-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HutEjxwkEqRNIDfWK9eqba6Ou79unnRx5LBgmSMx5lKLsRK/nzEQnbybdqaeN5mm 37m6nvwZ/h33zGndf9zn8w== 0000796655-01-500016.txt : 20020410 0000796655-01-500016.hdr.sgml : 20020410 ACCESSION NUMBER: 0000796655-01-500016 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTS SOFTWARE INC CENTRAL INDEX KEY: 0000796655 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 133054685 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16299 FILM NUMBER: 1785505 BUSINESS ADDRESS: STREET 1: 801 MAHLER RD STREET 2: SUITE G CITY: BURLINGAME STATE: CA ZIP: 94010 BUSINESS PHONE: 6506920240 MAIL ADDRESS: STREET 1: 801 MAHLER ROAD STREET 2: SUITE G CITY: BURLINGAME STATE: CA ZIP: 94010 FORMER COMPANY: FORMER CONFORMED NAME: ANTS SOFTWARE COM INC DATE OF NAME CHANGE: 19990806 FORMER COMPANY: FORMER CONFORMED NAME: CHOPP COMPUTER CORP /DE/ DATE OF NAME CHANGE: 19990805 FORMER COMPANY: FORMER CONFORMED NAME: SULLIVAN COMPUTER CORP DATE OF NAME CHANGE: 19870108 10QSB 1 sp103-11141v4.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________ FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2001 OR [ ] 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: 0000796655 ________________ ANTS SOFTWARE INC. (Exact name of registrant as specified in its charter) Delaware 13-3054685 (State or other jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 801 Mahler Rd, Suite G, Burlingame, CA 94010 (Address of principal executive offices) (Zip Code) (650) 692-0240 (Registrant's Telephone Number, including area code) 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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common stock, as of the latest practicable date: 15,601,888 shares of common stock as of September 30, 2001 Transitional Small Business Disclosure Format: Yes [ ] No [X]
TABLE OF CONTENTS PART I. Financial Information Item 1. Financial Statements ...........................................3-8 Item 2. Management's Plan of Operation ...................................8-9 PART II. Other Information Item 1. Legal Proceedings ...............................................9-10 Item 2. Changes in Securities .............................................11 Item 3. Defaults Upon Senior Securities ...................................11 Item 4. Submission of Matters to a Vote of Security Holders ...............11 Item 5. Other Matters .....................................................11 Item 6. Exhibits and Reports on Form 8-K .................................11 Risk Factors ..............................................................11-13 Signatures ................................................................14
2. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ANTs software inc. CONDENSED BALANCE SHEETS
September 30, 2001 December 31, 2000 (Unaudited) (Audited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 917,451 $ 2,609,084 Interest and other receivables 4,863 4,860 Prepaid expenses 240,425 102,947 Total current assets 1,162,739 2,716,891 PROPERTY AND EQUIPMENT: Computers and software 614,184 565,110 Office furniture and fixtures 27,960 26,372 Less accumulated depreciation (161,330) (65,278) Property and equipment, net 480,814 526,204 OTHER ASSETS 5,100 3,700 TOTAL ASSETS $ 1,648,653 $ 3,246,795 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 109,911 $ 231,053 Accrued legal fees 85,919 258,742 Notes payable 110,367 29,980 Current portion of note payable-former officer 75,000 - Other liabilities 125,000 - Total current liabilities 506,197 519,775 Long-term note payable - former officer, net of current portion 150,000 - TOTAL LIABILITIES 656,197 519,775 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.0001 par value; 100,000,000 authorized;15,601,888 and 13,082,038 shares issued and outstanding respectively 1,560 13,082 Additional paid-in-capital 23,027,129 18,804,974 Common stock subscribed - 1,815,000 Notes receivable from officers for stock purchases (135,000) (180,000) Treasury stock - (121,078) Accumulated deficit (21,901,233) (17,604,958) Total stockholders' equity 992,456 2,727,020 Total liabilities and stockholders' equity $ 1,648,653 $ 3,246,795
The accompanying notes are an integral part of these financial statements. 3. ANTs software inc. CONDENSED STATEMENTS OF OPERATIONS
Three months ended Nine months ended September 30, September 30, 2001 2000 2001 2000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) REVENUES $ - $ - $ - $ - OPERATING EXPENSES: General and administrative expenses 766,782 1,454,796 3,593,807 3,164,905 Research and development expenses 456,379 273,750 769,332 595,564 Loss from operations (1,223,161) (1,728,546) (4,363,139) (3,760,469) OTHER INCOME: Interest income, net 23,521 23,283 59,979 149,728 Other income 2,715 - 6,885 - Other income, net 26,236 23,283 66,864 149,728 NET LOSS $(1,196,925)$(1,705,263)$(4,296,275)$(3,610,741) BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.08)$ (0.13)$ (0.29)$ (0.28) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 15,528,221 12,759,948 14,775,246 12,627,293
The accompanying notes are an integral part of these financial statements. 4. ANTs software inc. CONDENSED STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited) Net Loss $ (4,296,275) $ (3,610,741) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 96,790 34,450 Common stock issued in settlement of litigation 137,235 - Stock compensation 46,800 - Gain on sale of fixed assets 2,985 - Write-off of notes and interest receivable from officers for stock purchases 49,860 58,140 Compensation expense recognized in form of notes payable to former officer 300,000 - Changes in operating assets and liabilities: Prepaid expenses and interest receivable (142,341) (190,197) Accounts payable and accrued expenses 3,858 88,513 Other receivables - (25,734) Notes payable 80,387 118,578 Accrued legal fees (13,597) (275,323) Security deposits (1,400) (12,365) Net cash used in operating activities (3,735,698) (3,814,680) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net (54,385) (851,653) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from private placements 1,969,200 - Proceeds from exercise of warrants 121,000 150,000 Proceeds from exercise of options 8,250 - Net cash provided by financing activities 2,098,450 150,000 NET DECREASE IN CASH (1,691,633) (4,516,333) CASH, BEGINNING OF PERIOD 2,609,084 4,882,212 CASH, END OF PERIOD $ 917,451 365,879
NON-CASH FINANCING ACTIVITY: In February 2001, the Company issued 400,000 shares of stock, which reduced accrued legal fees by $159,226, as settlement of a lawsuit claim. See Note 5. In August 2001, the Company issued 37,500 shares of stock and a warrant to purchase 37,500 shares of stock as cancellation of the $75,000 payment due on the note payable to a former officer. See Note 6. The accompanying notes are an integral part of these financial statements. 5. ANTs software inc. NOTES TO FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited financial statements are presented in accordance with the requirements for Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all the disclosures normally required by generally accepted accounting principles. Reference should be made to the ANTs software inc. (the "Company") Form 10-KSB for the eight months ended December 31, 2000, for additional disclosures including a summary of the Company's accounting policies, which have not significantly changed. The information furnished reflects all adjustments (all of which were of a normal recurring nature) which, in the opinion of management, are necessary to fairly present the financial position, results of operations, and cash flows on a consistent basis. Operating results for the three months and nine months ended September 30, 2001, are not necessarily indicative of the results that may be expected in the future. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reclassification - To more clearly reflect the operation of the business, we have reclassified as research and development expenses certain historical expenses originally classified as general and administrative. Beginning January 1, 2000, the subtotals for general and administrative and research and development expenses have changed. Note that while the subtotals have changed, total expenses have not. Additionally, certain other reclassifications of prior years' balances have been made to conform to the current financial statement presentation. Basic Net Loss Per Share - Basic net loss per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common and dilutive common equivalent shares outstanding during the period. The following table presents the calculation of basic and diluted net loss per share:
Three Months Ended Nine Months Ended Sept. 30, Sept. 30, 2001 2000 2001 2000 Net loss $(1,196,924) $(1,705,263) $(4,296,275) $(3,610,741) Weighted average shares of common stock outstanding - basic and dilutive 15,528,221 12,759,948 14,775,246 12,627,293 Basic and diluted net loss per share $ (0.08) $ (0.13) $ (0.29) $ (0.28)
As of September 30, 2001 outstanding options and warrants for the purchase of up to 5,771,717 shares of common stock at prices ranging from $0.25 to $11.63 were anti-dilutive, and therefore, not included in the computation of diluted loss per share. 3. EQUITY TRANSACTIONS From July 1, 2001 through September 30, 2001, we sold to accredited investors, through a private offering, 126,500 units, at a price of $2.00 per unit (the "Units"), with each Unit consisting of (i) One (1) share of Common Stock of the Company, and (ii) a warrant to purchase up to One (1) share of Common Stock of the Company at a per share price of Four Dollars ($4.00), exercisable until December 31, 2001. In connection with this offering, we paid $15,800 in commissions and finder's fees. The gross proceeds of the offering were $253,000. The proceeds will be used for general working capital purposes. The 200,000 shares that had been subscribed, but not issued as of June 30, 2001, were issued during the third quarter of 2001. As part of the January 2001 private placement, 11,350 restricted shares were issued in exchange for placement services provided. These shares were exchanged for stock options, 6. which were exercised during the third quarter of 2001. The exercise price of these options was fulfilled by services previously rendered. During the third quarter of 2001, a former employee exercised stock options for 3,000 shares in the amount of $8,250. On August 4, 2001, a former officer was issued 37,500 units (the "Units"), with each Unit consisting of (i) One (1) share of Common Stock of the Company, and (ii) a warrant to purchase up to One (1) share of Common Stock of the Company at a per share price of Four Dollars ($4.00), exercisable until December 31, 2001. The Units were issued in lieu of a $75,000 cash payment due on the note payable to the former officer. In December 2000 the Company re-incorporated from Nevada to Delaware and changed its name from ANTs software.com to ANTs software inc. As part of the re-incorporation the Company's common stock par value was changed from $0.001 to $0.0001 and the authorized common stock was increased from 20,000,000 to 100,000,000 shares. 4. WARRANTS AND STOCK OPTIONS As of September 30, 2001, the Company had outstanding warrants to purchase up to 3,592,606 shares of common stock and options to purchase up to 2,179,111 shares of common stock. These securities give the holder the right to purchase shares of the Company's common stock in accordance with the terms of the instrument. Warrants Stock Options Total Outstanding at January 1,2001 5,289,222 417,200 5,706,422 Granted 217,000 1,558,004 1,775,004 Exercised or retired (455,813) (104,400) (560,213) Outstanding at March 31,2001 5,050,409 1,870,804 6,921,213 Granted 782,500 317,831 1,100,331 Exercised or retired (1,078,777) (133,180) (1,211,957) Outstanding at June 30,2001 4,754,132 2,055,455 6,809,587 Granted 174,000 138,006 312,006 Exercised or retired (1,335,526) (14,350) (1,349,876) Outstanding at September 30,2001 3,592,606 2,179,111 5,771,717
5. LEGAL SETTLEMENT The Company entered into a Settlement Agreement effective as of February 23, 2001 with the law firm Hughes Hubbard & Reed LLP ("HHR") pursuant to which the Company agreed to issue 400,000 shares of common stock, for which the Company recognized an expense of $137,235. In addition, the settlement satisfied accrued legal expenses of $159,267, which had been recorded in prior periods. 6. SETTLEMENT WITH FORMER OFFICER The Company entered into an agreement (the "Agreement") with a former officer, effective as of January 11, 2001, in connection with which the Company agreed to forgive, on August 4, 2001 and on each year anniversary thereafter, $45,000 of the principal amount and all accrued interest on a loan made to the former officer in August 1999 in the original amount of $225,000. The aggregate amount receivable at September 30, 2001 is $135,000. 7. The Company also agreed, pursuant to the Agreement, to pay the former officer the sum of $300,000, payable in four $75,000 installments, starting on August 4, 2001 and on each year anniversary thereafter, without interest. Subsequently, the former officer was issued, in lieu of the cash payment due August 4, 2001, 37,500 Units (see note 3, above). The aggregate amount payable at September 30, 2001 is $225,000. ITEM 2. MANAGEMENT'S PLAN OF OPERATION Certain statements contained in this Form 10-QSB constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions that the Company will have adequate financial resources to fund the development and operation of its business, and there will be no material adverse change in the Company's operations or business. The foregoing assumptions are based on judgments with respect to, among other things, information available to the Company, future economic, competitive and market conditions and future business decisions. All are difficult or impossible to predict accurately and many of which are beyond the Company's control. Accordingly, although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any such assumption could prove to be inaccurate and therefore there can be no assurance that the results contemplated in the forward-looking statements will be realized. There are a number of risks presented by the Company's business and operations which could cause the Company's financial performance to vary markedly from prior results or results contemplated by the forward-looking statements. Such risks include failure of the ANTs technology to work properly, failure to develop commercially viable products or services from the ANTs technology, delays or failure in fundraising efforts, delays in or lack of market acceptance, failures to recruit adequate personnel, and problems with protection of intellectual property, among others. Management decisions, including budgeting, are subjective in many respects and periodic revisions must be made to reflect actual conditions and business developments, the impact of which may cause the Company to alter its capital investment and other expenditures, which may also adversely affect the Company's results of operations. In light of significant uncertainties inherent in forward-looking information included in this quarterly Report on Form 10-QSB, the inclusion of such information should not be regarded as a representation by the Company that the Company's objectives or plans will be achieved. Overview We are engaged in the development and marketing of a proprietary software technology that is intended to significantly improve the speed at which computers can access data. Our operations currently consist of research and development of our proprietary software technology ("ANTs technology"), marketing our technology to potential customers and partners, and capital raising. We have not realized any revenues to date. Plan of Operation Our operations over the next six months will primarily consist of continued research and development of our proprietary software technology and development of our marketing program. Research and development will be focused on demonstrating and enhancing the capabilities of our prototype system. Thereafter, research and development will be directed towards developing initial customer applications utilizing our technology. General commercial applications utilizing our technology are expected to be available by the end of calendar 2001. There is no assurance that our plans will be realized. The majority of our operating expenses and costs over the next three to six months are expected to be for and in connection with existing personnel, beta-testing our prototype system and development and execution of our marketing efforts. We currently have nineteen full-time and two part-time employees and two consultants. To more clearly reflect the operation of the business, we have reclassified as research and development expenses, certain historical expenses originally classified as general and administrative. Beginning January 1, 2000, the subtotals for general and administrative and research and development expenses have changed. Note that while the subtotals have changed, total expenses have not. We believe that additional sources of financing can be secured to enable us to complete the development and commercialization of our proprietary technologies, although there is no assurance of our ability to do so. 8. General and Administrative General and administrative expenses decreased from $1,454,796 during the three months ended September 30, 2000 to $766,782 during the three months ended September 30, 2001. General and administrative expenses increased from $3,164,905 during the nine months ended September 30, 2000 to $3,593,807 during the nine months ended September 30, 2001. Components of general and administrative expense for the 3rd quarter of 2001 include: salaries and benefits (41%), insurance (17%), legal (14%), other professional services (17%) and other expenses (11%). We expect overall general and administrative expenses to increase moderately over the next three to six months. Research and Development Research and development expenses increased from $273,750 during the three months ended September 30, 2000 to $456,379 during the three months ended September 30, 2001. Research and development expenses increased from $595,564 during the nine months ended September 30, 2000 to $769,332 during the nine months ended September 30, 2001. These expenses are related to the research, testing and product development of our proprietary software. We expect that our research and development expenses will continue to increase moderately as additional staff is recruited and we begin beta-testing of our prototype system. Marketing On or about September, 17, 2001 we signed a letter of intent to enter into a technology and marketing agreement with Data Trak Technologies of California, Inc., a supply chain provider and integrator of small package and LTL shipping solutions. In the letter of intent, Data Trak agreed to evaluate ANTs' proprietary database technology for inclusion into its product and service offerings and agreed to introduce ANTs to key clients and partners. Data Trak clients include: Sony Music, Oracle, Intel, Novell, Sun Micro Systems, Clorox, 3M and Abbott Labs. On or about October 30, 2001, we entered into a beta test agreement with Data Trak, pursuant to which we agreed to provide Data Trak with early access to our technology for testing and evaluation. Capital and Liquidity Resources We anticipate increasing expenditures over the coming months as we continue to develop our technology. We do not expect to realize any revenues through calendar year 2001. Our cash balance as of September 30, 2001 was $917,451, which we believe will be adequate to fund our activities through mid-December 2001 at our current rate of spending. There can be no assurance that our continued product development and infrastructure development will not require a much higher rate of spending. There can also be no assurance that we will be able to obtain additional capital on acceptable terms. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We were a defendant in a case entitled Hubert P. Lauffs v. Mosaic Multisoft Corporation, in which the plaintiff asserted a cause of action against us for breach of fiduciary duty. The plaintiff purported to base his cause of action on allegations that we and others caused the shareholders of Mosaic Multisoft Corporation ("Mosaic") to elect outside directors to its board of directors who subsequently voted to remove Mosaic's president from office, thus interfering with Mosaic's ability to raise capital and causing Mosaic to be unable to repay its debt to the plaintiff. In March 2000, we won this case on summary judgment. In April 2000, the plaintiff filed an appeal of the summary judgment ruling. We believe the appeal to be without merit, but there can be no assurance that the appellate court will not reverse the lower court's ruling and require a trial. We have filed an action for malicious prosecution against the lawyer and the plaintiff in this case. Since May 4, 2000, the malicious prosecution action has been stayed pending resolution of the appeal. With respect to the appeal, the plaintiff filed an opening brief on December 19, 2000, we filed a responsive brief on April 4, 2001, and the plaintiff filed his reply brief on May 25, 2001. Oral argument was heard on October 16, 2001. The Court of Appeal has 90 days to render a decision. On or about January 31, 2001, the British Columbia Securities Commission ("B.C. Commission") requested that we provide information regarding the distribution of securities to British Columbia residents to ensure that such distributions were made in compliance with the British Columbia Securities Act ("BC Act"). On or about October 12, 2001, the B.C. Commission decided not to 9. take formal enforcement action against us at this time in connection with our breaches of the BC Act. In March 2001, we were informed that the staff of the Securities and Exchange Commission (the "SEC") was considering recommending to the Commission that an action be brought against us alleging that: 1) We incorrectly identified Mr. Peter Patton as a director in a January 2000 registration statement on form S-8; 2) We failed to disclose a 1996-97 attempted involuntary bankruptcy proceeding in our 1999 registration statement on form 10-SB; 3) A former director signed a consent in our January 2000 registration statement on form S-8 that should have been signed by our auditor; and 4) We failed to file periodic reports from 1988 to 1999. We thereafter made a submission to the staff of the SEC explaining our position on these matters and explaining why no action should be brought against us. In August 2001, we reached a tentative agreement with the staff of the SEC to settle the matter by consenting, without admitting or denying the SEC's allegations, to an injunction prohibiting us from future violations of the periodic reporting requirements (item 4, above). On November 7, 2001, our counsel received a letter from the staff of the SEC that stated the following: "This letter is to inform you that the staff of the Securities and Exchange Commission's Office of Enforcement does not intend to bring an enforcement action against your client, Ants Software, Inc. ("Ants") in connection with the issues addressed in the staff's March 8, 2001 Wells letter, as identified more specifically in Ants' Form 10KSB dated March 22, 2001. The above-referenced investigation, however, has not been terminated. This letter must in no way be construed as indicating that Ants has been exonerated or that no action may ultimately result from the staff's investigation of the above-referenced matter. In addition, the attempted use of this letter as a purported defense in any action that might subsequently be brought against Ants, either civilly or criminally, would be clearly inappropriate and improper since this letter, at most, can mean that as of this date, the staff of the Commission does not regard enforcement action as called for based upon the information it has at this time. Moreover, this conclusion may be based upon various reasons, some of which are irrelevant to the merits of any subsequent action." The SEC's latest letter apparently supercedes the tentative settlement agreement. On October 12, 2001, a class action complaint, titled Joseph Chatham v. ANTs Software.com, et al., was filed in Los Angeles County Superior Court against us and certain of our former officers and former directors. The plaintiff claims to be suing on behalf of a class of persons who purchased our stock from October 5, 1999, through March 23, 2001. The complaint claims violations of certain provisions of the California Corporations Code in connection with the following alleged misrepresentations: (1) We misrepresented that Dr. Peter Patton was a member of our board of directors; (2) We failed to disclose an effort by a creditor to force us into involuntary bankruptcy; and (3) Donald Hutton falsely identified himself as a certified public accountant in an SEC filing. These allegations appear to be the same as three of the four matters raised by the SEC as disclosed in our Form 10-KSB dated March 22, 2001. We believe these claims to be without merit and intend to defend this case vigorously. However, there can be no assurance that this matter will be resolved without costly litigation, or in a manner that is not materially adverse to our financial position, results of operations or cash flows. No estimate can be made of the possible loss or possible range of loss associated with the resolution of this contingency. The information is hereby incorporated by reference from the Form 10-QSB filed on May 15, 2001. There have been no other material developments in the period covered by this report. 10. ITEM 2. CHANGES IN SECURITIES From July 1, 2001 through September 30, 2001, we sold to accredited investors, through a private offering, 126,500 units, at a price of $2.00 per unit (the "Units"), with each Unit consisting of (i) One (1) share of Common Stock of the Company, and (ii) a warrant to purchase up to One (1) share of Common Stock of the Company at a per share price of Four Dollars ($4.00), exercisable until December 31, 2001. In connection with this offering, we paid $15,800 in commissions and finder's fees. The gross proceeds of the offering were $253,000. The proceeds will be used for general working capital purposes. The sales of these securities were made in reliance upon Rule 506 and Section 4(2) of the Securities Act of 1933. ITEM 3. DEFAULTS UPON SENIOR SECURITIES No changes during the period covered by this report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the period covered by this report. ITEM 5. OTHER MATTERS Mr. Michael O'Connor resigned as Interim Chief Financial Officer, effective as of September 30, 2001. Mr. John Williams resigned as Secretary and Executive Vice President, Quality Assurance and Operations, effective as of September 14, 2001. Mr. Kenneth Ruotolo was appointed to the position of Chief Financial Officer and Secretary, by the Board of Directors by unanimous written consent on October 1, 2001. Mr. Jeffrey R. Spirn, Ph.D was appointed to the position of Vice President, Research & Development, by the Board of Directors at a meeting held on September 6, 2001. Mr. Girish Mundada was hired to the position of Vice President of Engineering, effective as of September 24, 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Amended and Restated Certificate of Incorporation of the Company as listed in Exhibit 3.1 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 3.2 Amended and Restated Bylaws of the Company, as listed in Exhibit 3.2 to the Company's 10-KSB filed on March 22, 2001, are hereby incorporated by reference. (b) Reports on Form 8-K We did not file any reports on Form 8-K during the quarter for which this report is filed. RISK FACTORS In addition to other information in this 10-QSB, the following risk factors should be carefully considered in evaluating our business since we operate in a highly changing and complex business environment that involves numerous risks, some of which are beyond our control. The following discussion highlights a few of these risk factors, any one of which may have a significant adverse impact on our business, operating results and financial condition. As a result of the risk factors set forth below and elsewhere in this 10-QSB, and the risks discussed in our other Securities and Exchange Commission filings, actual results could differ materially from those projected in any forward-looking statements. 11. If we are unable to protect our intellectual property, our competitive position would be adversely affected. We rely on patent protection, as well as trademark and copyright law, trade secret protection and confidentiality agreements with our employees and others to protect our intellectual property. Despite our precautions, unauthorized third parties may copy our products and services or reverse engineer or obtain and use information that we regard as proprietary. We have also filed patent applications and intend to file more. We do not know if any of our intended future patents will be issued or whether we will be successful in prosecuting any additional patents. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Our means of protecting our proprietary rights may not be adequate and third parties may infringe or misappropriate our patents, copyrights, trademarks and similar proprietary rights. If we fail to protect our intellectual property and proprietary rights, our business, financial condition and results of operations would suffer. We believe that we do not infringe upon the proprietary rights of any third party, and no third party has asserted a patent infringement claim against us. It is possible, however, that such a claim might be asserted successfully against us in the future. We may be forced to suspend our operations to pay significant amounts to defend our rights, and a substantial amount of the attention of our management may be diverted from our ongoing business, which can materially affect our ability to attain and maintain profitability. We face possible competition from large companies. The industry that we are in is highly competitive. Although we believe that our technology is unique, can be protected, and, if adopted, will confer benefits that will be otherwise unavailable for some significant time, we face very large competitors with greater resources who may adopt various strategies to block or slow our market penetration, thereby straining our more limited resources. They may also seek to hinder our operations through attempts to recruit key staff with exceptionally attractive terms of employment, including signing bonuses, or by offer of highly competitive terms to potential or newly acquired customers. We depend on our key personnel and may have difficulty attracting and retaining the skilled staff we need to execute our growth plans. Our success will be dependent largely upon the personal efforts of our Chairman and Chief Executive Officer, Francis K. Ruotolo, as well as other senior managers. The loss of key staff could have a material adverse effect on our business and prospects. To execute our plans, we will need to hire and retain more staff. We plan to increase our technical personnel in the near term. We are recruiting personnel to meet this objective. Competition for highly skilled employees with technical, management, marketing, sales, product development and other specialized training is intense. We may not be successful in attracting or retaining such qualified personnel. Specifically, we may experience increased costs in order to attract and retain skilled employees. If we are unable to hire, train and manage new skilled and experienced employees as needed, we would be unable to support our planned growth and future operations. We face rapid technological change. The market for our products and services is characterized by rapidly changing technologies, extensive research and the introduction of new products and services. We believe that our future success will depend in part upon our ability to continue to enhance our existing products and to develop, manufacture and market new products and services. As a result, we expect to continue to make a significant investment in engineering, research and development. There can be no assurance that we will be able to develop and introduce new products and services or enhance our initial intended products and services in a timely manner to satisfy customer needs, achieve market acceptance or address technological changes in our target markets. Failure to develop products and services and introduce them successfully and in a timely manner could adversely affect our competitive position, financial condition and results of operations. We will need to manage growth well. We may experience substantial growth in the size of our staff and the scope of our operations, resulting in increased responsibilities for management. To manage this possible growth effectively, we will need to continue to improve our operational, financial and management information systems and to hire, train, motivate and manage a growing number of staff. We expect to experience difficulty in filling our needs for qualified engineers and other personnel. There can be no assurance that we will be able to effectively achieve or manage any future growth, and our failure to do so could delay product development cycles and market penetration or otherwise have a material adverse effect on our financial condition and results of operations. We could face information and product liability risks and may not have adequate insurance. Because we intend to provide middleware solutions to critical business and Internet applications, we may become the subject of litigation alleging that our products were ineffective or disruptive in their treatment of data, or in the compilation, processing or manipulation of critical business information. Thus, we may become the targets of lawsuits from injured 12. or disgruntled businesses or other users. We do not presently carry product or information liability or errors and omissions insurance, and although we intend to acquire such insurance prior to commencing substantial sales, such insurance may not be available in an acceptable or affordable form. In the event that we are required to defend more than a few such actions, or in the event that we were found liable in connection with such an action, our business and operations would be severely and materially adversely affected. We are dependent on new demand for our products and services. The success of our business depends upon demand for and use of our technology, products and services in general and the demand for additional computing power, cost effectiveness and speed in particular. Our technology introduces a new kind of middleware, so we may encounter substantial market resistance. In the event sufficient demand does not develop, our business and results of operations would be materially adversely affected. We believe that there appears to be increased demand for computing power, cost effectiveness and speed, but if general economic conditions decline or hardware and memory advances make such power, cost effectiveness and speed more readily available, then adoption, use and sales of our products and services may be materially adversely affected. We will need to continue our product development efforts. We believe that our market will be characterized by increasing technical sophistication. We also believe that our eventual success will depend on our ability to continue to provide increased and specialized technical expertise. There is no assurance that we will not fall technologically behind competitors with greater resources. Although we believe that we enjoy a significant lead in our product development and introduction, and are hopeful that our patents provide some protection, we will likely need significant additional capital in order to continue to enjoy such a technological lead over competitors with more resources. A failure to obtain additional financing could prevent us from executing our business plan. We anticipate that current cash resources will be sufficient to fund our operations through mid-December 2001 at our current rate of spending. We believe that additional sources of financing can be secured to enable us to complete the development and commercialization of our proprietary technologies, although there is no assurance of our ability to do so. A failure to obtain additional funding could prevent us from making expenditures that are needed to allow us to hire additional personnel and continue development of the technology. If we raise additional funds by selling equity securities, the relative equity ownership of our existing investors could be diluted or the new investors could obtain terms more favorable than previous investors. If we raise additional funds through debt financing, we could incur significant borrowing costs. Market acceptance of our products and services is not guaranteed. We are at an early stage of development and our earnings will depend upon broad market acceptance and utilization of our intended products and services. There can be no assurance that our product and technology development efforts will result in new products and services, or that they will be successfully introduced. Future profitability is not guaranteed. We have not recognized any operating revenues to date. We expect to begin recognizing revenues from the sale of products and services in calendar 2002. There is no assurance that our plans will be realized, that we will be able to generate revenues in 2002 or that we will achieve profitability in the future. Limited market for our common stock. Our common stock is not listed on any exchange and trades in the over-the-counter (the "OTC") market. As such, the market for our common stock is limited and is not regulated by the authorities of any exchange. Further, the price of our common stock and its volume in the OTC market may be subject to wide fluctuations. 13. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANTs software inc. Date: November 14, 2001 By: /s/ Francis K. Ruotolo Francis K. Ruotolo, Chairman, Chief Executive Officer and President Date: November 14, 2001 By: /s/ Kenneth Ruotolo Kenneth Ruotolo Chief Financial Officer and Secretary 14. -----END PRIVACY-ENHANCED MESSAGE-----