-----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, O2A5kcgSc9FY3AtcVQxcvhigqMtkglAcfIPZAP7HqI1AZYjjItNcP2ydp+ANZBXK AI3N2cTjxYYsVuJsgjitNg== 0001206774-03-000427.txt : 20030508 0001206774-03-000427.hdr.sgml : 20030508 20030508163159 ACCESSION NUMBER: 0001206774-03-000427 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTS SOFTWARE INC CENTRAL INDEX KEY: 0000796655 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 133054685 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16299 FILM NUMBER: 03688371 BUSINESS ADDRESS: STREET 1: 801 MAHLER RD STREET 2: SUITE G CITY: BURLINGAME STATE: CA ZIP: 94010 BUSINESS PHONE: 6506920240 MAIL ADDRESS: STREET 1: 801 MAHLER ROAD STREET 2: SUITE G CITY: BURLINGAME STATE: CA ZIP: 94010 FORMER COMPANY: FORMER CONFORMED NAME: ANTS SOFTWARE COM INC DATE OF NAME CHANGE: 19990806 FORMER COMPANY: FORMER CONFORMED NAME: CHOPP COMPUTER CORP /DE/ DATE OF NAME CHANGE: 19990805 FORMER COMPANY: FORMER CONFORMED NAME: SULLIVAN COMPUTER CORP DATE OF NAME CHANGE: 19870108 10QSB 1 d12631.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-QSB (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2003 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: 23,685,035 shares of common stock as of March 31, 2003 Transitional Small Business Disclosure Format: Yes |_| No |X| ================================================================================
TABLE OF CONTENTS - ---------------------------------------------------------------------------------- PART I. Financial Information Item 1. Financial Statements ..................................................3-8 Item 2. Management's Plan of Operation ......................................8-10 Item 3. Controls and Procedures ...............................................10 PART II. Other Information Item 1. Legal Proceedings .....................................................10 Item 2. Changes in Securities ...............................................10-11 Item 3. Defaults Upon Senior Securities.........................................11 Item 4. Submission of Matters to a Vote of Security Holders.....................11 Item 5. Other Matters...........................................................11 Item 6. Exhibits and Reports on Form 8-K.....................................11-12 Risk Factors.................................................................12-14 Signatures......................................................................14 Certifications...............................................................15-16
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ANTs software inc. CONDENSED BALANCE SHEETS
March 31, 2003 December 31, 2002 (Unaudited) (Audited) ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 574,992 $ 946,957 Prepaid insurance 7,500 53,597 Prepaid expenses 800 800 ------------ ------------ Total current assets 583,292 1,001,354 ------------ ------------ Property and equipment Computers and software 709,754 670,682 Office furniture and fixtures 29,386 29,386 Leasehold improvements 9,000 9,000 Less accumulated depreciation (364,914) (326,710) ------------ ------------ Property and equipment, net 383,226 382,358 ------------ ------------ Other assets - security deposits 5,100 5,100 ------------ ------------ Total assets $ 971,618 $ 1,388,812 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 75,721 $ 36,263 Accrued legal fees 14,016 38,736 Notes payable - former officer, current portion 75,000 75,000 ------------ ------------ Total current liabilities 164,737 149,999 ------------ ------------ Long-term note payable - former officer, net of current portion 75,000 75,000 ------------ ------------ Total liabilities 239,737 224,999 ------------ ------------ Commitment and contingencies Stockholders' equity: Common stock, $0.0001 par value; 100,000,000 shares authorized; 23,685,035 and 23,240,788 shares issued and outstanding, respectively 2,368 2,324 Notes receivable from officers for stock purchases (90,000) (90,000) Additional paid-in capital 27,771,223 27,425,424 Accumulated deficit (26,951,710) (26,173,935) ------------ ------------ Total stockholders' equity 731,881 1,163,813 ------------ ------------ Total liabilities and stockholders' equity $ 971,618 $ 1,388,812 ============ ============
The accompanying notes are an integral part of these condensed financial statements. 3 ANTs software inc. CONDENSED STATEMENTS OF OPERATIONS
Three months ended March 31, 2003 2002 (Unaudited) (Unaudited) ------------ ------------ Operating expenses: General and administrative expenses $ 430,022 $ 593,311 Research and development expenses 365,438 978,903 ------------ ------------ Loss from operations (795,460) (1,572,214) ------------ ------------ Other income: Interest income 1,685 1,727 Gain on legal settlement 16,000 -- ------------ ------------ Other income 17,685 1,727 ------------ ------------ Net loss $ (777,775) $ (1,570,487) ============ ============ Basic and diluted net loss per common share $ (0.03) $ (0.09) ============ ============ Shares used in computing basic and diluted, net loss per share 23,381,440 17,219,268 ============ ============
The accompanying notes are an integral part of these condensed financial statements. 4 ANTs software inc. CONDENSED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2003 2002 (unaudited) (unaudited) ----------- ----------- Cash flows from operating activities: Net loss $ (777,775) $(1,570,487) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation/Amortization 38,204 31,015 Compensation expense recognized on option and warrant extensions -- 525,635 Compensation expense recognized on options granted to non-employees 38,733 52,498 Changes in operating assets and liabilities: Prepaid insurance and expenses 46,100 120,125 Accounts payable 39,454 3,134 Accrued legal fees (24,720) (37,585) ----------- ----------- Net cash used in operating activities (640,004) (875,665) ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (39,071) (18,077) ----------- ----------- Net cash used in investment activities (39,071) (18,077) ----------- ----------- Cash flows from financing activities: Proceeds from private placements net of commissions 295,625 537,839 Proceeds from exercise of options 11,485 1,200 Proceeds from issuance of convertible promissory note -- 200,000 ----------- ----------- Net cash provided by financing activities 307,110 739,039 ----------- ----------- Net decrease in cash (371,965) (154,703) Cash at beginning of period 946,957 734,319 ----------- ----------- Cash at end of period $ 574,992 $ 579,616 =========== =========== Non - cash financing activity: Conversion of other current liability to common stock 125,000
The accompanying notes are an integral part of these condensed financial statements. 5 ANTs software inc. NOTES TO CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements are presented in accordance with the requirements for Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all the disclosures normally required by generally accepted accounting principles. Reference should be made to the ANTs software inc. (the "Company") Form 10-KSB for the twelve months ended December 31, 2002, 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 ended March 31, 2003 and 2002, are not necessarily indicative of the results that may be expected in the future. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. Management has evaluated the Company's current financial position and its available resources and plans to raise additional funds through the issuance of equity securities during 2003 and possibly thereafter. Should the Company be unsuccessful in raising additional funds, it is unlikely that the Company will continue operations beyond June 2003. 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 March 31, ------------------------------- 2003 2002 ------------------------------- Net loss $ (777,775) $ (1,570,487) Weighted average shares of common stock outstanding - basic and dilutive 23,381,440 17,219,268 ------------------------------- Basic and diluted net loss per share $ (0.03) $ (0.09)
As of March 31, 2003 and 2002, outstanding options and warrants for the purchase of up to 7,426,390 shares of common stock at prices ranging from $0.25 to $14.00, and 6,044,554 shares of common stock at prices ranging from $0.25 to $11.63, respectively, were anti-dilutive, and therefore, not included in the computation of diluted loss per share. Stock-Based Compensation--In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure." This Statement amends SFAS No. 123, "Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company follows APB 25 in accounting for its employee stock options. The disclosure provision of SFAS 148 is effective for years ending after December 15, 2002 and have been incorporated into these financial statements and accompanying footnotes. 6 At March 31, 2003, the Company had a stock-based employee compensation plan. The Company accounts for this plan under the recognition and measurement principles of Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations. The following table illustrates the effect on net loss if the Company had applied the fair value recognition provisions of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
March 31, 2003 March 31, 2002 -------------- --------------- Net loss, as reported $ (777,775) $ (1,570,487) Less: Stock-based employee compensation expense determined under the fair-value based method (328,599) (765,899) Net loss, pro forma $ (1,106,374) $ (2,336,386) ============= ============= Basic and diluted loss per share: As reported $ (0.03) $ (0.09) ============= ============= Pro forma $ (0.05) $ (0.14) ============= =============
The weighted average fair value of options granted during the periods ended March 31, 2003 and March 31, 2002 were $1.19 and $1.58, respectively. The pro forma amounts were estimated using the Black-Scholes option pricing model with the following assumptions for the periods ended March 31, 2003 and 2002, respectively.
March 31, 2003 March 31, 2002 ------------------------- ------------------------- Interest rate 3.83% - 3.98% 4.92% Dividend yield 0% 0% Expected volatility 141.58% - 143.05% 148.12% Expected life in years 1 - 10 years 1 - 10 years
3. EQUITY TRANSACTIONS From January 1, 2003 through March 31, 2003 we sold, to accredited investors through a private offering 20,000 C Units, at a price of fifty cents ($.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 the Company issued 2,000 C Units in commissions and finder's fees. The gross proceeds of the offering were $10,000. We also sold to accredited investors, through a private offering, 402,497 D Units at a price of seventy-five cents ($0.75) per D Unit, with each D 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 two dollars ($2.00), exercisable until March 31, 2006. In connection with this offering, the Company paid $16,250 in cash commissions and finder's fees and incurred 15,151 D units in commissions and finder's fees. The gross proceeds from the offering were $301,875. From January 1, 2003 through March 31, 2003 two consultants exercised options to purchase an aggregate of 19,750 shares of common stock for the aggregate amount of $11,485. 4. WARRANTS AND STOCK OPTIONS As of March 31, 2003, the Company had outstanding warrants to purchase up to 3,692,074 shares of common stock and options to purchase up to 3,734,316 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. 7
Warrants Stock Options Total --------- ------------- --------- Outstanding at January 1, 2003 3,267,577 3,384,066 6,651,643 Granted 424,497 375,000 799,497 Retired -- -- -- Expired -- (5,000) (5,000) Exercised through cash consideration -- (19,750) (19,750) Exercised through non-cash consideration -- -- -- --------- ---------- ---------- Outstanding at March 31, 2003 3,692,074 3,734,316 7,426,390
5. LEGAL SETTLEMENT We were a defendant in a case entitled Hubert P. Lauffs v. Mosaic Multisoft Corporation, in which the plaintiff asserted a cause of action against us for breach of fiduciary duty. The plaintiff purported to base his cause of action on allegations that we and others caused the shareholders of Mosaic Multisoft Corporation ("Mosaic") to elect outside directors to its board of directors who subsequently voted to remove Mosaic's president from office, thus interfering with Mosaic's ability to raise capital and causing Mosaic to be unable to repay its debt to the plaintiff. In March 2000, we won this case on summary judgment. In April 2000, the plaintiff filed an appeal of the summary judgment ruling. On November 21, 2001, the Fourth District Court of Appeal ruled in our favor by affirming the Superior Court's March 2000 summary judgment. In September 1999, we had filed an action for malicious prosecution against Lauffs and his attorney seeking recovery of the Company's legal fees incurred in connection with the proceedings. We entered into Settlement Agreements in December 2002, pursuant to which the plaintiffs agreed to pay us an aggregate of $400,000. Per an agreement we entered into with our attorneys on or about September 27, 2002, almost all of the money recovered will be paid to our attorneys. From January 1, 2003 through March 31, 2003, we received $16,000 as our portion of the settlement which was recognized as a gain from legal settlement. ITEM 2. MANAGEMENT'S PLAN OF OPERATION Certain statements contained in this Form 10-QSB constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions that the Company will have adequate financial resources to fund the development and operation of its business, and there will be no material adverse change in the Company's operations or business. The foregoing assumptions are based on judgments with respect to, among other things, information available to the Company, future economic, competitive and market conditions and future business decisions. All are difficult or impossible to predict accurately and many of which are beyond the Company's control. Accordingly, although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any such assumption could prove to be inaccurate and therefore there can be no assurance that the results contemplated in the forward-looking statements will be realized. There are a number of risks presented by the Company's business and operations, which could cause the Company's financial performance to vary markedly from prior results, or results contemplated by the forward-looking statements. Such risks include failure of the ANTs technology to work properly, failure to develop commercially viable products or services from the ANTs technology, delays or failure in fundraising efforts, delays in or lack of market acceptance, failures to recruit adequate personnel, and problems with protection of intellectual property, among others. Management decisions, including budgeting, are subjective in many respects and periodic revisions must be made to reflect actual conditions and business developments, the impact of which may cause the Company to alter its capital investment and other expenditures, which may also adversely affect the Company's results of operations. In light of significant uncertainties inherent in forward-looking information included in this quarterly Report on Form 10-QSB, the inclusion of such information should not be regarded as a representation by the Company that the Company's objectives or plans will be achieved. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Overview We are engaged in the development and marketing of proprietary software that we believe can significantly improve performance in applications which require high-speed access to shared, rapidly changing data. Our first product, the ANTs Data Server is an industry-standard database management system based on a high-performance SQL query execution engine that incorporates innovative, lock-free operations. 8 Plan of Operation We anticipate that, if we are sufficiently funded, over the next twelve months our focus will be threefold: continued development of the ANTs Data Server ("ADS"), marketing ADS, and supporting customers. The development effort will be focused on enhancing the core technology underlying ADS and developing features that will broaden ADS's market appeal. We expect to begin realizing revenues during the second or third quarter of 2003. There is no assurance that our plans will be realized. The majority of our operating expenses and costs over the next twelve months are expected to be for and in connection with sales and marketing and existing and additional personnel and equipment. We currently have fourteen full-time employees, two part-time employees and three full-time consultants. We view the recruitment of additional qualified marketing, sales, and 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 twelve months we intend to continue to improve and add functionality to ADS, assuming we are sufficiently funded. We are actively engaging prospective customers in technical discussions and testing to determine what features are most in demand for the markets we are targeting. ADS can be deployed on hardware running either Sun's Solaris operating system or Microsoft Windows 2000 operating system. We intend to port ADS to the Linux operating system by mid-summer 2003. We have mobilized our engineering resources around developing those features. Marketing Our product, the ANTs Data Server, is a standards-compliant SQL relational database server. ADS, which incorporates our proprietary lock-free data structure technology solves a fundamental problem that has compromised application performance for years - database locking of rapidly changing, shared data. In internal benchmark testing of key database operations, ADS performed up to 80 times the number of operations as one of the industry's leading database servers (for a full description of the benchmark please visit our web site: www.antssoftware.com). Target markets include: Telecommunications, Financial Services and Logistics/Transportation. Our go-to-market strategy includes establishing OEM relationships with leading vendors in each market and limited sales directly to customers. Selling, General and Administrative Selling, general and administrative expenses decreased from $593,311 during the three months ended March 31, 2002 to $430,022 for the three months ended March 31, 2003. Components of selling, general and administrative expense for the three months ended March 31, 2003 include: salaries and benefits (31%), professional services (45%) and other expenses (24%). The year-over-year decrease resulted from an approximate $34,000 reduction in salaries and benefits, a $72,000 decrease in legal and other professional fees, and a $74,000 decrease in insurance expense. The decrease was offset by a $20,000 increase in travel expense. We expect that if we are sufficiently funded, selling, general and administrative expenses will increase moderately over the next twelve months as sales and marketing programs are implemented and additional staff is recruited to sell and support our products. Research and Development Research and development expenses decreased from $978,903 during the three months ended March 31, 2002 to $365,438 for the three months ended March 31, 2003. These expenses are related to the research, testing and product development of our proprietary software. Of the $978,903 expensed through March 31, 2002, $525,635 was a non-cash expense related to the extension of certain options and warrants granted to a former officer and our 9 current Chief Scientist. Salaries and benefits accounted for 74% and other expenses accounted for 26% of the total for the three months ended March 31, 2003. We expect that if we are sufficiently funded, our research and development expenses will increase moderately as additional staff is recruited to customize our products and develop new ones. Appointment of Officer On March 24, 2003, the Company appointed Mr. Gary Ebersole as President and Chief Operating Officer. Mr. Francis K. Ruotolo remains Chairman and Chief Executive Officer. Capital and Liquidity Resources We anticipate that if we are sufficiently funded, we will increase expenditures moderately to substantially over the next twelve months as we begin to sell product and as we continue to develop our technology. We expect to begin realizing revenues in 2003. Our cash balance as of March 31, 2003 was approximately $575,000, which, together with funds received from a current private placement offering, we believe will be adequate to fund our activities into June 2003 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 twelve months we will require approximately $5 million. We will pursue a number of avenues to raise these operating funds: 1) in the past we have been successful raising funds through private placements of our stock, we anticipate that we will continue to raise funds through private placements, 2) as we develop close relationships with large partners, we will pursue strategic investments from those partners, and 3) we expect to begin generating revenue this year, which will be a source of operating funds if we are successful. We are pursuing all three avenues, however, we believe, that due to a poor investment climate, securing additional investment will be difficult. ITEM 3. CONTROLS AND PROCEDURES As of February 12, 2003, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the design and operation of the Company's disclosure controls and procedures (as defined in Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of February 12, 2003. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to February 12, 2003. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information is hereby incorporated by reference from the Form 10-KSB filed on March 21, 2003. There have been no other material developments in the period covered by this report. ITEM 2. CHANGES IN SECURITIES From January 1, 2003 through March 31, 2003 we sold, to accredited investors through a private offering 20,000 C Units, at a price of fifty cents ($.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 the Company issued 2,000 C Units in commissions and finder's fees. The gross proceeds of the offering were $10,000. We also sold to accredited investors, through a private offering, 402,497 D Units at a price of seventy-five cents ($0.75) per D Unit, with each D 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 two dollars ($2.00), exercisable until March 31, 2006. In connection with this offering, the Company paid $16,250 in cash commissions and finder's fees and incurred 15,151 D units in commissions and finder's fees. The gross proceeds from the offering were $301,875. 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. 10 From January 1, 2003 through March 31, 2003 two consultants exercised options to purchase an aggregate of 19,750 shares of common stock for the aggregate amount of $11,485. 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. 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. 10.10 Employment Agreement dated March 24, 2003, between the Company and Gary Ebersole. 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 for the quarter ended March 31, 2003. (b) Reports on Form 8-K 11 On March 26, 2003, we filed on Form 8-K a letter addressed to our shareholders introducing Gary Ebersole, our President and Chief Operating Officer, and bringing the shareholders up to date on our progress and plans. 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. A failure to raise additional funding could prevent us from continuing our business after June 2003. We anticipate that current cash resources will be sufficient to fund our operations into June 2003 at our current rate of spending. We believe that, due to a poor investment climate, securing additional sources of financing to enable us to complete the development and commercialization of our proprietary technologies will be difficult and there is no assurance of our ability to secure such financing. A failure to obtain additional funding could prevent us from making expenditures that are needed to pay current obligations, allow us to hire additional personnel and continue development of the technology. If we raise additional funds by selling equity securities, the relative equity ownership of our existing investors could be diluted or the new investors could obtain terms more favorable than previous investors. If we raise additional funds through debt financing, we could incur significant borrowing costs. If we are unable to protect our intellectual property, our competitive position would be adversely affected. We rely on patent protection, as well as trademark and copyright law, trade secret protection and confidentiality agreements with our employees and others to protect our intellectual property. Despite our precautions, unauthorized third parties may copy our products and services or reverse engineer or obtain and use information that we regard as proprietary. We have also filed patent applications and intend to file more. We do not know if any of our intended future patents will be issued or whether we will be successful in prosecuting any additional patents. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Our means of protecting our proprietary rights may not be adequate and third parties may infringe or misappropriate our patents, copyrights, trademarks and similar proprietary rights. If we fail to protect our intellectual property and proprietary rights, our business, financial condition and results of operations would suffer. We believe that we do not infringe upon the proprietary rights of any third party, and no third party has asserted a patent infringement claim against us. It is possible, however, that such a claim might be asserted successfully against us in the future. We may be forced to suspend our operations to pay significant amounts to defend our rights, and a substantial amount of the attention of our management may be diverted from our ongoing business, which can materially affect our ability to attain and maintain profitability. We focus on the research and development of our proprietary technologies and the marketing of our first product. Our present focus is on the research and development of our proprietary technologies and the marketing of our first product. We believe that these technologies are the basis for highly marketable commercial products. However, there can be no assurance of this and it is possible that our proprietary technologies and products will have no commercial benefit or potential. In addition, from our inception to the present, we have not recognized any operating revenues. 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 12 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, sales, marketing, and administrative 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, we may experience substantial growth in the size of our staff and the scope of our operations, resulting in increased responsibilities for management. To manage this possible growth effectively, we will need to continue to improve our operational, financial and management information systems and to hire, train, motivate and manage a growing number of staff. We expect to experience difficulty in filling our needs for qualified engineers and other personnel. There can be no assurance that we will be able to effectively achieve or manage any future growth, and our failure to do so could delay product development cycles and market penetration or otherwise have a material adverse effect on our financial condition and results of operations. We could face information and product liability risks and may not have adequate insurance. Because we intend to provide database products for 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, however we intend to acquire such insurance prior to commencing substantial sales. In the event that we are required to defend more than a few such actions, or in the event that we were found liable in connection with such an action, our business and operations would be severely and materially adversely affected. We are dependent on new demand for our products and services. The success of our business depends upon demand for and use of our technology, products and services in general and the demand for additional computing power, cost effectiveness and speed in particular. The technology underlying our product is new and although we have thoroughly tested it internally 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 market acceptance and utilization of our intended products and services. Due to economic conditions potential customers have significantly tightened budgets for evaluating new products and technologies and the evaluation cycles are much longer than in the recent past. There can be no 13 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 2003. There is no assurance that our plans will be realized, that we will be able to generate revenues in 2003 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 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. We have indemnified our officers and directors. We have indemnified our Officers and Directors against possible monetary liability to the maximum extent permitted under Delaware law. Limitation on ability for control through proxy contest. Our Bylaws provide for a Board of Directors to be elected in three classes. This classified Board may make it more difficult for a potential acquirer to gain control of the Company by using a proxy contest, since the acquirer would only be able to elect one or two directors out of five directors at each shareholders meeting held for that purpose. 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 8, 2003 By: /s/ Francis K. Ruotolo ----------- ----------------------------------- Francis K. Ruotolo, Chairman and Chief Executive Officer Date: May 8, 2003 By: /s/ Kenneth Ruotolo ----------- ----------------------------------- Kenneth Ruotolo Chief Financial Officer and Secretary 14 CERTIFICATIONS I, Francis K. Ruotolo, certify that: 1. I have reviewed this quarterly report on Form 10-QSB 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: May 8, 2003 /s/ Francis K. Ruotolo ----------- ---------------------------------------- Francis K. Ruotolo, Chairman and Chief Executive Officer 15 I, Kenneth Ruotolo, certify that: 1. I have reviewed this quarterly report on Form 10-QSB 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: May 8, 2003 /s/ Kenneth Ruotolo ----------- ---------------------------------------- Kenneth Ruotolo Chief Financial Officer and Secretary 16 EX-10 3 ex-1010.txt EXHIBIT 10.10 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered into as of March 24, 2003, by and between ANTs software inc., a Delaware corporation (the "Company"), and Gary Ebersole (the "Executive") (hereinafter collectively referred to as "the parties"). WHEREAS, the Executive shall serve as President and Chief Operating Officer of the Company; and WHEREAS, the Executive possesses an intimate knowledge of the business and affairs of the Company and its policies, procedures, methods, and personnel; and WHEREAS, the Company has determined that it is essential and in its best interests to retain the services of key management personnel and to ensure their continued dedication and efforts; and the Executive is willing to render such services on the terms and conditions set forth herein; and WHEREAS, the parties have agreed to terminate that certain Independent Contractor Agreement entered into on or about February 10, 2003 (the "Consultant Agreement"). NOW, THEREFORE, in consideration of the foregoing and the respective agreements of the parties contained herein, the parties hereby agree as follows: 1. Term. Executive shall provide references to the Company. In the event the Company is satisfied with the references provided by Executive, the initial term of employment under this Agreement shall commence on March 24, 2003 (the "Commencement Date") and end on the anniversary of the Commencement Date (the "Initial Term"); provided, however, that upon the expiration of the Initial Term, this Agreement shall be automatically extended for a period of one year (the Initial Term and the term of any such extension period shall be referred to as the "Term") unless either the Company or the Executive shall have given written notice to the other, at least forty-five (45) days prior to the end of the Term, that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement may be terminated at any time by either party as set forth below in Section 9. 2. Employment. (a) Position. The Executive shall be employed as the President and Chief Operating Officer of the Company or such other meaningful executive position as may be determined by the Company. The Executive shall perform the duties, undertake the responsibilities, and exercise the authority customarily performed, undertaken, and exercised by persons employed in a similar executive capacity. The Executive shall report to the Chief Executive Officer. (b) Obligations. The Executive agrees to devote his full business time and attention exclusively to the business and affairs of the Company. The foregoing, however, shall not preclude the Executive from serving on other corporate boards with the prior written approval of the Chief Executive Officer of the Company, which approval may be withheld in the Chief Executive Officer's sole discretion, or any civic or charitable boards or committees or from managing personal investments at the Executive's own discretion, so long as such activities do not interfere with the performance of the Executive's responsibilities hereunder. 3. Base Salary. The Company agrees to pay or cause to be paid to the Executive during the Term an annual base salary at the rate of $240,000 (hereinafter referred to as the "Base Salary"). The Base Salary will be subject to annual review (on a calendar year schedule) and may be changed from time to time by the Company in its sole discretion considering factors such as the Executive's responsibilities, compensation of similar executives within the Company and in other comparable companies, performance of the Executive, and other pertinent factors. Any changes in the Base Salary determined by the Company shall be made effective as of January 1 of each year. The Base Salary shall be payable in accordance with the Company's usual payroll procedures. 4. Equity Compensation. Subject to approval by the Company's Board of Directors, the Company shall grant the Executive (a) stock options to purchase up to 300,000 shares of Common Stock of the Company under the Company's 2000 Stock Option Plan (the "Plan") on or about the Commencement Date of this Agreement and (b) stock options to purchase up to 275,000 shares of Common Stock of the Company under the Plan on or about the date the shareholders of the Company approve the amendment to the Plan increasing the number of shares of Common Stock reserved to 5,450,000. These options will vest as follows: Sixteen and 6/10 percent (16.6%) of the shares granted shall vest on the date six (6) months from March 24, 2003 (the "Vesting Measurement Date"); thereafter, Two and 78/100 percent (2.78%) of the shares granted shall vest at the conclusion of each month, such that One Hundred Percent (100%) of shares granted are vested on the date three (3) years from the Vesting Measurement Date. 5. Employee Benefits. The Executive shall be entitled to participate in all employee benefit plans, practices, and programs maintained by the Company and made available to senior executives generally and as may be in effect from time to time, including, without limitation, the Company's stock option plan and 401(k) plan or their equivalents. The Executive's participation in such plans, practices and programs shall be on the same basis and terms as are applicable to senior executives of the Company generally. 6. Other Payments. (a) Annual Bonus. The Executive shall be eligible to receive an annual cash bonus determined by achievement by the Executive of specific objectives set by the Company in its sole discretion. The specific objectives are set forth in Annex A for 2003. The Bonus shall be paid during January of each year based on the Executive's performance for the preceding calendar year. The first period for assessing the Executive's achievement of specific objectives shall be March 24, 2003 through December 31, 2003. 7. Other Benefits. (a) Life Insurance. During the Term, the Company shall be entitled to maintain a "key person" term life insurance policy on the life of the Executive, the proceeds of which shall be payable to the Company or its designees. The Executive agrees to undergo any reasonable physical examination and other procedures as may be necessary to maintain such policy. -2- (b) Expenses. Subject to applicable Company policies, the Executive shall be entitled to receive prompt reimbursement of all expenses reasonably incurred by him in connection with the performance of his duties hereunder or for promoting, pursuing, or otherwise furthering the business or interests of the Company. (c) Office and Facilities. The Executive shall be provided with appropriate offices and with such secretarial and other support facilities as are commensurate with the Executive's status with the Company and adequate for the performance of his duties hereunder. (d) Travel. International business travel to destinations outside North America shall be business class or its equivalent . 8. Vacation. The Executive shall be entitled to annual vacation in accordance with policies as periodically established by the Company for similarly situated executives of the Company, but, in any event, not less than of fifteen (15) paid vacation days per calendar year. 9. Termination. The Executive's employment hereunder is terminable at will by either the Company or the Executive at any time. Any decision to terminate this Agreement by either the Company or the Executive shall be communicated by delivering a written notice of termination to the other thirty (30) days prior to the Termination Date. "Termination Date" shall mean in the case of the Executive's death, the date of death, or in all other cases, the date specified in the notice of termination. 10. Compensation Upon Termination. (a) If the Executive's employment is terminated (1) by the Company for Cause (which shall be indicated in the notice of termination sent by the Company to the Executive) or (2) by the Executive for any reason other than for Good Cause, the Company's sole obligation hereunder shall be to pay the Executive the following amounts earned hereunder but not paid as of the Termination Date: (i) Base Salary, (ii) reimbursement for any and all monies advanced or expenses incurred pursuant to Section 7(b) through the Termination Date, and (iii) any earned compensation which the Executive had previously deferred (including any interest earned or credited thereon) (collectively, "Accrued Compensation"). The Executive's entitlement to any other benefits shall be determined in accordance with the Company's employee benefit plans then in effect. For purposes of this Agreement, "Good Cause" shall mean a material change in Executive's corporate position, title or responsibility, and "Cause" shall mean (i) any material breach by the Executive of any agreement to which the Executive and the Company are parties (including, without limitation, this Agreement and the Proprietary Information and Inventions Agreement), (ii) any tortious or criminal act (other than termination of employment) or omission to act by the Executive which would reasonably be likely to have a material adverse effect on the business of the Company or the Executive's ability to perform services for the Company, (iii) any material misconduct or gross negligence of Executive, (iv) any material violation by Executive of the Company's policies, or (v) any willful non-performance of duties by the Executive in connection with the business or affairs of the Company. (b) If the Executive's employment is terminated (1) by the Company for any reason, other than for Cause, or (2) by the Executive for Good Cause, the Company's sole obligation hereunder shall be as follows: (i) the Company shall pay the Executive the Accrued Compensation; and -3- (ii) the Company shall continue to pay the Executive the Base Salary for a period of four (4) months following the Termination Date (the "Severance"). (c) During the period the Executive is receiving salary continuation pursuant to Section 10(b)(ii) hereof, the Company shall, at its expense, provide to the Executive and the Executive's beneficiaries medical and dental benefits substantially similar in the aggregate to those provided to the Executive immediately prior to the date of the Executive's termination of employment, or at the Company's option, in lieu thereof, a cash payment for the cost of such benefits; provided, however, that the Company's obligation with respect to the foregoing benefits shall be reduced to the extent that the Executive or the Executive's beneficiaries obtains any such benefits pursuant to a subsequent employer's benefit plans. (d) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. In the event that the Executive does obtain subsequent employment while receiving salary continuation pursuant to Section 10(b)(ii) hereof, the amount of such cash payment from the Company to the Executive shall be reduced by the same amount as the base compensation provided to the Executive by his subsequent employer for the same time intervals. 11. Executive Representations and Warranties. The Executive expressly represents and warrants to the Company that the Executive is not a party to any agreement and is not otherwise obligated in any way, and is not subject to any rules or regulations, whether governmentally imposed or otherwise, which will or may restrict in any way the Executive's ability to fully perform the Executive's duties and responsibilities under this Agreement. 12. Proprietary Information and Inventions Agreement Executive shall duly execute, accurately complete, and deliver to the Company, a Proprietary Information and Inventions Agreement, in the form provided by the Company, and Executive acknowledges that the due execution, completion and delivery is an inducement and condition precedent for the Company to retain Executive and that the Company does not intend to execute or perform this Agreement without such due execution, completion and delivery. 13. Company Policies. Executive agrees to comply in all respects with all of the Company's present and future policies, including without limitation (i) the Company's Memorandum regarding Restrictions and Responsibilities of Officers and Directors under Federal Securities Laws, as amended from time to time, (ii) the Company's Insider Trading Policy, as amended from time to time, and (iii) the Company's Investor Relations and Public Communication Policy, as amended from time to time. 14. Agreement Not To Compete. In order to protect the business interest and good will of the Company, and to protect the confidential information of the Company, Executive covenants and agrees that during the term of this Agreement, and for a period of four (4) months after termination of Executive's employment in the event Executive's employment is terminated as set forth above in Section 10(b), Executive will not: (a) directly or indirectly contact any customer of the Company for the purpose of soliciting such customer to purchase, lease or license a product or service that is the same as, similar to, or in competition with those products and/or services made, rendered, offered or under development by the Company; -4- (b) directly or indirectly employ, or request that a company or business directly or indirectly controlled by Executive employ a person who is employed by the Company; (c) directly or indirectly interfere with or attempt to disrupt the relationship, contractual or otherwise, between the Company and any of its employees or solicit, induce, or attempt to induce employees of the Company to terminate employment with the Company and become self-employed or employed with others in the same or similar business or any product line or service provided by the Company; (d) directly or indirectly engage in any activity or business as a consultant, independent contractor, agent, employee, officer, partner, or otherwise, alone or in association with any other person, corporation, or other entity in any Competing Business (operating in the United States). "Competing Business" shall mean any individual, corporation, partnership, business or other entity which operates or attempts to operate a business which provides, designs, develops, markets, engages in, produces or sells any products, services, or businesses which are the same or similar to those produced, marketed, or sold by the Company. 15. Termination of the Consultant Agreement. The parties hereby terminate the Consultant Agreement effective immediately. As of and after this date, no provision of the Consultant Agreement shall have any force or effect nor shall any such provision control or otherwise be binding upon the parties. 16. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns, and the Company shall use its best efforts to require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. The term "the Company" as used herein shall include any such successors and assigns to the Company's business and/or assets. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring or otherwise succeeding to, directly or indirectly, all or substantially all the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. (b) This Agreement is not assignable by Executive without the written consent of the Company. . 17. Arbitration. Except with respect to the remedies specifically set out elsewhere in this Agreement, any controversy or claim between the Company or any of its affiliates and the Executive arising out of or relating to this Agreement or its termination shall be settled and determined by binding arbitration. The American Arbitration Association shall administer the binding arbitration. The arbitration shall take place in San Francisco, California. Each of the Company and the Executive shall appoint one person to act as an arbitrator, and a third arbitrator shall be chosen by the first two arbitrators (such three arbitrators, the "Panel"). The Panel shall have no authority to award punitive damages against the Company or the Executive. The Panel shall have no authority to add to, alter, amend, or refuse to enforce any portion of the disputed agreements. The Company and the Executive each waive any right to a jury trial or to a petition for stay in any action or proceeding of any kind arising out of or relating to this Agreement or its termination. -5- 18. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by registered or certified mail, return receipt requested, postage prepaid, or upon receipt if overnight delivery service or facsimile is used, addressed as follows: To the Executive: ----------------- Gary Ebersole ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- To the Company: With a copy to: --------------- --------------- ANTs software inc. ANTs counsel 801 Mahler Road, Suite G The Corporate Law Group Burlingame, California 94010 500 Airport Blvd. Suite 120 Attn: Ken Ruotolo Burlingame, CA 94010 Fax: (650) 692-0253 Att'n: Suzy Papazian Fax: (650) 227-8001 19. Miscellaneous. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 20. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California without giving effect to the conflict of law principles thereof. 21. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision, or such portion of such provision as may be necessary, shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be thereafter enforceable in accordance with its terms. 22. Entire Agreement. This Agreement, along with the Proprietary Information and Inventions Agreement, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. -6- 23. No Rules of Construction. Both Executive and the Company shall be considered to be joint authors of this Agreement and no rules of construction shall be invoked concerning this Agreement or the interpretation of this Agreement or its provisions. 24. Counterparts. This Agreement may be executed in counterparts, including counterparts transmitted by facsimile, each of which shall be deemed an original, and all such counterparts shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the day and year first above written. COMPANY: ANTS SOFTWARE INC. By: /s/ Francis K. Ruotolo -------------------------------- Name: Francis K. Ruotolo Title: Chairman and Chief Executive Officer EXECUTIVE: /s/ Gary Ebersole --------------------------------------- Gary Ebersole -7- Annex A Executive's 2003 Annual Bonus shall be based on achievement of the Company's Revenue Goal for 2003 which is $1.5 million. The Bonus shall be calculated as follows: Annual Bonus = (25% of Base Salary) * (Revenue Achievement/Revenue Goal). No Bonus shall be paid if Revenue Achievement for 2003 is less than 50% of Revenue Goal for 2003. Revenue Achievement is the total cash received from customers during 2003. This may differ from revenue recognition in accordance with GAAP guidelines and SEC regulations. COMPANY: -------- ANTS SOFTWARE INC. By: /s/ Francis K. Ruotolo --------------------------------- Name: Francis K. Ruotolo Title: Chairman and Chief Executive Officer EXECUTIVE: ---------- /s/ Gary Ebersole ---------------------------------------- Gary Ebersole -8- EX-99 4 ex-991.txt EXHIBIT 99.1 Certification of ANTs software inc. pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 regarding Quarterly Report on Form 10-QSB for the quarter ended March 31, 2003 ------------------------------------------------------------------------------ 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 for the quarter ended March 31, 2003 (the "Form 10-QSB") 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 fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 8, 2003 By: /s/ Francis K. Ruotolo ----------- ----------------------------------- Francis K. Ruotolo, Chairman and Chief Executive Officer Date: May 8, 2003 By: /s/ Kenneth Ruotolo ----------- ----------------------------------- Kenneth Ruotolo Chief Financial Officer and Secretary -----END PRIVACY-ENHANCED MESSAGE-----