-----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, BztJOnWjCABiYsCBz8IhajxsqunJrdqOghH0/BBg9swf7tfMqS+j5xmLRlPbuuQm pvK8O0N2rJ1Pu8w7ojupfA== 0001206774-03-000059.txt : 20030213 0001206774-03-000059.hdr.sgml : 20030213 20030213125208 ACCESSION NUMBER: 0001206774-03-000059 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20030213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTS SOFTWARE INC CENTRAL INDEX KEY: 0000796655 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 133054685 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-16299 FILM NUMBER: 03557974 BUSINESS ADDRESS: STREET 1: 801 MAHLER RD STREET 2: SUITE G CITY: BURLINGAME STATE: CA ZIP: 94010 BUSINESS PHONE: 6506920240 MAIL ADDRESS: STREET 1: 801 MAHLER ROAD STREET 2: SUITE G CITY: BURLINGAME STATE: CA ZIP: 94010 FORMER COMPANY: FORMER CONFORMED NAME: SULLIVAN COMPUTER CORP DATE OF NAME CHANGE: 19870108 FORMER COMPANY: FORMER CONFORMED NAME: CHOPP COMPUTER CORP /DE/ DATE OF NAME CHANGE: 19990805 FORMER COMPANY: FORMER CONFORMED NAME: ANTS SOFTWARE COM INC DATE OF NAME CHANGE: 19990806 10QSB/A 1 d11934.txt AMENDMENT NO. 1 TO FORM 10-QSB ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________ FORM 10-QSB/A Amendment No. 1 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2002 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ________________ Commission file number: 0000796655 ________________ ANTS SOFTWARE INC. (Exact name of registrant as specified in its charter) Delaware 13-3054685 (State or other jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 801 Mahler Rd, Suite G, Burlingame, CA 94010 (Address of principal executive offices) (Zip Code) (650) 692-0240 (Registrant's Telephone Number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of Common stock, as of the latest practicable date: 20,670,418 shares of common stock as of September 30, 2002 Transitional Small Business Disclosure Format: Yes |_| No |X| ================================================================================ EXPLANATORY NOTE This Form 10-QSB/A is being filed to amend and restate the information disclosed in Items 1 and 2 of Part I of the Form 10-QSB filed on November 14, 2002 for the quarter ended September 30, 2002. The change was to revise the balance sheet items for additional paid-in capital and accumulated deficit to reflect a reduction in non-cash stock compensation expense reported on Form 10-KSB, filed on March 22, 2001 for the fiscal year ended December 31, 2000. TABLE OF CONTENTS - -------------------------------------------------------------------------------- PART I. Financial Information Item 1. Financial Statements................................................3-8 Item 2. Management's Plan of Operation.....................................8-10 Item 3. Controls and Procedures..............................................10 PART II. Other Information Item 1. Legal Proceedings.....................................................11 Item 2. Changes in Securities.................................................11 Item 3. Defaults Upon Senior Securities.......................................11 Item 4. Submission of Matters to a Vote of Security Holders...................11 Item 5. Other Matters.........................................................11 Item 6. Exhibits and Reports on Form 8-K...................................11-12 Risk Factors...............................................................12-14 Signatures....................................................................15 Certifications.............................................................16-17 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ANTs software inc. CONDENSED BALANCE SHEETS
September 30, 2002 December 31, 2001 (Unaudited) (Audited) ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 415,481 $ 734,319 Prepaid insurance 99,693 139,208 Prepaid expenses 5,095 22,931 ------------ ------------ Total current assets 520,269 896,458 ------------ ------------ PROPERTY AND EQUIPMENT: Computers and software 656,826 619,708 Office furniture and fixtures 29,386 27,960 Leasehold Improvements 9,000 -- Less accumulated depreciation (290,247) (191,915) ------------ ------------ Property and equipment, net 404,965 455,753 ------------ ------------ OTHER ASSETS 5,100 5,100 ------------ ------------ Total assets $ 930,334 $ 1,357,311 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 67,710 $ 111,041 Accrued legal fees 175,046 112,199 Notes payable - former officer, current portion 75,000 75,000 Other current liability -- 125,000 ------------ ------------ Total current liabilities 317,756 423,240 ------------ ------------ Long-term note payable - former officer, net of current portion 75,000 150,000 ------------ ------------ Total liabilities 392,756 573,240 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.0001 par value; 100,000,000 shares authorized; 20,670,418 shares issued and outstanding at September 30, 2002, and 16,731,552 shares issued and outstanding at December 31, 2001 2,067 1,674 Notes receivable from officers for stock purchases (90,000) (135,000) Additional paid-in capital 26,103,650 22,786,441 Accumulated deficit (25,478,139) (21,869,044) ------------ ------------ Total stockholders' equity 537,578 784,071 ------------ ------------ Total liabilities and stockholders' equity $ 930,334 $ 1,357,311 ============ ============
The accompanying notes are an integral part of these financial statements. 3 ANTs software inc. CONDENSED STATEMENTS OF OPERATIONS
Three months ended Nine months ended September 30, September 30, 2002 2001 2002 2001 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ------------ ------------ ------------ ------------ REVENUES $ -- $ -- $ -- $ -- OPERATING EXPENSES: General and administrative expenses 459,242 766,782 1,909,148 3,593,807 Research and development expenses 335,480 456,379 1,716,388 769,332 ------------ ------------ ------------ ------------ Loss from operations (794,722) (1,223,161) (3,625,536) (4,363,139) ------------ ------------ ------------ ------------ OTHER INCOME: Interest income, net 19,437 23,521 23,216 59,979 Other income -- 2,715 -- 6,885 Gain (Loss) on sale of fixed assets (6,775) -- (6,775) -- ------------ ------------ ------------ ------------ Other income, net 12,662 26,236 16,441 66,864 ------------ ------------ ------------ ------------ NET LOSS $ (782,060) $ (1,196,925) $ (3,609,095) $ (4,296,275) ============ ============ ============ ============ BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.04) $ (0.08) $ (0.19) $ (0.29) ============ ============ ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 19,899,174 15,528,221 18,683,672 14,775,246
The accompanying notes are an integral part of these financial statements 4 ANTs software inc. CONDENSED STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited) ----------- ----------- Net Loss $(3,609,095) $(4,296,275) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 98,333 96,790 Compensation expense recognized on option and warrant extensions 525,635 -- Compensation expense recognized on options granted to non-employees 543,269 -- Compensation expense recognized on exercise of options -- 46,800 Gain (Loss) on sale of fixed assets 6,775 2,985 Write-off of notes and interest receivable from officers for stock purchases 45,000 49,860 Common stock issued in settlement of litigation -- 137,235 Compensation expense recognized in form of note payable to former officer -- 300,000 Changes in operating assets and liabilities: Prepaid expenses 57,358 (142,341) Accounts payable and accrued expenses (62,706) 3,858 Notes payable -- 80,387 Accrued legal fees 62,847 (13,597) Security deposits -- (1,400) ----------- ----------- Net cash used in operating activities (2,332,584) (3,735,698) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net (55,670) (54,385) Proceeds from sale of fixed assets 1,350 -- ----------- ----------- Net cash used in investment activities (54,320) (54,385) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from private placements net of commissions 1,848,866 1,969,200 Proceeds from convertible promissory note 200,000 -- Cash paid for note payable to former officer (7,000) -- Proceeds from exercise of warrants 25,000 121,000 Proceeds from exercise of options 1,200 8,250 ----------- ----------- Net cash provided by financing activities 2,068,066 2,098,450 ----------- ----------- NET DECREASE IN CASH (318,838) (1,691,633) CASH, BEGINNING OF PERIOD 734,319 2,609,084 ----------- ----------- CASH, END OF PERIOD $ 415,481 $ 917,451 =========== ===========
NON-CASH FINANCING ACTIVITY: In September 2002, the Company issued 136,000 C Units in lieu of a $68,000 cash payment due on a note payable to a former officer. See Note 3. In June 2002, the Company issued 266,666 B Units in full satisfaction of two promissory notes to an accredited investor. See Note 3. In February 2002, the Company issued $125,000 in common stock previously held as an Other current liability. See Note 3. In February 2001, the Company issued 400,000 shares of stock as settlement of a lawsuit claim. See Note 5. The accompanying notes are an integral part of these financial statements. 5 ANTs software inc. NOTES TO FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited financial statements are presented in accordance with the requirements for Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all the disclosures normally required by generally accepted accounting principles. Reference should be made to the ANTs software inc. (the "Company") Form 10-KSB for the twelve months ended December 31, 2001, for additional disclosures including a summary of the Company's accounting policies, which have not significantly changed. The information furnished reflects all adjustments (all of which were of a normal recurring nature) which, in the opinion of management, are necessary to fairly present the financial position, results of operations, and cash flows on a consistent basis. Operating results for the three months and nine months ended September 30, 2002, are not necessarily indicative of the results that may be expected in the future. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basic Net Loss Per Share - Basic net loss per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common and dilutive common equivalent shares outstanding during the period. The following table presents the calculation of basic and diluted net loss per share:
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Net loss $ (782,060) $ (1,196,925) $ (3,609,095) $ (4,296,275) Weighted average shares of common stock outstanding - basic and dilutive 19,899,174 15,528,221 18,683,672 14,775,246 ------------ ------------ ------------ ------------ Basic and diluted net loss per share $ (0.04) $ (0.08) $ (0.19) $ (0.29)
As of September 30, 2002 outstanding options and warrants for the purchase of up to 9,631,787 shares of common stock at prices ranging from $0.25 to $11.63 were anti-dilutive, and therefore, not included in the computation of diluted loss per share. 3. EQUITY TRANSACTIONS From January 1, 2002 through March 31, 2002, we sold to accredited investors, through a private offering, 726,644 Units, at a price of $0.75 per Unit (the "A Units"), with each A Unit consisting of (i) One (1) share of Common Stock of the Company, and (ii) a warrant to purchase up to One (1) share of Common Stock of the Company at a per share price of One Dollar ($1.00), exercisable until December 31, 2002. In connection with this offering, we paid $7,150 and agreed to issue 31,498 A Units in commissions and finder's fees. The gross proceeds of the offering were $544,989. From April 1, 2002 through June 30, 2002, we sold to accredited investors, through a private offering, 1,126,008 A Units at a price of $0.75 per A Unit, and 46,666 B Units, at a price of $0.75 per B Unit (the "B Units"), with each B Unit consisting of (i) One (1) share of Common Stock of the Company, and (ii) a warrant to purchase up to One (1) share of Common Stock of the Company at a per share price of One Dollar ($1.00), exercisable until June 30, 2003. In connection with this offering, we paid $31,000 and issued 20,668 A Units in commissions and finder's fees. In addition, 24,998 A Units were issued in commissions related to offerings in the first quarter of 2002. The gross proceeds of the offering were $879,505. From July 1, 2002 through September 30, 2002, we sold to accredited investors, through a private offering, 925,000 C Units, at a price of $.50 per Unit (the "C Units"), with each C Unit consisting of (i) One (1) 6 share of Common Stock of the Company, and (ii) a warrant to purchase up to One (1) share of Common Stock of the Company at a per share price of Seventy-Five Cents ($0.75), exercisable until August 30, 2003. In connection with this offering, we incurred a cash obligation of $19,375 and issued 40,750 C Units in commissions and finder's fees. The gross proceeds of the offering were $462,500. We also issued 33 B Units in connection with $25.00 received in the third quarter 2002 to complete an investment received in the second quarter 2002. The gross proceeds year-to-date of $1,887,019 from the private offerings will be used for general working capital purposes. On or about March 11, 2002 and March 14, 2002 we sold to an accredited investor, through a private offering, two convertible promissory notes without interest in aggregate principal face amount of $200,000, convertible at the option of the holder into B Units. On or about June 25, 2002, the investor converted both promissory notes into an aggregate of 266,666 B Units. The proceeds were used for general working capital purposes. In January 2001, the British Columbia Securities Commission requested information regarding the distribution of securities to British Columbia residents to ensure that such distributions were made in compliance with the British Columbia Securities Act. In April 2001, we received $125,000, for the exercise of a warrant to purchase 500,000 shares of Common Stock, from a former employee who we believed was a Canadian resident. Due to the pending inquiry we did not issue the shares to the former employee. During 2001, the $125,000 was recorded as a current liability. During the first quarter of 2002, these shares were issued and the amount was reclassified as capital, when it was determined that the former employee was not a Canadian resident. We agreed to extend the period during which a former officer could exercise two option grants to purchase a total of 220,000 shares of our common stock and we agreed to extend the period during which our current Chief Scientist could exercise a warrant to purchase 400,000 shares of common stock. A non-cash research and development expense totaling $525,635 was recognized during the first quarter of 2002. During the second quarter of 2002, Chief Scientist exercised a warrant to purchase 100,000 shares of common stock for the aggregate amount of $25,000. During the first quarter of 2002, the following equity transactions occurred: a former employee exercised an option to purchase 600 shares of common stock for the aggregate amount of $1,200; a former consultant exercised an option to purchase 15,000 shares of common stock and paid the exercise price, valued at $31,800, in services rendered, during the first quarter of 2002; and 3,333 shares were issued in connection with a fourth quarter 2001 private placement. In July 2002, we paid $7,000 toward the $75,000 current portion of the note payable, due August 4, 2002 to a former officer. In September 2002, the former officer subscribed for 136,000 C Units. The C Units were issued in lieu of the remaining $68,000 cash payment due on the note payable to the former officer. 4. WARRANTS AND STOCK OPTIONS As of September 30, 2002, the Company had outstanding warrants to purchase up to 6,098,693 shares of common stock and options to purchase up to 3,533,094 shares of common stock. These securities give the holder the right to purchase shares of the Company's common stock in accordance with the terms of the instrument.
Warrants Stock Options Total -------- ------------- ----- Outstanding at January 1, 2002 3,594,933 2,721,522 6,316,455 Granted 3,408,760 1,059,705 4,468,465 Retired -- (24,867) (24,867) Expired (305,000) (207,666) (512,666) Exercised through cash consideration (100,000) (600) (100,600) Exercised through non-cash consideration (500,000) (15,000) (515,000) ---------- ---------- ---------- Outstanding at September 30, 2002 6,098,693 3,533,094 9,631,787
The beginning balance for stock options on January 1, 2002, has been adjusted from 2,731,522 to 2,721,522 to reflect the forfeit of 10,000 options held by employees terminated during the last quarter of 2001 which was previously unaccounted for. 7 5. LEGAL SETTLEMENT The Company entered into a Settlement Agreement effective as of February 23, 2001 with the law firm Hughes Hubbard & Reed LLP ("HHR") pursuant to which the Company issued 400,000 shares of common stock, for which the Company recognized an expense of $137,235. In addition, the settlement satisfied accrued legal expenses of $159,267, which had been recorded in prior periods. 6. SETTLEMENT WITH FORMER OFFICER The Company entered into an agreement (the "Agreement") with a former officer, effective as of January 11, 2001, in connection with which the Company agreed to forgive, on August 4, 2001 and on each year anniversary thereafter, $45,000 of the principal amount and all accrued interest on a loan made to the former officer in August 1999 in the original amount of $225,000. The aggregate amount receivable at September 30, 2002 is $90,000. The Company also agreed, pursuant to the Agreement, to pay the former officer the sum of $300,000, payable in four $75,000 installments, starting on August 4, 2001 and on each year anniversary thereafter, without interest. In July 2002, we paid $7,000 towards the $75,000 current portion of the note payable, due August 4, 2002 to the former officer. In September 2002, the former officer subscribed for 136,000 C Units. The C Units were issued in lieu of the remaining $68,000 cash payment due on the current portion of the note payable to the former officer. The payable as of September 30, 2002 is $150,000, with $75,000 due on August 4, 2003, and $75,000 due on August 4, 2004. 7. PRIOR PERIOD ADJUSTMENT The balance sheet accounts for additional paid-in capital and accumulated deficit have, for the periods ended September 30, 2002 and December 31, 2001, been restated to reflect changes to their balances as of December 31, 2000 resulting from a reduction in non-cash stock compensation recorded in relation to the implementation of the Financial Accounting Standards Board Interpretation No. 44 - Accounting for Certain Transactions involving Stock Compensation during the year ended December 31, 2000. Set forth below is a comparison of the previously reported and restated accounts: December 31, 2000 As previously As Description reported Restated - --------------------------------------- ------------ ------------ Additional paid-in capital $ 18,804,974 $ 17,262,866 Accumulated deficit $(17,604,958) $(16,062,850) Compensation expense - Warrant reprice $ 3,767,654 $ 2,225,546 Net loss $ 8,468,831 $ 6,926,723 Basic and diluted loss per share $ 0.67 $ 0.54 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 8 statements will be realized. There are a number of risks presented by the Company's business and operations, which could cause the Company's financial performance to vary markedly from prior results, or results contemplated by the forward-looking statements. Such risks include failure of the ANTs technology to work properly, failure to develop commercially viable products or services from the ANTs technology, delays or failure in fundraising efforts, delays in or lack of market acceptance, failures to recruit adequate personnel, and problems with protection of intellectual property, among others. Management decisions, including budgeting, are subjective in many respects and periodic revisions must be made to reflect actual conditions and business developments, the impact of which may cause the Company to alter its capital investment and other expenditures, which may also adversely affect the Company's results of operations. In light of significant uncertainties inherent in forward-looking information included in this quarterly Report on Form 10-QSB, the inclusion of such information should not be regarded as a representation by the Company that the Company's objectives or plans will be achieved. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Overview We are engaged in the development and marketing of a proprietary software technology that is intended to significantly improve the speed at which computers can manipulate data. We have developed and are marketing our core technology, the ANTs Concurrency Engine (ACE), and the first product based on it, the ANTs Data Server (ADS). Plan of Operation We anticipate that, if we are sufficiently funded, over the next six months our focus will be threefold: continued development of ACE and ADS, marketing ACE and ADS, and supporting customers. The development effort will be focused on enhancing our technology and thereafter will be directed towards developing initial customer applications utilizing our technology. We expect to begin realizing revenues during the first quarter of 2003. There is no assurance that our plans will be realized. The majority of our operating expenses and costs over the next six months are expected to be for and in connection with existing and additional personnel and equipment. We currently have ten full-time employees, three part-time employees and two consultants. We view the recruitment of additional qualified technical personnel as essential to the further development and commercialization of our proprietary technologies. If we are sufficiently funded and we are successful in our recruitment efforts, we expect that our personnel and other operating costs will increase over current levels. We believe that due to a poor investment climate, securing additional sources of financing which would enable us to complete the development and commercialization of our proprietary technologies will be difficult, and there is no assurance of our ability to secure such financing. Technology Development Over the next six months we intend to continue to improve and add functionality both to ACE and to the ADS, assuming we are sufficiently funded. We are actively engaging prospective partners and customers in technical discussions and testing to determine what features are most in demand for the markets we are targeting. We have mobilized our engineering resources around developing those features. Once we are successful in developing partner or customer relationships, we anticipate that the specific needs of the partner or customer will drive the development of ACE and ADS functionality. Marketing Our product offering comprises two components, the core technology, ACE, which represents our intellectual property and ADS, a relational database which is the first implementation of ACE. ACE can be used as the engine for any application that manipulates data. ADS can be applied to certain segments of the database market. Target markets include: messaging (including wireless messaging and instant messaging), application server, and high-end on-line transaction processing (OLTP). Our go-to-market strategy includes potential OEM and co-marketing partnerships with leading vendors in each market and limited sales directly to customers. General and Administrative General and administrative expenses decreased from $766,782 during the three months ended September 30, 2001 to $459,242 for the three months ended September 30, 2002. General and administrative expenses decreased from 9 $3,593,807 during the nine months ended September 30, 2001 to $1,909,148 for the nine months ended September 30, 2002. Components of general and administrative expense for the nine months ended September 30, 2002 include: salaries and benefits (24%), legal (15%), other professional services (47%) and other expenses (14%). We expect that if we are sufficiently funded, general and administrative expenses will increase moderately over the next six months. Research and Development Research and development expenses decreased from $456,379 during the three months ended September 30, 2001 to $335,480 for the three months ended September 30, 2002. Research and development expenses increased from $769,332 during the nine months ended September 30, 2001 to $1,716,388 for the nine months ended September 30, 2002. These expenses are related to the research, testing and product development of our proprietary software. Salaries and benefits accounted for 81% and other expenses accounted for 19% of the total for the nine months ended September 30, 2002. We expect that if we are sufficiently funded, our research and development expenses will increase moderately as additional staff is recruited. Personnel On July 31, 2002, two employees (one full-time engineer and one part-time administrative manager) left the company for personal reasons and were not replaced, three full-time employees (two engineers and one marketing manager) were laid off, and one engineering contractor was laid off. Additionally, remaining employees took pay cuts ranging from 50-80% and we paid employees the entire amount of their accrued paid time off totaling $77,186, and suspended the paid time off benefit indefinitely. We currently have ten full-time employees, three part-time employees and two full-time consultants. As of October 1, 2002, salary cuts ranging from 30-40% were in place. Capital and Liquidity Resources We anticipate that if we are sufficiently funded, we will increase expenditures over the coming months as we continue to develop our technology and begin supporting customers. We expect to begin realizing revenues during the first quarter of 2003. Our cash balance as of September 30, 2002 was $415,481, which, when added to investments received since then, we believe will be adequate to fund our activities through December 2002 at our current rate of spending. There can be no assurance that our continued product development and infrastructure development will not require a much higher rate of spending. There can also be no assurance that we will be able to obtain additional capital on acceptable terms. To carry out our plan of operation, we anticipate that over the next six months we will require approximately $1-2 million. We will pursue a number of avenues to raise these operating funds: 1) in the past we have been successful raising funds through private placements of our stock, we anticipate that we will continue to raise funds through private placements, 2) as we develop close relationships with large partners, we will pursue strategic investments from those partners, and 3) early next year we expect to begin generating revenue, which will be a source of operating funds if we are successful. We are pursuing all three avenues, however, we believe, that due to a poor investment climate, securing additional investment will be difficult. ITEM 3. CONTROLS AND PROCEDURES As of February 12, 2003, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the design and operation of the Company's disclosure controls and procedures (as defined in Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of November 4, 2002. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to November 4, 2002. 10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We were defendants in a case entitled Hubert P. Lauffs v. Mosaic Multisoft Corporation, in which the plaintiff asserted a cause of action against us for breach of fiduciary duty. The plaintiff purported to base his cause of action on allegations that we and others caused the shareholders of Mosaic Multisoft Corporation ("Mosaic") to elect outside directors to its board of directors who subsequently voted to remove Mosaic's president from office, thus interfering with Mosaic's ability to raise capital and causing Mosaic to be unable to repay its debt to the plaintiff. In March 2000, we won this case on summary judgment. In April 2000, the plaintiff filed an appeal of the summary judgment ruling. On November 21, 2001, the Fourth District Court of Appeal ruled in our favor by affirming the Superior Court's March 2000 summary judgment. Lauffs' time to petition for hearing in the California Supreme Court has expired, and no further review is now possible. In September 1999, we had filed an action for malicious prosecution against Lauffs and his attorney seeking recovery of our legal fees incurred in connection with the proceedings. In August 2002, our attorney, Lauff's attorney in the underlying case, and Lauffs made motions for summary judgment. On or about October 29, 2002, the judge denied all motions. The judge has scheduled a trial date of December 6, 2002. As of November 13, 2002, we believe that we are in the final stages of settlement negotiations. Per an agreement we entered into with our attorneys on or about September 27, 2002, we agreed to a contingency arrangement. Should there be a settlement or judgment, it is possible that all of the money recovered, if any, will be paid to our attorneys. The information is hereby incorporated by reference from the Form 10-QSB filed on May 14, 2002. There have been no other material developments in the period covered by this report. ITEM 2. CHANGES IN SECURITIES From July 1, 2002 through September 30, 2002, we sold to accredited investors, through a private offering, 925,000 C Units, at a price of $0.50 per C Unit, with each C Unit consisting of (i) One (1) share of Common Stock of the Company, and (ii) a warrant to purchase up to One (1) share of Common Stock of the Company at a per share price of Seventy Five Cents ($0.75), exercisable until August 30, 2003. In connection with this offering, we incurred a cash obligation of $19,375 and issued 40,750 C Units in commissions and finder's fees. The gross proceeds of the offering were $462,500. We also issued 33 B Units (as described in Note 3 above) in connection with $25.00 received in the third quarter 2002 to complete a partial investment received in the second quarter 2002. The proceeds of the private offering will be used for general working capital purposes. The sales of these securities were made in reliance upon Rule 506 and Section 4(2) of the Securities Act of 1933. ITEM 3. DEFAULTS UPON SENIOR SECURITIES No changes during the period covered by this report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the period covered by this report. ITEM 5. OTHER MATTERS No changes during the period covered by this report. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Amended and Restated Certificate of Incorporation of the Company as listed in Exhibit 3.1 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 3.2 Amended and Restated Bylaws of the Company, as listed in Exhibit 3.2 to the Company's 10-KSB filed on March 22, 2001, are hereby incorporated by reference. 10.1 2000 Stock Option Plan of the Company, as listed in Exhibit 10.1 to the Company's 10-KSB filed on March 28, 2002, is hereby incorporated by reference. 11 10.2 Agreement and Plan of Merger dated December 8, 2000 between ANTs software inc. and ANTs software.com, as listed in Exhibit 10.2 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.3 Settlement Agreement and Full Release of All Claims dated January 11, 2001, between the Company and Frederick D. Pettit, as listed in Exhibit 10.3 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.4 Separation Agreement dated January 8, 2001, between the Company and Francis K. Ruotolo, as listed in Exhibit 10.4 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.5 Form of Indemnification Agreement signed with officers and directors of the Company, as listed in Exhibit 10.5 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.6 Registration Agreement between the Company and Karen Buechler and Eric Scott Buechler dated September 15, 2000, as listed in Exhibit 10.6 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.7 Registration Agreement between the Company and Arcade Investment Limited dated September 7, 2000, as listed in Exhibit 10.7 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.8 Amended Agreement between the Company and Arcade Investment dated October 6, 2000, as listed in Exhibit 10.8 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 10.9 Form of Registration Agreement between the Company and each of Discount Bank and Trust Company, Lemanik Sicav Convertible Bond, and Pershing Keen Nominees, as listed in Exhibit 10.9 to the Company's 10-KSB filed on March 22, 2001, is hereby incorporated by reference. 99.1 Certification of ANTs software inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 regarding Quarterly Report on Form 10-QSB/A (Amendment No. 1) for the quarter ended September 30, 2002 (b) Reports on Form 8-K On August 5, 2002, we filed on Form 8-K a letter addressed to our shareholders bringing them up to date on our progress, which is hereby incorporated by reference. RISK FACTORS In addition to other information in this 10-QSB, the following risk factors should be carefully considered in evaluating our business since we operate in a highly changing and complex business environment that involves numerous risks, some of which are beyond our control. The following discussion highlights a few of these risk factors, any one of which may have a significant adverse impact on our business, operating results and financial condition. As a result of the risk factors set forth below and elsewhere in this 10-QSB, and the risks discussed in our other Securities and Exchange Commission filings, actual results could differ materially from those projected in any forward-looking statements. A failure to obtain additional financing could prevent us from executing our business plan. We anticipate that current cash resources will be sufficient to fund our operations through December 2002 at our current rate of spending. We believe that, due to a poor investment climate, securing additional sources of financing to enable us to complete the development and commercialization of our proprietary technologies will be difficult and there is no assurance of our ability to secure such financing. A failure to obtain additional funding could prevent us from making expenditures that are needed to pay current obligations, allow us to hire additional personnel and continue development of the technology. If we raise additional funds by selling equity securities, the relative equity ownership of our existing investors could be diluted or the new investors could obtain terms more favorable than previous investors. If we raise additional funds through debt financing, we could incur significant borrowing costs. If we are unable to protect our intellectual property, our competitive position would be adversely affected. We rely on patent protection, as well as trademark and copyright law, trade secret protection and confidentiality agreements with our employees and others to protect our intellectual property. Despite our precautions, unauthorized third parties may copy our products and services or reverse engineer or obtain and use information that we regard as proprietary. We have also filed patent applications and intend to file more. We do not 12 know if any of our intended future patents will be issued or whether we will be successful in prosecuting any additional patents. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Our means of protecting our proprietary rights may not be adequate and third parties may infringe or misappropriate our patents, copyrights, trademarks and similar proprietary rights. If we fail to protect our intellectual property and proprietary rights, our business, financial condition and results of operations would suffer. We believe that we do not infringe upon the proprietary rights of any third party, and no third party has asserted a patent infringement claim against us. It is possible, however, that such a claim might be asserted successfully against us in the future. We may be forced to suspend our operations to pay significant amounts to defend our rights, and a substantial amount of the attention of our management may be diverted from our ongoing business, which can materially affect our ability to attain and maintain profitability. We face possible competition from large companies. The industry that we are in is highly competitive. Although we believe that our technology is unique, can be protected, and, if adopted, will confer benefits that will be otherwise unavailable for some significant time, we face very large competitors with greater resources who may adopt various strategies to block or slow our market penetration, thereby straining our more limited resources. They may also seek to hinder our operations through attempts to recruit key staff with exceptionally attractive terms of employment, including signing bonuses, or by offer of highly competitive terms to potential or newly acquired customers. We depend on our key personnel and may have difficulty attracting and retaining the skilled staff we need to execute our growth plans. Our success will be dependent largely upon the personal efforts of our Chairman and Chief Executive Officer, Francis K. Ruotolo, as well as other senior managers. The loss of key staff could have a material adverse effect on our business and prospects. To execute our plans, we will need to hire additional staff and retain current employees. If we are sufficiently funded, we plan to increase our technical personnel. Competition for highly skilled employees with technical, management, marketing, sales, product development and other specialized training is intense. We may not be successful in attracting or retaining such qualified personnel. Specifically, we may experience increased costs in order to attract and retain skilled employees. If we are unable to hire, train and manage new skilled and experienced employees as needed, we would be unable to support our planned growth and future operations. We face rapid technological change. The market for our products and services is characterized by rapidly changing technologies, extensive research and the introduction of new products and services. We believe that our future success will depend in part upon our ability to continue to enhance our existing products and to develop, manufacture and market new products and services. As a result, we expect to continue to make a significant investment in engineering, research and development. There can be no assurance that we will be able to develop and introduce new products and services or enhance our initial intended products and services in a timely manner to satisfy customer needs, achieve market acceptance or address technological changes in our target markets. Failure to develop products and services and introduce them successfully and in a timely manner could adversely affect our competitive position, financial condition and results of operations. We may need to manage growth well. In the event we are sufficiently funded, e may experience substantial growth in the size of our staff and the scope of our operations, resulting in increased responsibilities for management. To manage this possible growth effectively, we will need to continue to improve our operational, financial and management information systems and to hire, train, motivate and manage a growing number of staff. We expect to experience difficulty in filling our needs for qualified engineers and other personnel. There can be no assurance that we will be able to effectively achieve or manage any future growth, and our failure to do so could delay product development cycles and market penetration or otherwise have a material adverse effect on our financial condition and results of operations. We could face information and product liability risks and may not have adequate insurance. Because we intend to provide middleware solutions to critical business and Internet applications, we may become the subject of litigation alleging that our products were ineffective or disruptive in their treatment of data, or in the compilation, processing or manipulation of critical business information. Thus, we may become the targets of lawsuits from injured or disgruntled businesses or other users. We do not presently carry product or information liability or errors and omissions insurance, and although we intend to acquire such insurance prior to commencing substantial sales, such insurance may not be available in an acceptable or affordable form. In the event that we are required to defend 13 more than a few such actions, or in the event that we were found liable in connection with such an action, our business and operations would be severely and materially adversely affected. We are dependent on new demand for our products and services. The success of our business depends upon demand for and use of our technology, products and services in general and the demand for additional computing power, cost effectiveness and speed in particular. Our technology introduces a new kind of middleware, so we may encounter substantial market resistance. In the event sufficient demand does not develop, our business and results of operations would be materially adversely affected. We believe that there appears to be increased demand for computing power, cost effectiveness and speed, but if general economic conditions decline or hardware and memory advances make such power, cost effectiveness and speed more readily available, then adoption, use and sales of our products and services may be materially adversely affected. We will need to continue our product development efforts. We believe that our market will be characterized by increasing technical sophistication. We also believe that our eventual success will depend on our ability to continue to provide increased and specialized technical expertise. There is no assurance that we will not fall technologically behind competitors with greater resources. Although we believe that we enjoy a significant lead in our product development and introduction, and are hopeful that our patents provide some protection, we will likely need significant additional capital in order to continue to enjoy such a technological lead over competitors with more resources. Market acceptance of our products and services is not guaranteed. We are at an early stage of development and our earnings will depend upon broad market acceptance and utilization of our intended products and services. There can be no assurance that our product and technology development efforts will result in new products and services, or that they will be successfully introduced. Future profitability is not guaranteed. We have not recognized any operating revenues to date. Assuming we are able to secure sufficient financing, we expect to begin recognizing revenues from the sale of products and services in calendar 2002. There is no assurance that our plans will be realized, that we will be able to generate revenues in 2002 or that we will achieve profitability in the future. Limited market for our common stock. Our common stock is not listed on any exchange and trades in the over-the-counter (the "OTC") market. As such, the market for our common stock is limited and is not regulated by the authorities of any exchange. Further, the price of our common stock and its volume in the OTC market may be subject to wide fluctuations. We focus on the research and development of our proprietary technologies. Our present focus is on the research and development of our proprietary technologies. We believe that, given sufficient funding, these technologies will be the basis for the development of highly marketable commercial products. However, there can be no assurance of this and it is possible that our proprietary technologies have no commercial benefit or potential. In addition, from our inception to the present, we have had no commercial products and have not recognized any operating revenues. We have a long corporate existence and were inactive during much of our corporate history. We were formed as the Sullivan Computer Corporation, incorporated in Delaware in January 1979. We were privately owned until late 1986, at which time our common stock began trading in the over-the-counter market. This was a result of the registration of our common stock pursuant to the merger with CHoPP Computer Corporation, a British Columbia corporation. During the period from mid-1987 through late 1999, we had few or no employees. Our operating activities were limited and were largely administered personally by our former Chairman, Donald R. Hutton. Due to the passage of time and the poor condition of financial and other records, there can be no assurance that all matters have been addressed at this date. 14 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANTs software inc. Date: February 13, 2003 By: /s/ Francis K. Ruotolo ------------------------------------ Francis K. Ruotolo, Chairman, Chief Executive Officer and President Date: February 13, 2003 By: /s/ Kenneth Ruotolo ------------------------------------ Kenneth Ruotolo Chief Financial Officer and Secretary 15 CERTIFICATIONS I, Francis K. Ruotolo, certify that: 1. I have reviewed this quarterly report on Form 10-QSB/A of ANTs software inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 13, 2003 /s/ Francis K. Ruotolo ---------------------------------------- Francis K. Ruotolo, Chairman, Chief Executive Officer and President 16 I, Kenneth Ruotolo, certify that: 1. I have reviewed this quarterly report on Form 10-QSB/A of ANTs software inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 13, 2003 /s/ Kenneth Ruotolo ---------------------------------------- Kenneth Ruotolo Chief Financial Officer and Secretary 17 EX-99.1 3 ex-991.txt CERTIFICATION EXHIBIT 99.1 Certification of ANTs software inc. pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 regarding Quarterly Report on Form 10-QSB/A for the quarter ended September 30, 2002 ---------------------------------------------------------- Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of ANTs software inc., a Delaware corporation (the "Company"), does hereby certify that: 1. The Company's Quarterly Report on Form 10-QSB/A for the quarter ended September 30, 2002 (the "Form 10-QSB/A") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. Information contained in the Form 10-QSB/A fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 13, 2003 By: /s/ Francis K. Ruotolo ------------------------------------ Francis K. Ruotolo, Chairman, Chief Executive Officer and President Date: February 13, 2003 By: /s/ Kenneth Ruotolo ------------------------------------ Kenneth Ruotolo Chief Financial Officer and Secretary -----END PRIVACY-ENHANCED MESSAGE-----