-----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, E0TDve4q4facc05Bhp9UiUftKzUs9AldsyXqlh+xkk4vY2NC9rr90oED7BJIC0yO lZHjP16GFUyT+T/ea+NsCg== 0001145443-02-000701.txt : 20021114 0001145443-02-000701.hdr.sgml : 20021114 20021113191648 ACCESSION NUMBER: 0001145443-02-000701 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20021114 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-16299 FILM NUMBER: 02821548 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: SULLIVAN COMPUTER CORP DATE OF NAME CHANGE: 19870108 FORMER COMPANY: FORMER CONFORMED NAME: CHOPP COMPUTER CORP /DE/ DATE OF NAME CHANGE: 19990805 FORMER COMPANY: FORMER CONFORMED NAME: ANTS SOFTWARE COM INC DATE OF NAME CHANGE: 19990806 10QSB/A 1 d11489.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-QSB/A Amendment No. 1 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2002 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: 19,445,956 shares of common stock as of June 30, 2002 Transitional Small Business Disclosure Format: Yes |_| No |X| ================================================================================ EXPLANATORY NOTE We are filing this Form 10-QSB/A to amend and restate the information disclosed in Items 1 and 2 of Part I of the Form 10-QSB filed on August 13, 2002. The principal change was to revise the statement of operations to reflect non-cash stock compensation expense resulting from an extension of the exercise period for warrants and options granted to a former officer and our current Chief Scientist and to recognize non-cash stock compensation expense for options granted to non-employees. TABLE OF CONTENTS - -------------------------------------------------------------------------------- PART I. Financial Information Item 1. Financial Statements ............................................ 3-8 Item 2. Management's Plan of Operation .................................. 8-10 PART II. Other Information Item 1. Legal Proceedings ............................................... 10 Item 2. Changes in Securities ........................................... 10-11 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 ................................ 11-12 Risk Factors ............................................................ 12-14 Signatures .............................................................. 15 Certifications .......................................................... 15 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ANTs software inc. CONDENSED BALANCE SHEETS
June 30, 2002 December 31, 2001 (Unaudited) (Audited) ------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 568,019 $ 734,319 Prepaid insurance 141,403 139,208 Prepaid expenses 5,095 22,931 ------------ ------------ Total current assets 714,517 896,458 ------------ ------------ PROPERTY AND EQUIPMENT: Computers and software 649,800 619,708 Office furniture and fixtures 29,386 27,960 Leasehold Improvements 9,000 -- Less accumulated depreciation (256,099) (191,915) ------------ ------------ Property and equipment, net 432,087 455,753 ------------ ------------ OTHER ASSETS 5,100 5,100 ------------ ------------ Total assets $ 1,151,704 $ 1,357,311 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses 124,333 111,041 Accrued legal fees 88,540 112,199 Notes payable - former officer, current portion 75,000 75,000 Other current liability -- 125,000 ------------ ------------ Total current liabilities 287,873 423,240 ------------ ------------ Long-term note payable - former officer, net of current portion 150,000 150,000 ------------ ------------ Total liabilities 437,873 573,240 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.0001 par value; 100,000,000 shares authorized; 19,445,956 shares issued and outstanding at June 30, 2002, and 16,731,552 shares issued and outstanding at December 31, 2001 1,945 1,674 Common stock subscribed 92,009 -- Notes receivable from officers for stock purchases (135,000) (135,000) Additional paid-in capital 26,993,064 24,328,549 Accumulated deficit (26,238,187) (23,411,152) ------------ ------------ Total stockholders' equity 713,831 784,071 ------------ ------------ Total liabilities and stockholders' equity $ 1,151,704 $ 1,357,311 ============ ============
The accompanying notes are an integral part of these financial statements. 3 ANTs software inc. CONDENSED STATEMENTS OF OPERATIONS
Three months ended June 30, Six months ended June 30, 2002 2001 2002 2001 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- ----------- REVENUES $ -- $ -- $ -- $ -- OPERATING EXPENSES: General and administrative expenses 856,595 941,268 1,449,906 2,503,222 Research and development expenses 402,005 277,297 1,380,908 636,756 ----------- ----------- ----------- ----------- Loss from operations (1,258,600) (1,218,565) (2,830,814) (3,139,978) ----------- ----------- ----------- ----------- OTHER INCOME: Interest income, net 2,052 12,713 3,779 36,458 Other income -- 5,655 -- 4,170 ----------- ----------- ----------- ----------- Other income, net 2,052 18,368 3,779 40,628 ----------- ----------- ----------- ----------- NET LOSS $(1,256,548) $(1,200,197) $(2,827,035) $(3,099,350) =========== =========== =========== =========== BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.07) $ (0.08) $ (0.16) $ (0.22) =========== =========== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 18,932,573 14,907,221 18,075,920 14,398,759
The accompanying notes are an integral part of these financial statements. 4 ANTs software inc. CONDENSED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited) ----------- ----------- Net Loss $(2,827,035) $(3,099,350) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 64,185 62,864 Compensation expense on option and warrant extensions 525,635 -- Compensation expense recognized on options granted to non-employees 493,611 -- Compensation expense recognized on exercise of options -- 46,800 Lawsuit settlement -- 137,235 Gain on sale of fixed assets -- 2,985 Compensation expense recognized in form of note payable to former officer -- 300,000 Changes in operating assets and liabilities: Prepaid expenses 15,641 (257,603) Accounts payable & accrued expenses 13,292 41,260 Accrued legal fees (23,659) (59,443) Notes payable -- 190,753 Other receivables -- (19,909) ----------- ----------- Net cash used in operating activities (1,738,330) (2,654,408) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net (40,519) (44,451) ----------- ----------- Net cash used in investing activities (40,519) (44,451) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from private placements, net of commissions 1,294,340 1,730,000 Proceeds from issuance of convertible promissory notes 200,000 -- Common stock subscribed not issued 92,009 -- Proceeds from exercise of warrants 25,000 121,000 Proceeds from exercise of options 1,200 -- ----------- ----------- Net cash provided by financing activities 1,612,549 1,851,000 ----------- ----------- NET DECREASE IN CASH (166,300) (847,859) CASH, BEGINNING OF PERIOD 734,319 2,609,084 ----------- ----------- CASH, END OF PERIOD $ 568,019 $ 1,761,225 =========== ===========
NON-CASH FINANCING ACTIVITY: In June 2002, the Company issued 266,666 B Units in full satisfaction of two promissory notes to an accredited investor. See Note 3. In February 2002, the Company issued $125,000 in common stock previously held as an Other current liability. See Note 3. In February 2001, the Company issued 400,000 shares of stock as settlement of a lawsuit claim. See Note 5. 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 twelve months ended December 31, 2001, 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 six months ended June 30, 2002, are not necessarily indicative of the results that may be expected in the future. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 June 30, Six Months Ended June 30, ----------------------------------------------------------------------- 2002 2001 2002 2001 ----------------------------------------------------------------------- Net loss $(1,256,548) $(1,200,197) $(2,827,035) $(3,099,350) Weighted average shares of common stock outstanding - basic and dilutive 18,932,573 14,907,221 18,075,920 14,398,759 ----------------------------------------------------------------------- Basic and diluted net loss per share $ (0.07) $ (0.08) $ (0.16) $ (0.22)
As of June 30, 2002 outstanding options and warrants for the purchase of up to 8,261,308 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 April 1, 2002 through June 30, 2002, we sold to accredited investors, through a private offering, (i) 1,126,008 A Units, at a price of $0.75 per unit (the "A Units"), with each A 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 One Dollar ($1.00), exercisable until December 31, 2002, and (ii) 46,666 B Units, at a price of $0.75 per unit (the "B Units"), with each B 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 One Dollar ($1.00), exercisable until June 30, 2003. In connection with this offering, we paid $31,000 and issued 20,668 A Units in commissions and finder's fees. In addition, 24,998 A Units were issued in commissions related to offerings in the first quarter of 2002. As of June 30, 2002, all A Units were issued. The gross proceeds of the offering were $879,505. As of June 30, 2002, of the 1,172,674 A and B Units sold during the second quarter of 2002, there was a combination of 122,679 A and B Units subscribed but not yet issued. The proceeds will be used for general working capital purposes. On or about March 11, 2002 and March 14, 2002 we sold to an accredited investor, through a private offering, two convertible promissory notes without interest in aggregate principal face amount of $200,000, 6 convertible at the option of the holder into B Units at a conversion price of $0.75 per B Unit. On or about June 25, 2002, the investor converted both promissory notes into an aggregate of 266,666 B Units. The proceeds were used for general working capital purposes. In January 2001, the British Columbia Securities Commission requested 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. In April 2001, we received $125,000, for the exercise of a warrant to purchase 500,000 shares of Common Stock, from a former employee who we believed was a Canadian resident. Due to the pending inquiry we did not issue the shares to the former employee. Since April 2001, the $125,000 had been recorded as a current liability. These shares were issued during the first quarter of 2002 when it was determined that the former employee was not a Canadian resident and the amount was reclassified as capital. We agreed to extend the period during which a former officer could exercise two options to purchase a total of 220,000 shares of our common stock and we agreed to extend the period during which our current Chief Scientist could exercise a warrant to purchase 400,000 shares of common stock. A non-cash R&D expense totaling $525,635 was recognized during the first quarter of 2002. During the second quarter of 2002, a current employee exercised a warrant to purchase 100,000 shares of common stock for the aggregate amount of $25,000. During the first quarter of 2002, the following equity transactions occurred: a former employee exercised an option to purchase 600 shares of common stock for the aggregate amount of $1,200; a former consultant exercised an option to purchase 15,000 shares of common stock and paid the exercise price in services rendered during the first quarter of 2002; and 3,333 shares were issued in connection with a fourth quarter 2001 private placement. During the second quarter of 2002, stock options were granted to non-employees in exchange for services previously rendered and a non-cash compensation expense of $493,611 was recognized. 4. WARRANTS AND STOCK OPTIONS As of June 30, 2002, the Company had outstanding warrants to purchase up to 4,845,931 shares of common stock and options to purchase up to 3,415,377 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, 2002 3,594,933 2,731,522 6,326,455 Granted 238,699 4,000 242,699 Retired -- (9,000) (9,000) Expired -- -- -- Exercised through cash consideration -- (600) (600) Exercised through non-cash consideration (500,000) (15,000) (515,000) --------------------------------------------------- Outstanding at March 31, 2002 3,333,632 2,710,922 6,044,554 Granted 1,912,299 788,955 2,701,254 Retired -- -- -- Expired (300,000) (84,500) (384,500) Exercised through cash consideration (100,000) -- (100,000) Exercised through non-cash consideration -- -- -- --------------------------------------------------- Outstanding at June 30, 2002 4,845,931 3,415,377 8,261,308 ===================================================
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 issued 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. 7 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. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. 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 manipulate data. Plan of Operation We anticipate that, if we are sufficiently funded, over the next six months our focus will be threefold: continued development of our technology, marketing our technology, and supporting customers. The development effort will be focused on enhancing our technology and thereafter 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 2002. There is no assurance that our plans will be realized. The majority of our operating expenses and costs over the next six months are expected to be for and in connection with existing and additional personnel and equipment. We currently have eleven full-time employees, two part-time employees and two consultants. We view the recruitment of additional qualified technical personnel as essential to the further development and commercialization of our proprietary technologies. If we are sufficiently funded and we are successful in our recruitment efforts, we expect that our personnel and other operating costs will increase over current levels. We believe that due to a poor investment climate, securing additional sources of financing which would enable us to complete the development and commercialization of our proprietary technologies will be difficult, and there is no assurance of our ability to secure such financing. Technology Development Over the next six months we intend to continue to improve and add functionality both to the ANTs Concurrency Engine (ACE) and to the ANTs Data Server (ADS), assuming we are sufficiently funded. We are 8 actively engaging prospective partners and customers in technical discussions to determine what features are and will be most in demand for the markets we are targeting. We intend to then mobilize our engineering resources around developing those features. Once we are successful in developing partner or customer relationships, we anticipate that the specific needs of the partner or customer will drive the development of ACE and ADS functionality. Marketing Our product offering is comprised of two components, the core technology, ACE, which represents our intellectual property and ADS, a relational database which is the first implementation of ACE. ACE can be used as the engine for any application that manipulates data. ADS can be applied to certain segments of the database market. Target markets include: application server, wireless messaging, high-end on-line transaction processing (OLTP) and storage. Our go-to-market strategy includes potential OEM and co-marketing partnerships with leading vendors in each market and limited sales directly to customers. General and Administrative General and administrative expenses decreased from $941,268 during the three months ended June 30, 2001 to $856,595 for the three months ended June 30, 2002. Of the $856,595 expensed during the three months ended June 30, 2002, $430,361 was a non-cash expense related to option grants to non-employees. General and administrative expenses decreased from $2,503,222 during the six months ended June 30, 2001 to $1,449,906 for the six months ended June 30, 2002. Components of general and administrative expense for the six months ended June 30, 2002 include: salaries and benefits (20%), legal (12%), other professional services (51%) and other expenses (17%). We expect that if we are sufficiently funded, general and administrative expenses will increase moderately over the next six months. Research and Development Research and development expenses increased from $277,297 during the three months ended June 30, 2001 to $402,005 for the three months ended June 30, 2002. Research and development expenses increased from $636,756 during the six months ended June 30, 2001 to $1,380,908 for the six months ended June 30, 2002. These expenses are related to the research, testing and product development of our proprietary software. Of the $1,380,908 expensed through June 30, 2002, $525,635 was a non-cash expense related to the extension of certain options and warrants granted to a former officer and our current Chief Scientist. Salaries and benefits accounted for 86% and other expenses accounted for 14% of the total for the six months ended June 30, 2002. We expect that if we are sufficiently funded, our research and development expenses will increase moderately as additional staff is recruited. Personnel On July 31, 2002 two employees (one full-time, one part-time) left the company for personal reasons, and three employees and one contractor were laid off. Additionally, remaining employees took pay cuts ranging from 50-80%. We currently have eleven full-time employees, two part-time employees and two full-time consultants. Capital and Liquidity Resources We anticipate that if we are sufficiently funded, we will increase expenditures over the coming months as we continue to develop our technology and begin supporting customers. We expect to begin realizing revenues during calendar year 2002. Our cash balance as of June 30, 2002 was $568,019, which, when added to investments received since then, we believe will be adequate to fund our activities through September 2002 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. To carry out our plan of operation, we anticipate that over the next six months we will require approximately $1-2 million. We will pursue a number of avenues to raise these operating funds: 1) in the past we 9 have been successful raising funds through a series of private placements of our stock, we anticipate that we will continue to raise funds through private placements, 2) as we develop close relationships with large partners, we will pursue strategic investments from those partners, and 3) this year we expect to begin generating revenue, which will be a source of operating funds if we are successful. We are pursuing all three avenues, however, we believe, that due to a poor investment climate, securing additional investment will be difficult. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We were defendants 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. On November 21, 2001, the Fourth District Court of Appeal ruled in our favor by affirming the Superior Court's March 2000 summary judgment. Lauffs' time to petition for hearing in the California Supreme Court has expired, and no further review is now possible. In September 1999, we had filed an action for malicious prosecution against the lawyer and the plaintiff in this case. Since May 4, 2000, the malicious prosecution action had been stayed pending resolution of the appeal. On January 3, 2002, the stay was lifted. We are pursuing recovery of our legal fees incurred in connection with the proceedings. 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 the Company's 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: (i) we misrepresented that Dr. Peter Patton was a member of our board of directors; (ii) we failed to disclose an effort by a creditor to force us into involuntary bankruptcy; and (iii) Donald Hutton falsely identified himself as a certified public accountant in an SEC filing. On our about May 10, 2002 we were informed that the Superior Court of California in Los Angeles has, with the agreement of plaintiffs' counsel, dismissed the complaint without prejudice. We paid nothing to the plaintiffs or their attorneys in connection with this dismissal. We have received correspondence from an attorney in South Carolina claiming that, in 1996, one of their clients purchased shares of our common stock for $25,000, that they never received a stock certificate and that, had they received a stock certificate, they would have sold such stock at the highest market price at which our stock was listed over the last few years. We have requested documentation from this attorney and to date have not received sufficient documentation that such stock was ever purchased. Without such documentation, in the event that any proceeding is commenced, we intend to vigorously defend. The information is hereby incorporated by reference from the Form 10-QSB filed on May 14, 2002. There have been no other material developments in the period covered by this report. ITEM 2. CHANGES IN SECURITIES From April 1, 2002 through June 30, 2002, we sold to accredited investors, through a private offering, (i) 1,126,008 A Units, at a price of $0.75 per unit (the "A Units"), with each A 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 One Dollar ($1.00), exercisable until December 31, 2002, and (ii) 46,666 B Units, at a price of $0.75 per unit (the "B Units"), with each B 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 One Dollar ($1.00), exercisable until June 30, 2003. In connection with this offering, we paid $31,000 and issued 20,668 A Units in commissions and finder's fees. In addition, 24,998 A Units were issued in commissions related to offerings in the first quarter of 2002. As of June 30, 2002, all A Units were issued. The gross proceeds of the offering were $879,505. As of June 30, 2002, of the 1,172,674 A and B Units sold during the second quarter of 2002, there was a combination of 122,679 A and B Units subscribed but not yet issued. The proceeds will be used 10 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. On or about March 11, 2002, and March 14, 2002, we sold to an accredited investor, through a private offering, two convertible promissory notes without interest in aggregate principal face amount of $200,000, convertible at the option of the holder into B Units at a conversion price of $0.75 per B Unit. On or about June 25, 2002 the investor converted both promissory notes into an aggregate of 266,666 B Units. The proceeds were 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 The annual Shareholder Meeting of the Company was held on May 14, 2002. Proxies for the meeting were solicited pursuant to Regulation 14A under the Exchange Act. On the proposal to elect one Class 2 Director of the Company, 11,104,993 shares of the Company's voting securities voted on the matter, of which 11,014,742 shares were voted for Mr. Homer G. Dunn. The Class 1 and Class 3 directors and the Class 1 and Class 3 director positions were not up for re-election at the Shareholder Meeting. Papken S. Der Torossian and Thomas Holt are Class 1 directors and their term will expire at the annual meeting following the close of the 2003 fiscal year. Francis K. Ruotolo and John R. Gaulding are Class 3 directors and their term will expire at the annual meeting following the close of the 2002 fiscal year. On the proposal to ratify the selection of Burr, Pilger & Mayer, LLP, as independent public accountants for the Company for the fiscal year ending December 31, 2002, 14,612 shares of the Company's voting securities were abstaining, 11,021,927 shares voted for the proposal and 68,454 shares voted against the proposal. ITEM 5. OTHER MATTERS No changes during the period covered by this report. 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. 10.1 2000 Stock Option Plan of the Company, as listed in Exhibit 10.1 to the Company's 10-KSB filed on March 28, 2002, is hereby incorporated by reference. 10.2 Agreement and Plan of Merger dated December 8, 2000 between ANTs software inc. and ANTs software.com, as listed in Exhibit 10.2 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.3 Settlement Agreement and Full Release of All Claims dated January 11, 2001, between the Company and Frederick D. Pettit, as listed in Exhibit 10.3 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.4 Separation Agreement dated January 8, 2001, between the Company and Francis K. Ruotolo, as listed in Exhibit 10.4 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.5 Form of Indemnification Agreement signed with officers and directors of the Company, as listed in Exhibit 10.5 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.6 Registration Agreement between the Company and Karen Buechler and Eric Scott Buechler dated September 15, 2000, as listed in Exhibit 10.6 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.7 Registration Agreement between the Company and Arcade Investment Limited dated September 7, 2000, as listed in Exhibit 10.7 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 11 10.8 Amended Agreement between the Company and Arcade Investment dated October 6, 2000, as listed in Exhibit 10.8 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.9 Form of Registration Agreement between the Company and each of Discount Bank and Trust Company, Lemanik Sicav Convertible Bond, and Pershing Keen Nominees, as listed in Exhibit 10.9 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 99.1 Certification of ANTs software inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 regarding Quarterly Report on Form 10-QSB/A (Amendment No. 1) for the quarter ended June 30, 2002 (b) Reports on Form 8-K On June 25, 2002, we filed on Form 8-K a letter addressed to our shareholders bringing them up to date on our progress, which is hereby incorporated by reference. On August 5, 2002, we filed on Form 8-K a letter addressed to our shareholders bringing them up to date on our progress, which is hereby incorporated by reference. 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. 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 September 2002 at our current rate of spending. We believe that, due to a poor investment climate, securing additional sources of financing to enable us to complete the development and commercialization of our proprietary technologies will be difficult and there is no assurance of our ability to secure such financing. A failure to obtain additional funding could prevent us from making expenditures that are needed to pay current obligations, 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. 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 12 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 additional staff and retain current employees. If we are sufficiently funded, we plan to increase our technical personnel. 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 may 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 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 13 likely need significant additional capital in order to continue to enjoy such a technological lead over competitors with more resources. 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. Assuming we are able to secure sufficient financing, 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. We focus on the research and development of our proprietary technologies. Our present focus is on the research and development of our proprietary technologies. We believe that, given sufficient funding, these technologies will be the basis for the development of highly marketable commercial products. However, there can be no assurance of this and it is possible that our proprietary technologies have no commercial benefit or potential. In addition, from our inception to the present, we have had no commercial products and have not recognized any operating revenues. We have a long corporate existence and were inactive during much of our corporate history. We were formed as the Sullivan Computer Corporation, incorporated in Delaware in January 1979. We were privately owned until late 1986, at which time our common stock began trading in the over-the-counter market. This was a result of the registration of our common stock pursuant to the merger with CHoPP Computer Corporation, a British Columbia corporation. During the period from mid-1987 through late 1999, we had few or no employees. Our operating activities were limited and were largely administered personally by our former Chairman, Donald R. Hutton. Due to the passage of time and the poor condition of financial and other records, there can be no assurance that all matters have been addressed at this date. 14 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, 2002 By: /s/ Francis K. Ruotolo ----------------------------- Francis K. Ruotolo, Chairman, Chief Executive Officer and President Date: November 14, 2002 By: /s/ Kenneth Ruotolo ----------------------------- Kenneth Ruotolo Chief Financial Officer and Secretary CERTIFICATIONS I, Francis K. Ruotolo, certify that: 1. I have reviewed this quarterly report on Form 10-QSB/A of ANTs software inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: November 14, 2002 /s/ Francis K. Ruotolo ---------------------------------------- Francis K. Ruotolo, Chairman, Chief Executive Officer and President I, Kenneth Ruotolo, certify that: 1. I have reviewed this quarterly report on Form 10-QSB/A of ANTs software inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; Date: November 14, 2002 /s/ Kenneth Ruotolo ---------------------------------------- Kenneth Ruotolo Chief Financial Officer and Secretary 15 EX-99 3 ex99-1.txt EXHIBIT 99.1 Certification of ANTs software inc. pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 regarding Quarterly Report on Form 10-QSB/A (Amendment No. 1) for the quarter ended June 30, 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of ANTs software inc., a Delaware corporation (the "Company"), does hereby certify that: 1. The Company's Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2002 (the "Form 10-QSB/A") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. Information contained in the Form 10-QSB/A fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 14, 2002 By: /s/ Francis K. Ruotolo --------------------------------------- Francis K. Ruotolo, Chairman, Chief Executive Officer and President Date: November 14, 2002 By: /s/ Kenneth Ruotolo --------------------------------------- Kenneth Ruotolo Chief Financial Officer and Secretary -----END PRIVACY-ENHANCED MESSAGE-----