-----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, Qp7ntaJn0xT+o+PlqpC8qMaxWHYr+X02SfkeDE1v50vv5xsss+VSUhEWA7Qf58xq Bffu/8a6J80GxAmyerxuYQ== 0001157523-09-004027.txt : 20090522 0001157523-09-004027.hdr.sgml : 20090522 20090520060158 ACCESSION NUMBER: 0001157523-09-004027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20090331 FILED AS OF DATE: 20090520 DATE AS OF CHANGE: 20090520 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16299 FILM NUMBER: 09840966 BUSINESS ADDRESS: STREET 1: 700 AIRPORT BLVD. STREET 2: SUITE 300 CITY: BURLINGAME STATE: CA ZIP: 94010 BUSINESS PHONE: 6509310500 MAIL ADDRESS: STREET 1: 700 AIRPORT BLVD. STREET 2: SUITE 300 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 10-Q 1 a5967024.txt ANTS SOFTWARE INC. 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-Q (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, 2009 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) 2040 Briggs Road, Suite B4, Mount Laurel, NJ 08054 (Address of principal executive offices) (Zip Code) (856) 914-5200 (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 such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated or a smaller reporting company. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller reporting company [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes [ ] No [X] ANTs software inc. had 90,648,369 shares of common stock outstanding as of May 18, 2009. TABLE OF CONTENTS - -------------------------------------------------------------------------------- PART I. Financial Information Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008...............................................3 Consolidated Statements of Operations for the Three Months ended March 31, 2009 and 2008 (restated)...................... 4 Consolidated Statements of Cash Flows for the Three Months ended March 31, 2009 and 2008 (restated)....................... 5 Consolidated Statements of Shareholders' Equity for the Three Months ended March 31, 2009 and 2008 (restated).......... 6 Notes to Consolidated Financial Statements......................7-16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ....................................17-22 Item 3. Quantitative and Qualitative Disclosures About Market Risk.........23 Item 4. Controls and Procedures............................................23 PART II. Other Information Item 1. Legal Proceedings ................................................24 Item 1A. Risk Factors.......................................................24 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds........24 Item 3. Defaults Upon Senior Securities....................................24 Item 4. Submission of Matters to a Vote of Security Holders................24 Item 5. Other Information..................................................24 Item 6. Exhibits...........................................................25 Signatures.........................................................26 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS ANTS SOFTWARE INC. CONSOLIDATED BALANCE SHEETS March 31, December 31, ASSETS 2009 2008 -------------- -------------- Unaudited -------------- -------------- Current assets: Cash and cash equivalents $ 642,303 $ 2,051,807 Accounts receivable 365,931 383,445 Notes receivable from customer 2,000,000 2,000,000 Restricted cash 125,000 125,000 Current portion of prepaid debt issuance cost - 4,121 Prepaid expenses and other current assets 139,682 160,723 -------------- -------------- Total current assets 3,272,916 4,725,096 Property and equipment, net 359,437 399,093 Other intangible assets, net 5,295,834 5,504,081 Goodwill 22,761,517 22,761,517 Other assets 34,898 67,018 -------------- -------------- Total assets $ 31,724,602 $ 33,456,805 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued expenses $ 1,921,162 $ 1,445,043 Line of credit 200,000 200,000 Current portion of convertible promisory notes, net of debt discount of $- and $15,916, respectively 200,000 234,084 Deferred revenue 400,530 487,121 -------------- -------------- Total current liabilities 2,721,692 2,366,248 Long-term liabilities: Convertible promissory notes, net of debt discount of $7,788,870 and $8,549,964, respectively 3,464,356 2,703,260 Deferred tax liability 344,000 344,000 -------------- -------------- Total liabilities 6,530,048 5,413,508 -------------- -------------- Commitments and contingencies Stockholders' equity: Preferred stock, $0.0001 par value; 50,000,000 shares authorized; no shares issued and outstanding - - Common stock, $0.0001 par value; 200,000,000 shares authorized; 90,648,369 shares issued and outstanding as of March 31, 2009 and December 31, 2008 9,065 9,065 Additional paid-in capital 116,218,466 115,963,846 Accumulated deficit (91,032,977) (87,929,614) -------------- -------------- Total stockholders' equity 25,194,554 28,043,297 -------------- -------------- Total liabilities and stockholders' equity $ 31,724,602 $ 33,456,805 ============== ============== See accompanying Notes to Consolidated Financial Statements
3 ANTS SOFTWARE INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended March 31, -------------------------------- 2008 2009 (restated) -------------- -------------- Revenues: Products $ - $ 28,219 Services 1,388,357 4,165 -------------- -------------- Total revenues 1,388,357 32,384 Cost of Revenues: Products - - Services 1,225,770 44,419 -------------- -------------- Gross profit (loss) 162,587 (12,035) -------------- -------------- Operating Expenses: Sales and marketing 517,305 326,892 Research and development 535,957 2,601,123 General and administrative 1,144,629 993,226 -------------- -------------- Total operating expenses 2,197,891 3,921,241 -------------- -------------- Loss from operations (2,035,304) (3,933,276) -------------- -------------- Other income (expense): Interest income 2,483 27,002 Other 1,945 - Interest expense (1,072,487) (830,186) -------------- -------------- Other income (expense), net (1,068,059) (803,184) -------------- -------------- Net loss before income taxes (3,103,363) (4,736,460) Income taxes - - -------------- -------------- Net loss $ (3,103,363) $ (4,736,460) ============== ============== Basic and diluted net loss per common share $ (0.03) $ (0.08) ============== ============== Shares used in computing basic and diluted net loss per share 90,648,369 57,792,266 ============== ============== See accompanying Notes to Consolidated Financial Statements
4 ANTS SOFTWARE INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) Common Stock ---------------------- Additional Accumulated Shares Amount Paid-in Capital Deficit Total ---------------------------------------------------------------------------- Balance at December 31, 2008 90,648,369 $ 9,065 $ 115,963,846 $ (87,929,614) $ 28,043,297 Share-based compensation expense- employees 240,869 240,869 Share-based compensation expense- non-employees 13,751 13,751 Net loss (3,103,363) (3,103,363) ------------- ---------- ---------------- ---------------- ----------------- Balance at March 31, 2009 90,648,369 $ 9,065 $ 116,218,466 $ (91,032,977) $ 25,194,554 ============= ========== ================ ================ ================= Balance at December 31, 2007 (restated) 57,398,445 $ 5,740 $ 74,957,098 $ (76,301,030) $ (1,338,193) Proceeds from private placements, net of cash commissions of $104,100 1,892,727 189 936,711 936,900 Share-based compensation expense - employees 1,120,985 1,120,985 Share-based compensation expense - non-employees 28,034 28,034 Net loss (4,736,460) (4,736,460) ---------------------------------------------------------------------------- Balance at March 31, 2008 (restated) 59,291,172 $ 5,929 $ 77,042,828 $ (81,037,490) $ (3,988,734) ============= ========== ================ ================ ================= See accompanying Notes to Consolidated Financial Statements
5 ANTS SOFTWARE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 31, ------------------------------------ 2008 2009 (restated) ---------------- ---------------- Cash flows from operating activities: Net loss $ (3,103,363) $ (4,736,460) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 270,962 93,848 Amortization of warrant issued to customer - 14,418 Amortization of discount and prepaid debt issuance cost on notes payable 781,133 589,157 Stock-based compensation expense 254,620 1,149,019 Changes in operating assets and liabilities: Accounts receivable 17,514 (31,961) Restricted cash - 67,574 Prepaid expenses and other assets 53,161 16,956 Accounts payable and other accrued expenses 476,119 (21,893) Deferred revenue (86,591) 8,181 ---------------- ---------------- Net cash used in operating activities (1,336,445) (2,851,161) ---------------- ---------------- Cash flows from investing activities: Purchases of property (23,059) (25,023) ---------------- ---------------- Net cash used in investing activities (23,059) (25,023) ---------------- ---------------- Cash flows from financing activities: Proceeds from private placements - equity, net of cash commissions of $104,100 - 936,900 Payments made on convertible promissory notes (50,000) - ---------------- ---------------- Net cash (used in) provided by financing activities (50,000) 936,900 ---------------- ---------------- Net decrease in cash and cash equivalents (1,409,504) (1,939,284) ---------------- ---------------- Cash and cash equivalents at beginning of period 2,051,807 4,480,694 ---------------- ---------------- Cash and cash equivalents at end of period $ 642,303 $ 2,541,410 ================ ================ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 297,416 $ 241,030 ================ ================ See accompanying Notes to Consolidated Financial Statements
6 ANTS SOFTWARE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Restatement The Company has restated its financial statements for the three months ended March 31, 2008 to correct errors in such financial statements. The restatement of the Company's financial statements is based upon a review of the accounting treatment of certain transactions entered into by the Company with certain investors in 2006 and 2007. During this review, the Company discovered that it had incorrectly applied a restriction discount to the market value of its common stock based on a long history of selling restricted common stock to a group of investors. The discounted stock price was then used in the allocation of proceeds between debt and equity for units of convertible promissory notes and restricted common shares that were sold to investors in late 2006 and early 2007. The discounted stock price was also used to determine if there was a beneficial conversion related to the convertible promissory notes. The same methodology was used in late 2007 when the Company issued convertible promissory notes along with common stock warrants. The following tables present the effects of the restatement adjustments on the Company's balance sheet as of March 31, 2008 and its statements of operations and cash flows for the three months ended March 31, 2008. 7 ANTS SOFTWARE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Restatement (Continued) RESTATED UNAUDITED BALANCE SHEET - ---------------------------------------------------------------------------------------------------------------------- March 31, 2008 -------------------------------------------------- As Previously ASSETS Reported Adjustments As Restated ---------------- ------------ --------------- Current assets: Cash and cash equivalents $ 2,541,410 $ - $ 2,541,410 Accounts receivable 40,165 - 40,165 Restricted cash 125,000 - 125,000 Current portion of prepaid debt issuance cost 373,759 (16,608)(a) 357,151 Prepaid expenses and other current assets 145,059 - 145,059 Prepaid expense from warrant issued to customer, net 43,255 - 43,255 ---------------- ------------ --------------- Total current assets 3,268,648 (16,608) 3,252,040 Property and equipment, net 441,665 - 441,665 Other assets 34,420 - 34,420 ---------------- ------------ --------------- Total assets $ 3,744,733 $ (16,608) $ 3,728,125 ================ ============ =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued expenses $ 959,517 $ - $ 959,517 Current portion of convertible promissory notes, net of - premium of $339,924 and discount of $2,430,095 (restated), respectively 6,839,924 (2,770,019)(b) 4,069,905 Accrued interest on convertible promissory notes 237,581 237,581 Deferred revenue 56,999 - 56,999 ---------------- ------------ --------------- Total current liabilities 8,094,021 (2,770,019) 5,324,002 Long-term liabilities: Convertible promissory notes, net of debt discount of $217,509 and $610,368 (restated), respectively 2,785,716 (392,859)(c) 2,392,857 ---------------- ------------ --------------- Total liabilities 10,879,737 (3,162,878) 7,716,859 ---------------- ------------ --------------- Commitments and contingencies Stockholders' equity (deficit): Preferred stock, $0.0001 par value; 50,000,000 shares authorized, no shares issued and outstanding - - - Common stock, $0.0001 par value; 200,000,000 shares authorized; 59,291,172 shares issued and outstanding 5,929 - 5,929 Additional paid-in capital 72,005,284 5,037,544 (d) 77,042,828 Accumulated deficit (79,146,217) (1,891,273)(e) (81,037,490) ---------------- ------------ --------------- Total stockholders' (deficit) equity (7,135,004) 3,146,270 (3,988,734) ---------------- ------------ --------------- Total liabilities and stockholders' equity (deficit) $ 3,744,733 $ (16,608) $ 3,728,125 ================ ============ =============== (a) -- Adjustment to eliminate prepaid debt issuance costs related to issuance of Convertible Notes Payable (b) & (c)-- Adjustment to record discount related to issuance of "J" Units (d)-- Adjustment to record discount related to issuance of "J" Units (e)-- Adjustment to record net impact to 2007 and 2006 Statements of Operations
8 ANTS SOFTWARE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Restatement (Continued) RESTATED UNAUDITED STATEMENT OF OPERATIONS - ------------------------------------------------------------------------------------------------ For the Three Months Ended March 31, 2008 ----------------------------------------------- As Previously Reported Adjustments As Restated ------------- ------------ ------------- Revenues: Products $ 28,219 $ - $ 28,219 Services 4,165 - 4,165 ------------- ------------ ------------- Total revenues 32,384 - 32,384 Cost of Revenues: Products - 44,419 (a) 44,419 ------------- ------------ ------------- Gross profit 32,384 (44,419) (12,035) ------------- ------------ ------------- Operating Expenses: Sales and marketing 371,311 (44,419) 326,892 Research and development 2,601,123 - 2,601,123 General and administrative 1,101,883 (108,657)(b) 993,226 ------------- ------------ ------------- Total operating expenses 4,074,317 (153,076) 3,921,241 ------------- ------------ ------------- Loss from operations (4,041,933) 108,657 (3,933,276) ------------- ------------ ------------- Other income (expense): Interest income 27,002 - 27,002 Interest expense (161,112) (669,074)(c) (830,186) ------------- ------------ ------------- Total other income (expense) (134,110) (669,074) (803,184) ------------- ------------ ------------- Net loss $ (4,176,043) $ (560,417) $ (4,736,460) ============= ============ ============= Basic and diluted net loss per common share $ (0.07) $ (0.01) $ (0.08) ============= ============ ============= Shares used in computing basic and diluted net loss per share 57,792,266 57,792,266 57,792,266 ============= ============ ============= (a)-- Adjustment to reclass warrant amortization costs related to sales to a major customer (b)-- Adjustment to reverse amortization of Prepaid Debt Issuance Costs (c)-- Adjustment to record increase of interest expense related to amortization of Discount on Convertible Notes Payable
9 ANTS SOFTWARE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Restatement (Continued) RESTATED UNAUDITED STATEMENT OF CASH FLOWS - --------------------------------------------------------------------------------------------------------------------------------- For the Three Months Ended March 31, 2008 ------------------------------------------------- As Previously Reported Adjustments As Restated ---------------- ------------- ------------ Cash flows from operating activities: Net loss $ (4,176,043) $ (560,417)(a) $(4,736,460) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 93,848 - 93,848 Amortization of warrant issued to customer 14,418 - 14,418 Amortization of premium and discount on notes payable (79,918) 596,886 (b) 516,968 Amortization of debt issuance costs 108,658 (36,469)(c) 72,189 Stock-based compensation expense 1,149,019 - 1,149,019 Changes in operating assets and liabilities: Accounts receivable (31,961) - (31,961) Restricted cash 67,574 67,574 Prepaid expenses and other current assets 16,956 - 16,956 Accounts payable and other accrued expenses (21,893) - (21,893) Deferred revenues 8,181 - 8,181 ---------------- ------------- ------------ Net cash used in operating activities (2,851,161) - (2,851,161) ---------------- ------------- ------------ Cash flows from investing activities: Purchases of property and other assets (25,023) - (25,023) ---------------- ------------- ------------ Net cash used in investing activities (25,023) - (25,023) ---------------- ------------- ------------ Cash flows from financing activities: Proceeds from private placements - equity, net of cash commissions 936,900 - 936,900 ---------------- ------------- ------------ Net cash provided by financing activities 936,900 - 936,900 ---------------- ------------- ------------ Net decrease in cash and cash equivalents (1,939,284) - (1,939,284) Cash and cash equivalents at beginning of period 4,480,694 - 4,480,694 ---------------- ------------- ------------ Cash and cash equivalents at end of period $ 2,541,410 $ - $ 2,541,410 ================ ============= ============ (a)-- Adjustment to record net impact to the Statement of Operations for the period ended March 31, 2008. (b)-- Adjustment to record the amortization of Discount on Convertible Notes Payable (c)-- Adjustment to record the reversal of amortization of Debt Issuance Costs
10 ANTS SOFTWARE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 2. Summary of Significant Accounting Policies Basis of Presentation and Continuation as a Going Concern The accompanying unaudited consolidated financial statements are presented in accordance with the requirements for Form 10-Q and contemplate continuation of ANTs software inc. (the "Company"), as a going concern. However, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about the Company's ability to continue as a going concern. The Company has had minimal revenues since inception, incurred losses from operations since its inception and has a net accumulated deficit during its years of operations totaling $91,032,977, as of March 31, 2009. The Company's ability to continue as a going concern is dependent upon management's ability to generate profitable operations in the future and/or obtain the necessary financing to meet obligations and repay liabilities arising from normal business operations when they come due. The Company plans to seek additional capital through private placements of equity or debt. If the Company is successful in its efforts to generate revenue in 2009, it will be a source of operating funds through the third quarter of 2009. This expectation includes the anticipated receipt of the final payment of $2 million from a customer as shown in the Consolidated Balance Sheets. The Company collected $1.5 million of the outstanding balance in May 2009. Management's plans, if successful, will mitigate the factors that raise substantial doubt about the ability to continue as a going concern. The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required for annual financial statements and therefore should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2008. The December 31, 2008 consolidated balance sheet was derived from audited financial statements filed with our 10-K as of December 31, 2008 and therefore may not include all disclosures required for annual financial statements. There have been no significant changes in the Company's significant accounting policies during the three months ended March 31, 2009 as compared to the significant accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2008. 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 consolidated 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, 2009 and 2008 (restated) are not necessarily indicative of the results that may be expected in the future. Principles of Consolidation The consolidated financial statements include the accounts of ANTs software inc. and its wholly-owned subsidiary, Inventa Technologies, Inc. ("Inventa") from May 30, 2008, the date of acquisition (collectively referred to as the "Company"). All significant intercompany transactions and accounts have been eliminated. Use of Estimates The preparation of the financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates made by management include allowance for doubtful accounts receivable, recoverability of long-lived and intangible assets, the fair value of the warrants and debt issued in conjunction with the issuance of the promissory notes, and assumptions incorporated in determining stock-based compensation. 11 ANTS SOFTWARE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 2. Summary of Significant Accounting Policies (Continued) Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The income tax benefits generated in the three months ended March 31, 2009 and 2008 (restated) as a result of the Company's net losses have been fully offset by recording a valuation allowance in each period. Revenue Recognition The Company recognizes license and royalty revenue in accordance with the provisions of Statement of Position ("SOP") 97-2, Software Revenue Recognition ("SOP 97-2"), and SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. Revenues consist of product revenues representing sales of customized platforms using our intellectual property, licenses and royalties and services revenues representing managed and professional services fees for maintenance and support services. Maintenance and support revenue is deferred and recognized over the related contract period, generally twelve months, beginning with customer acceptance of the product. The Company uses 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, the Company will defer revenue based on vendor-specific objective evidence ("VSOE") of the fair value of the undelivered element, as determined by the price charged when the element is sold separately. If the VSOE of fair value does not exist for all undelivered elements, the Company defers 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, which comprise prepaid license and maintenance and 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 PCS; o The fee is fixed and determinable. If the Company 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. 12 ANTS SOFTWARE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 2. Summary of Significant Accounting Policies (Continued) Stock-Based Compensation The Company has two stock-based employee and director compensation plans (the ANTs software inc. 2000 Stock Option Plan and the ANTs software inc. 2008 Stock Plan). Since January 1, 2006, the Company has been using the provisions of SFAS 123(R), Share-Based Payment ("SFAS 123(R)"), to account for stock-based awards compensation expense. The Company elected to use the modified prospective transition method as permitted by SFAS 123(R). Under this transition method, stock-based compensation expense for the year ended December 31, 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not fully vested, as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, Accounting for Stock Compensation ("SFAS 123"). Stock-based compensation expense for all stock-based compensation awards granted subsequent to January 1, 2006 is based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). The Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the award, generally three years; however, the Company has also issued stock options with performance-based vesting criteria. All stock-based awards to nonemployees are accounted for at their fair value in accordance with Emerging Issues Task Force ("EITF") 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. The Company has recorded the fair value of each stock option issued to non-employees as determined at the date of grant using the Black-Scholes option pricing model. Fair Value of Financial Instruments On January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements ("SFAS 157"), for all financial assets and liabilities and nonfinancial assets and liabilities measured at fair value on a recurring basis. In February 2008, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS No. 157 for the Company to January 1, 2009 for nonfinancial assets and liabilities measured at fair value on a non-recurring basis. The Company adopted these remaining provisions on January 1, 2009. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The Company's carrying amount reported in the balance sheet for cash and cash equivalents, accounts receivable, and accounts payable approximates fair value due to the immediate or short-term maturity of these financial instruments. The carrying values of the convertible promissory notes approximate their fair values. To determine the fair value of the convertible promissory notes, the Company estimated the fair value by first determining the Company's effective borrowing rate. The effective borrowing rate was estimated by considering the Company's high credit risk and high risk of nonperformance. The Company then evaluated the present value of the future cash flows for convertible promissory notes. 13 ANTS SOFTWARE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. Basic and Diluted Net Loss per Share Basic net loss per share is calculated in accordance with SFAS No. 128, Earnings per Share, 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 unaudited table presents the calculation of basic and diluted net loss per share for the three months ending March 31, 2009 and 2008 (restated), respectively. At March 31, 2009 and 2008, the Company had 10,351,957 and 7,770,611 antidilutive shares of common stock related to stock options, respectively. At March 31, 2009 and 2008, the Company had 12,106,115 and 5,252,150 antidilutive shares related to convertible promissory notes. At March 31, 2009 and 2008, warrants for the purchase of 4,557,941 and 7,970,005 shares of common stock at prices ranging from $0.60 to $2.31 per share, respectively, were anti-dilutive. These anti-dilutive instruments are not included in the calculation of basic and diluted net loss per share. Loss Shares Loss per (Numerator) (Denominator) Share --------------- ------------- -------- Quarter ended March 31, 2009 Basic and diluted net loss per share $ (3,103,363) 90,648,369 $ (0.03) Quarter ended March 31, 2008 (restated) Basic and diluted net loss per share $ (4,736,460) 57,792,266 $ (0.08) 4. Accounts Payable and Other Accrued Expenses At March 31, 2009 and December 31, 2008, accounts payable and other accrued expenses consisted of the following: March 31, December 31, 2009 2008 ------------ ------------ (unaudited) Trade payables and other $ 1,458,171 $ 900,176 Accrued bonuses and commissions payable 51,029 180,111 Accrued vacation payable 130,443 77,175 Accrued interest on convertible promissory notes 281,519 287,581 ------------ ------------ Total $ 1,921,162 $ 1,445,043 ============ ============ 5. Deferred Revenue Deferred revenue is comprised of license fees and annual maintenance and support fees. License fees are recognized upon customer acceptance of the product. Annual maintenance and support fees are amortized ratably into revenue on the statements of operations over the life of the contract, which is generally a 12-month period beginning with customer acceptance of the product. Deferred revenue activity was as follows: Three Months Ended Three Months Ended March 31, 2009 March 31, 2008 -------------------------- -------------------------- (unaudited) (unaudited) Beginning of the period $ 487,121 $ 48,818 Invoiced current period 524,367 40,565 Deferred revenue recognized from prior periods (386,564) (28,219) Invoiced and recognized current period (224,394) (4,165) ------------ ----------- Total revenue recognized current period (610,958) (32,384) ------------ ------------ End of the period $ 400,530 $ 56,999 ============ ============
14 ANTS SOFTWARE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6. Debt As of March 31, 2009, the outstanding balance of the Convertible Promissory Notes was $3,664,356. This is comprised of notes with a face amount of $11,453,226 less unamortized debt discount of $7,788,870. Debt discount and other issuance costs associated with the Convertible Promissory Notes are amortized to interest expense over the remaining life of the Convertible Promissory Notes using the effective interest method or the straight-line method, whichever is applicable. Upon conversion of Convertible Promissory Notes into Common Stock, unamortized costs relating to the notes converted are charged to interest expense. Total charges to interest for debt discount and other issuance costs were $781,133 and $589,157 (restated) for the three months ended March 31, 2009 and 2008, respectively. During the three months ended March 31, 2009, Convertible Promissory Notes totaling $50,000 were repaid by the Company. During the three months ended March 31, 2009, the due date of a $200,000 Convertible Promissory Note was extended from March 20, 2009 to the earlier of August 20, 2009 or the receipt of $2,000,000 in financing. The Company also agreed to issue 5,000 shares of the Company's common stock for each month or fraction thereof during which the note is outstanding, with no other terms being modified. This extension was not considered a modification in accordance with EITF 96-19, Debtors Accounting for Modification or Exchange of Debt Instruments. The holder of the note also agreed to accept shares of the Company's stock in consideration for interest payments. 7. Commitments and Contingencies Effective January 6, 2009, the Company took possession of the additional space at the facilities located in Mt. Laurel, New Jersey. Accordingly, rent increased from $10,007 per month to $16,299 per month or approximately $196,000 per year. The amendment also restates the end of the lease commitment to be seven years from the date of the Certificate of Occupancy for the additional space, or January 6, 2016. At expiration of the amended lease, the Company has the option to renew the terms of the lease for an additional five years at the greater of $18,467 or an increase in the consumer price index. On July 10, 2008, Sybase, Inc. ("Sybase"), an enterprise software and services company, filed a complaint for common law unfair business practices, and tortuous interference with contractual relations, among other things, in the Superior Court of the State of California, County of Alameda. Sybase is seeking an injunction, and damages, among other legal and equitable relief. The Company believes that this lawsuit is without merit and intends to continue vigorously defending itself. On August 22, 2008, a former Company employee filed a putative class action complaint for all current and former software engineers, for failure to pay overtime wages, and failure to provide meal breaks, among other things, in Superior Court of the State of California, County of San Mateo. The former employee is seeking an injunction, damages, attorneys' fees, and penalties. The Company believes that this lawsuit is without merit and intends to continue vigorously defending itself. On October 14, 2008, Bayside Plaza ("Bayside"), a partnership, filed a complaint for breach of contract in Superior Court of the State of California, County of San Mateo. Bayside is seeking approximately $50,000 in rent, late fees and operating expenses per month from October 2008. The Company intends to continue defending itself. Beginning in July 2008, the Company leases an executive apartment owned by a stockholder who owns 500,000 shares of the Company's common stock and who also holds a Convertible Promissory Note totaling $1,000,000 (undiscounted), for $2,900 per month or $34,800 per annum. This lease expires in June 2009 and has not been renewed. 15 ANTS SOFTWARE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 8. Stockholders' Equity Following is a summary of equity transactions by for the three months ending March 2009 and 2008, respectively. Three months ended March 31, 2009: During the three months ended March 31, 2009, the Company granted 35,000 stock options at $0.35 per share. For the three months ended March 31, 2009, the Company recognized a total of $240,869 in compensation expense related to the vesting of employee stock options and $13,751 in professional fees related to the vesting of non-employee stock options. Three months ended March 31, 2008: Funds raised through private offerings to accredited investors: In the first quarter of 2008, the Company received $936,900, net of commissions of $104,100 from accredited investors, for the sale of 1,735,000 shares of the Company's common stock, at a price of $0.60 per share. The Company paid a placement agent a cash commission of $104,100 and issued 157,727 shares of common stock to the placement agent in connection with these investments. The shares are contractually valued at $0.66 per share or $104,100. Other equity transactions: On March 26 and March 31, 2008, the Board of Directors approved repricing of certain stock options and warrants for employees, consultants and Board members to the then-current market price of the Company's common stock. Officers and Board members forfeited 1,193,667 vested and unvested shares in connection with the repricing. The Company recognized $786,545 in stock compensation expense, net of forfeiture credits, as a result of the repricing. For the three months ended March 31, 2008, the Company recognized a total of $1,120,985 in compensation expense related to the vesting of employee stock options and the repricing and $28,034 in professional fees related to the vesting of non-employee stock options and warrants. As of March 31, 2009, the Company had outstanding options to purchase up to 10,351,957 shares of common stock at exercise prices ranging from $0.35 to $3.20 per share, of which 6,815,873 were exercisable. During the three months ended March 31, 2009, the Company granted 35,000 stock options at $0.35 per share with a fair value of $0.24 per share on the date of grant. The fair value was estimated using the Black-Scholes valuation model with the following weighted-average assumptions: Expected life in years 3.00 Average volatility 105.28% Risk free rate 1.27% Dividend yield 0.00% As of March 31, 2009, the Company had 4,557,941 warrants outstanding to purchase common stock at exercise prices ranging from $0.60 to $2.31 per share, of which 4,557,941 were exercisable. 9. Concentrations At March 31, 2009 and December 31, 2008, two customers accounted for 84% of the trade accounts receivable balance of $365,931 and 73% of the trade accounts receivable balance of $383,445, respectively. For the quarter ended March 31, 2009, three customers accounted for 97% of total revenues of $1,388,357. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the financial statements and notes thereto in Part 1 Item 1, Financial Statements for this Quarterly Report on Form 10-Q and with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2008. Certain statements contained in this Form 10-Q 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 we will have adequate financial resources to fund the development and operation of our business, that there will be no material adverse change in our operations or business, that we will meet success in marketing and selling our products, and that we will be able to continue to attract and retain skilled employees necessary for our business, among other things. The foregoing assumptions are based on judgments with respect to, among other things, information available to our future economic, competitive and market conditions and future business decisions. All of these assumptions are difficult or impossible to predict accurately and many are beyond our control. Accordingly, although we believe 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 our business and operations, which could cause our financial performance to vary markedly from prior results, or results contemplated by the forward-looking statements. Such risks include failure of our technology or products to work as anticipated, failure to develop commercially viable products or services from our technology, delays or failure in financing efforts, delays in or lack of market acceptance, failure to recruit adequate personnel, and problems with protection of intellectual property, among others. The words "believe," "estimate," "expect," "intend," "anticipate" "should", "could", "may", "plan" and similar expressions and variations thereof identify some of these forward-looking statements. 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 us to alter our capital investment and other expenditures, which may also adversely affect our results of operations. In light of significant uncertainties inherent in forward-looking information included in this Quarterly Report on Form 10-Q, the inclusion of such information should not be regarded as a representation by us that our objectives or plans will be achieved. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Restatement The Company has restated its financial statements for the period ended March 31, 2008 to correct errors in such financial statements. The restatement of the Company's financial statements is based upon a review of the accounting treatment of certain transactions entered into by the Company with certain investors in 2006 and 2007. During this review, the Company discovered that it had incorrectly applied a restriction discount to the market value of its common stock based on a long history of selling restricted common stock to a group of investors. The discounted stock price was then used in the allocation of proceeds between debt and equity for units of convertible promissory notes and restricted common shares that were sold to investors in late 2006 and early 2007. The discounted stock price was also used to determine if there was a beneficial conversion related to the convertible promissory notes. The same methodology was used in late 2007 when the Company issued convertible promissory notes along with common stock warrants. See Note 1 of the Consolidated Financial Statements for the impact of the restatement. 17 Results of Operations Our consolidated results of operations for the three months ended March 31, 2009 and 2008 (restated) are summarized below: Three Months Ending March 31, ----------------------------- 2008 2009 (restated) % Change ------------- ------------ ----------- Revenues $ 1,388,357 $ 32,384 4187% Cost of revenues 1,225,770 44,419 2660% ------------- ------------ ----------- Gross profit 162,587 (12,035) 1451% Operating expenses 2,197,891 3,921,241 -44% ------------- ------------ ----------- Loss from operations (2,035,304) (3,933,276) 49% Other income (expense), net (1,068,059) (803,184) -33% ------------- ------------ ----------- Net loss (3,103,363) (4,736,460) 34% ============= ============ =========== Net loss per share - basic and diluted $ (0.03) $ (0.08) - ============= ============ =========== Shares used in computing basic and diluted net loss per share 90,648,369 57,792,266 57% ============= ============ =========== Revenues Revenues for the three months ended March 31, 2009 consist of services revenues representing managed and professional services fees for maintenance and support services. Future revenues are expected to include sales and licenses of our ANTs Compatibility Server ("ACS") product and related technology, managed services revenue related to existing and new contracts and professional services revenue from pre and post-sales consulting related to ACS and other database consolidation technologies we may develop. Revenues for the three months ended March 31, 2008 are from ANTs Data Server ("ADS") license fees, recognition of deferred maintenance and support of ADS, royalties from third parties that resell ADS, and professional services fees on ADS installations. During the three months ended March 31, 2009, we recognized approximately $1.4 million in revenue, an increase of approximately $1.4 million versus the three months ended March 31, 2008. The increase was primarily due to the acquisition of Inventa as all revenues during the first quarter are related to Inventa services revenues. For the quarter ended March 31, 2009, three customers accounted for 97% of total revenues of $1,388,357. Cost of Revenues Cost of revenues during the three months ending March 31, 2009 and 2008 was approximately $1.2 million and $44,000, respectively. Cost of revenues for the quarter ended March 31, 2009 consists of personnel costs to provide managed and professional services. Cost of revenues during the quarter ended March 31, 2008 consisted primarily of amortization of a warrant from a major customer. 18 Operating Expenses Operating expenses by department for the three months ending March 31, 2009 and 2008 were as follows: Three Months Ended March 31, ---------------------------------------------------------- 2008 2009 (restated) ---------------------------------- ---------------------- $ % % Change $ % ----------- --------- ---------- ---------- ---------- Sales and marketing $ 517,305 24% 58% $ 326,892 9% Research and development 535,957 24% -79% 2,601,123 66% General and administrative 1,144,629 52% 15% 993,226 25% ----------- --------- ---------- ---------- ---------- Total operating expenses $ 2,197,891 100% -44% $3,921,241 100% =========== ========= ========== ========== ==========
Our primary expenses are salaries, benefits and consulting fees related to developing and marketing ACS, marketing and selling managed and professional services and, for the quarter ended March 31, 2008, maintenance and support of ADS. We completed development of ADS in 2005 and began sales and support of that product during that year. We began development of ACS in early 2007. Sales and Marketing Sales and marketing expense consists primarily of employee salaries and benefits, stock-based compensation, professional fees for marketing and sales services, travel and entertainment and corporate overhead allocations. Sales and marketing expense for the three months ended March 31, 2009 and 2008 is presented in the table below. Three Months Ended March 31, % ---------------------------- 2009 2008 Change ------------ ------------- ---------- Employee compensation and benefits 348,018 148,800 134% Stock-based compensation 32,201 64,936 -50% Consulting fees 26,678 58,737 -55% Travel and entertainment 18,206 36,337 -50% Corporate allocations from general and administrative expenses 31,532 17,663 79% Events and promotions and other 12,420 419 2,864% Amortization of customer relationships 48,250 - N/A ------------ ------------- ---------- Total $ 517,305 $ 326,892 58% ------------ ------------- ---------- Headcount at end of period 6 2 200%
Total sales and marketing expense increased by approximately $190,000, a 58% increase, due primarily to the following: o Employee compensation and benefits increased by 134% primarily due to the acquisition of Inventa and the resulting increase in head-count. o Stock-based compensation decreased 50% primarily due to a one-time non-cash charge incurred for the repricing of stock options, effective March 26, 2008, to the then-current market price of our common stock. o Consulting fees decreased 55% due to efficiencies achieved in go-to-market strategy. By selling through partners rather than selling directly to end-users, we eliminated end-user marketing and lead-generation programs. o Travel and entertainment decreased 50% as we decreased travel activities for our sales and marketing staff. o Corporate allocations increased 79% due to increased headcount in sales and marketing. o Amortization of customer relationships resulted from the acquisition of Inventa in the prior year. 19 Research and Development Research and development expense consists primarily of employee compensation and benefits, contractor fees to research and development service providers, stock-based compensation and equipment and computer supplies. During 2007 we began developing ACS, which significantly increased our contract research and development expense. Research and development expense for the three months ended March 31, 2009 and 2008 is presented in the table below. Three Months Ended March 31, ---------------------------- % 2009 2008 Change ----------- ------------- ----------- Employee compensation and benefits $ 147,823 $ 1,110,838 -87% Contractor fees 220,264 659,745 -67% Stock-based compensation 28,532 544,940 -95% Corporate allocations from general and administrative expenses 31,532 190,754 -83% Equipment and computer supplies 44,325 85,312 -48% Other 63,481 9,534 566% ----------- ------------- ----------- Total $ 535,957 $ 2,601,123 -79% ----------- ------------- ----------- Headcount at end of period 4 26 -85%
Total research and development expenses decreased by approximately $2.1 million, a 79% decrease, due primarily to the following: o Employee compensation and benefits, and stock-based compensation decreased 87% due to decreases in headcount from 26 as of March 31, 2008 to 4 as of March 31, 2009. o Contractor fees decreased 67% as we decreased use of contract research and development services on the ACS product and eliminated such services for the ADS product. o Corporate allocations decreased 83% due to decreased headcount in research and development. o Equipment and computer supplies decreased primarily due to the reduced need for such equipment as a result of the reduction in headcount. General and Administrative General and administrative expenses consists primarily of employee salaries and benefits, professional fees (legal, accounting, and investor relations), facilities expenses, and corporate insurance. General and administrative expenses for the three months ended March 31, 2009 and 2008 is presented in the table below. Three Months Ended March 31, ---------------------------- 2008 2009 (restated) % Change ------------ -------------------------- Employee compensation and benefits $ 272,288 $ 238,917 14% Stock-based compensation 152,341 539,143 -72% Facilities, director fees, insurance and other 334,053 273,725 22% Professional fees 415,317 149,858 177% Travel and entertainment 33,699 - N/A Corporate allocations to Sales and marketing and research and development (63,069) (208,417) 70% ------------ ------------- ----------- Total $ 1,144,629 $ 993,226 15% ------------ ------------- ----------- Headcount at end of period 4 3 33%
20 Total general and administrative expenses increased by approximately $151,000, a 15% increase, due primarily to the following: o Employee compensation and benefits expense increased 14% due primarily to the acquisition of Inventa. o Stock-based compensation decreased 72% due primarily to the impact of the repricing of the exercise price of certain vested and unvested stock options and warrants to the then-current market value of our common stock as of March 26 and March 31, 2008. o Professional fees increased 177% primarily due to expenses relating to the restatement of the 2008 financial statements. o Allocations of overhead costs decreased 70% versus the prior year. Allocations of corporate overhead from general and administrative costs to the other functional departments were based on headcount. These allocations decreased as the number of personnel in other functional departments decreased. Other Income (Expense), Net The components of other (expense) income, net for the three months ended March 31, 2009 and 2008, was as follows: Three Months Ended March 31, ---------------------------- 2008 2009 (restated) % Change ------------ -------------- -------------- Other income (expense): Interest expense, convertible notes payable $(1,072,487) $ (830,186) 29% Interest income 2,483 27,002 -91% Other 1,945 - N/A ------------ -------------- -------------- Other income (expense), net $(1,068,059) $ (803,184) 33% ------------ -------------- --------------
Other income (expense), net primarily consists of interest expense on convertible notes payable and income earned on cash and cash equivalents. The following items significantly impacted other (expense) income: o Interest expense increased approximately $242,000, or 29%, for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008 due to increased amortization of the discount on the convertible notes payable. o Interest income decreased by approximately $25,000, or 91%, due to lower invested cash balances and interest rates. Liquidity, Capital Resources and Financial Condition Cash flows as of and for the three months ended March 31, 2009 and 2008, are as follows: Three Months Ended March 31, ---------------------------- 2008 2009 (Restated) ---------------------------- Net cash used in operating activities $ (1,336,445) $ (2,851,161) Net cash used in investing activities (23,059) (25,023) Net cash (used in) provided by financing activities (50,000) 936,900 ------------- -------------- Net decrease in cash and cash equivalents $ (1,409,504) $ (1,939,284) ============= ============== Since inception, we have funded operations and investments in operating assets with cash raised through financing activities in the form of private offerings to accredited investors. The funds raised have been primarily in the form of sales of our common stock and, to a lesser degree, through the issuance of convertible promissory notes. 21 Details regarding the cash flows by activity follow. Cash Used in Operating Activities During the three months ended March 31, 2009, cash used in operating activities totaled $1.3 million, an increase of $1.5 million compared to the three months ended March 31, 2008. The following items significantly impacted our cash used in operating activities in the first quarter of 2009 versus the same period of 2008: o A decrease in overall salaries and benefits due to a decrease in headcount from 31 at March 31, 2008 to 14 at March 31, 2009, as well as a decrease in contract research and development fees. o An increase in accounts payable and other accrued expenses Cash Used in Investing Activities During the three months ended March 31, 2009, cash used in investing activities totaled approximately $23,000, a slight decrease of approximately $2,000 versus the same period in 2008, due to a decrease in the purchase of computer and lab equipment required to design and test our products. Cash (Used in) Provided by Financing Activities During the three months ended March 31, 2009, cash used by financing activities totaled approximately $50,000 from the payment to retire a convertible promissory note. During the three months ended March 31, 2008, cash provided by financing activities totaled approximately $937,000 from the following: o We raised $936,900, net of commissions of $104,100 from the sale for the sale of 1,735,000 shares of the Company's common stock, at a price of $0.60 per share. o Cash provided by financing activities was reduced by cash commissions paid to a placement agent totaling $104,100. Capital Resources and Going Concern We anticipate that current cash resources will be sufficient for us to execute our business plan into the third quarter of 2009. This expectation includes the anticipated receipt of the final payment of $2 million from a customer as shown in the Consolidated Balance Sheets. If further financing is not obtained we will not be able to continue to operate as a going concern. We collected $1.5 million of the outstanding balance in May 2009. We believe that securing additional sources of financing to enable us to continue 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 financing could prevent us from making expenditures that are needed to pay current obligations, allow us to hire additional personnel and continue development of our product and technology. If we raise additional financing by selling equity or convertible debt 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 and be subject to adverse consequences in the event of a default. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rates Our exposure to market risk for changes in interest rates relates primarily to the increase or decrease in the amount of interest income we earn on our investment portfolio. Our investment portfolio consists of liquid investments that have maturities of three months or less. Our risk associated with fluctuating interest income is limited to investments in interest rate sensitive financial instruments. Under our current policy, we do not use interest rate derivative instruments to manage this exposure to interest rate changes. We seek to ensure the safety and preservation of our invested principal by limiting default risk, market risk, and reinvestment risk. We mitigate default risk by investing in short-term investment grade securities. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures Our management, with the participation of our Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on management's evaluation, our Chief Executive Officer concluded that, as of March 31, 2009, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer to allow timely decisions regarding required disclosure. (b) Changes in internal control over financial reporting. We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, migrating processes, or acquisition of subsidiaries. As a result of the material weaknesses listed in the 10-K, management has continued using the services of the third party contract consulting company. Management is also in the process of analyzing all existing controls to ensure all major, non-routine transactions are appropriately recorded. 23 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 10, 2008, Sybase, Inc. ("Sybase"), an enterprise software and services company, filed a complaint for common law unfair business practices, and tortuous interference with contractual relations, among other things, in the Superior Court of the State of California, County of Alameda. Sybase is seeking an injunction, and damages, among other legal and equitable relief. We believe that this lawsuit is without merit and intend to continue vigorously defending ourselves. On August 22, 2008, a former ANTs employee filed a putative class action complaint for all current and former software engineers, for failure to pay overtime wages, and failure to provide meal breaks, among other things, in Superior Court of the State of California, County of San Mateo. The former employee is seeking an injunction, damages, attorneys' fees, and penalties. We believe that this lawsuit is without merit and intend to continue vigorously defending ourselves. On October 14, 2008, Bayside Plaza ("Bayside"), a partnership, filed a complaint for breach of contract in Superior Court of the State of California, County of San Mateo. Bayside is seeking approximately $50,000 in rent, late fees and operating expenses per month from October 2008. The Company intends to continue defending itself. ITEM 1A. RISK FACTORS Other than the following there has been no material changes during the quarter ended March 31, 2009. We might not collect our receivables Due to the ongoing worldwide economic crisis, weakness in the credit markets, significant liquidity problems in the financial services industry and related factors, we might face increased problems in collecting our accounts, notes, and other obligations receivable. Since we rely on those receivables to finance our ongoing business operations, failure to collect our receivables might cause our business and operations to be severely and materially adversely affected. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES None 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 24 ITEM 6. EXHIBITS (a) Exhibits 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 31.2 Certification of the Principal 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 Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 25 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: May 19, 2009 By: /s/ Joe Kozak ----------------------------------------------- Joe Kozak, Chief Executive Officer and President 26 EX-31.1 2 a5967024ex31_1.txt EXHIBIT 31.1 EXHIBIT 31.1 - ------------ CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 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 I, Joseph Kozak, President and Chief Executive Officer and President of ANTs software inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of ANTs software inc. (the "Company"); 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 Company as of, and for, the periods presented in this report; 4. The Company's other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company 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 Company is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the Company'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 d. Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent quarter (the Company's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company'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 Company'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 Company's internal control over financial reporting. Date: May 19, 2009 /s/ Joseph Kozak ---------------- Joseph Kozak, Chairman, Chief Executive Officer and President EX-31.2 3 a5967024ex31_2.txt EXHIBIT 31.2 EXHIBIT 31.2 - ------------ CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 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 I, Joseph Kozak, Chief Executive Officer and President of ANTs software inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of ANTs software inc. (the "Company"); 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 Company as of, and for, the periods presented in this report; 4. The Company's other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company 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 Company is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the Company'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 d. Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent quarter (the Company's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company'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 Company'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 Company's internal control over financial reporting. Date: May 19, 2009 /s/ Joseph Kozak ---------------- Joseph Kozak, Chief Executive Officer and President EX-32.1 4 a5967024ex32_1.txt 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, the undersigned hereby certifies that, to his knowledge, the quarterly report on Form 10-Q (the "Report") of ANTs software inc., a Delaware corporation (the "Company"), for the period ended March 31, 2009: 1. Fully complies with the requirements of Section 13(a) or 15(d), as applicable, 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. This certification is being provided pursuant to 18 U.S.C. 1350 and is not to be deemed a part of this Report, nor is it to be deemed to be "filed" for any purpose whatsoever. Date: May 19, 2009 /s/ Joseph Kozak ---------------- Joseph Kozak, Chairman, Chief Executive Officer and President 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 a5967024ex32_2.txt EXHIBIT 32.2 EXHIBIT 32.2 - ------------ CERTIFICATION OF PRINCIPAL 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, the undersigned hereby certifies that, to his knowledge, the quarterly report on Form 10-Q (the "Report") of ANTs software inc., a Delaware corporation (the "Company"), for the period ended March 31, 2009: 1. Fully complies with the requirements of Section 13(a) or 15(d), as applicable, 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. This certification is being provided pursuant to 18 U.S.C. 1350 and is not to be deemed a part of this Report, nor is it to be deemed to be "filed" for any purpose whatsoever. Date: May 19, 2009 /s/ Joseph Kozak ---------------- Joseph Kozak, Chief Executive Officer and President 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-----