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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended March 31, 2011
   
 
OR
   
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the transition period from ________ to _____

Commission file number: 000-31705

Ghost Technology, Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
91-2007477
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
     
20801 Biscayne Blvd., Suite 403, Aventura, FL
 
33180
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code:  (786) 923-5954

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 required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o    No  þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer
o
Accelerated filer  
o
       
Non-accelerated filer 
o
Smaller reporting company  
þ
(Do not check if a smaller reporting company)      
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No   þ

Class
 
Outstanding at May 31, 2011
Common Stock, $0.001 par value per share
 
178,960,449 shares
 


 
 

 
 
TABLE OF CONTENTS
 
     
PAGE
 
         
PART I – FINANCIAL INFORMATION
 
         
Item 1.    
Financial Statements
    3  
           
 
Balance Sheets – As of March 31, 2011 (Unaudited) and June 30, 2010
    3  
           
 
Statements of Operations – For the Three and Nine Months Ended March 31, 2011 and 2010 and from November 12, 1999 (Inception) to March 31, 2011 (Unaudited)
    4  
           
 
Statements of Cash Flows – For the Nine Months Ended March 31, 2011 and 2010 and from November 12, 1999 (Inception) to March 31, 2011 (Unaudited)
    5  
           
 
Notes to Financial Statements (Unaudited)
    6  
           
Item 2.    
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    13  
           
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
    17  
           
Item 4.     
Controls and Procedures
    17  
           
           
PART II – OTHER INFORMATION
 
           
Item 1.
Legal Proceedings
    18  
           
Item 1A.   
Risk Factors
    18  
           
Item 2.    
Unregistered Sales of Equity Securities and Use of Proceeds
    18  
           
Item 3.
Defaults Upon Senior Securities
    18  
           
Item 4.  
(Removed and Reserved)
    18  
           
Item 5.  
Other Information
    18  
           
Item 6.
Exhibits
    19  
           
Signatures
      20  
 
 
2

 
 
PART I – FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS
 
Ghost Technology, Inc.
 
(A Development Stage Company)
 
Balance Sheets
 
             
             
   
March 31,
2011
   
June 30,
2010
 
   
(Unaudited)
       
Assets            
Current Assets
           
Cash
  $ 517     $ 87,866  
Loan receivable - related party
    -       130,000  
Other
    -       1,077  
Total Current Assets
    517       218,943  
                 
Prepaid technical services costs, net - related party
    566,667       -  
                 
Total Assets
  $ 567,184     $ 218,943  
                 
Liabilities and Stockholders’ Equity (Deficit)                
Current Liabilities
               
Accounts payable and accrued expenses
  $ 200,446     $ 44,383  
Due to related parties
    44,750       43,500  
Due to former related parties
    28,000       28,000  
Total Current Liabilities
    273,196       115,883  
                 
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;
               
  178,960,449 and 175,996,122 shares issued at March 31, 2011 and June 30, 2010, respectively
    178,961       175,996  
Common stock to be issued ( 350,000 common shares at par)
    350       -  
Additional paid-in-capital
    6,726,750       6,155,064  
Deficit accumulated during the development stage
    (6,612,075 )     (6,228,002 )
Total Stockholders’ Equity (Deficit)
    293,988       103,060  
                 
Total Liabilities and Stockholders' Equity (Deficit)
  $ 567,184     $ 218,943  
 
See accompanying notes to unaudited financial statements.
 
 
3

 
 
Ghost Technology, Inc.
 
(A Development Stage Company)
 
Statements of Operations
 
(Unaudited)
 
                               
   
For the Three Months Ended 
March 31,
   
For the Nine Months Ended 
March 31,
   
From
November 12,
1999
(inception) to
 
   
2011
   
2010
   
2011
   
2010
   
March 31,
2011
 
                               
Revenues
  $ -     $ 60,000     $ 25,000     $ 60,000     $ 85,000  
                                         
General and administrative expenses
    102,507       60,922       409,073       216,212       6,697,075  
                                         
Net loss
  $ (102,507 )   $ (922 )   $ (384,073 )   $ (156,212 )   $ (6,612,075 )
                                         
Net loss per common share - basic and diluted
  $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.14 )
                                         
Weighted average number of common shares outstanding - basic and diluted
    179,295,297       175,716,122       177,468,396       175,560,994       47,927,616  
 
See accompanying notes to unaudited financial statements.
 
4

 

Ghost Technology, Inc.
 
(A Development Stage Company)
 
Statements of Cash Flows
 
(Unaudited)
 
   
Nine Months Ended 
March 31,
   
From
November 12,
1999
(Inception) to
 
   
2011
   
2010
   
March 31,
2011
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net loss
  $ (384,073 )   $ (156,212 )   $ (6,612,075 )
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Stock issued for services
    35,000       55,000       2,051,584  
Stock issued for license
    -       -       2,877,547  
Depreciation
    -       -       5,667  
Amortization of prepaid research and development
    33,333       -       33,333  
Impairment of long lived assets
    -       -       128,700  
   General and administrative expenses - contributed by related party
    -       68,160       404,161  
Changes in operating assets and liabilities:
                       
Accounts receivable
    -       (60,000 )     -  
Other current asset
    1,077       (1,078 )     -  
Prepaid expenses
    -       (2,083 )     -  
Accounts payable and accrued expenses
    156,064       13,670       200,447  
Net Cash Used In Operating Activities
    (158,599 )     (82,543 )     (910,636 )
                         
CASH FLOWS  FROM INVESTING ACTIVITIES
                       
Loans to related party
    -       -       (130,000 )
Purchase of equipment
    -       -       (134,367 )
Net Cash Used In Investing Activities
    -       -       (264,367 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Proceeds from related party loans
    1,250       31,000       44,750  
Proceeds from loan
    -       -       300,000  
Proceeds  - former related parties
    -       -       28,000  
Proceeds from sale of common stock and subscription receivable
    70,000       300,000       402,770  
Contributed capital - related party
    -       -       400,000  
Net Cash Provided By Financing Activities
    71,250       331,000       1,175,520  
                         
Net increase (decrease) in cash
    (87,349 )     248,457       517  
                         
Cash - beginning of period
    87,866       6       -  
                         
Cash - end of period
  $ 517     $ 248,463     $ 517  
                         
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
                       
Cash paid during the year/period for:
                       
Interest
  $ -     $ -     $ -  
Taxes
  $ -     $ -     $ -  
                         
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
         
                         
Conversion of loan to common stock
  $ -     $ -     $ (300,000 )
                         
Acquisition of treasury stock in exchange for related party loan receivable
  $ 130,000     $ -     $ 130,000  
                         
Retirement of treasury stock   $ (130,000 )   $ -     $ (130,000 )
                         
Common stock issued for services and recorded as a prepaid asset   $ 600,000     $ -     $ 600,000  
                         
 
See accompanying notes to unaudited financial statements.

 
5

 

Ghost Technology, Inc.
(A Development Stage Company)
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
Note 1 Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information.  Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the full year.

The unaudited interim financial statements should be read in conjunction with the Company’s Registration Statement on Form 10, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the fiscal year ended June 30, 2010.  The interim results for the three and nine months ended March 31, 2011 are not necessarily indicative of the results for the full fiscal year.

Note 2 Nature of Operations

Ghost Technology, Inc. (“the Company”), is a Delaware Corporation that was incorporated on November 12, 1999.
 
In November 2008, the Company 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 and is for an indefinite period.

Note 3 Summary of Significant Accounting Policies
 
Development Stage

The Company's financial statements are presented as those of a development stage company. 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  generated minimal revenues since inception.

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.

Such estimates and assumptions impact, among others, the following: the fair value of share-based payments and transactions and a full valuation allowance on deferred tax assets due to continuing losses.

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.
 
 
6

 
 
Ghost Technology, Inc.
(A Development Stage Company)
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
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 March 31, 2011 and June 30, 2010, 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 March 31, 2011 the balance did not exceed the federally insured limit.

Revenue Recognition

The Company recognizes revenue at the time the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. The Company intends on selling advertisement broadcasting time to its customers and will recognize revenue over the period of each broadcast. The Company also sells advertising media production services to its customers and recognizes revenues from such sales when the completed media product is shipped to the customer and when no further services are required to be performed. All revenue was earned from one customer for the three and nine months ended March 31, 2011.

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 4 regarding going concern matters.

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 Company had no common stock equivalents at March 31, 2011.
 
 
7

 

Ghost Technology, Inc.
(A Development Stage Company)
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
The computation of basic and diluted loss per share for the three and nine months ended March 31, 2011 and 2010, and from November 12, 1999 ( Inception) to March 31, 2011, are equivalent since the Company has had continuing losses.

Income Taxes

The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC Topic 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
 
Accounting guidance now codified as FASB ASC Topic 740-20, “Income Taxes – Intraperiod Tax Allocation,” clarifies the accounting for uncertainties in income taxes recognized in accordance with FASB ASC Topic 740-20 by prescribing guidance for the recognition, de-recognition and measurement in financial statements of income tax positions taken in previously filed tax returns or tax positions expected to be taken in tax returns, including a decision whether to file or not to file in a particular jurisdiction. FASB ASC Topic 740-20 requires that any liability created for unrecognized tax benefits is disclosed. The application of FASB ASC Topic 740-20 may also affect the tax bases of assets and liabilities and therefore may change or create deferred tax liabilities or assets. The Company would recognize interest and penalties related to unrecognized tax benefits in income tax expense. At March 31, 2011 and June 30, 2010 the Company did not record any liabilities for uncertain tax positions.

Recent Accounting Pronouncements

Recent accounting pronouncements issued by the FASB (including its EITF), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.

Note 4 Going Concern

As reflected in the accompanying financial statements, the Company has a working capital deficit of $272,679 at March 31, 2011, and a net loss of $384,073 and net cash used in operations of $158,599 for the nine months ended March 31, 2011.

The Company is in the development stage. Further, losses from operations are continuing subsequent to March 31, 2011. 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 additional financing will be available in amounts or terms acceptable to the Company, if at all.

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.
 
 
8

 
Ghost Technology, Inc.
(A Development Stage Company)
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
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 the going concern issue, management has taken the following actions:
 
 
continue with development of the Defender;
 
planning to advertise and market the Defender product so that additional revenues can be generated; and
 
investigate various funding options.
 
Note 5 Related Party Transactions

Loans to Related Parties

In April 2010, the Company advanced $130,000 to a director, which was due on April 1, 2011.  The loan was not interest bearing. Subsequently, the Company was advised by securities counsel that the loan would have been a violation of the Sarbanes-Oxley Act of 2002, which prohibits loans to officers and directors, following effectiveness of the Form 10.  The Company’s Board of Directors agreed on August 19, 2010 to accept 130,000 shares of common stock, owned by this director, in exchange for the loan receivable, based on the estimated fair value per common share of $1.00, which was based upon the fair value of stock issued in connection with a debt conversion in March 2010. This debt holder was a third party and the conversion rate represented the best evidence of fair value. The Company cancelled and retired the shares as of March 31, 2011.

As of March 31, 2011, the Company accrued amounts owed to officers for unpaid salaries and rent totaling $94,000 and $8,775, respectively. Such amounts are included in accounts payable and accrued expenses in the accompanying financial statements.

In February 2011, the Company CEO advanced the Company $1,250 to pay certain expenses of the Company.
 
Technology Services Agreement

On November 30, 2010, the Company entered into a Technology Services Agreement ( the "Agreement") with Ghost Technology SpA, a related party.  The Agreement provides for the exclusive management and technical operations of the Company's defender patent over a 6-year period. As consideration the Company issued 3,000,000 common shares with a fair market value of $600,000 ($0.20/per share) and will pay Ghost Technology SpA a fee ranging from $0.012 per impression per month and reducing to $.009 for impressions greater than 50,000,000 per month.  The Company has recorded the issuance as a non-current asset and is amortizing it over the 6-year life of the agreement.

Ghost Technology SpA is wholly owned by a shareholder, executive officer and director of the Company.
 
 
9

 
Ghost Technology, Inc.
(A Development Stage Company)
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
Note 6 Stockholders’ Equity (Deficit)

(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 April 2003, the Company issued 324,171 shares of common stock for $69,604 ($0.21/share).

In April 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 April 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.

During March 2008 and May 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.

During April 2008 and May 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.

In September 2008, the Company issued 40,297 shares of common stock for $40,326 ($1.00/share).

From September 2008 to 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. The Company expensed this stock issuance as a component of general and administrative expense.
 
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 15,000 shares of common stock to a consultant for services rendered having a fair value of $15,000 ($1/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.

On March 17, 2010, the Company received a loan for $300,000. The loan was non-interest bearing, unsecured and due on demand. On March 25, 2010, this loan was converted into 300,000 shares of common stock ($1.00/share). In connection with this conversion, there was no gain or loss on debt conversion.
 
 
10

 
Ghost Technology, Inc.
(A Development Stage Company)
Notes to Financial Statements
March 31, 2011
(Unaudited)
  
On April 15, 2010, the Company issued 400,000 shares of common stock for services to a consultant and director for services rendered having a fair value of $40,000 ($0.10/share), based upon the fair value of the services rendered over the period July 1, 2009 to April 15, 2010. The fair value of the services provided reflected a more readily determinable fair value than the shares issued. The Company expensed these stock issuances as a component of general and administrative expense.

During October 2010, the Company sold an aggregate of 350,000 shares of common stock at a price of $0.20 per share. The shares are presented as issuable at March 31, 2011 since they have not yet been issued by the transfer agent.

Also in October 2010, the Company issued 25,000 shares of common stock to a consultant for services rendered having a fair value of $10,000 ($0.40/share), based upon the fair value of services, agreed to by the parties. The Company expensed this stock issuance as a component of general and administrative expense.

On November 30, 2010, the Company issued 3,000,000 shares of common Stock to Ghost Technology SpA (see Note 5) as consideration for a 6-year Technology services agreement contract entered into between the entities. The Company has determined that the fair value of the issuance is $600,000 or $.20 per share  based upon the sale of stock for cash to third parties during the quarter. Management believes that this is the most reasonable  method for determining fair value.

On December 9, 2010, the Company executed a one year Consulting Services Agreement to provide investor relations services. The engagement fee calls for an initial fee of $20,000 in cash ($10,000 due December 9, 2010 and $10,000 was due on Janaury 15, 2011) and $25,000 in restricted common stock. The number of shares to be issued to be computed by dividing $25,000 by the closing bid price of the Company's common stock on December 9, 2010, or $.33. The Company issued 75,758 shares in January 2011.  Additionally the agreement provides for a monthly retainer of $10,000, payable in $5,000 cash and $5,000 in stock. As of March 31, 2010, the Company owes the service provider $40,000 under the agreement, included in accounts payable and accrued expenses, of which $30,000 is due in cash and $10,000 in common stock.

On March 3, 2011 the Company entered into an agreement to sell 26 million shares of common stock for 2.4 million Euro's or approximately $3,320,000 or approximately $0.13 per share.  Although the Company issued the stock, the buyer defaulted in March 2011 on their  obligation to pay the Company.  As a result, the Company will cancel the shares and the agreement.

(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.
 
 
11

 

Ghost Technology, Inc.
(A Development Stage Company)
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
(C) Contributed Capital

Year 2001

In June 2001, a related party contributed capital of $6,250 to pay certain Company expenses.

Year 2007

In October 2007, the Company’s Chief Executive Officer contributed $400,000 that was used to pay outstanding accrued liabilities.

Year 2008

In June 2008, a related party paid expenses totaling $18,054 on behalf of the Company.

Year 2009 and 2010

In June 2009, a related party paid expenses totaling $311,698 on behalf of the Company.

During the nine months ended March 31, 2010, a related party paid expenses totaling $68,159 on behalf of the Company.
 
(D) Authorized Shares
 
On January 20, 2009, the Company increased its authorized common shares from 150,000,000 to 300,000,000.

 
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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this report.  In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions.  Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” in our Form 10 filed on August 20, 2010.
 
Company Overview
 
Ghost Technology, Inc. holds a license to the Defender, a software program that operates with and is integrated into a television set that enables subscribers to control the commercial advertisements being broadcast.  Revenues will come primarily from our broadcasting of advertising media on the Defender once it becomes operational.  Ghost is relying on raising the necessary capital to exploit this license.  The implementation of our business plan has been delayed due to our lack of capital.
 
Ghost has entered into a Services Agreement with Ghost Technology SpA ("SpA"), a company controlled by a director and executive officer of Ghost.  SpA will provide all of the management and operational functions for the Defender technology.  In consideration for managing our technology, Ghost will pay SpA a usage fee based on monthly performance and has issued 3,000,000 shares of Ghost’s common stock.
 
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.
 
 
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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 March 31, 2011 and June 30, 2010 respectively, the Company did not record any liabilities for uncertain tax positions.

Revenue Recognition
 
The Company recognizes revenue at the time the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. The Company intends on selling advertisement broadcasting time to its customers and will recognize revenue over the period of each broadcast. The Company also sells advertising media production services to its customers and recognizes revenues from such sales when the completed media product is shipped to the customer and when no further services are required to be performed. All revenue was earned from one customer for the three and nine months ended March 31, 2011.

Results of Operations
 
The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere in this report.
 
For the Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010.

Revenue

The Company generated no revenue for the three months ended March 31, 2011 as compared to $60,000 in revenue for the same period in 2010.  The revenues from the prior year's quarter were non-recurring.
 
 
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Expenses

Our expenses consisted primarily of general and administrative costs.  The general and administrative costs for the three months ended March 31, 2011 were  $102,507 as compared to $60,922 for the same period in 2010 or an increase of 68.3%. This increase was primarily attributable to salaries of $34,500 accrued to our officers, $25,000 in amortization of prepaid technical services costs and increased consulting fees approximately $22,000, offset by a decrease in professional fees and other expenses of approximately $40,000.

Net Loss

For the three months ended March 31, 2011 and 2010 we sustained net losses of $102,507 and $922, respectively.  The increase in the loss resulted from the increase in expenses and the decrease in revenues as noted above.

For the Nine Months Ended March 31, 2011 Compared to the Nine Months Ended March 31, 2010.

Revenue

The Company generated $25,000 in revenue for the nine months ended March 31, 2011 compared to $60,000 for nine months ended March 31, 2010.  These revenues resulted from the production of media for one customer and are non-recurring.

Expenses

Our expenses consisted primarily of general and administrative costs.  The general and administrative costs for the nine months ended March 31, 2011 were $409,073 as compared to $216,212 for the same period in 2010 or an increase of 89.2%. This increase was primarily the result of increased professional fees relating to the Company recent Form 10 filing, for salaries and rent totaling $102,775 accrued to our officers $65,000 accrued for consulting agreements and amortization of $33,333 of technical services and development costs .

Net Loss

For the nine months ended March 31, 2011 and 2010 we sustained net losses of $384,073 and $156,212, respectively.  The increase in the loss resulted from the increase in expenses and decrease in revenues as noted above.

Liquidity and Capital Resources

For the nine months ended March 31, 2011, net cash used in operating activities was $158,599, compared to $82,543 for the nine months ended March 31, 2010. The use of cash in operating activities was mainly attributed to the continued operating loss and partially offset by an increase in accounts payable and accrued expenses of $150,064, stock issued for services of $35,000 and amortization of stock based prepaid and technical services cost of $33,333.
 
 
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For the nine months ended March 31, 2011 and 2010, no cash transactions occurred in investing activities.

For the nine months ended March 31, 2011, net cash provided by financing activities was $71,250, compared to $331,000 for the nine months ended March 31, 2010.  The cash from financing activities was primarily from the proceeds from sale of common stock in March 2010 and  in October 2010.

As of June 12, 2011, Ghost had less than  $500 of cash and cash equivalents and a working capital deficit of $252,679.   Beginning in January 2010, we agreed to pay Gianfranco Gracchi, our Chief Executive Officer, $10,000 per month.  Beginning in November 2010, we agreed to pay Cristina Avramut, our Chief Financial Officer and wife of Mr. Gracchi, $1,500 per month.  As of March 31, 2011, we owed Mr. Gracchi $86,500 and Ms. Avramut $7,500 in salaries.  In order to carry out the Services Agreement with Ghost SpA (discussed above), we are required to pay for 50,000 televisions.  We anticipate this will cost in excess of $15 million; however, the exact cost is unknown.  We will need to generate revenue and raise money in order to pay for this. This lack of working capital has hampered us in implementing our business plan since we need to raise at least $100,000, to start initial tests in Florida. To raise capital, we have launched an offering of common stock at $0.20 per share seeking to raise up to $800,000 to $1,000,000. Through October 30, 2010, the last day of the offering we were only able to raise $70,000.   If we do not raise at least $1,000,000, we will not be able to launch our business. Ghost does not have enough available cash to meet its obligations over the next 12 months.

We do not anticipate the need to purchase any material capital assets in order to carry out our business.

Related Party Transactions

See Note 5 to our unaudited financial statements included in this report for discussion of related party transactions.

New Accounting Pronouncements

See Note 3 to our unaudited financial statements included in this report for discussion of recent accounting pronouncements.

Cautionary Note Regarding Forward Looking Statements
 
This report contains forward-looking statements including our liquidity and anticipated costs to start our business.  Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.
 
 
16

 
 
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.  Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.  Our actual results may differ materially from those contemplated by the forward-looking statements.  We caution you therefore against relying on any of these forward-looking statements.  They are neither statements of historical fact nor guarantees or assurances of future performance.  Important factors that could cause actual results to differ materially from those in the forward-looking statements include the conditions of the global credit and capital markets and the failure to agree upon final terms in a definitive agreement.
 
Further information on our risk factors is contained in our filings with the SEC, including our Form 10 filed on August 20, 2010. Any forward-looking statement made by us in this report speaks only as of the date on which it is made.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.  We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to smaller reporting companies.
 
ITEM 4.  CONTROLS AND PROCEDURES.

Disclosure Controls. We carried out an evaluation with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act.  Based on their evaluation, our management has concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting.  There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
17

 
 
PART II – OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.
 
None.

ITEM 1A.  RISK FACTORS.
 
Not applicable to smaller reporting companies.
 
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
In addition to those unregistered securities previously disclosed in reports filed with the SEC, we have sold securities without registration under the Securities Act of 1933 (the “Securities Act”).
 
Name of Class
 
Date Sold
 
No. of Securities
 
Reason for Issuance
             
Cariad Trading Company(2)
 
10/8/10
 
250,000 shares of common stock
 
Sale
             
Island Capital Management (1)
 
10/19/10
 
25,000 shares of common stock
 
Transfer Agent Services
             
Sunoli E Trust Ltd(2)
 
10/26/10
 
100,000 shares of common stock
 
Sale
             
Ghost Technology SpA (2)
 
11/17/10
 
3,000,000 shares of common stock
 
Services Agreement
             
21st Century Investor Relations (1)
 
12/1/10
 
75,758 shares of common stock
 
Investor Relations Services
 
(1) Exemption provided by Section 4(2) and Rule 506 thereunder of the Securities Act.
(2) Exemption under Regulation S promulgated under the Securities Act.
 
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.
 
None
 
ITEM 4.  (REMOVED AND RESERVED).
 

ITEM 5.  OTHER INFORMATION.
 
None

 
18

 
 
ITEM 6.  EXHIBITS.
 
Exhibit
     
Incorporated by Reference
 
Filed or Furnished
#  
Exhibit Description
 
Form
 
Date
 
Number
 
Herewith
                     
2.1  
Certificate of Merger
    10-K  
2/18/10
    3.1    
3.1  
Certificate of Incorporation
    10-K  
2/18/10
    3.2    
3.2  
Certificate of Designation
    10-K  
2/18/10
    3.3    
3.3  
Amendment to the Certificate of Incorporation
    10-K  
2/18/10
    3.5    
3.4  
Correction to the Certificate of Incorporation
    10-K  
2/18/10
    3.6    
3.5  
Amendment to the Certificate of Incorporation
    10-K  
2/18/10
    3.7    
3.6  
Amended and Restated Bylaws
    10-K  
2/18/10
    3.8    
10.1  
Defender Agreement
    10-K  
2/18/10
    10.4    
10.2  
Summary of CEO and CFO Compensation Arrangements*
    10-Q  
11/15/10
    10.2    
10.3  
Technology Services Agreement
    10-Q  
2/14/11
    10.3    
31.1  
Certification of Principal Executive Officer (Section 302)
                 
Filed
31.2  
Certification of Principal Financial Officer (Section 302)
                 
Filed
32.1  
Certification of Principal Executive Officer and Principal Financial Officer (Section 906)
                 
Furnished
 
* Management compensatory plan or arrangement

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to Ghost Technology, Inc., 20801 Biscayne Blvd., Suite 403, Aventura, Florida 33180.

 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
GHOST TECHNOLOGY, INC.
 
       
June 14, 2011
By:
/s/ Gianfranco Gracchi
 
   
Gianfranco Gracchi
 
   
Chief Executive Officer
 
   
(Principal Executive Officer)
 
 
       
June 14, 2011
By:
/s/ Cristina Avramut
 
   
Cristina Avramut
 
   
Chief Financial Officer
 
   
(Principal Financial Officer)
 
 
 
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