-----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, U33VfxbFAJeylmiIJpMFe6CqZJyta0lb6I3ykX5WRWjwb34RiENUUIeUxmLMqpL/ tIHbHfgPAcONsIdBB8B6WQ== 0001157523-05-004814.txt : 20050516 0001157523-05-004814.hdr.sgml : 20050516 20050516164828 ACCESSION NUMBER: 0001157523-05-004814 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050516 DATE AS OF CHANGE: 20050516 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: 05835275 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 a4889110.txt 10QSB ANTS SOFTWARE ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________ FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2005 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ________________ Commission file number: 000-16299 ________________ 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) 700 Airport Blvd. Suite 300, Burlingame, CA 94010 (Address of principal executive offices) (Zip Code) (650) 931-0500 (Registrant's Telephone Number, including area code) 801 Mahler Rd. Suite G, Burlingame, CA 94010 (Former name, former address and former fiscal year, if changed since last report) 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: 37,757,181 shares of common stock as of March 31, 2005 Transitional Small Business Disclosure Format: Yes [ ] No [X] ================================================================================ TABLE OF CONTENTS - --------------------------------------------------------------------------------
PART I. Financial Information Item 1. Financial Statements ........................................................................3-10 Item 2. Management's Plan of Operation ............................................................10-15 Item 3. Controls and Procedures ......................................................................15 PART II. Other Information Item 1. Legal Proceedings .............................................................................15 Item 2. Unregistered Sales of Equity Securities .....................................................15-16 Item 3. Defaults Upon Senior Securities.................................................................16 Item 4. Submission of Matters to a Vote of Security Holders.............................................16 Item 5. Other Information...............................................................................16 Item 6. Exhibits.....................................................................................16-17 Risk Factors.........................................................................................17-20 Signatures..............................................................................................20
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ANTS SOFTWARE INC. BALANCE SHEETS ____________
March 31, December 31, 2005 2004 ASSETS (Unaudited) (Audited) ---------------- ---------------- Current assets: Cash $ 3,360,775 $ 1,448,724 Accounts receivable 114,100 - Prepaid insurance - 21,375 Prepaid expenses 25,593 65,292 ---------------- ---------------- Total current assets 3,500,468 1,535,391 ---------------- ---------------- Computers and software 1,117,839 949,046 Office furniture and fixtures 29,386 29,386 Leasehold improvements 46,169 16,675 Less accumulated depreciation (735,925) (670,982) ---------------- ---------------- Property and equipment, net 457,469 324,125 ---------------- ---------------- Other assets - security deposits 9,100 9,100 ---------------- ---------------- Total assets $ 3,967,037 $ 1,868,616 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 240,578 $ 333,916 Bonuses payable 199,167 - Deferred revenues 27,333 - Capital lease payable 4,365 4,871 ---------------- ---------------- Total current liabilities 471,443 338,787 ---------------- ---------------- Long-term liabilities: Capital lease payable - 648 ---------------- ---------------- Total liabilities 471,443 339,435 ---------------- ---------------- Commitment and contingencies Stockholders' equity: Preferred stock, $0.0001 par value; 50,000,000 shares authorized, no shares issued and outstanding in 2005 and 2004, respectively - - Common stock, $0.0001 par value; 100,000,000 shares authorized; 37,757,181 and 35,298,817 shares issued and outstanding, respectively 3,776 3,530 Common stock subscribed, not issued 1,049,000 30,000 Additional paid-in capital 39,062,325 36,316,987 Accumulated deficit (36,619,507) (34,821,336) ---------------- ---------------- Total stockholders' equity 3,495,594 1,529,181 ---------------- ---------------- Total liabilities and stockholders' equity $ 3,967,037 $ 1,868,616 ================ ================ The accompanying notes are an integral part of these condensed financial statements.
3 ANTS SOFTWARE INC. STATEMENTS OF OPERATIONS ____________
Three Months ended March 31, 2005 2004 (Unaudited) (Unaudited) -------------------------------------------- Revenues: Licenses $ 86,100 $ -- Maintenance 667 -- -------------------------------------------- Total revenues 86,767 -- Expenses: Sales and marketing 575,359 145,270 Research and development 787,089 459,468 General and administrative 525,603 346,890 -------------------------------------------- Total expenses 1,888,051 951,628 -------------------------------------------- Loss from operations (1,801,284) (951,628) -------------------------------------------- Other income (expense): Income earned from expired contract -- 310,943 Interest income 2,528 2,083 Gain on legal settlement 1,500 2,000 Write-off of officer's note receivable for stock purchases -- (45,000) Interest expense (915) (87,544) -------------------------------------------- Other income (expense), net 3,113 182,482 -------------------------------------------- Net loss $ (1,798,171) $ (769,146) ============================================ Basic and diluted net loss per common share $ (0.05) $ (0.03) ============================================ Shares used in computing basic and diluted net loss per share 37,176,396 27,561,702 ============================================ The accompanying notes are an integral part of these condensed financial statements.
4 ANTS SOFTWARE INC. STATEMENTS OF CASH FLOWS ____________
Three Months ended March 31, 2005 2004 (Unaudited) (Unaudited) ----------- ----------- Cash flows from operating activities: Net loss $(1,798,171) $ (769,146) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 64,943 43,613 Amortization of debt discount and beneficial conversion feature -- 86,601 Compensation expense recognized on options granted to non-employees 4,672 -- Write-off of note receivable to officer for stock purchases -- 45,000 Changes in operating assets and liabilities: Prepaid insurance and expenses 61,075 38,863 Accounts receivable (114,100) -- Accounts payable and other accrued expenses (93,338) 44,508 Bonuses payable 199,167 -- Deferred salaries -- 19,703 Deferred revenue 27,333 (310,943) ----------- ----------- Net cash used in operating activities (1,648,419) (801,801) ----------- ----------- Cash flows used in investing activities--purchases of property and equipment, net (198,287) (36,995) ----------- ----------- Cash flows from financing activities: Proceeds from private placements, net of commissions 842,650 4,008,280 Proceeds from exercise of options 25,416 164,290 Proceeds from common stock subscribed for warrant exercises 1,049,000 -- Proceeds from exercise of warrants, net of commissions 1,842,846 -- Payments on capital lease obligations (1,155) (769) ----------- ----------- Net cash provided by financing activities 3,758,757 4,171,801 ----------- ----------- Net increase in cash 1,912,051 3,333,005 ----------- ----------- Cash at beginning of period 1,448,724 541,725 ----------- ----------- Cash at end of period $ 3,360,775 $ 3,874,730 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 915 $ 694 Taxes -- -- Non-cash investing and financing activities: Common stock issued for subscribed shares 30,000 -- The accompanying notes are an integral part of these condensed financial statements
5 ANTS SOFTWARE INC. NOTES TO CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited condensed 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, 2004, 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 make the financial statements not misleading and to fairly present the financial position, results of operations, and cash flows on a consistent basis. Operating results for the three months ended March 31, 2005 and 2004 are not necessarily indicative of the results that may be expected in the future. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. Management has evaluated the Company's current financial position and its available resources and plans to raise additional funds through the issuance of equity securities during 2005 and possibly thereafter. Should the Company be unsuccessful in raising additional funds, it is unlikely that the Company will continue operations beyond November 30, 2005. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition - We recognize revenue in accordance with the provisions of Statement of Position ("SOP") 97-2, "Software Revenue Recognition", and SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions". Revenue consists primarily of revenue earned under software license agreements and maintenance support agreements (otherwise known as post-contract customer support or "PCS"). We use the residual method to recognize revenue when a license agreement includes one or more elements to be delivered at a future date. If there is an undelivered element under the license arrangement, we defer revenue based on vendor-specific objective evidence, or VSOE, of the fair value of the undelivered element, as determined by the price charged when the element is sold separately. If VSOE of fair value does not exist for all undelivered elements, we defer all revenue until sufficient evidence exists or all elements have been delivered. Under the residual method, discounts are allocated only to the delivered elements in a multiple element arrangement with any undelivered elements being deferred based on VSOE of fair values of such undelivered elements. Revenue from software license arrangements, including prepaid license and maintenance support fees, is recognized when all of the following criteria are met: o Persuasive evidence of an arrangement exists. o Delivery has occurred and there are no future deliverables except post-contract customer support ("PCS"). o The fee is fixed and determinable. If we cannot conclude that a fee is fixed and determinable, then assuming all other criteria have been met, revenue is recognized as payments become due in accordance with paragraph 29 of SOP 97-2; and o Collection is probable. Basic And Diluted Net Loss Per Share - Basic net loss per share is calculated in accordance with FASB 128 using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is 7 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 March 31, ------------------------------- 2005 2004 ------------------------------- Net loss $(1,798,171) $ (769,146) Weighted average shares of common stock outstanding - basic and dilutive 37,176,396 27,561,702 ------------------------------- Basic and diluted net loss per share $ (0.05) $ (0.03) ===============================
As of March 31, 2005 and 2004, outstanding options and warrants for the purchase of up to 15,367,888 shares of common stock at prices ranging from $0.52 to $10.50 per share, and 12,379,867 shares of common stock at prices ranging from $0.52 to $11.63 per share, respectively, were anti-dilutive, and therefore, not included in the computation of diluted loss per share. Stock-Based Compensation - In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure." This Statement amends SFAS No. 123, "Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company follows APB 25 in accounting for its employee stock options. The disclosure provisions of SFAS 148 have been incorporated into these financial statements and accompanying footnotes. At March 31, 2005 and 2004, the Company had a stock-based employee compensation plan. The Company accounts for this plan under the recognition and measurement principles of Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations. The following table illustrates the effect on net loss had the Company applied the fair value recognition provisions of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
Three Months ended March 31, ---------------------------------------------- 2005 2004 ---------------------------------------------- Net loss, as reported $ (1,798,171) $ (769,146) Less: Stock-based employee compensation expense determined under the fair- value based method (271,821) (461,660) ---------------------------------------------- Net loss, pro forma $ (2,069,992) $ (1,230,806) ============================================== Basic and diluted net loss per share: As reported $ (0.05) (0.03) ============================================== Pro forma $ (0.06) $ (0.04) Employee options for the purchase of up to an aggregate of 125,000 and
7 405,000 shares of common stock were granted during the three months ended March 31, 2005 and 2004, respectively. The weighted average fair value of employee options granted during the three- month periods ending March 31, 2005 and 2004 was $1.85 and $0.69 per share, respectively. The pro forma amounts for net loss per share in the table above were estimated using the Black-Scholes option-pricing model with the following weighted average assumptions for the periods ended March 31, 2005 and 2004, respectively. Three Months ended March 31, ---------------------------------- 2005 2004 ---------------------------------- Interest rate 3.30% 3.16% Dividend yield 0.00% 0.00% Expected volatility 107% 123 % Expected life in years 5.00 5.00 Recent Accounting Pronouncements - In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (Revised), "Share-Based Payment" ("SFAS 123(R)"). SFAS 123(R) replaces SFAS 123 and supersedes APB 25. SFAS 123(R) is effective as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. SFAS 123(R) requires that the costs resulting from all share-based payment transactions be recognized in the financial statements. SFAS 123(R) applies to all awards granted after the required effective date and shall not apply to awards granted in periods before the required effective date, except if prior awards vest, are modified, repurchased or cancelled after the effective date. SFAS 123(R) also amends Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows", to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. Certain reclassifications have been made to conform the prior year financial statements to the presentation of the current period. 3. EQUITY TRANSACTIONS From November 12, 2004 through January 12, 2005, the Company sold to accredited investors, through a private offering, 2,123,000 F Units at a price of one dollar ($1.00) per F Unit, with each F 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 exercise price of two dollars ($2.00), exercisable until November 12, 2007. The gross proceeds from the offering were $2,123,000, of which $933,000 was received in January 2005. The Company issued 963,000 shares in January 2005, of which 30,000 shares had been recorded as common stock subscribed as of December 31, 2004. The Company paid cash commissions totaling $90,350 and issued 63,181 F Units to the placement agent in January 2005 in connection with this private offering. . The sales of these securities were made in reliance upon Rule 506 and Section 4(2) of the Securities Act of 1933. Beginning February 1, 2005, the Company offered warrant holders the right to exercise their warrants at the discounted price of $1.40 per share. As of March 31, 2005, warrants representing 2,140,283 shares had been exercised and the Company issued 1,390,997 of these shares. The Company expects to issue the remaining 749,286 shares in the second fiscal quarter of 2005. Gross proceeds were $2,996,396. The Company paid cash commissions of $109,800 in connection with the warrant exercises, $104,550 was paid during the first quarter of 2005 and $5,250 was paid in April 2005. As of March 31, 2005, net cash proceeds of the warrant exercises were $2,891,846. The sales of these securities were made in reliance upon Rule 506 and Section 4(2) of the Securities Act of 1933. On February 25, 2005, a consultant exercised an option for 12,886 shares. The option was previously granted in lieu of cash compensation. Non-employee stock compensation expense of $3,526 related to the exercise was recognized in the first quarter of 2005. An additional $1,146 of non-employee stock compensation expense was also recognized for shares that vested during the first quarter related to an option for a continuing consultant. 8 During the three months ended March 31, 2005, a total of 28,300 shares of common stock of the Company were purchased through the exercise of stock options resulting in cash proceeds to the Company of $25,416. 4. WARRANTS AND STOCK OPTIONS As of March 31, 2005, the Company had outstanding warrants to purchase up to 10,355,626 shares of common stock and options to purchase up to 5,012,262 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.
Stock Options Warrants Total ------- -------- ----- Outstanding at December 31, 2004 4,969,448 11,444,728 16,414,176 Granted 125,000 1,126,181 1,251,181 Retired/forfeited 41,000 - 41,000 Expired - 75,000 75,000 Exercised 41,186 2,140,283 2,181,469 --------------------------------------------------- Outstanding at March 31, 2005 5,012,262 10,355,626 15,367,888 ===================================================
5. DEFERRED REVENUES As of March 31, 2005, deferred revenues consisted of payments from customers in advance for software maintenance agreements. The revenues are being amortized to maintenance revenue on a straight-line basis over 12 months from the contract date. 6. BONUSES PAYABLE On February 1, 2005 the Company and its Officers agreed that if the Company raised a certain amount of financing between February 1, 2005 and June 30, 2005, the Officers would be paid a bonus equal to the aggregate amount that such Officers' salaries had been reduced from October 16, 2004 and until full salaries had been restored. In March 2005, the Company raised the required financing and in April 2005 the Company restored full salaries and paid the bonuses in the aggregate amount of $199,167. 7. SUBSEQUENT EVENTS On April 27, 2005, the Company entered into a lease with Bayside Plaza, a partnership, for approximately 15,600 square feet of general commercial offices located at 700 Airport Boulevard, Suite 300, Burlingame, California (the "Premises"). The Company moved its principal offices to these Premises on May 2, 2005. The Premises are used for the purposes of general office use including, without limitation, hosting server operations and for software development. The lease has an initial term of three years, subject to the Company's right to extend the term of the lease for a total of six additional years. The base rent under this lease is $16,060 per month for the first year, $17,520 per month for the second year and $20,440 per month for the third year. The Company will receive abated rent for the period from May 1, 2005 to July 30, 2005. In the event that the Lease is not extended, the total obligations of the Company hereunder amount to $600,060. The Company expects that in the second fiscal quarter of 2005, it will incur approximately $175,000 in expenses related to moving its principal offices. Such expenses include: moving furniture and equipment, leasehold improvements to the new facility, a new telephone system, purchase of a limited amount of office furniture and writing off leasehold improvements such as electrical and facilities upgrades that could not be moved from the old offices. At the Company's annual meeting of stockholders held on April 5, 2005 (the "Annual Meeting"), stockholders: 1) elected Homer G. Dunn and Robert Henry Kite as Class 2 directors, 2) voted to amend the Company's 2000 Stock Option Plan (the "Plan") to increase the shares reserved under the Plan from 5,450,000 to 10,450,000 and 3) ratified the selection of Burr, Pilger & Mayer, LLP, as independent accountants for the Company for the calendar year ending December 31, 2005. On April 25, 2005 the Board of Directors granted a total of 1,204,000 stock options to all recently hired, and certain existing, employees at a per share exercise price of $2.31. 9 During April 2005, the Company raised a net total of $1,963,400 as follows: 1) two investors exercised warrants for a total of 471,000 shares at a price of $1.40 per share, resulting in gross proceeds to the Company of $659,400, and net proceeds after payment of a $56,000 cash commission, of $603,400, and 2) an accredited investor purchased 850,000 units at a price of one dollar and sixty cents ($1.60) per unit (the "G Units"), with each G 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 exercise price of three dollars and fifty cents ($3.50), exercisable until April 14, 2008. Net proceeds of the G Unit purchase were $1,360,000. The sales of these securities were made in reliance upon Rule 506 and Section 4(2) of the Securities Act of 1933. 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 successful 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. The Company is engaged in the development and marketing of the ANTs Data Server, a software product that is intended to significantly improve the speed at which computers can manipulate data. The Company anticipates that, over the next twelve months its focus will be marketing its first product, supporting customers, and continued research and development. Technology Development Over the next twelve months, the Company intends to continue to improve and add functionality to the ANTs Data Server. The Company has built out the basic functionality to the point where it believes that virtually all additional functionality will be driven by partner or customer demand. The Company intends to actively engage prospective partners and customers in technical discussions to determine what features are and will be most in demand for the markets the Company is targeting. The Company intends to mobilize its engineering resources around developing those features. 10 Marketing The Company's go-to-market strategies include: o Focus on the high-performance, high-volume, transaction intensive industry segments where cost constraints and performance demands might dictate a willingness to adopt new technology. Messaging will feature the "high-performance, no compromise" value proposition. o Execute a "compatible with," not a "replacement of," strategy for the leading RDBMS's such as: Oracle, IBM's DB2, and Microsoft's SQL Server, since the RDBMS market is mature and customers have substantial investment in infrastructure, development, and support, in the leading RDBMS vendors' products. o Sell the ANTs Data Server through three sales channels; o Direct sales to end-users o Through Independent Software Vendors ("ISV") who will incorporate the ANTs Data Server with their own product which they will sell to their customers. To date, the company has signed a license agreement with one ISV, Wireless Services Corporation. o Through System Integrators ("SI's") and Value Added Resellers ("VARs") - companies which generally have deep expertise in certain vertical markets and who integrate the best products to develop complete solutions for their customers. To date, the company has signed agreements with three SI's and VARs: Grupo S&C, Pointe Technology Group and Computer Intelligence Group. Raising Capital The Company anticipates that current cash resources will be sufficient to fund its operations through November 2005 at its expected rate of spending. To carry out its plan of operations, the Company anticipates that, over the next twelve months, it will require an additional $5 million. The Company intends to pursue a number of avenues to raise these additional operating funds: 1) in the past the Company has been successful in raising funds through private placements of its stock and anticipates that it will continue to raise funds through private placements, 2) as the Company develops close relationships with large partners, it will pursue strategic investments from those partners, and 3) the Company has begun generating revenue and expects to continue generating revenue during the next twelve months, which should be a source of some operating funds. The Company intends to pursue all three avenues. Personnel and Appointment of Officers The Company currently has 31 full-time employees. The Company views the recruitment of additional qualified personnel as essential to the development, marketing and sale of its product. Over the next 12 months, the Company expects that its personnel costs will increase moderately to substantially over current levels. On April 26, 2005, the Company entered into agreements terminating the Salary Agreements discussed below (the "Termination Agreements") with each of the following persons: Francis K. Ruotolo, the Company's Chairman, Boyd Pearce, the Company's President and Chief Executive Officer, Kenneth Ruotolo, the Company's Chief Financial Officer and Secretary, Clifford Hersh, the Company's Chief Scientist, Girish Mundada, the Company's Vice President of Engineering and Jeffrey R. Spirn, Ph.D., the Company's Vice President of Research and Development (each an "Officer"). In October 2004, pursuant to salary agreements by and between the Company and each Officer dated as of October 29, 2004 (the "Salary Agreements"), each Officer's salary (the "Original Salary") was reduced to 50 percent of the Original Salary, and the Company agreed to pay each Officer a bonus, equal to the aggregate amount that such Officer's salary had been reduced, should the Company raise a certain amount of financing between October 16, 2004 and February 1, 2005. 11 Effective January 1, 2005, each Officer's salary was increased to 75 percent of the Original Salary pursuant to amendment agreements by and between the Company and each Officer dated as of January 13, 2005. The Company did not raise the required financing by February 1, 2005 and no bonus was paid to the Officers. On February 1, 2005, the Company and the Officers agreed, pursuant to amendment agreements by and between the Company and each Officer dated as of February 1, 2005, that if the Company raised a certain amount of financing between February 1, 2005 and June 30, 2005, the Officers would be paid a bonus, equal to the aggregate amount that such Officer's salary had been reduced since October 16, 2004. In March 2005, the Company raised the required financing and in April 2005, the Company paid the bonuses in performance of its obligations under the Salary Agreements, as amended. Also in April 2005, the Company and Officers agreed to terminate the Salary Agreements and the related amendment agreements, and to restore each Officer's salary to the Original Salary. Patents On July 6, 2004, the United States Patent and Trademark Office ("PTO") issued patent 6,760,726 for the ANTs System and Method of Managing Concurrent Operations on Linked Lists and on July 13, 2004, the PTO issued patent 6,763,447 for the ANTs Lock-Free List for use with Computer System Utilizing FIFO Queue for Tracking Order of Various Sublists. The Company is awaiting the PTO's response regarding six additional patent applications. Revenues During the first quarter of 2005, the Company successfully closed the sale of the ANTs Data Server to two customers and invoiced an aggregate of $114,100. The Company recognized $86,767 (comprised of $86,100 in license fees and $667 in fees for maintenance and support services already performed) as revenue on the statements of operations. The remainder of the invoiced amount relates to maintenance and support services to be performed after March 31, 2005, and was recorded as deferred revenue on the balance sheets. Operating Expenses Operating expenses for the quarters ending March 31, 2005 and 2004 were as follows:
Operating Expenses - Three Months ended March 31, 2005 2004 ---- ---- % Change vs. $ in 000's % of Total Prior Period $ in 000's % of Total Sales and marketing $ 575 30% 297% $ 145 15% Research and development 787 42% 71% 460 48% General and administrative 526 28% 52% 347 37% ---------------------------------------------------------------------------- Total operating expenses $ 1,888 100% 98% $ 952 100% ============================================================================
From the first quarter of 2004 to the first quarter of 2005, the Company has shifted focus primarily from development of the ANTs Data Server to development, marketing and selling the ANTs Data Server. While overall expenses approximately doubled quarter over quarter, marketing and sales expenses have approximately tripled as the Company has geared up to sell its product. 12 Sales and Marketing Expenses Sales and marketing expenses consist primarily of employee salaries and benefits (related to sales, sales support - including proof of conversions and marketing), consultant fees, travel, marketing programs (trade shows, public relations, lead generation programs), marketing and sales literature and presentations and allocation of corporate overhead. From the first quarter of 2004 to the same period in 2005, sales and marketing expense increased as follows: 1) a $298,000, or 290%, increase in compensation and benefits expense related to an increase from one to seven sales and sales support personnel and increased fees paid to marketing consultants; 2) an increase of $42,000, or 171%, in implementing marketing programs; 3) an increase of $24,000, or 200% in travel; and 4) an increase in allocation of general corporate overhead of $60,000, or 767%, based on the increase in the number of sales and marketing personnel, as well as an increase in total corporate overhead expenses. The Company expects that its marketing and sales expenses will continue to increase substantially as more marketing and sales staff are hired and more programs are implemented. Research and Development Expenses Research and development ("R&D") expenses consist primarily of employee salaries and benefits, fees to consultants, depreciation on equipment and software, and allocation of corporate overhead. During the first quarter of 2004, the Company was still in the basic R&D process related to making the product viable for users. Since then, the majority of R&D efforts have been devoted to adding functionality and testing and refining the product based on feedback from customers and potential customers. From the first quarter of 2004 to the same period in 2005, R&D expense increased as follows: 1) an increase in compensation expense (salaries, benefits and consulting fees) of $295,000 or 78% as R&D personnel increased by 50%, from 10 to 15 people; and 2) depreciation expense increased by $18,000 or 47%, as the Company purchased approximately $344,000 of new equipment and leasehold improvements related to R&D during the 12 months ended March 31, 2005. The Company expects that its research and development expenses will increase moderately over the next 12 months as new engineers are hired and hardware is purchased to add functionality and test its product. General and Administrative Expenses General and administrative expenses consist primarily of salaries and benefits, consultant fees, legal and investor relation fees, recruiting fees, rent and insurance. From the first quarter of 2004 to the same period in 2005, general and administrative expense increased as follows: 1) an increase of $144,000 (or 114%) in salaries, $100,000 of which was related to payback of reduced salary, and $37,500 of which was attributable to the addition of the Company's President and CEO; and 2) an increase of $30,000 for medical insurance expenses due to an increase in rates as well as an increase in the number of people covered under the plan. The Company expects that, over the next 12 months, its general and administrative expenses will increase moderately as the Company expands. The majority of the Company's operating expenses and costs over the next 12 months are expected to relate to marketing and selling the ANTs Data Server, continuing technical development, and supporting customers. Other Income (Expense), Net Other income (expense), net, decreased by $179,400, or 98%, from 2004 to 2005 due to the following: 1) in 2004, the Company recognized $310,943 in other income related to the expiration of a contract with Net Soft Systems, Inc., 2) in 2004, a note receivable to a former officer in the amount of $45,000 was written off, and 3) $86,600 in interest expense related to two convertible promissory notes was recognized in 2004. Since these notes were converted to stock in July 2004, there was no corresponding expense in 2005. 13 Off-Balance Sheet Arrangements During 2003, the Company entered into an operating lease for certain computer equipment used in the Company's development lab. The total original lease obligation was $9,155 and is payable in monthly installments of $254 over a three-year period. The outstanding lease obligation is not reported on the balance sheet, as title to the equipment remains with the lessor until the Company pays the total obligation and a buyout fee. As of March 31, 2005, the total outstanding obligation was $4,833. Should the Company default in its lease obligation, the lessor could choose to repossess the computer equipment. Should the lessor do so, it would not have a material effect on the Company's ability to maintain normal business operations. On April 27, 2005, the Company entered into a lease with Bayside Plaza, a partnership, for approximately 15,600 square feet of general commercial offices located at 700 Airport Boulevard, Suite 300, Burlingame, California (the "Premises"). The Company moved its principal offices to these Premises on May 2, 2005.The Premises are used for the purposes of general office use including, without limitation, hosting server operations and for software development. The lease has an initial term of three years, subject to the Company's right to extend the term of the lease for a total of six additional years. The base rent under this lease is $16,060 per month for the first year, $17,520 per month for the second year and $20,440 per month for the third year. The Company will receive abated rent for the period from May 1, 2005 to July 30, 2005. In the event that the Lease is not extended, the total obligations of the Company there under amount to $600,060. Critical Accounting Policies Use of Estimates - The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The Company evaluates such estimates and assumptions on an ongoing basis and bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and probably will differ from these estimates under different assumptions or conditions. The Company believes the following represents its critical accounting policies: o Revenue recognition o Stock-based compensation o Income taxes Revenue Recognition - We recognize revenue in accordance with the provisions of Statement of Position ("SOP") 97-2, "Software Revenue Recognition", and SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions". Revenue consists primarily of revenue earned under software license agreements and maintenance support agreements (otherwise known as post-contract customer support or "PCS"). We use the residual method to recognize revenue when a license agreement includes one or more elements to be delivered at a future date. If there is an undelivered element under the license arrangement, we defer revenue based on vendor-specific objective evidence, or VSOE, of the fair value of the undelivered element, as determined by the price charged when the element is sold separately. If VSOE of fair value does not exist for all undelivered elements, we defer all revenue until sufficient evidence exists or all elements have been delivered. Under the residual method, discounts are allocated only to the delivered elements in a multiple element arrangement with any undelivered elements being deferred based on VSOE of fair values of such undelivered elements. 14 Stock-based Compensation - The Company uses the fair value recognition provisions of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation, to value stock options granted to employees and independent consultants. The values are derived from a model, which requires historical assumptions and management judgment. Stock-based compensation for employees is disclosed in the pro-forma net loss statement in note 1 of the Company's annual financial statements. Stock-based compensation for independent consultants is expensed in the statement of operations. Income Taxes - The carrying value of the Company's deferred tax assets are dependent upon the Company's ability to generate sufficient future taxable income in certain tax jurisdictions. Until such time as the Company establishes a taxable income in such jurisdictions, the total amount of the deferred tax assets shall be offset with a valuation allowance. Capital and Liquidity Resources The Company's cash balance as of March 31, 2005 was approximately $3.4 million and with subsequent financings, the cash balance as of the date of this report, was approximately $4.4 million, which the Company believes will be adequate to fund its activities through November 2005 at its expected rate of spending. The Company is involved in discussions from time to time with prospective investors in order to raise capital to support its continued operations and although it has consistently raised capital, there can be no assurance that it will raise capital on acceptable terms, or at all. Over the next twelve months, if sufficiently funded, the Company intends to increase expenditures moderately to substantially as it actively markets and sells the ANTs Data Server and hires additional sales, marketing, and technical personnel. There can be no assurance that the Company's continued product development and infrastructure development will not require a much higher rate of spending. ITEM 3. CONTROLS AND PROCEDURES The effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) was evaluated under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this quarterly report. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective in providing reasonable assurance that the information required to be disclosed in this quarterly report is recorded, processed, summarized and reported within the time period required for the filing of this quarterly report. There was no change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended) identified in connection with the evaluation of the Company's internal control performed during its last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not a party to any material pending legal proceeding and, to the best of its knowledge, no such action by or against the Company, has been threatened. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES From November 12, 2004 through January 12, 2005, the Company sold to accredited investors, through a private offering, 2,123,000 F Units at a price of one dollar ($1.00) per F Unit, with each F 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 exercise price of two dollars ($2.00), exercisable until November 12, 2007. The gross proceeds from the offering were $2,123,000, of which $933,000 was received in January 2005. The Company issued 963,000 shares in January 2005, of which 30,000 shares had been recorded as common stock subscribed as of December 31, 2004. The Company paid cash commissions totaling $90,350 and issued 63,181 F Units to the placement agent in January 2005 in connection with this private offering. . The sales of these securities were made in reliance upon Rule 506 and Section 4(2) of the Securities Act of 1933. 15 Beginning February 1, 2005, the Company offered warrant holders the right to exercise their warrants at the discounted price of $1.40 per share. As of March 31, 2005, warrants representing 2,140,283 shares had been exercised and the Company issued 1,390,997 of these shares. The Company expects to issue the remaining 749,286 shares in the second fiscal quarter of 2005. Gross proceeds were $2,996,396. The Company paid cash commissions of $109,800 in connection with the warrant exercises, $104,550 was paid during the first quarter of 2005 and $5,250 was paid in April 2005. As of March 31, 2005, net cash proceeds of the warrant exercises were $2,891,846. The sales of these securities were made in reliance upon Rule 506 and Section 4(2) of the Securities Act of 1933. During April 2005, the Company raised a net total of $1,963,400 as follows: 1) two investors exercised warrants for a total of 471,000 shares at a price of $1.40 per share, resulting in gross proceeds to the Company of $659,400, and net proceeds after payment of a $56,000 cash commission, of $603,400, and 2) an accredited investor purchased 850,000 units at a price of one dollar and sixty cents ($1.60) per unit (the "G Units"), with each G 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 exercise price of three dollars and fifty cents ($3.50), exercisable until April 14, 2008. Net proceeds of the G Unit purchase were $1,360,000. 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 None 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 INFORMATION None ITEM 6. EXHIBITS (a) Exhibits 3.1 Amended and Restated Certificate of Incorporation of the Company, as listed in Exhibit 3.1 to the Company's 10-QSB filed on August 14, 2003, 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 Letter Agreement between the Company and Boyd Pearce, as listed in Exhibit 10.1 to the Company's Form 8-K filed on October 20, 2004, is hereby incorporated by reference. 10.2 Salary Agreement between the Company and Francis K. Ruotolo, as listed in Exhibit 10.1 to the Company's Form 8-K filed on November 1, 2004, is hereby incorporated by reference. 10.3 Salary Agreement between the Company and Boyd Pearce, as listed in Exhibit 10.2 to the Company's Form 8-K filed on November 1, 2004, is hereby incorporated by reference. 10.4 Salary Agreement between the Company and Kenneth Ruotolo, as listed in Exhibit 10.3 to the Company's Form 8-K filed on November 1, 2004, is hereby incorporated by reference. 10.5 Salary Agreement between the Company and Clifford Hersh, as listed in Exhibit 10.4 to the Company's Form 8-K filed on November 1, 2004, is hereby incorporated by reference. 10.6 Salary Agreement between the Company and Jeffrey R. Spirn, PhD, as listed in Exhibit 10.5 to the Company's Form 8-K filed on November 1, 2004, is hereby incorporated by reference. 10.7 Salary Agreement between the Company and Girish Mundada, as listed in Exhibit 10.1 to the Company's Form 8-K filed on November 2, 2004, is hereby incorporated by reference 14. Code of Ethics, as listed in Exhibit 14 to the Company's 10-KSB filed on March 30, 2004, is hereby incorporated by reference. 31.1 Certification of the Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 16 31.2 Certification of the Chief Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K During the fiscal quarter covered by this report, the Company filed the following reports on Form 8-K: (i) On January 6, 2005, the Company disclosed that it entered into an Indemnification Agreement with Robert Henry Kite, the Company's newly appointed director, (ii) on January 18, 2005, the Company announced that it raised $2,032,650, net, in a private offering, (iii) on January 19, 2005, the Company disclosed that it entered into Amendment Agreements with six Officers, whereby (a) their salary was increased to 75% of their Original Salary, effective January 1, 2005, and (b) in the event the Company raised $2.5 million (net of commissions) between November 1, 2004 and February 2005, each Officer would be paid a bonus equal to his foregone salary from October 16, 2004 through the date of payment of such bonus, (iv) on January 20, 2005, the Company announced that it had issued a press release announcing that Grupo S&C had licensed the ANTs Data Server, (v) on January 31, 2005 the Company announced: (a) that it entered into an agreement with Francis K. Ruotolo to terminate a Separation Agreement by and between them, dated January 8, 2001, (b) the resignation of Francis K. Ruotolo as Chief Executive Officer, effective February 1, 2005, (c) the appointment of Boyd Pearce as Chief Executive Officer, effective February 1, 2005, (d) the resignation of Boyd Pearce as Chief Operating Officer effective February 1, 2005 and (e) a shareholder letter from Francis K. Ruotolo the Company's then-current Chief Executive Officer, (vi) on February 4, 2005, the Company announced that it had entered into Amendment Agreements with six Officers providing that, if the Company raised a certain amount of financing between February 1, 2005 and June 30, 2005, the Officers would be paid a bonus equal to the aggregate amount that such Officers' salaries had been reduced since October 16, 2004 until the date of payment of such bonus, and (vii) on February 16, 2004, the Company issued a Shareholder Letter from Boyd Pearce, President and Chief Executive Officer. RISK FACTORS In addition to other information in this 10-QSB, the following risk factors should be carefully considered in evaluating the Company's business since it operates in a highly changing and complex business environment that involves numerous risks, some of which are beyond its control. The following discussion highlights a few of these risk factors, any one of which may have a significant adverse impact on the Company's 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 the Company's 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 the Company from executing its business plan. A failure to raise additional funding could prevent the Company from continuing its business after November 2005. The Company anticipates that current cash resources will be sufficient to fund its operations only through November 2005 at its expected rate of spending. The Company believes that, due to an uncertain investment climate, securing additional sources of financing to enable it to complete the development and commercialization of its proprietary technologies is uncertain and there is no assurance of its ability to secure such financing. A failure to obtain additional funding could prevent the Company from making expenditures that are needed to pay current obligations, allow it to hire additional personnel, continue development of the technology or attract customers who are concerned about its ability to continue operations. If the Company raises additional funds by selling equity securities, the relative equity ownership of its existing investors could be diluted or the new investors could obtain terms more favorable than previous investors. If the Company raises additional funds through debt financing, it could incur significant borrowing costs. The Company will need to continue its product development efforts. The Company believes that its market will be characterized by increasing technical sophistication. The Company also believes that its eventual success will depend on its ability to continue to provide increased and specialized technical expertise. There is no assurance that the Company will not fall technologically behind competitors with greater resources. Although the Company believes that it 17 enjoys a significant lead in its product development, and is hopeful that its patents provide some protection, it will likely need significant additional capital in order to continue to enjoy such a technological lead over competitors with more resources. If the Company is unable to protect its intellectual property, its competitive position would be adversely affected. The Company relies on patent protection, as well as trademark and copyright law, trade secret protection and confidentiality agreements with its employees and others to protect its intellectual property. Despite the Company's precautions, unauthorized third parties may copy its products and services or reverse engineer or obtain and use information that it regards as proprietary. The Company has filed patent applications with the United States Patent and Trademark Office and intends to file more. Two patent applications have been granted and issued; however, the Company does not know if the remaining applications will be granted or whether it will be successful in prosecuting any future 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. The Company's means of protecting its proprietary rights may not be adequate and third parties may infringe or misappropriate its patents, copyrights, trademarks and similar proprietary rights. If the Company fails to protect its intellectual property and proprietary rights, its business, financial condition and results of operations would suffer. The Company believes that it does not infringe upon the proprietary rights of any third party, and no third party has asserted a patent infringement claim against it. It is possible, however, that such a claim might be asserted successfully against the Company in the future. The Company may be forced to suspend its operations to pay significant amounts to defend its rights, and a substantial amount of the attention of its management may be diverted from its ongoing business, which can materially affect its ability to attain and maintain profitability. The Company focuses on the research and development of its proprietary technologies and the marketing and sale of its first product. The Company's present focus is on the development, marketing and sale of its first product. The Company believes that it has developed a highly marketable commercial product. However, there can be no assurance of this, and it is possible that the Company's product will only have minimal commercial benefit or potential. In addition, from the Company's inception to the present, it has not recognized any substantial operating revenues. The Company faces possible competition from large companies. The Company operates in a highly competitive industry. Although the Company believes that its technology is unique, can be protected, and, if adopted, will confer benefits that will be otherwise unavailable for some significant time, it faces very large competitors with greater resources who may adopt various strategies to block or slow its market penetration, thereby straining its more limited resources. They may also seek to hinder the Company's 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. The Company depends on its key personnel and may have difficulty attracting and retaining the skilled staff it needs to execute its growth plans. The Company's success will be dependent largely upon the personal efforts of its Chief Executive Officer, Boyd Pearce and its Chairman, Francis K. Ruotolo, as well as other senior managers. The loss of key staff could have a material adverse effect on the Company's business and prospects. To execute its plans, the Company will need to hire additional staff and retain current employees. Competition for highly skilled employees with technical, management, marketing, sales, product development and other specialized training is intense. The Company may not be successful in attracting or retaining such qualified personnel. Specifically, the Company may experience increased costs in order to attract and retain skilled employees. If the Company is unable to hire, train and manage new skilled and experienced employees as needed, it would be unable to support its planned growth and future operations. The Company faces rapid technological change. The market for the Company's products and services is characterized by rapidly changing technologies, extensive research and the introduction of new products and services. The Company believes that its future success will depend in part upon its ability to continue to enhance its existing products and to develop, manufacture and market new products and services. As a result, the Company expects to continue to make a significant investment in engineering, research and development. There can be no assurance that the Company will be able to develop and introduce new products and services or enhance its initial intended products and services in a timely manner to satisfy customer needs, achieve market acceptance or address technological changes in its target markets. Failure to develop products and services and introduce them successfully and in a timely manner could adversely affect the Company's competitive position, financial condition and results of operations. 18 In the event that the Company experiences growth, the Company will need to manage such growth well. The Company may experience substantial growth in the size of its staff and the scope of its operations, resulting in increased responsibilities for management. To manage this possible growth effectively, the Company will need to continue to improve its operational, financial and management information systems and to hire, train, motivate and manage a growing number of staff. Due to a competitive employment environment for qualified technical, marketing and sales personnel, the Company expects to experience difficulty in filling its needs for qualified personnel. There can be no assurance that the Company will be able to effectively achieve or manage any future growth, and its failure to do so could delay product development cycles and market penetration or otherwise have a material adverse effect on its financial condition and results of operations. The Company could face information and product liability risks and may not have adequate insurance. The Company's product may be used to manage data from critical business applications. The Company may become the subject of litigation alleging that its product was ineffective or disruptive in its treatment of data, or in the compilation, processing or manipulation of critical business information. Thus, the Company may become the target of lawsuits from injured or disgruntled businesses or other users. The Company does not presently carry product or information liability or errors and omissions insurance, and although it intends 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 the Company is required to defend more than a few such actions, or in the event that it was found liable in connection with such an action, its business and operations would be severely and materially adversely affected. The Company is dependent on new demand for its products and services. The success of the Company's business depends upon demand for and use of its technology, products and services in general and the demand for additional computing power, cost effectiveness and speed in particular. The Company's product is new and the Company may encounter substantial market resistance. In the event sufficient demand does not develop, the Company's business and results of operations would be materially adversely affected. The Company believes 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 the Company's products and services may be materially adversely affected. Market acceptance of the Company's products and services is not guaranteed. The Company is at an early stage of development and its earnings will depend upon market acceptance and utilization of its intended products and services. Due to economic conditions potential customers have significantly tightened budgets for evaluating new products and technologies and the evaluation cycles are much longer than in the recent past. There can be no assurance that the Company's product and technology development efforts will result in new products and services, or that they will be successfully introduced. Future profitability is not guaranteed. The Company has not recognized any substantial operating revenues to date. There is no assurance that the Company's plans will be realized, that it will be able to generate revenues or that it will achieve profitability in the future. Limited market for the Company's common stock. The Company's common stock is not listed on any exchange and trades in the over-the-counter (the "OTC") market. As such, the market for the Company's common stock is limited and is not regulated by the authorities of any exchange. Further, the price of the Company's common stock and its volume in the OTC market may be subject to wide fluctuations. The Company has a long corporate existence and was inactive during much of its corporate history. The Company was formed as the Sullivan Computer Corporation, incorporated in Delaware in January 1979. The Company was privately owned until late 1986, at which time its common stock began trading in the over-the-counter market. This was a result of the registration of the Company's common stock pursuant to the merger with CHoPP Computer Corporation, a British Columbia corporation. During the period from mid-1987 through late 1999, the Company had few or no employees. The Company's operating activities were limited and were largely administered personally by its former Chairman. 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. 19 The Company has indemnified its officers and directors. The Company has indemnified its Officers and Directors against possible monetary liability to the maximum extent permitted under Delaware law. Limitation on ability for control through proxy contest. The Company's Bylaws provide for a Board of Directors to be elected in three classes. This classified Board may make it more difficult for a potential acquirer to gain control of the Company by using a proxy contest, since the acquirer would only be able to elect one or two directors out of four directors at each shareholders meeting held for that purpose. SIGNATURES In accordance with the requirements of the Securities and Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANTs software inc. Date: May 16, 2005 By:/s/ Boyd Pearce --------------- Boyd Pearce, President, Chief Executive Officer and Director Date: May 16, 2005 By:/s/ Kenneth Ruotolo ------------------- Kenneth Ruotolo Chief Financial Officer and Secretary 20 EX-31.1 2 a4889110ex311.txt ANTS SOFTWARE EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER REQUIRED BY RULE 13A-14(A) OF THE SECURITIES EXCHANGE ACT 1934, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Boyd Pearce, certify that: 1. I have reviewed this quarterly report of ANTs software inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: May 16, 2005 /s/ Boyd Pearce --------------- Boyd Pearce, President and Chief Executive Officer EX-31.2 3 a4889110ex312.txt ANTS SOFTWARE EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER REQUIRED BY RULE 13A-14(A) OF THE SECURITIES EXCHANGE ACT 1934, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Kenneth Ruotolo, certify that: 1. I have reviewed this quarterly report of ANTs software inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: May 16, 2005 /s/ Kenneth Ruotolo ------------------- Kenneth Ruotolo Chief Financial Officer and Secretary EX-32.1 4 a4889110ex321.txt ANTS SOFTWARE EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I hereby certify that, to my knowledge, the quarterly report on Form 10-QSB (the "Report") of ANTs software inc., a Delaware corporation (the "Company"), for the quarter ended March 31, 2005: 1. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 16, 2005 By: /s/ Boyd Pearce --------------- Boyd Pearce, President and Chief Executive Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company, and will be retained by the Company, and furnished to the Securities and Exchange Commission upon request. EX-32.2 5 a4889110ex322.txt ANTS SOFTWARE EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I hereby certify that, to my knowledge, the quarterly report on Form 10-QSB (the "Report") of ANTs software inc., a Delaware corporation (the "Company"), for the quarter ended March 31, 2005: 1. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 16, 2005 By: /s/ Kenneth Ruotolo ------------------- Kenneth Ruotolo Chief Financial Officer and Secretary A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company, and will be retained by the Company, and furnished to the Securities and Exchange Commission upon request. -----END PRIVACY-ENHANCED MESSAGE-----