising to advertisers. To the extent that the
Defender reduces the number of television viewers who can see advertisements, it
directly threatens the above competition. Although there are no
direct competitors to the Defender and the service that it intends to provide,
pay-per-view (“PPV”) channels or DVR companies, like Tivo, Inc. (“Tivo”), could
be seen as competitors. While the Defender is believed to be unique,
both alternatives offer viewers the ability to escape television’s plethora of
advertisements. Both PPV and Tivo in different ways allow spectators
to avoid commercials, while basic cable does not.
While PPV
channels still contain some advertisements, they offer significantly less than
basic cable channels. Most PPV channels contain programs or events
that are commercial free and advertisements are only made in between
programs. DVR companies, like Tivo, on the other hand, make a product
that allows people to record any program, giving them the option to simply fast
forward when any commercials come on. Both PPV channels and DVR
companies have been around for some time now and have an established customer
base.
Employees
We currently have no
employees. Our officers provide services on a part-time
basis.
2
Not applicable to smaller reporting
companies.
None.
United States -
Ghost
maintains its headquarters in Miami, Florida. The headquarters are in
an executive suite environment where services are provided on an as-needed
basis. Our officers spend limited time in the United States and use
these offices. Ghost is in the second year of a two-year lease which terminates
on September 1, 2010. The Company pays a monthly rental fee of
$1,350.
Italy -
Ghost has an office in
Verona, Italy which is located in the home of Gianfranco Gracchi, the Company’s
President. The Company pays Mr. Gracchi $975 per month for the space and the
lease agreement has a 90 day termination clause. As of February 11, 2009, we
owed Mr. Gracchi $31,175 for rent and other advances.
None.
None
3
Our common stock was quoted on the
Over-the-Counter Bulletin Board (the “Bulletin Board”) under the symbol GHST
from October 23, 2008 until June 11, 2009. Previously it was quoted
under the symbol IAEG. The following table provides the high and low
bid price information for our common stock for the period since October 23, 2008
as reported by the Bulletin Board. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
No information is
available for IAEG.
|
Year
|
Quarter
Ended
|
Bid
Prices
|
||||||||
|
High
|
Low
|
|||||||||
|
2009
|
June
30, 2009
|
$ | 2.85 | $ | 2.00 | |||||
|
March
31, 2009
|
$ | 2.50 | $ | 1.20 | ||||||
|
December
31, 2008
|
$ | 1.25 | $ | 1.00 | ||||||
There are
approximately 524 holders of record of our common stock. We believe
that additional beneficial owners of our common stock hold shares in street
name.
Dividend
Policy
We have
not paid cash dividends on our common stock and do not plan to pay such
dividends in the foreseeable future. Our Board of Directors will
determine our future dividend policy on the basis of many factors, including
results of operations, capital requirements, and general business
conditions.
Recent
Sales of Unregistered Securities
We have
sold shares of common stock without registration under the Securities Act of
1933 in reliance upon the exemption provided in Regulation S
thereunder
.
4
|
Name
or Class of Investor
|
Date
of Sale
|
No. of
Shares
|
Reason
for Issuance
|
|
Investors
|
July
25, 2008
|
166,933,240
shares of common stock
|
Investment
|
|
Investors
|
May
8, 2009
|
478,476
shares of common stock
|
Investment
|
|
Consultant
|
June
15, 2009
|
50,000
shares of common stock
|
Legal
services
|
|
Service
Provider
|
July
15, 2009
|
15,000
shares of common stock
|
Services
rendered
|
Not
required for smaller reporting companies.
Certain
statements in “Management’s Discussion and Analysis and Plan of Financial
Condition and Results of Operations” are forward-looking statements that involve
risks and uncertainties. Words such as may, will, should, would, anticipates,
expects, intends, plans, believes, seeks, estimates and similar expressions
identify such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management’s
analysis only as of the date hereof. We assume no obligation to update these
forward-looking statements to reflect actual results or changes in factors or
assumptions affecting forward-looking statements.
Overview
We are a
company which is seeking to exploit a license for the Defender. We
have not generated any revenue and need substantial additional financing to
market our services. At June 30, 2009, we had $6 of cash and no other
assets on our balance sheet.
5
Critical
Accounting Estimates
The
methods, estimates, and judgments that we use in applying our accounting
policies have a significant impact on the results that we report in our
financial statements. Some of our accounting policies require us to make
difficult and subjective judgments, often as a result of the need to make
estimates regarding matters that are inherently uncertain. These estimates which
are discussed below involve certain assumptions that if incorrect could create a
material adverse impact on Ghost’s results of operations and financial
condition.
Share
Based Payments
Generally,
all forms of share-based payments, including stock option grants, restricted
stock grants and stock appreciation rights, are measured at their fair value on
the awards’ grant date, and based on the estimated number of awards that are
ultimately expected to vest. Share-based payment awards issued to non-employees
for services rendered are recorded at either the fair value of the services
rendered or the fair value of the share-based payment, whichever is more readily
determinable. The expense resulting from share-based payments are recorded as a
component of general and administrative expense.
Income
Taxes
The
Company accounts for income taxes under the liability
method. Deferred income tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
The
Company uses a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates it is more likely than
not, that the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step is to measure
the tax benefit as the largest amount, which is more than 50% likely of being
realized upon ultimate settlement. The Company considers many factors when
evaluating and estimating our tax positions and tax benefits, which may require
periodic adjustments. At June 30, 2009 and 2008, respectively, the
Company did not record any liabilities for uncertain tax positions.
Results
of Operations
The
following discussion should be read in conjunction with the financial statements
and notes thereto included elsewhere in this report.
Fiscal
Year Ended June 30, 2009 Compared to the Fiscal Year Ended June 30,
2008.
6
We
have not generated any revenue. For the years ended June 30, 2009 and
2008, we sustained net losses of approximately $463,000 and $4.7 million,
respectively. Our expenses consisted primarily of general and
administrative costs. The primary general and administrative costs in
fiscal 2009 were payroll expenses of approximately $233,000 and professional
fees of $121,000 and in fiscal 2008 were stock based compensation of
approximately $1.7 million and $2.9 million in exchange for the Defender
license. With the exception of stock based compensation, the loss
from operations increased by approximately $322,000. The increase in the loss
occurred as a result of our acquiring the Defender, taking preliminary steps to
exploit the license, the change in management and our efforts to regain
compliance with our Securities and Exchange Commission reporting
obligations. Our working capital came from the sales of our common
stock to investors in Italy, and loans from our directors.
Liquidity
and Capital Resources
For the
fiscal year ended June 30, 2009, the Company used net cash of approximately
$117,000 in operating activities as compared to approximately $326,000 for the
fiscal year ended June 30, 2008. The decrease in cash used from operations
was primarily the result of an increase in general and administrative expenses
of approximately $322,000 offset by a repayment of accounts payable in fiscal
2008 of approximately $203,000 and contributed capital by a related party to pay
general and administrative expenses in fiscal 2009 of approximately
$312,000.
Cash
flows from financing activities for the fiscal year ended June 30, 2009
were approximately $112,000 as compared to approximately $322,000 for the fiscal
year ended June 30, 2008. During the fiscal year ended June 30, 2009,
we recceived net proceeds from the sale of common stock amounting to
approximately $96,000 as compared to net proceeds of approximately $105,000 from
the sale of common stock offset by repayments to former related parties of
approximately $183,000 during the fiscal year ended June 30, 2008. As of
the date of this Report, we have only a diminimus amount of available
cash.
We need
to raise approximately $ 500,000 to remain operational. We estimate we will need
$200,000 to purchase televisions and related software, $35,000 for marketing, $
65,000 for employees and $ 200,000 for general working capital. As of the date
of this Report, we owe our officers and directors $ 51,175 including
accrued interest. They could cause us to cease operations if they (or any of
them) demanded payment. We cannot assure you we will raise sufficient capital to
remain operational.
7
We are a
party to an Italian agreement where some third-party has agreed to provide one
of our officers and directors with monthly payments of €1,000,000 (approximately
$1,400,000 U.S.) beginning November 30, 2009. We have been advised by
the Company’s management that the stock must be trading for the payments to be
made. It appears that the 30,000,000 shares are to be delivered to a
securities account which requires the signature of the two parties (including
the Ghost officer and director) and that the account will be used to obtain a
credit line from an Italian bank. The Company has supplied its United States
counsel with an English translation of this Agreement, but no attempt has been
made at verifying the authenticity or translation of this
Agreement. However, because the issuance of 30,000,000 was contrary
to Delaware law, the shares were subsequently returned. An earlier version
of this agreement required our common stock to trade above $2.00 but
the Company’s management has stated that this earlier agreement has been
superseded. Our Chief Executive Officer, an Italian lawyer, has advised our
United States counsel that the Agreement is valid under Italian Law. We
cannot assure you that we will receive any funding under this
Agreement.
Related
Party Transactions –
In June 2009, the Company issued 50,000
shares of common stock valued at $0.10 per share to its Chief Executive Officer
and Chief Financial Officer for services rendered as legal counsel. Prior
to June 30, 2009, the Company issued shares of common stock for personal
services rendered to three members of the Board of Directors. We owe our
officers and directors $51,175 for loans made. The loans are not
documented and are due on demand. Another officer and director paid $311,698 and
$418,054 of our expenses in the years ended June 30, 2009 and 2008,
respectively. He also has paid $66,321 since June 30, 2009. These advances are
considered contributed capital with no expectation of repayment.
New
Accounting Pronouncements
See
Note 2 to our consolidated financial statements included in this report for
discussion of recent accounting pronouncements.
Forward-Looking
Statements
The
statements in this report relating to the Company’s future liquidity, its
business plan in providing free television sets that contain the Defender
technology and the Company’s plan of marketing the Defender in the United
States, Canada and Mexico are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. The words “believe,”
“may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,”
“could,” “target,” “potential,” “is likely,” “will,” “expect” and similar
expressions, as they relate to us, are used to identify forward-looking
statements.
The
results anticipated by any or all of these forward-looking statements might not
occur. Important factors, uncertainties and risks that may cause actual results
to differ materially from these forward-looking statements are contained in the
Risk Factors which follow. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as the result of new information,
future events or otherwise. For more information regarding some of the ongoing
risks and uncertainties of our business, see the Risk Factors which
follow.
8
Investing
in our common stock involves a high degree of risk. You should carefully
consider the following risk factors before deciding whether to invest in the
common stock Additional risks and uncertainties not presently known to us, or
that we currently deem immaterial, may also impair our business operations or
our financial condition. If any of the events discussed in the risk factors
below occur, our business, financial condition, results of operations or
prospects could be materially and adversely affected. In such case, the value
and marketability of the common stock could decline, and you might lose all or
part of your investment.
Risks
Relating to the Company
Our
ability to continue as a going concern is in doubt absent obtaining adequate new
debt or equity financing and achieving sufficient sales levels.
We have
no working capital. Because we do not have sufficient working capital
and cash flows for continued operations for at least the next 12 months, our
auditors have issued a qualified opinion. Our continued existence is dependent
upon us sustaining operating profitability or obtaining the necessary capital to
meet our expenditures. We cannot assure you that we will be able to
generate sufficient sales or raise adequate capital to meet our future working
capital needs.
Because
we have a limited operating history to evaluate our company, the likelihood of
our success must be considered in light of the problems, expenses, difficulties,
complications and delay frequently encountered by a new company.
Since we
have a limited operating history under our current business model, it is
difficult for investors to evaluate our business and prospects. You must
consider our prospects in light of the risks, expenses and difficulties we face
as an early stage company with a limited operating history. Investors should
evaluate an investment in our company in light of the uncertainties encountered
by start-up companies and the major threat the Defender poses to major
broadcasters. There can be no assurance that our efforts will be successful or
that we will be able to attain profitability.
9
Because
we expect to need additional capital to fund our growing operations, we may not
be able to obtain sufficient capital and may be forced to limit the scope of our
operations.
We
currently need substantial working capital. The slowdown in the
global economy, the freezing of the credit markets and severe decline in the
stock market may adversely affect our ability to raise capital. If
adequate additional debt and/or equity financing is not available on reasonable
terms or at all, we may not be able to remain in business, and we will have to
cease operations.
Even if
we secure the necessary working capital, we may not be able to negotiate terms
and conditions for receiving the additional capital that are acceptable to us.
Any future equity capital investments will dilute existing shareholders. In
addition, new equity or convertible debt securities issued by us to obtain
financing could have rights, preferences and privileges senior to our common
stock. We cannot give you any assurance that any additional financing will be
available to us, or if available, will be on terms favorable to us.
Because
Ghost’s business plan is unproven it may not result in the generation of any
revenue, material revenue or profitability.
Ghost is
relying upon its license to the Defender for United States, Canada and
Mexico. To date, it has not taken any material steps to determine if
its business plan is feasible in these countries. We cannot assure
you that assuming we obtain sufficient financing, we will be able to
successfully market the Defender in any of these countries, derive any material
revenue or attain profitability. Although a similar product is being
marketed in certain countries in Europe, including Italy, we have no access to
any information concerning how successful the service is
elsewhere. If we are not successful in marketing the Defender,
because we have no other proposed services or products, it is likely that you
will lose your entire investment.
Because
our business model is new, our growth strategy may not be achievable and may not
result in profitability.
We may
not be able to implement our growth strategy reflected in our business plan
rapidly enough as to achieve profitability. Our growth strategy is
dependent on a number of factors, including market acceptance of the
Defender. We cannot assure you that consumers and others will acquire
the Defender or react to the commercials being shown on their television through
the Defender.
Among
other things, implementation of our growth strategy would be adversely affected
if:
| ▪ | we may not be able to attract sufficient users for the Defender; |
| ▪ | even if we attract sufficient users, they may not be willing to use its services with sufficient frequency in order to generate meaningful acceptance to our advertisers; |
| ▪ | our costs for the televisions we will distribute to the users of the Defender may be materially more than we anticipate which will affect our future gross profit margins; and |
| ▪ | we may face significant litigation from broadcast television networks and other networks which will |
| ▪ | not only divert our management’s time and attention, but involve prohibitive legal and other defense costs. |
If we are not
able to attract enough advertisers for the Defender service, we may not generate
sufficient revenue and cease operations
.
The core
of our business is to be able to sell enough advertising to generate material
revenue for us and provide alternatives to users of the Defender. If
we are not able to sell sufficient advertising which users interact with,
advertisers may cease spending money with us and users may cease using the
Defender.
10
If
we cannot manage our growth effectively, we may not become
profitable.
Businesses
which grow rapidly often have difficulty managing their growth. If we are able
to successfully market the Defender, we will need to expand our management by
recruiting and employing experienced executives and key employees capable of
providing the necessary support.
We cannot
assure you that our management will be able to manage our growth effectively or
successfully. Our failure to meet these challenges could cause us to lose money,
and your investment could be lost.
It
may be difficult to predict our financial performance because our quarterly
operating results may fluctuate.
If we
begin to generate revenue, our revenue and operating results may vary
significantly from quarter to quarter due to a variety of factors, many of which
are beyond our control. You should not rely on period-to-period comparisons of
our results of operations as an indication of our future performance. Our
results of operations may fall below the expectations of market analysts and our
own forecasts. If this happens, the market price of our common stock
may fall significantly. The factors that may affect our quarterly operating
results include the following:
| ▪ | the rate at which we are able to distribute the Defender; |
| ▪ | the usage by subscribers of our interactive technology; |
| ▪ | the costs we incur in paying subscribers; |
| ▪ | the willingness of advertisers to pay us rates which result in adequate gross margins; |
| ▪ | increases in television and other costs; |
| ▪ | seasonal patterns in advertisers’ spending; |
| ▪ | worsening economic conditions which cause advertisers to reduce spending and consumers to reduce their purchases; |
| ▪ | changes in the regulatory environment, including regulation of advertising, that may negatively impact our marketing practices; |
| ▪ | the timing and amount of expenses associated with litigation, regulatory investigations or restructuring activities, including settlement costs and regulatory penalties assessed related to government enforcement actions; |
| ▪ | the adoption of new accounting pronouncements, or new interpretations of existing accounting pronouncements, that impact the manner in which we account for, measure or disclose our results of operations, financial position or other financial measures; and |
| ▪ | costs related to acquisitions of technologies or businesses. |
11
Expenditures
by advertisers also tend to be cyclical, reflecting overall economic conditions
as well as budgeting and buying patterns. Any decline in the economic prospects
of advertisers or the economy generally may alter advertisers’ current or
prospective spending priorities, or may increase the time it takes us to close
sales with advertisers, and could materially and adversely affect our business,
results of operations and financial condition.
If
we fail to retain our key personnel, we may not be able to achieve our
anticipated level of growth and our business could suffer.
Our
future depends, in part, on our ability to attract and retain key personnel and
the continued contributions of our executive officers, each of whom may be
difficult to replace. In particular, J.C. Nardi, Chief Executive Officer and
Gianfranco Gracchi, President, are important to the management of our business
and operations and the development of our strategic direction. Additionally, our
Vice President, Mr. Esterino Castellazzi, is President of an Italian company
which owns the rights to the Defender in at least part of the European Union.
None of these people have any agreements to continue serving us, and Mr. Nardi
has an active law practice in Italy. The loss of the services of
Messrs. Nardi, Gracchi or Castellazzi and the process to replace any key
personnel would involve significant time and expense and may significantly delay
or prevent the achievement of our business objectives.
We
may be subject to litigation for infringing the intellectual property rights of
others.
Our
success will depend, in part, on our ability to protect our intellectual
property and to operate without infringing on the intellectual property rights
of others. There can be no guarantee that any of our intellectual property will
not be challenged by third parties. We may be subject to patent infringement
claims or other intellectual property infringement claims that would be costly
to defend and could limit our ability to use certain critical
technologies.
While the
Defender is licensed to us, if it or the patent it has licensed are challenged,
the license agreement does not, as is customary, require the licensor to defend
the patent and pay the costs. If a third party claims the Defender violates
other patents or intellectual property,, then we could be asked to license,
re-engineer the Defender or revise our business model according to terms that
may be extremely expensive and/or unreasonable.
Any
patent litigation could negatively impact our business by diverting resources
and management attention from other aspects of the business and adding
uncertainty as to the ownership of technology and services that we view as
proprietary and essential to our business. In addition, a successful claim of
patent infringement against us and our failure or inability to license the
infringed or similar technology on reasonable terms, or at all, could cause us
to cease operations.
12
We
may be involved in lawsuits to protect our intellectual property rights, which
could be expensive and time consuming.
We rely
on a patent license on the Defender to protect our intellectual property rights.
In the United States we have a patent pending based upon an international
patent. If a United States patent does not issue, we may be subject
to signification competition. If a third party violates our rights,
intellectual property litigation is very expensive and can divert our limited
resources. We may not prevail in any litigation. An adverse determination of any
litigation brought by us could materially and adversely affect our future
results of operations.
Furthermore,
because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation.
In addition, during the course of this kind of litigation, there could be public
announcements of the results of hearings, motions or other interim proceedings
or developments in the litigation. If securities analysts or investors perceive
these results to be negative, it could have an adverse effect on the trading
price of our common stock.
If we are sued by
broadcast television and leading cable networks or advertisers, the cost to
defend the litigation may cause us to cease operations and an adverse decision
would force us to cease operations
.
The
Defender had the potential to jeopardize the business model of leading broadcast
and cable television networks and their advertisers. In particular,
while the advertisers could bypass the networks and advertise with us, the
networks will find that their very existence is threatened by the
Defender. Accordingly, it is very likely that one or more networks
will institute litigation against the Company claiming that our business model
threatens them in a manner which violates contractual or other rights they
have. In such event, because of their vast resources, we expect that
one of their efforts will be to crush us economically. If this were
to occur, the costs of defense could exceed any capital that we are able to
raise and cause us to cease operations. Similarly, if we were to lose
such litigation, we would be forced to cease operations.
If
the Patent Reform Act of 2007 is enacted into law, it could make challenges to
our patents easier, may increase the likelihood that we will be sued or our
patents challenged at the United States Patent and Trademark Office, subject us
to extraordinary legal expenses and risk a ruling that one or more of our
patents are invalid.
There is
currently pending in the United States Congress legislation referred to as the
Patent Reform Act of 2007. While it is uncertain whether it will be passed into
law and whether or how it will be amended, proponents argue it will reduce the
explosive litigation costs and patent infringement judgments while enhancing
innovation. However, in its current version, we believe it will make it easier
to challenge patents, may increase the likelihood our patents will be challenged
in court or administratively at the United States Patent and Trademark Office,
could result in extraordinary legal fees defending our patents and could result
in one or more of our patents being ruled invalid. This would result in a
material adverse effect upon our future operating results and financial
condition, including increasing competition.
13
Risks
Related to Our Common Stock
Because our Board of Directors has
acted without the concurrent of experienced counsel with a Delaware General
Corporate Law background, the continuance could hamper our ability to become
current with our Securities and Exchange Commission reporting
requirements.
Our audit
for the years ended June 30, 2009 and 2008 was substantially delayed due to our
failure to seek contemporaneous or subsequent advice of counsel familiar with
the Delaware General Corporate Law. This also increased our auditing,
accounting and legal fees. If this pattern occurs in the future, we
will not likely be able to timely file our reports with the Securities and
Exchange Commission.
Currently there
is no public market for our common stock, and we cannot predict the future
prices or the amount of liquidity
.
Currently,
there is no public market for our common stock and one may never develop. We are
in the process of applying to list our common stock on the Pink Sheets. To be
publicly traded, a broker-dealer is required to file an application with the
Financial Industry Regulatory Authority (“FINRA”). Trading cannot
begin until FINRA ceases to comment upon the application. To date, we
have not found a broker-dealer to make the application. Once we do,
the FINRA comment process is lengthy. Once we begin trading, the Pink
Sheets is not a liquid market in contrast to the major stock exchanges including
Nasdaq. We cannot assure you as to the liquidity or the future market prices if
a market does develop. If an active market for our common stock does not
develop, the fair market value of our common stock could be materially adversely
affected. We cannot predict the price at which we will begin trading or future
prices.
We
will be subject to the “penny stock” rules which will adversely affect the
liquidity of our common stock.
The
Securities and Exchange Commission or SEC has adopted regulations which
generally define “penny stock” to be an equity security that has a market price
of less than $5.00 per share, subject to specific exemptions. We expect the
market price of our common stock will be less than $5.00 per share and therefore
we will be considered a “penny stock” according to SEC rules. This designation
requires any broker-dealer selling these securities to disclose certain
information concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable to purchase
the securities. These rules limit the ability of broker-dealers to solicit
purchases of our common stock and therefore reduce the liquidity of the public
market for our shares should one develop.
Our stock price
may be volatile because of factors beyond our control
.
Any of
the following factors could affect the market price of our common
stock:
| ▪ | our failure to generate revenue, |
| ▪ | our failure to achieve and maintain profitability, |
| ▪ | actual or anticipated variations in our quarterly results of operations, |
| ▪ | announcement by us of the commencement of or the progress of any litigation, |
| ▪ | any disputes by us with suppliers of televisions or other component suppliers, |
| ▪ | our failure to meet anticipated results with respect to distribution of the Defender to consumers and others, |
| ▪ | the failure of the Defender to operate as expected, and |
| ▪ | complaints received from consumers and other users. |
14
In the
past, following periods of volatility in the market price of a company’s
securities, securities class action litigation has often been instituted. A
securities class action suit against us could result in substantial costs and
divert our management’s time and attention, which would otherwise be used to
benefit our business.
In
the future we may issue preferred stock without the approval of our
shareholders, which could make it more difficult for a third party to acquire us
and could depress our stock price.
Our board
of directors may issue, without a vote of our shareholders, one or more series
of preferred stock that have more than one vote per share. This could permit our
board of directors to issue preferred stock to investors who support us and our
management and permit our management to retain control of our business.
Additionally, issuance of preferred stock could block an acquisition resulting
in both a drop in our stock price and a decline in interest of our common
stock.
Since
we intend to retain any earnings for development of our business for the
foreseeable future, you will likely not receive any dividends for the
foreseeable future.
We have
not and do not intend to pay any dividends in the foreseeable future, as we
intend to retain any earnings for development and expansion of our business
operations. As a result, you will not receive any dividends on your investment
for an indefinite period of time.
Not
required for smaller reporting companies.
See pages
F-1 through F-18.
None.
15
(a)
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Based on
their evaluation as of the end of the period covered by this Annual Report on
Form 10-K, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as defined in Rules
13a-15(c) and 15d-15(e) under the Exchange Act) are not effective to ensure that
information required to be disclosed by us in report that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and
forms and to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
(b)
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
This
company’s management is responsible for establishing and maintaining internal
controls over financial reporting and disclosure controls. Internal Control Over
Financial Reporting is a process designed by, or under the supervision of, the
Company’s principal executive and principal financial officers, or persons
performing similar functions, and effected by the issuer’s board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:
1.
Pertain to the maintenance of records
that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the issuer;
2.
Provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the issuer are being made only in accordance with
authorizations of management and directors of the registrant; and
3.
Provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the issuer’s assets that could have a material effect on the financial
statements.
Disclosure
controls and procedures are designed to ensure that information required to be
disclosed in reports filed under the Securities Exchange Act of 1934, as
amended, is appropriately recorded, processed, summarized and reported within
the specified time periods.
Management
has conducted an evaluation of the effectiveness of our internal control over
financial reporting as of June 30, 2009 based on the framework established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).
Based on
this assessment, management concluded that as of June 30, 2009 it had material
weaknesses in its internal control procedures.
16
A
material weakness is a control deficiency, or combination of control
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual or interim
financial statements would not be prevented or detected on a timely
basis.
As of
June 30, 2009, we have concluded that our internal control over financial
reporting was ineffective as of June 30, 2009.
The
Company’s assessment identified certain material weaknesses which are set forth
below:
Financial
Statement Close Process
During
the year ended June 30, 2009, the Company maintained the accounting books and
records in two different locations.
There are
insufficient written policies and procedures for accounting and financial
reporting with respect to the requirements and application of US GAAP and SEC
disclosure requirements;
There is
insufficient supervision and review by our corporate management, particularly
relating to complex transactions requiring analysis of equity
instruments.
There is
a lack of formal process and timeline for closing the books and records at the
end of each reporting period.
The
Company currently has an insufficient level of monitoring and oversight controls
for review and recording of stock issuances, agreements and contracts, including
insufficient documentation and review of the selection and application of
generally accepted accounting principles to significant non-routine
transactions. In addition this has resulted in a lack of controls over the
issuance of the Company’s stock which resulted in instances of shares not
timely authorized, a transaction where shares were issued in the Company’s name
then cancelled and share issuances where determining fair value could be
difficult, since the transaction was reviewed during a period after the actual
issuance occurred..
These
weaknesses restrict the Company’s ability to timely gather, analyze and report
information relative to the financial statements.
Entity
Level Controls
There are
insufficient corporate governance policies. Our corporate governance activities
and processes are not always formally documented. Specifically, decisions made
by the board to be carried out by management should be documented and
communicated on a timely basis to reduce the likelihood of any misunderstandings
regarding key decisions affecting our operations and management.
The
Company currently has insufficient resources and an insufficient level of
monitoring and oversight, which may restrict the Company’s ability to gather,
analyze and report information relative to the financial statements in a timely
manner, including insufficient documentation and review of the selection and
application of generally accepted accounting principles to significant
non-routine transactions. In addition, the limited size of the accounting
department makes it impractical to achieve and optimum segregation of
duties.
There are
limited processes and limited or no documentation in place for the
identification and assessment of internal and external risks that would
influence the success or failure of the achievement of entity-wide and
activity-level objectives.
17
Functional
Controls and Segregation of Duties
There is
an inadequate segregation of duties consistent with control objectives. Our
company’s management is composed of a small number of individuals resulting in a
situation where limitations on segregation of duties exist. In order to remedy
this situation we would need to hire additional staff to provide greater
segregation of duties. Currently, it is not feasible to hire additional staff to
obtain optimal segregation of duties. Management will reassess this matter in
the following year to determine whether improvement in segregation of duty is
feasible.
There is
a lack of top level reviews in place to review targets, product development,
joint ventures or financing. All major business decisions are carried out by the
officers with board of director approval when needed.
Accordingly,
as the result of identifying the above material weaknesses we have concluded
that these control deficiencies resulted in a reasonable possibility that a
material misstatement of the annual or interim financial statements will not be
prevented or detected on a timely basis by the company’s internal
controls.
Management
believes that the material weaknesses set forth above were the result of the
scale of our operations and are intrinsic to our small size. Management believes
these weaknesses did not have a material effect on our financial results and
intends to take remedial actions upon receiving funding for the company’s
business operations.
This
annual report does not include an attestation report of our
independent registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by
our independent registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the Company to provide only
management’s report herein.
(c)
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
In 2008,
we engaged an outside consultant to assist in the financial reporting process
and to implement controls and procedures. Our
consultant is primarily responsible in overseeing the record keeping
of the Company’s primary operations, recording complex accounting instruments,
such as equity and equity based compensation.
We are
committed to improving our financial organization. As part of this commitment,
when funds become available, we intend to create a position to segregate duties
consistent with control objectives and will increase our personnel resources and
technical accounting expertise within the accounting function when funds are
available to us by preparing and implementing sufficient written policies and
checklists which will set forth procedures for accounting and financial
reporting with respect to the requirements and application of US GAAP and SEC
disclosure requirements.
18
Management
believes that preparing and implementing sufficient written policies and
checklists will remedy the material weaknesses pertaining to insufficient
written policies and procedures for accounting and financial reporting with
respect to the requirements and application of US GAAP and SEC disclosure
requirements. Further, management believes that the hiring of additional
personnel who have the technical expertise and knowledge will result in proper
segregation of duties and provide more checks and balances within the
department. These personnel will provide the depth of knowledge and time
commitment to provide a greater level of review for corporate activities. The
appointment of additional outside directors with industry expertise will greatly
decrease any control and procedure issues the company may encounter in the
future. We will continue to monitor and evaluate the effectiveness of our
internal controls and procedures and our internal controls over financial
reporting on an ongoing basis and are committed to taking further action and
implementing additional enhancements or improvements, as necessary and as funds
allow. When funds become available, we intend to take appropriate and reasonable
steps to make the necessary improvements to remediate these deficiencies,
including:
1.
We will document a formal code of
ethics.
2.
We will revise processes to provide for a
greater role of independent board members in the oversight and review until such
time that we are adequately capitalized to permit hiring additional personnel to
address segregation of duties issues, ineffective controls over the revenue
cycle and insufficient supervision and review by our corporate management.
3.
We will continue to update the
documentation of our internal control processes, including formal risk
assessment of our financial reporting processes.
We intend
to consider the results of our remediation efforts and related testing as part
of our year-end 2010 assessment of the effectiveness of our internal control
over financial reporting. Under current rules relating to PCAOB standard number
5, we recognize that our internal controls will require certification of our
independent registered public accounting firm
Subsequent
to June 30, 2009, we are reviewing our methods and when funds become available
we will undertake the following steps to address the deficiencies stated
above:
| ▪ | Centralized accounting books and records to one primary location |
| ▪ | Development of internal controls and procedures surrounding the financial reporting process, primarily through the use of account reconciliations, and supervision |
None
19
The
following is a list of our directors and executive officers. All directors serve
one-year terms or until each of their successors are duly qualified and elected.
The officers are elected by the board of directors.
|
Name
|
|
Age
|
|
Position(s)
|
|
Jean
Carlo Nardi
|
|
54
|
|
Chief
Executive Officer, Chief Financial Officer and Chairman of the Board of
Directors
|
|
Gianfranco
Gracchi
|
46
|
President,
Secretary, Treasurer and Director
|
||
|
Esterino
Castellazzi
|
44
|
Vice
President and Director
|
||
|
Ennio
Bertoli
|
49
|
Director
|
||
|
Roberto
Cella
|
59
|
Director
|
||
|
Nerio
Montesel
|
44
|
Director
|
||
|
Marco
Zambolin
|
48
|
Director
|
Jean Carlo Nardi
has been a
director since January 19, 2009, our Chief Financial Officer and Chairman of the
Board since January 22, 2009 and our Chief Executive Officer since August 13,
2009. Mr. Nardi has practiced business and international law in
Europe beginning in 1980. He is currently a member of a law firm called
Change International, which has four offices in Italy and additional offices in
Europe and the United States. Previously, he was a member of Nardi
Oppenheim, a Miami, Florida based law firm, Studio Legale Nardi and Associates,
Gardenal, Nardi and Associates and the Gardenal Law Firm. He has
professional degrees consisting of a law degree from the University of
Florence, a Master’s Degree in European Law from Bruges, Belgium and a
Master’s Degree in Law (LLM) from Tulane University.
20
Gianfranco Gracchi
has been a
director of Ghost since July 16, 2008 and our President, Secretary and Treasurer
since January 22, 2009. Since 2000, Mr. Gracchi has been
an artist painter and computer science expert. From 1992 to
1999, he was a manager of ING Bank Italy. From 1988 through 1992, Mr.
Gracchi was a Financial Adviser for Mediolanum Bank. In 1999, he
was the Recruitment Director for three Italian Bank
groups.
Ennio Bertoli
has
been a director of Ghost since January 19, 2009. He is currently the
manager of CE.DI.VE Spa. Since 2004, Mr. Bertoli has been a partner
and shareholder of LONER srl, FRUMEN srl, and BMP srl. From 1994 to
2006, Mr. Bertoli built more than 200 apartments for investment.
Esterino Castellazzi
has been
a director of Ghost since July 16, 2008 and vice president since July 28,
2008. Since 2004, Mr. Castellazzi has been the Chief Executive
Officer of the advertising company Ghost Technology Spa which operates the
Defender in certain parts of the European Union. Since 2004, he has
been the Chief Executive Officer of Gaved Srl. a publishing
company. Mr. Castellazzi is also an officer and part owner of the DVD
recording company In Service Media Video, Srl. Additionally, since
1997, Mr. Castellazzi has been the Chief Executive Officer of the multimedia
company M.C. Video Srl.
Roberto Cella
has been a
director of Ghost since July 7, 2009. From 1994 – 2008,
Mr. Cella was Operations Director for C.Y.P.C.A. in Caracas,
Venezuela. He has been Chief Executive Officer of InAsset since
September 2007.
Nerio Montesel
has been a
director of Ghost since January 19, 2009. He was the Chief Executive
Officer of Ghost from November 19, 2008until August 13, 2009. Mr.
Montesel has over 20 years of experience in real estate
investing. Since 2004, Mr. Montesel has been the President and Chief
Executive Officer of LONER srl, FRUMEN srl, and BMP
srl. Additionally, since 2000, Mr. Montesel has been the President of
Tec srl.
Marco Zambolin
has
been a director of Ghost since January 19, 2009. From 2005 to 2006,
Mr. Zambolin served as a director of Ghost Technology Spa and has served as CEO
and President of Primosat s.r.l since 2007.
21
Family
Relationships
There are no family relationships among
our directors or officers.
Committees
of the Board of Directors
We
presently do not have an audit committee, compensation committee, or other
committee or committees performing similar functions, as our management believes
that until this point it has been premature at the early stage of our management
and business development to form an audit, compensation or other
committees.
Shareholder
Communications
Although
we do not have a formal policy regarding communications with the Board,
shareholders may communicate with the Board by writing to us at Ghost
Technology, Inc., 20801 Biscayne Blvd., Suite 403, Aventura, Florida 33180,
Attention: Mr. Gracchi. Shareholders who would like their submission directed to
a member of the Board may so specify, and the communication will be forwarded,
as appropriate.
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a)
of the Exchange Act requires our directors and executive officers, and persons
who beneficially own more than 10% of a registered class of our equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of common stock and the other equity securities of Ghost.
Officers, directors and persons who beneficially own more than 10% of a
registered class of our equity securities are required by the regulations of the
SEC to furnish us with copies of all Section 16(a) forms they
file.
Based
solely on a review of the copies of the forms filed with the SEC, we have
determined that JC Nardi, Ennio Bertoli, Roberto Cella and Marco Zambolin have
not filed their initial ownership reports on Form 3 and Gianfranco Gracchi and
Esterino Castellazzi, JC Nardi and Roberto Cella have not
filed their Form 4s.
22
Executive
Employment Agreements
Summary
Compensation Table
The
following information is related to the compensation paid, distributed or
accrued by us for the last two fiscal years to our Chief Executive Officer
(principal executive officer) at June 30, 2009 and the two other most highly
compensated executive officers serving at the end of the last fiscal year whose
compensation exceeded $100,000 (“Named Executive Officers”).
|
Name
and
Principal
Position
(a)
|
Year
(b)
|
Salary
($)(c)
|
Total
($)(j)
|
|||||
|
Nerio
Montesel
|
|
2009
|
$
|
0
|
$
|
0
|
||
|
Chief
Executive Officer
|
2008
|
$
|
0
|
$
|
0
|
|||
|
Gianfranco
Gracchi
|
2009
|
$
|
105,494
|
$
|
105,494
|
|||
|
President
|
2008
|
$
|
20,000
|
$
|
20,000
|
|||
Compensation
of Directors
The
Company compensates its non-employee directors by paying them
105,494
The
following table sets forth the number of shares of Ghost’s voting stock
beneficially owned as of February 11, 2010 by (i) those persons known by Ghost
to be owners of more than 5% of Ghost’s common stock, (ii) each director of
Ghost, (iii) all Named Executive Officers, and (iv) all executive officers and
directors of Ghost as a group:
23
|
Title
of Class
|
Name
and
Address
of Beneficial Owner
|
Amount
and
Nature
of Beneficial
Owner
(1)
|
Percent of
Class
(1)
|
|||
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers:
|
||||||
|
Common
Stock
|
Jean
Carlo Nardi
(2)(3)
|
50,000
|
*
|
|||
|
Common
Stock
|
Gianfranco
Gracchi
(2)(3)(4)
|
68,432,000
|
31.1%
|
|||
|
Common
Stock
|
Esterino
Castellazzi
(2)(3)
|
3,750,000
|
1.7%
|
|||
|
Common
Stock
|
Ennio
Bertoli
(2)
|
2,500,000
|
1.1%
|
|||
|
Common
Stock
|
Roberto
Cella
(2)(5)
|
100,000
|
*
|
|||
|
Common
Stock
|
Nerio
Montesel
(2)
|
23,274,395
|
10.6%
|
|||
|
Common
Stock
|
Marco
Zambolin
(2)
|
1,850,000
|
*
|
|||
|
Common
Stock
|
All
directors and executive officers
as
a group (7 persons)
(4)
|
100,406,395
|
45.6%
|
|||
|
|
*
|
Less
than 1%
|
| (1) | Applicable percentages are based on 175,396,122 shares of common stock and 2,000 shares of Series A Preferred Stock with 50,000,000 votes outstanding as of February 11, 2010, adjusted as required by rules of the SEBeneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within 60 days after the date of filing this report are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. It does not include options held by our management which are subject to performance standards. Unless otherwise indicated in the footnotes to this table, Ghost believes that each of the shareholders named in the table has sole voting and investment power with respect to the shares of common stock indicated as beneficially owned by them. (2)A director. |
| (3) | An executive officer. |
| (4) | Includes 1800 shares of Series A Preferred Stock (“Series A”) owned by Mr. Gracchi. Each share of Series A is entitled to 25,000 votes per share. |
| (5) | Represents 100,000 stock options. |
24
The
Company has been wholly dependent upon contributios of capital from its
officers. For the years ended June 30, 2009 and 2008, the Company's
officers contributed $311,698 and $418,054, respectively from these
officers. Subsequent to June 30, 2009, a Vice President and director
contributed another $56,321 to pay professional fees and other expenses. During
the years ended June 30, 2009 and 2008 the Company repaid former officers of the
Company approximately $179,000.
Although
the Company’s license agreement for the Defender for the United States, Canada
and Mexico does not have any explicit conditions as to when it must commence
marketing it or as to minimum future revenues, Mr. Esterino Castellazzi, an
officer and director of the Company, has threatened to cancel the
license. Mr. Castellazzi is the President of an Italian company with
rights to the Defender in at least part of the European Union. The
Company’s Chief Executive Officer, an Italian lawyer, believes Mr. Castellazzi
has no right to cancel the license.
In
October 2007, the Company entered into a Stock Purchase Agreement with Nerio
Montesel, currently a director, and former Chief Executive Officer, through
which the Company agreed to sell Mr. Montesel 2,000 shares of Series A Preferred
Stock (“Series A”) in exchange for payment of $400,000. In July 2008,
the Company and Mr. Montesel (together with Mr. Gianfranco Gracchi, the
Company’s current President and a director) entered into an agreement through
which Mr. Montesel waived certain of the conditions contained in the October
2007 Stock Purchase Agreement. The sale of the Series A then
closed. In conjunction with the closing, the prior holder of the
Series A cancelled the existing 2,000 shares of Series A so that following the
closing there still remained 2,000 Series A which shares were then owned by Mr.
Montesel.
The
Company leases an office in Italy from its President. See “Item 2.
Properties.” Additionally, it has borrowed $28,000 from Ennio
Bertoli, a director. See “Item 8. Financial Statements”, Notes 5 and
8.
25
Ghost’s
Board of Directors reviews and approves audit and permissible non-audit services
performed by its independent registered public accounting firm, as well as the
fees charged for such services. In its review of non-audit service and its
appointment of Berman & Company, P.A. as Ghost’s independent registered
public accounting firm, the Audit Committee considered whether the provision of
such services is compatible with maintaining independence. All of the services
provided and fees charged by Berman & Company, P.A. in fiscal 2008 and 2009
were approved by the Audit Committee..
|
Fiscal
2008
|
Fiscal
2009
|
|||||||
|
Audit
Fees
(1)
|
$ | 19,000 | $ | 28,000 | ||||
|
Audit
Related Fees
|
$ | 0 | $ | 0 | ||||
|
Tax
Fees
|
$ | 0 | $ | 0 | ||||
|
All
Other Fees
|
$ | 0 | $ | 0 | ||||
———————
(1)
Audit
fees – these fees relate to the audit of our annual financial
statements. These fees cover both 2008 and 2009.
26
ITEM 15. EXHIBITS.
|
No.
|
Description
|
Incorporated
By Reference
|
|||
|
Certificate
of Incorporation
|
Filed
with this report
|
||||
|
Certificate
of Merger
|
Filed
with this report
|
||||
|
Certificate
of Designation
|
Filed
with this report
|
||||
|
Certificate
for Renewal and Revival of Charter
|
Filed
with this report
|
||||
|
Amendment
to the Certificate of Incorporation
|
Filed
with this report
|
||||
|
Certificate
of Correction to the Certificate of Incorporation
|
Filed
with this report
|
||||
|
Certificate
of Amendment to Certificate of Incorporation
|
Filed
with this report
|
||||
|
Amended
and Restated Bylaws
|
Filed
with this report
|
||||
|
Defender
Agreement
|
Filed
with this report
|
||||
|
Certification
of Principal Executive Officer and Principal Financial Officer
(Section 302)
|
Filed
with this report
|
||||
|
Certification
of Principal Executive Officer and Principal Financial Officer
(Section 906)
|
Furnished
with this report
|
27
GHOST
TECHNOLOGY, INC. AND SUBSIDIARY
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
F-1
CONTENTS
| Page(s) | |
| Report of Independent Registered Public Accounting Firm | F-3 |
| Consolidated Balance Sheets – As of June 30, 2009 and 2008 | F-4 |
| Consolidated Statements of Operations – For the Years Ended June 30, 2009 and 2008 and for the Period from November 12, 1999 (inception) to June 30, 2009 | F-5 |
| Consolidated Statement of Changes in Stockholders’ Equity (Deficit) – For the Years Ended June 30, 2009 and 2008 and for the Period from November 12, 1999 (inception) to June 30, 2009 | F-6 |
| Consolidated Statements of Cash Flows – For the Years Ended June 30, 2009 and 2008 and for the Period from November 12, 1999 (inception) to June 30, 2009 | F-7 |
| Notes to Consolidated Financial Statements for the Years Ended June 30, 2009 and 2008 | F-8 - F-18 |
F-2
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of:
Ghost
Technology, Inc.
We have
audited the accompanying consolidated balance sheets of Ghost Technology, Inc.
and subsidiary (a development stage company) as of June 30, 2009 and 2008, and
the related consolidated statements of operations, changes in stockholders’
equity (deficit) and cash flows for the years ended June 30, 2009 and 2008 and
for the period from November 12, 1999 (inception) to June 30,
2009. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these 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. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes 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 financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Ghost Technology, Inc.
and subsidiary (a development stage company) as of June 30, 2009 and 2008, and
the consolidated results of its operations and its cash flows for the years
ended June 30, 2009 and 2008 and for the period from November 12, 1999
(inception) to June 30, 2009, in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 3
to the consolidated financial statements, the Company has a net loss of $463,470
and net cash used in operations of $116,544 for the year ended June 30, 2009;
and has a working capital and stockholders’ deficit of $56,876 at June 30, 2009.
These factors raise substantial doubt about the Company’s ability to continue as
a going concern. Management’s plan in regards to these matters is
also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Berman
& Company, P.A.
Boca
Raton, Florida
February
13, 2010
F-3
|
Ghost
Technology, Inc. and Subsidiary
|
||||||||
|
(A
Development Stage Company)
|
||||||||
|
|
||||||||
|
June
30,
2009 |
June
30,
2008 |
|||||||
|
Assets
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
|
$ | 6 | $ | 4,189 | ||||
|
Total
Current Assets
|
6 | 4,189 | ||||||
|
Total
Assets
|
$ | 6 | $ | 4,189 | ||||
|
Liabilities and Stockholders’ Equity
(Deficit)
|
||||||||
|
Current
Liabilities
|
||||||||
|
Due
to related parties
|
$ | 12,500 | $ | - | ||||
|
Due
to former related parties
|
28,000 | 24,265 | ||||||
|
Accrued
expenses
|
16,382 | - | ||||||
|
Total
Current Liabilities
|
56,882 | 24,265 | ||||||
|
Stockholders’
Equity (Deficit)
|
||||||||
|
Preferred
stock, Series "A", $0.001 par value; 5,000,000 shares
authorized;
|
||||||||
|
2,000
shares issued and outstanding
|
2 | 2 | ||||||
|
Common
stock, $0.001 par value, 300,000,000 shares authorized;
|
||||||||
|
175,281,122
and 174,700,039 shares issued and outstanding
|
175,281 | 174,700 | ||||||
|
Additional
paid in capital
|
5,732,620 | 5,362,331 | ||||||
|
Stock
subscription receivable
|
- | (55,800 | ) | |||||
|
Deficit
accumulated during the development stage
|
(5,964,779 | ) | (5,501,309 | ) | ||||
|
Total
Stockholders’ Equity Deficit
|
(56,876 | ) | (20,076 | ) | ||||
|
Total
Liabilities and Stockholders' Equity (Deficit)
|
$ | 6 | $ | 4,189 | ||||
See accompanying notes to financial
statements
F-4
|
(A
Development Stage Company)
|
||||||||||||
|
|
||||||||||||
|
For
the Period from
|
||||||||||||
|
For
the Years Ended June 30,
|
November
12, 1999 (inception) to
|
|||||||||||
|
2009
|
2008
|
June
30, 2009
|
||||||||||
|
General
and administrative expenses
|
$ | 463,470 | $ | 4,717,143 | $ | 5,964,779 | ||||||
|
Net
loss
|
$ | (463,470 | ) | $ | (4,717,143 | ) | $ | (5,964,779 | ) | |||
|
Net
loss per common share - basic and diluted
|
$ | (0.00 | ) | $ | (0.17 | ) | $ | (0.24 | ) | |||
|
Weighted
average number of common shares outstanding during the period - basic and
diluted
|
174,342,471 | 27,728,790 | 24,584,727 | |||||||||
See accompanying notes to financial
statements
F-5
|
(A
Development Stage Company)
|
||||||||||||||||||||||||||||||||
|
Consolidated
Statement of Changes in Stockholders' Equity (Deficit)
|
||||||||||||||||||||||||||||||||
|
For
the Years Ended June 30, 2009 and 2008 and for the Period
from
|
||||||||||||||||||||||||||||||||
|
November 12, 1999 (Inception) to June 30,
2009
|
||||||||||||||||||||||||||||||||
|
Deficit
|
||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||
|
Preferred
Stock
|
Stock
|
During
|
Total
|
|||||||||||||||||||||||||||||
|
Series
A
|
Common
Stock, $.001 Par Value
|
Additional
|
Subscription
|
Development
|
Stockholders'
|
|||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Paid
in Capital
|
Receivable
|
Stage
|
Equity
(Deficit)
|
|||||||||||||||||||||||||
|
Issuance
of common stock for cash - related parties - founder shares
($0.001/share)
|
- | $ | - | 1,800,000 | $ | 1,800 | $ | - | $ | - | $ | - | $ | 1,800 | ||||||||||||||||||
|
Issuance
of common stock for cash ($0.05/share)
|
- | - | 840,000 | 840 | 41,160 | - | - | 42,000 | ||||||||||||||||||||||||
|
Net
loss, period ended December 31, 1999
|
- | - | - | - | - | - | (12,460 | ) | (12,460 | ) | ||||||||||||||||||||||
|
Balance
- December 31, 1999
|
- | - | 2,640,000 | 2,640 | 41,160 | - | (12,460 | ) | 31,340 | |||||||||||||||||||||||
|
Issuance
of common stock for cash ($0.05/share)
|
- | - | 371,300 | 371 | 18,194 | - | - | 18,565 | ||||||||||||||||||||||||
|
Net
loss, 2000
|
- | - | - | - | - | - | (20,985 | ) | (20,985 | ) | ||||||||||||||||||||||
|
Balance
- December 31, 2000
|
- | - | 3,011,300 | 3,011 | 59,354 | - | (33,445 | ) | 28,920 | |||||||||||||||||||||||
|
Contributed
capital - related party
|
- | - | - | - | 6,250 | - | - | 6,250 | ||||||||||||||||||||||||
|
Net
loss, 2001
|
- | - | - | - | - | - | (20,255 | ) | (20,255 | ) | ||||||||||||||||||||||
|
Balance
- December 31, 2001
|
- | - | 3,011,300 | 3,011 | 65,604 | - | (53,700 | ) | 14,915 | |||||||||||||||||||||||
|
Stock
issued for services - related party ($0.50/share)
|
2,000 | 2 | - | - | 998 | - | - | 1,000 | ||||||||||||||||||||||||
|
Net
loss, 2002
|
- | - | - | - | - | - | (22,165 | ) | (22,165 | ) | ||||||||||||||||||||||
|
Balance
December 31, 2002
|
2,000 | 2 | 3,011,300 | 3,011 | 66,602 | - | (75,865 | ) | (6,250 | ) | ||||||||||||||||||||||
|
Issuance
of common stock for cash ($0.21/share)
|
- | - | 324,171 | 324 | 69,280 | - | - | 69,604 | ||||||||||||||||||||||||
|
Stock
issued for services ($0.10/share)
|
- | - | 2,431,328 | 2,431 | 240,701 | - | - | 243,132 | ||||||||||||||||||||||||
|
Net
loss for the six month ended June 30, 2003
|
- | - | - | - | - | - | (481,262 | ) | (481,262 | ) | ||||||||||||||||||||||
|
Balance
- June 30, 2003
|
2,000 | 2 | 5,766,799 | 5,767 | 376,583 | - | (557,127 | ) | (174,776 | ) | ||||||||||||||||||||||
|
Net
loss Year ended June 30, 2004
|
- | - | - | - | - | - | (55,922 | ) | (55,922 | ) | ||||||||||||||||||||||
|
Balance
- June 30, 2004
|
2,000 | 2 | 5,766,799 | 5,767 | 376,583 | - | (613,049 | ) | (230,698 | ) | ||||||||||||||||||||||
|
Net
loss for the year ended June 30, 2005
|
- | - | - | - | - | - | (192 | ) | (192 | ) | ||||||||||||||||||||||
|
Balance
- June 30, 2005
|
2,000 | 2 | 5,766,799 | 5,767 | 376,583 | - | (613,241 | ) | (230,890 | ) | ||||||||||||||||||||||
|
Net
loss for the year ended June 30, 2006
|
- | - | - | - | - | - | (192 | ) | (192 | ) | ||||||||||||||||||||||
|
Balance
- June 30, 2006
|
2,000 | 2 | 5,766,799 | 5,767 | 376,583 | - | (613,433 | ) | (231,082 | ) | ||||||||||||||||||||||
|
Net
loss for year ended June 30, 2007
|
- | - | - | - | - | - | (170,733 | ) | (170,733 | ) | ||||||||||||||||||||||
|
Balance
- June 30, 2007
|
2,000 | 2 | 5,766,799 | 5,767 | 376,583 | - | (784,166 | ) | (401,815 | ) | ||||||||||||||||||||||
|
Issuance
of common stock for cash ($0.024/share)
|
- | - | 6,723,000 | 6,723 | 153,752 | (55,800 | ) | - | 104,675 | |||||||||||||||||||||||
|
Issuance
of common stock for license ($0.028/share)
|
- | - | 102,000,000 | 102,000 | 2,775,547 | - | - | 2,877,547 | ||||||||||||||||||||||||
|
Stock
issued for services ($0.028)/share
|
- | - | 60,210,240 | 60,210 | 1,638,396 | - | - | 1,698,606 | ||||||||||||||||||||||||
|
Net
loss for the year ended June 30, 2008
|
- | - | - | - | - | - | (4,717,143 | ) | (4,717,143 | ) | ||||||||||||||||||||||
|
Contributed
capital - related party
|
- | - | - | - | 418,054 | - | - | 418,054 | ||||||||||||||||||||||||
|
Balance
- June 30, 2008
|
2,000 | 2 | 174,700,039 | 174,700 | 5,362,331 | (55,800 | ) | (5,501,309 | ) | (20,076 | ) | |||||||||||||||||||||
|
Issuance
of common stock for cash ($1.00/share)
|
- | - | 40,297 | 40 | 40,286 | - | - | 40,326 | ||||||||||||||||||||||||
|
Stock
issued for services ($0.028/share)
|
- | - | 490,786 | 491 | 13,355 | - | - | 13,846 | ||||||||||||||||||||||||
|
Stock
issued for services ($0.10/share)
|
- | - | 50,000 | 50 | 4,950 | - | - | 5,000 | ||||||||||||||||||||||||
|
Cash
from stock subscriptions
|
- | - | - | - | - | 55,800 | - | 55,800 | ||||||||||||||||||||||||
|
Contibuted
capital - related party
|
- | - | - | - | 311,698 | - | - | 311,698 | ||||||||||||||||||||||||
|
Net
loss for the year ended June 30, 2009
|
- | - | - | - | - | - | (463,470 | ) | (463,470 | ) | ||||||||||||||||||||||
|
Balance
- June 30, 2009
|
2,000 | $ | 2 | 175,281,122 | $ | 175,281 | $ | 5,732,620 | $ | - | $ | (5,964,779 | ) | $ | (56,876 | ) | ||||||||||||||||
See accompanying notes to financial
statements
F-6
|
(A
Development Stage Company)
|
||||||||||||
|
|
||||||||||||
|
For
the Years Ended June 30,
|
For
the period from November 12, 1999 (Inception) to
|
|||||||||||
|
2009
|
2008
|
June
30, 2009
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Net
loss
|
$ | (463,470 | ) | $ | (4,717,143 | ) | $ | (5,964,779 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||||||
|
Stock
issued for services
|
18,846 | 1,698,606 | 1,961,584 | |||||||||
|
Stock
issued for license
|
- | 2,877,547 | 2,877,547 | |||||||||
|
Depreciation
|
- | - | 5,667 | |||||||||
|
Impairment
of long lived assets
|
- | - | 128,700 | |||||||||
| Non-cash general and administrative expenses - contributed by related party | 311,698 | 18,054 | 336,002 | |||||||||
|
Changes
in operating assets and liabilities
|
||||||||||||
|
Accrued
expenses payable
|
16,382 | (202,681 | ) | 16,382 | ||||||||
|
Net
Cash Used In Operating Activities
|
(116,544 | ) | (1,325,617 | ) | (638,897 | ) | ||||||
|
CASH
FLOWS USED FROM INVESTING ACTIVITIES
|
||||||||||||
|
Purchase
of fixed assets
|
- | - | (134,367 | ) | ||||||||
|
Net
Cash Used In Investing Activities
|
- | - | (134,367 | ) | ||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
|
Contributed
capital - related party
|
- | 400,000 | 400,000 | |||||||||
|
Proceeds
from related party loans
|
12,500 | - | 12,500 | |||||||||
|
Proceeds
(repayments) - former related parties
|
3,735 | (183,030 | ) | 28,000 | ||||||||
|
Proceeds
from sale of common stock and subscription receivable
|
96,126 | 104,675 | 332,770 | |||||||||
|
Net
Cash Provided By Financing Activities
|
112,361 | 321,645 | 773,270 | |||||||||
|
Net
increase (decrease) in cash
|
(4,183 | ) | (3,972 | ) | 6 | |||||||
|
Cash
- beginning of year/period
|
4,189 | 8,161 | - | |||||||||
|
Cash
- end of year/period
|
$ | 6 | $ | 4,189 | $ | 6 | ||||||
|
Supplemental Disclosure of Cash Flow
Information
|
||||||||||||
|
Cash
paid during the year/period for:
|
||||||||||||
|
Interest
|
$ | - | $ | - | $ | - | ||||||
|
Taxes
|
$ | - | $ | - | $ | - | ||||||
See
accompanying notes to financial statements
F-7
Ghost
Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the Years Ended June 30, 2009 and 2008 and for the Period from
November 12, 1999
(inception) to June 30, 2009
Nature
of operations and U.S. Securities and Exchange Commission
Notification
Ghost
Technology, Inc. (“the Company”), formerly IA Europe Group Inc. (“IAEG”), is a
Delaware Corporation that was incorporated on November 12, 1999. The Company
previously filed U.S. Securities and Exchange Commission (“SEC”) filings as
General Telephony.com, Inc. (“GTI”) prior to its name change. On
December 6, 2002, IAEG merged with GTI, in a transaction treated as a reverse
acquisition and recapitalization. On January 16, 2008, the Company changed its
name to Ghost Technology, Inc.
In
November 2008, the Company has licensed the technology for a product known as
“Defender" -
an
electronic device, which is directly integrated in a television set. It
maintains all the basic functions of a television, but as soon as advertisements
are broadcast, the
“Defender"
changes the TV
channel to stored advertisements that are directed to the viewer based on
previously determined content. The license covers the Unites States,
Canada and Mexico. The Company believes that under Italian law, which governs
the acquisition agreement, it acquired ownership of the intellectual property
rights for the three countries.
The
Company’s prior fiscal year end was December 31, 2002. Beginning June
30, 2003, the Company changed its year-end to June 30.
On April
20, 2009, the SEC ordered an administrative hearing pursuant to Section 12(J) of
the Securities Exchange Act of 1934 due to the Company’s delinquency in filing
prior quarterly and annual reports. The Company did not contest the proceeding.
No final order has been issued by the SEC. The Company intends to file all
required filings in a timely manner during 2010.
Principles
of Consolidation
All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Development
stage
The
Company's financial statements are presented as those of a development stage
enterprise. Activities during the development stage primarily include
negotiating distribution agreements and marketing the territory for distribution
outlets for the product. The Company, while seeking to implement its
business plan, will look to obtain additional debt and/or equity related funding
opportunities. The Company has not generated any revenues since
inception.
F-8
Ghost
Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the Years Ended June 30, 2009 and 2008 and for the Period from
November 12, 1999
(inception) to June 30, 2009
Use
of estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles 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.
Making
estimates requires management to exercise significant judgment. It is at least
reasonably possible that the estimate of the effect of a condition, situation or
set of circumstances that existed at the date of the financial statements, which
management considered in formulating its estimate could change in the near term
due to one or more future confirming events. Accordingly, the actual results
could differ significantly from estimates.
Cash
and cash equivalents
The
Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents. There were no cash
equivalents at June 30, 2009 and 2008, respectively.
The
Company minimizes its credit risk associated with cash by periodically
evaluating the credit quality of its primary financial institution. The balance
at times may exceed federally insured limits. At June 30, 2009 and 2008,
respectively, the balance did not exceed the federally insured
limit.
Risks
and uncertainties
The
Company operates in an industry that is subject to intense competition and
change in consumer demand. The Company's operations are subject to significant
risk and uncertainties including financial and operational risks including the
potential risk of business failure. Also, see Note 3 regarding going concern
matters.
Segment
information
During
2009 and 2008, the Company only operated in one segment; therefore, segment
information has not been presented.
F-9
Ghost
Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the Years Ended June 30, 2009 and 2008 and for the Period from
November 12, 1999
(inception) to June 30, 2009
Share
Based Payments
Generally,
all forms of share-based payments, including stock option grants, restricted
stock grants and stock appreciation rights, are measured at their fair value on
the awards’ grant date, and based on the estimated number of awards that are
ultimately expected to vest. Share-based payment awards issued to non-employees
for services rendered are recorded at either the fair value of the services
rendered or the fair value of the share-based payment, whichever is more readily
determinable. The expense resulting from share-based payments are recorded as a
component of general and administrative expense.
Earnings
per share
Basic
earnings per share (“EPS”) is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding during
the period, excluding the effects of any potentially dilutive securities.
Diluted EPS gives effect to all dilutive potential of shares of common stock
outstanding during the period including stock options or warrants, using the
treasury stock method (by using the average stock price for the period to
determine the number of shares assumed to be purchased from the exercise of
stock options or warrants), and convertible debt or convertible preferred stock,
using the if-converted method. Diluted EPS excludes all dilutive potential of
shares of common stock if their effect is anti-dilutive.
The
computation of basic and diluted loss per share for the years ended June 30,
2009 and 2008, and for the period from November 12, 1999 (inception) to June 30,
2009, are equivalent since the Company has had continuing losses. The
Company also had no common stock equivalents.
Income
Taxes
The
Company accounts for income taxes under the liability
method. Deferred income tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
The
Company uses a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates it is more likely than
not, that the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step is to measure
the tax benefit as the largest amount, which is more than 50% likely of being
realized upon ultimate settlement. The Company considers many factors when
evaluating and estimating our tax positions and tax benefits, which may require
periodic adjustments. At June 30, 2009 and 2008, respectively, the
Company did not record any liabilities for uncertain tax positions.
F-10
Ghost
Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the Years Ended June 30, 2009 and 2008 and for the Period from
November 12, 1999
(inception) to June 30, 2009
Recent
accounting pronouncements
The Company adopted an
accounting standard update regarding the determination of the useful life of
intangible assets. As codified in ASC 350-30-35, this update amends the factors
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under intangibles accounting. It
also requires a consistent approach between the useful life of a recognized
intangible asset under prior business combination accounting and the period of
expected cash flows used to measure the fair value of an asset under the new
business combinations accounting (as currently codified under ASC 850). The
update also requires enhanced disclosures when an intangible asset’s expected
future cash flows are affected by an entity’s intent and/or ability to renew or
extend the arrangement. The adoption did not have a material impact on the
Company’s financial statements.
The
Company adopted a new accounting standard for subsequent events, as codified in
ASC 855-10. The update modifies the names of the two types of subsequent events
either as recognized subsequent events (previously referred to in practice as
Type I subsequent events) or non-recognized subsequent events (previously
referred to in practice as Type II subsequent events). In addition, the standard
modifies the definition of subsequent events to refer to events or transactions
that occur after the balance sheet date, but before the financial statements are
issued (for public entities) or available to be issued (for nonpublic entities).
It also requires the disclosure of the date through which subsequent events have
been evaluated. The update did not result in significant changes in the practice
of subsequent event disclosures, and therefore the adoption did not have a
material impact on the Company’s financial statements.
The
Company adopted the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 105-10,
Generally Accepted Accounting
Principles – Overall
(“ASC 105-10”). ASC 105-10 establishes the
FASB Accounting Standards
Codification
(the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
All guidance contained in the Codification carries an equal level of authority.
The Codification superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.
F-11
Ghost
Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the Years Ended June 30, 2009 and 2008 and for the Period from
November 12, 1999
(inception) to June 30, 2009
The
Company adopted FASB ASU No. 2009-05,
Fair Value Measurements and
Disclosures (Topic 820)
(“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10,
Fair Value
Measurements and Disclosures – Overall,
for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain techniques. ASU
2009-05 also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in
an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material
impact on the Company’s results of operations or financial
condition.
As
reflected in the accompanying financial statements, the Company has a net loss
of $463,470 and net cash used in operations of $116,544 for the year ended June
30, 2009; and has a working capital and stockholders’ deficit of $56,876 at June
30, 2009.
The
Company is in the development stage. Further, losses from operations are
continuing subsequent to June 30, 2009, and the Company anticipates that it will
continue to generate significant losses from operations in the near future. The
Company believes its current available cash along with anticipated revenues may
be insufficient to meet its cash needs for the near future. There can
be no assurance that financing will be available in amounts or terms acceptable
to the Company, if at all. The Company also has received an administrative order
from the U.S. Securities and Exchange Commission that could affect its ability
to become a publicly traded company.
These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. The ability of the Company to continue its operations is
dependent on Management's plans, which include the raising of capital through
debt and/or equity markets with some additional funding from other traditional
financing sources, including term notes, until such time that funds provided by
operations are sufficient to fund working capital requirements. The
Company may need to incur additional liabilities with certain related parties to
sustain the Company’s existence.
F-12
Ghost
Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the Years Ended June 30, 2009 and 2008 and for the Period from
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. These financial statements do not
include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
In
response to these problems, management has taken the following
actions:
| ● seeking additional third party debt and/or equity financing, | |
| ● continue with development of the Defender; and | |
| ● advertise and market the Defender product so that revenues can be generated. |
The Company will
categorize assets and liabilities recorded at fair value based upon the fair
value hierarchy specified by GAAP.
The
levels of fair value hierarchy are as follows:
| ● Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access; | |
| ● Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and | |
| ● Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity. |
In
certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, the Company categorizes such
financial asset or liability based on the lowest level input that is significant
to the fair value measurement in its entirety. The Company’s assessment of the
significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or
liability.
Both
observable and unobservable inputs may be used to determine the fair value of
positions that are classified within the Level 3 category. As a result, the
unrealized gains and losses for assets within the Level 3 category would be
presented in a table, which may include changes in fair value that were
attributable to both observable and unobservable inputs.
There
were no instruments requiring a fair value classification at June 30, 2009 and
2008, respectively.
F-13
Ghost
Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the Years Ended June 30, 2009 and 2008 and for the Period from
|
(A)
|
Due
to related parties
|
The
Company’s officers and certain stockholders have advanced funds, or paid
corporate expenses on behalf of the Company, on an as needed basis. As of June
30, 2009 and 2008, the Company owed $12,500 and $0, respectively. These advances
are non-interest bearing, unsecured and due on demand.
|
(B)
|
Due
to former related parties
|
Former
related parties consist of those individuals that were officers prior to a
private stock transaction during October 2007. In connection with this private
transaction, the Company’s former Chief Executive Officer sold his ownership in
2,000 shares of preferred stock, that due to super voting rights, allowed for a
change in control due to a transfer in voting control (See Note
8(B))
At June
30, 2009 and 2008, these former related parties were owed $28,000 and $24,265,
respectively.
The
Company recognized deferred tax assets and liabilities for both the expected
impact of differences between the financial statements and the tax basis of
assets and liabilities, and for the expected future tax benefit to be derived
from tax losses and tax credit carryforwards. The Company will
establish a valuation allowance to reflect the likelihood of realization of
deferred tax assets.
The
Company has a net operating loss carryforwards for tax purposes totaling
approximately $1,100,000 at June 30, 2009, expiring through 2029. There is a
limitation on the amount of taxable income that can be offset by carryforwards
after a change in control (generally greater than a 50% change in
ownership). Temporary differences, which give rise to a net deferred
tax asset, are as follows:
Significant
deferred tax assets at June 30, 2009 and 2008 are approximately as
follows:
|
2009
|
2008
|
|||||||
|
Gross
deferred tax assets:
|
||||||||
|
Net
operating loss carryforwards
|
$ | (417,000 | ) | $ | (254,000 | ) | ||
|
Total
deferred tax assets
|
417,000 | 254,000 | ||||||
|
Less:
valuation allowance
|
(417,000 | ) | (254,000 | ) | ||||
|
Net
deferred tax asset recorded
|
$ | - | $ | - | ||||
F-14
Ghost
Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the Years Ended June 30, 2009 and 2008 and for the Period from
The
valuation allowance at June 30, 2008 was approximately $254,000. The net change
in valuation allowance during the year ended June 30, 2009 was an increase of
approximately $164,000. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred income tax assets will not be
realized. The ultimate realization of deferred income tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management
considers the scheduled reversal of deferred income tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based on consideration of these items, management
has determined that enough uncertainty exists relative to the realization of the
deferred income tax asset balances to warrant the application of a full
valuation allowance as of June 30, 2009.
The
actual tax benefit differs from the expected tax benefit for the years ended
June 30, 2009 and 2008 (computed by applying the U.S. Federal Corporate tax rate
of 34% to income before taxes and 5.5% for State income taxes, a blended rate of
37.63%) approximately as follows:
|
2009
|
2008
|
|||||||
|
Expected
tax expense (benefit) – Federal
|
$ | (149,000 | ) | $ | (1,516,000 | ) | ||
|
Expected
tax expense (benefit) – State
|
(25,000 | ) | (259,000 | ) | ||||
|
Non-deductible
stock compensation
|
7,000 | 1,722,000 | ||||||
|
Meals
and entertainment
|
3,000 | 3,000 | ||||||
|
Change
in Valuation Allowance
|
164,000 | 50,000 | ||||||
|
Actual
tax expense (benefit)
|
$ | - | $ | - | ||||
From time
to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business. The Company is
currently not aware of any such legal proceedings or claims that they believe
will have, individually or in the aggregate, a material adverse affect on its
business, financial condition or operating results.
F-15
Ghost
Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the Years Ended June 30, 2009 and 2008 and for the Period from
|
(A)
|
Common
Stock Issuances
|
In
November 1999, the Company issued 1,800,000 shares of common stock to its
founders for $1,800 ($0.001/share).
In
December 1999, the Company issued 840,000 shares of common stock for $42,000
($0.05/share).
In May
2000, the Company issued 371,300 shares of common stock for $18,565
($0.05/share).
In 2003,
the Company issued 324,171 shares of common stock for $69,604
($0.21/share).
In 2003,
the Company issued 2,431,328 shares of common stock to consultants for services
rendered having a fair value of $243,132 ($0.10/share), based upon the fair
value of the services rendered. The fair value of the services
provided reflected a more readily determinable fair value than the shares
issued. The Company expensed this stock issuance as a component of general and
administrative expense.
In July
2008, the Company sold 6,723,000 shares of common stock for $160,475
($0.024/share). Of the total, $55,800 was recorded as a subscription
receivable. The subscription was collected during the year end June
30, 2009.
In July
2008, the Company issued 102,000,000 shares of common stock in exchange for a
license agreement relating to the
Defender
, having a fair value
of $2,877,547 ($0.028/share), based upon the average cash sales price of the
Company's common stock. The Company had various third party cash
issuances, at varying prices, during a period of time when these shares for the
Defender
were issued as
a non-cash transaction. The Company has determined that the average
price per share (as sold to third parties) is the most accurate method for
determining fair value.
In July
2008, the Company issued 60,210,240 shares of common stock to consultants for
services rendered having a fair value of $1,698,606 ($0.028/share), based upon
the average cash sales price of the Company's common stock. The
Company had various third party cash issuances, at varying prices, during a
period of time when these shares for the
Defender
were issued as a
non-cash transaction. The Company has determined that the average
price per share (as sold to third parties) is the most accurate method for
determining fair value.
F-16
Ghost
Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the Years Ended June 30, 2009 and 2008 and for the Period from
In May
2009, the Company issued 490,786 shares of common stock to consultants for
services rendered having a fair value of $13,846 ($0.028/share), based upon the
average cash sales price of the Company's common stock. The Company
had various third party cash issuances, at varying prices, during a period of
time when these shares for the
Defender
were issued as a
non-cash transaction. The Company has determined that the average
price per share (as sold to third parties) is the most accurate method for
determining fair value.
In June
2009, the Company issued 50,000 shares of common stock to a consultant for
services rendered having a fair value of $5,000 ($0.10/share), based upon the
fair value of the services rendered. The fair value of the services
provided reflected a more readily determinable fair value than the shares
issued. The Company expensed this stock issuance as a component of general and
administrative expense.
In
September 2009, the Company issued 40,297 shares of common stock for $40,326
($1.00/share).
|
(B)
|
Preferred
Stock Issuance
|
In 2002,
the Company issued 2,000 shares of Series “A” preferred stock to its Chief
Executive Officer for services rendered having a fair value of $1,000
($0.50/share), based upon the fair value of the services
rendered. The fair value of the services provided reflected a more
readily determinable fair value than the shares issued. The Company expensed
this stock issuance as a component of general and administrative
expense.
These
preferred shares have the following rights and preferences:
| ● | Voting rights – 25,000 to 1, therefore, 50,000,000 votes. |
| ● | Non-convertible. |
| ● | No liquidation rights or preferences. |
|
(C)
|
Contributed
Capital
|
In
October 2007, the Company’s Chief Executive Officer contributed $400,000 that
was used to pay outstanding accrued liabilities.
In June
2008, a related party paid expenses totaling $18,054 on behalf of the
Company.
In June
2009, a related party paid expenses totaling $311,698 on behalf of the
Company.
F-17
Ghost
Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the Years Ended June 30, 2009 and 2008 and for the Period from
|
(D)
|
Authorized
Shares
|
On
January 20, 2009, the Company increased its authorized common shares from
150,000,000 to 300,000,000.
The
Company performed a review of subsequent events through February 13, 2010, the
date the financial statements were issued, and concluded that events or
transactions occurring during that period requiring recognition or disclosure
were made.
|
(A)
|
Stock
Options
|
On July
2, 2009, the Company granted 100,000 stock options to a consultant for services
rendered. These options had a fair value of $1,515, based upon the
following management assumptions:
|
Risk-free
interest rate
|
0.98 | % | ||
|
Expected
dividend yield
|
0 | % | ||
|
Expected
volatility
|
250 | % | ||
|
Expected
life
|
730
days
|
|||
|
Expected
forfeitures
|
0 | % | ||
|
(B)
|
Contributed
Capital
|
During
the period from July 1, 2009 to February 13, 2010, a related party paid expenses
totaling $66,321 on behalf of the Company.
|
(C)
|
Loans
Payable
|
During
the period from July 1, 2009 to February 13, 2010, the Company received advances
from related parties totaling $51,175. These advances were non-interest bearing,
unsecured and due on demand.
|
(D)
|
Common
Stock Issuances
|
During
the period from July 1, 2009 to February 13, 2010, the Company issued 15,000
shares of common stock to consultants for services rendered having a fair market
value of $15,000 ($1.00/share), based upon the fair value of the services
rendered.
F-18
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date:
February 17, 2010
|
Ghost
Technology, Inc.
|
||
|
By:
|
/s/
Jean
Carlo Nardi
|
|
|
Jean
Carlo Nardi
|
||
|
Chief
Executive Officer and Chief Financial Officer
(Principal
Executive Officer and Principal Financial
Officer)
|
||
In
accordance with the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
Signatures
|
Title
|
Date
|
||
|
|
|
|
||
|
/s/
Ennio Bertoli
|
||||
| Ennio Bertoli | Director | February 17, 2010 | ||
|
|
||||
| /s/ Esterino Castellazzi | ||||
| Esterino Castellazzi | Director | February 17, 2010 | ||
|
|
||||
|
/s/
Roberto
Cella
|
|
|
||
|
Roberto
Cella
|
Director | February 17, 2010 | ||
|
|
||||
|
/s/
Gianfranco
Gracchi
|
|
|
||
|
Gianfranco
Gracchi
|
Director | February 17, 2010 | ||
|
|
||||
|
/s/
Nerio
Montesel
|
|
|
||
|
Nerio
Montesel
|
Director | February 17, 2010 | ||
|
|
||||
|
/s/
Marco
Zambolin
|
|
|
||
|
Marco
Zambolin
|
Director | February 17, 2010 |
27
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk Factors Not Applicable To Smaller Reporting Companies. Item 1B. Unresolved Staff CommentsItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial StatementsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9a(t). Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Benificial Oweners and Management and Related StockholdersItem 13. Certain Relationship and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IV Item 15. ExhibitsPart IVItem 15. ExhibitsNote 1 Nature Of OperationsNote 2 Summary Of Significant Accounting PoliciesNote 3 Going ConcernNote 4 Fair ValueNote 5 Related Party TransactionsNote 6 Income TaxesNote 7 ContingenciesNote 8 Stockholders DeficitNote 9 Subsequent Events