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: September 30, 2001
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:
15,601,888 shares of common stock as of September 30, 2001
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 ...................................8-9
PART II. Other Information
Item 1. Legal Proceedings ...............................................9-10
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
Risk Factors ..............................................................11-13
Signatures ................................................................14
2.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANTs software inc.
CONDENSED BALANCE SHEETS
September 30, 2001 December 31, 2000
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 917,451 $ 2,609,084
Interest and other receivables 4,863 4,860
Prepaid expenses 240,425 102,947
Total current assets 1,162,739 2,716,891
PROPERTY AND EQUIPMENT:
Computers and software 614,184 565,110
Office furniture and fixtures 27,960 26,372
Less accumulated depreciation (161,330) (65,278)
Property and equipment, net 480,814 526,204
OTHER ASSETS 5,100 3,700
TOTAL ASSETS $ 1,648,653 $ 3,246,795
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 109,911 $ 231,053
Accrued legal fees 85,919 258,742
Notes payable 110,367 29,980
Current portion of note payable-former officer 75,000 -
Other liabilities 125,000 -
Total current liabilities 506,197 519,775
Long-term note payable - former officer,
net of current portion 150,000 -
TOTAL LIABILITIES 656,197 519,775
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value; 100,000,000
authorized;15,601,888 and 13,082,038 shares
issued and outstanding respectively 1,560 13,082
Additional paid-in-capital 23,027,129 18,804,974
Common stock subscribed - 1,815,000
Notes receivable from officers for
stock purchases (135,000) (180,000)
Treasury stock - (121,078)
Accumulated deficit (21,901,233) (17,604,958)
Total stockholders' equity 992,456 2,727,020
Total liabilities and stockholders' equity $ 1,648,653 $ 3,246,795
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,
2001 2000 2001 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES $ - $ - $ - $ -
OPERATING EXPENSES:
General and administrative
expenses 766,782 1,454,796 3,593,807 3,164,905
Research and development
expenses 456,379 273,750 769,332 595,564
Loss from operations (1,223,161) (1,728,546) (4,363,139) (3,760,469)
OTHER INCOME:
Interest income, net 23,521 23,283 59,979 149,728
Other income 2,715 - 6,885 -
Other income, net 26,236 23,283 66,864 149,728
NET LOSS $(1,196,925)$(1,705,263)$(4,296,275)$(3,610,741)
BASIC AND DILUTED LOSS
PER COMMON SHARE $ (0.08)$ (0.13)$ (0.29)$ (0.28)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 15,528,221 12,759,948 14,775,246 12,627,293
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,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
Net Loss $ (4,296,275) $ (3,610,741)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation 96,790 34,450
Common stock issued in settlement
of litigation 137,235 -
Stock compensation 46,800 -
Gain on sale of fixed assets 2,985 -
Write-off of notes and interest
receivable from officers for
stock purchases 49,860 58,140
Compensation expense recognized in
form of notes payable to
former officer 300,000 -
Changes in operating assets and liabilities:
Prepaid expenses and interest receivable (142,341) (190,197)
Accounts payable and accrued expenses 3,858 88,513
Other receivables - (25,734)
Notes payable 80,387 118,578
Accrued legal fees (13,597) (275,323)
Security deposits (1,400) (12,365)
Net cash used in operating activities (3,735,698) (3,814,680)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (54,385) (851,653)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placements 1,969,200 -
Proceeds from exercise of warrants 121,000 150,000
Proceeds from exercise of options 8,250 -
Net cash provided by financing
activities 2,098,450 150,000
NET DECREASE IN CASH (1,691,633) (4,516,333)
CASH, BEGINNING OF PERIOD 2,609,084 4,882,212
CASH, END OF PERIOD $ 917,451 365,879
NON-CASH FINANCING ACTIVITY:
In February 2001, the Company issued 400,000 shares of stock, which reduced
accrued legal fees by $159,226, as settlement of a lawsuit claim. See Note 5.
In August 2001, the Company issued 37,500 shares of stock and a warrant to
purchase 37,500 shares of stock as cancellation of the $75,000 payment due on
the note payable to a former officer. See Note 6.
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 eight months ended December
31, 2000, 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, 2001, are not necessarily indicative of the results that
may be expected in the future.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassification - To more clearly reflect the operation of the business, we
have reclassified as research and development expenses certain historical
expenses originally classified as general and administrative. Beginning
January 1, 2000, the subtotals for general and administrative and research and
development expenses have changed. Note that while the subtotals have changed,
total expenses have not. Additionally, certain other reclassifications of
prior years' balances have been made to conform to the current financial
statement presentation.
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 Nine Months Ended
Sept. 30, Sept. 30,
2001 2000 2001 2000
Net loss $(1,196,924) $(1,705,263) $(4,296,275) $(3,610,741)
Weighted average shares
of common stock outstanding
- basic and dilutive 15,528,221 12,759,948 14,775,246 12,627,293
Basic and diluted net loss
per share $ (0.08) $ (0.13) $ (0.29) $ (0.28)
As of September 30, 2001 outstanding options and warrants for the purchase of up
to 5,771,717 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 July 1, 2001 through September 30, 2001, we sold to accredited
investors, through a private offering, 126,500 units, at a price of $2.00 per
unit (the "Units"), with each 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 Four Dollars ($4.00),
exercisable until December 31, 2001. In connection with this offering, we paid
$15,800 in commissions and finder's fees. The gross proceeds of the offering
were $253,000. The proceeds will be used for general working capital
purposes.
The 200,000 shares that had been subscribed, but not issued as of June
30, 2001, were issued during the third quarter of 2001. As part of the January
2001 private placement, 11,350 restricted shares were issued in exchange for
placement services provided. These shares were exchanged for stock options,
6.
which were exercised during the third quarter of 2001. The exercise price of
these options was fulfilled by services previously rendered.
During the third quarter of 2001, a former employee exercised stock
options for 3,000 shares in the amount of $8,250.
On August 4, 2001, a former officer was issued 37,500 units
(the "Units"), with each 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 Four Dollars ($4.00), exercisable until
December 31, 2001. The Units were issued in lieu of a $75,000 cash payment due
on the note payable to the former officer.
In December 2000 the Company re-incorporated from Nevada to Delaware and changed
its name from ANTs software.com to ANTs software inc. As part of the
re-incorporation the Company's common stock par value was changed from $0.001 to
$0.0001 and the authorized common stock was increased from 20,000,000 to
100,000,000 shares.
4. WARRANTS AND STOCK OPTIONS
As of September 30, 2001, the Company had outstanding warrants to purchase up
to 3,592,606 shares of common stock and options to purchase up to 2,179,111
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 1,2001 5,289,222 417,200 5,706,422
Granted 217,000 1,558,004 1,775,004
Exercised or retired (455,813) (104,400) (560,213)
Outstanding at March 31,2001 5,050,409 1,870,804 6,921,213
Granted 782,500 317,831 1,100,331
Exercised or retired (1,078,777) (133,180) (1,211,957)
Outstanding at June 30,2001 4,754,132 2,055,455 6,809,587
Granted 174,000 138,006 312,006
Exercised or retired (1,335,526) (14,350) (1,349,876)
Outstanding at September 30,2001 3,592,606 2,179,111 5,771,717
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 agreed to issue 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, 2001 is $135,000.
7.
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.
Subsequently, the former officer was issued, in lieu of the cash payment due
August 4, 2001, 37,500 Units (see note 3, above). The aggregate amount
payable at September 30, 2001 is $225,000.
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.
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 access data. Our operations currently consist of research and
development of our proprietary software technology ("ANTs technology"),
marketing our technology to potential customers and partners, and capital
raising. We have not realized any revenues to date.
Plan of Operation
Our operations over the next six months will primarily consist of
continued research and development of our proprietary software technology and
development of our marketing program. Research and development will be
focused on demonstrating and enhancing the capabilities of our prototype
system. Thereafter, research and development will be directed towards
developing initial customer applications utilizing our technology. General
commercial applications utilizing our technology are expected to be available
by the end of calendar 2001. There is no assurance that our plans will be
realized.
The majority of our operating expenses and costs over the next three to six
months are expected to be for and in connection with existing personnel,
beta-testing our prototype system and development and execution of our marketing
efforts. We currently have nineteen full-time and two part-time employees and
two consultants. To more clearly reflect the operation of the business, we have
reclassified as research and development expenses, certain historical expenses
originally classified as general and administrative. Beginning January 1,
2000, the subtotals for general and administrative and research and development
expenses have changed. Note that while the subtotals have changed, total
expenses have not.
We believe that additional sources of financing can be secured to enable us to
complete the development and commercialization of our proprietary technologies,
although there is no assurance of our ability to do so.
8.
General and Administrative
General and administrative expenses decreased from $1,454,796 during the three
months ended September 30, 2000 to $766,782 during the three months ended
September 30, 2001. General and administrative expenses increased from
$3,164,905 during the nine months ended September 30, 2000 to $3,593,807 during
the nine months ended September 30, 2001. Components of general and
administrative expense for the 3rd quarter of 2001 include: salaries and
benefits (41%), insurance (17%), legal (14%), other professional services (17%)
and other expenses (11%). We expect overall general and administrative expenses
to increase moderately over the next three to six months.
Research and Development
Research and development expenses increased from $273,750 during the three
months ended September 30, 2000 to $456,379 during the three months ended
September 30, 2001. Research and development expenses increased from $595,564
during the nine months ended September 30, 2000 to $769,332 during the nine
months ended September 30, 2001. These expenses are related to the research,
testing and product development of our proprietary software. We expect that our
research and development expenses will continue to increase moderately as
additional staff is recruited and we begin beta-testing of our prototype system.
Marketing
On or about September, 17, 2001 we signed a letter of intent to enter into a
technology and marketing agreement with Data Trak Technologies of California,
Inc., a supply chain provider and integrator of small package and LTL shipping
solutions. In the letter of intent, Data Trak agreed to evaluate ANTs'
proprietary database technology for inclusion into its product and service
offerings and agreed to introduce ANTs to key clients and partners. Data Trak
clients include: Sony Music, Oracle, Intel, Novell, Sun Micro Systems, Clorox,
3M and Abbott Labs. On or about October 30, 2001, we entered into a beta test
agreement with Data Trak, pursuant to which we agreed to provide Data Trak with
early access to our technology for testing and evaluation.
Capital and Liquidity Resources
We anticipate increasing expenditures over the coming months as we continue to
develop our technology. We do not expect to realize any revenues through
calendar year 2001. Our cash balance as of September 30, 2001 was $917,451,
which we believe will be adequate to fund our activities through mid-December
2001 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. We believe the appeal to be without merit, but there can be
no assurance that the appellate court will not reverse the lower court's ruling
and require a trial. We have filed an action for malicious prosecution against
the lawyer and the plaintiff in this case. Since May 4, 2000, the malicious
prosecution action has been stayed pending resolution of the appeal. With
respect to the appeal, the plaintiff filed an opening brief on December 19,
2000, we filed a responsive brief on April 4, 2001, and the plaintiff filed his
reply brief on May 25, 2001. Oral argument was heard on October 16, 2001. The
Court of Appeal has 90 days to render a decision.
On or about January 31, 2001, the British Columbia Securities
Commission ("B.C. Commission") requested that we provide 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
("BC Act"). On or about October 12, 2001, the B.C. Commission decided not to
9.
take formal enforcement action against us at this time in connection with our
breaches of the BC Act.
In March 2001, we were informed that the staff of the Securities and Exchange
Commission (the "SEC") was considering recommending to the Commission that an
action be brought against us alleging that:
1) We incorrectly identified Mr. Peter Patton as a director in a January
2000 registration statement on form S-8;
2) We failed to disclose a 1996-97 attempted involuntary bankruptcy
proceeding in our 1999 registration statement on form 10-SB;
3) A former director signed a consent in our January 2000 registration
statement on form S-8 that should have been signed by our auditor; and
4) We failed to file periodic reports from 1988 to 1999.
We thereafter made a submission to the staff of the SEC explaining our
position on these matters and explaining why no action should be brought against
us.
In August 2001, we reached a tentative agreement with the staff of the
SEC to settle the matter by consenting, without admitting or denying the SEC's
allegations, to an injunction prohibiting us from future violations of the
periodic reporting requirements (item 4, above).
On November 7, 2001, our counsel received a letter from the staff of the SEC
that stated the following:
"This letter is to inform you that the staff of the Securities and Exchange
Commission's Office of Enforcement does not intend to bring an enforcement
action against your client, Ants Software, Inc. ("Ants") in connection with
the issues addressed in the staff's March 8, 2001 Wells letter, as identified
more specifically in Ants' Form 10KSB dated March 22, 2001.
The above-referenced investigation, however, has not been terminated. This
letter must in no way be construed as indicating that Ants has been exonerated
or that no action may ultimately result from the staff's investigation of the
above-referenced matter. In addition, the attempted use of this letter as a
purported defense in any action that might subsequently be brought against Ants,
either civilly or criminally, would be clearly inappropriate and improper since
this letter, at most, can mean that as of this date, the staff of the Commission
does not regard enforcement action as called for based upon the information it
has at this time. Moreover, this conclusion may be based upon various reasons,
some of which are irrelevant to the merits of any subsequent action."
The SEC's latest letter apparently supercedes the tentative settlement
agreement.
On October 12, 2001, a class action complaint, titled Joseph Chatham v. ANTs
Software.com, et al., was filed in Los Angeles County Superior Court against us
and certain of our former officers and former directors. The plaintiff claims
to be suing on behalf of a class of persons who purchased our stock from October
5, 1999, through March 23, 2001. The complaint claims violations of certain
provisions of the California Corporations Code in connection with the following
alleged misrepresentations:
(1) We misrepresented that Dr. Peter Patton was a member of our board of
directors;
(2) We failed to disclose an effort by a creditor to force us into
involuntary bankruptcy; and
(3) Donald Hutton falsely identified himself as a certified public
accountant in an SEC filing.
These allegations appear to be the same as three of the four matters raised by
the SEC as disclosed in our Form 10-KSB dated March 22, 2001. We believe these
claims to be without merit and intend to defend this case vigorously. However,
there can be no assurance that this matter will be resolved without costly
litigation, or in a manner that is not materially adverse to our financial
position, results of operations or cash flows. No estimate can be made of the
possible loss or possible range of loss associated with the resolution of this
contingency.
The information is hereby incorporated by reference from the Form
10-QSB filed on May 15, 2001. There have been no other material developments
in the period covered by this report.
10.
ITEM 2. CHANGES IN SECURITIES
From July 1, 2001 through September 30, 2001, we sold to accredited investors,
through a private offering, 126,500 units, at a price of $2.00 per unit
(the "Units"), with each 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 Four Dollars ($4.00), exercisable
until December 31, 2001. In connection with this offering, we paid $15,800 in
commissions and finder's fees. The gross proceeds of the offering were
$253,000. The proceeds 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
Mr. Michael O'Connor resigned as Interim Chief Financial Officer, effective as
of September 30, 2001. Mr. John Williams resigned as Secretary and Executive
Vice President, Quality Assurance and Operations, effective as of September 14,
2001. Mr. Kenneth Ruotolo was appointed to the position of Chief Financial
Officer and Secretary, by the Board of Directors by unanimous written consent
on October 1, 2001.
Mr. Jeffrey R. Spirn, Ph.D was appointed to the position of Vice President,
Research & Development, by the Board of Directors at a meeting held on
September 6, 2001.
Mr. Girish Mundada was hired to the position of Vice President of Engineering,
effective as of September 24, 2001.
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.
(b) Reports on Form 8-K
We did not file any reports on Form 8-K during the quarter for which
this report is filed.
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.
11.
If we are unable to protect our intellectual property, our competitive
position would be adversely affected. We rely on patent protection, as well as
trademark and copyright law, trade secret protection and confidentiality
agreements with our employees and others to protect our intellectual property.
Despite our precautions, unauthorized third parties may copy our products and
services or reverse engineer or obtain and use information that we regard as
proprietary. We have also filed patent applications and intend to file more.
We do not know if any of our intended future patents will be issued or whether
we will be successful in prosecuting any additional patents. In addition, the
laws of some foreign countries do not protect proprietary rights to the same
extent as do the laws of the United States. Our means of protecting our
proprietary rights may not be adequate and third parties may infringe or
misappropriate our patents, copyrights, trademarks and similar proprietary
rights. If we fail to protect our intellectual property and proprietary rights,
our business, financial condition and results of operations would suffer. We
believe that we do not infringe upon the proprietary rights of any third party,
and no third party has asserted a patent infringement claim against us. It is
possible, however, that such a claim might be asserted successfully against us
in the future. We may be forced to suspend our operations to pay significant
amounts to defend our rights, and a substantial amount of the attention of our
management may be diverted from our ongoing business, which can materially
affect our ability to attain and maintain profitability.
We face possible competition from large companies. The industry that we
are in is highly competitive. Although we believe that our technology is
unique, can be protected, and, if adopted, will confer benefits that will be
otherwise unavailable for some significant time, we face very large competitors
with greater resources who may adopt various strategies to block or slow our
market penetration, thereby straining our more limited resources. They may also
seek to hinder our operations through attempts to recruit key staff with
exceptionally attractive terms of 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 and retain more staff.
We plan to increase our technical personnel in the near term. We are recruiting
personnel to meet this objective. 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 will need to manage growth well. We may experience substantial
growth in the size of our staff and the scope of our operations, resulting in
increased responsibilities for management. To manage this possible growth
effectively, we will need to continue to improve our operational, financial and
management information systems and to hire, train, motivate and manage a growing
number of staff. We expect to experience difficulty in filling our needs for
qualified engineers and other personnel. There can be no assurance that we will
be able to effectively achieve or manage any future growth, and our failure to
do so could delay product development cycles and market penetration or otherwise
have a material adverse effect on our financial condition and results of
operations.
We could face information and product liability risks and may not have
adequate insurance. Because we intend to provide middleware solutions to
critical business and Internet applications, we may become the subject of
litigation alleging that our products were ineffective or disruptive in their
treatment of data, or in the compilation, processing or manipulation of
critical business information. Thus, we may become the targets of lawsuits
from injured
12.
or disgruntled businesses or other users. We do not presently carry product or
information liability or errors and omissions insurance, and although we intend
to acquire such insurance prior to commencing substantial sales, such insurance
may not be available in an acceptable or affordable form. In the event that we
are required to defend more than a few such actions, or in the event that we
were found liable in connection with such an action, our business and operations
would be severely and materially adversely affected.
We are dependent on new demand for our products and services. The
success of our business depends upon demand for and use of our technology,
products and services in general and the demand for additional computing power,
cost effectiveness and speed in particular. Our technology introduces a new
kind of middleware, so we may encounter substantial market resistance. In the
event sufficient demand does not develop, our business and results of
operations would be materially adversely affected. We believe that there
appears to be increased demand for computing power, cost effectiveness and
speed, but if general economic conditions decline or hardware and memory
advances make such power, cost effectiveness and speed more readily available,
then adoption, use and sales of our products and services may be materially
adversely affected.
We will need to continue our product development efforts. We believe
that our market will be characterized by increasing technical sophistication.
We also believe that our eventual success will depend on our ability to
continue to provide increased and specialized technical expertise. There is
no assurance that we will not fall technologically behind competitors with
greater resources. Although we believe that we enjoy a significant lead in
our product development and introduction, and are hopeful that our patents
provide some protection, we will likely need significant additional capital
in order to continue to enjoy such a technological lead over competitors with
more resources.
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 mid-December 2001 at our current rate of
spending. We believe that additional sources of financing can be secured to
enable us to complete the development and commercialization of our proprietary
technologies, although there is no assurance of our ability to do so. A failure
to obtain additional funding could prevent us from making expenditures that are
needed to 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.
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. 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.
13.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANTs software inc.
Date: November 14, 2001 By: /s/ Francis K. Ruotolo
Francis K. Ruotolo, Chairman,
Chief Executive Officer and President
Date: November 14, 2001 By: /s/ Kenneth Ruotolo
Kenneth Ruotolo
Chief Financial Officer and Secretary
14.