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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-QSB/A
Amendment No. 1
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number: 0000796655
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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:
17,525,651 shares of common stock as of March 31, 2002
Transitional Small Business Disclosure Format: Yes |_| No |X|
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EXPLANATORY NOTE
We are filing this Form 10-QSB/A to amend and restate the information
disclosed in Items 1 and 2 of Part I of the Form 10-QSB filed on May 14, 2002.
The principal change was to revise the statement of operations to reflect
non-cash stock compensation expense resulting from an extension of the exercise
period for warrants and options granted to a former officer and our current
Chief Scientist.
TABLE OF CONTENTS
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PART I. Financial Information
Item 1. Financial Statements ........................................ 3-7
Item 2. Management's Plan of Operation .............................. 7-9
PART II. Other Information
Item 1. Legal Proceedings ........................................... 9-10
Item 2. Changes in Securities ......................................... 10
Item 3. Defaults Upon Senior Securities................................ 10
Item 4. Submission of Matters to a Vote of Security Holders............ 10
Item 5. Other Matters.................................................. 10
Item 6. Exhibits and Reports on Form 8-K............................... 10-11
Risk Factors........................................................... 11-13
Signatures............................................................. 14
Certifications......................................................... 14
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANTs software inc.
CONDENSED BALANCE SHEETS
March 31, 2002 December 31, 2001
(Unaudited) (Audited)
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 579,616 $ 734,319
Prepaid insurance 19,083 139,208
Prepaid expenses 22,931 22,931
------------ ------------
Total current assets 621,630 896,458
------------ ------------
PROPERTY AND EQUIPMENT:
Computers and software 636,359 619,708
Office furniture and fixtures 29,386 27,960
Less accumulated depreciation (222,930) (191,915)
------------ ------------
Property and equipment, net 442,815 455,753
------------ ------------
OTHER ASSETS 5,100 5,100
------------ ------------
Total assets $ 1,069,545 $ 1,357,311
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 114,175 $ 111,041
Accrued legal fees 74,614 112,199
Notes payable - former officer, current portion 75,000 75,000
Convertible promissory note 200,000 --
Other current liability -- 125,000
------------ ------------
Total current liabilities
463,789 423,240
------------ ------------
Long-term note payable - former officer,
net of current portion 150,000 150,000
------------ ------------
Total liabilities 613,789 573,240
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value; 100,000,000
authorized; 17,525,651 shares issued and outstanding 1,753 1,674
Common stock subscribed 343,488 --
Notes receivable from officers for stock purchases (135,000) (135,000)
Additional paid-in capital 25,227,154 24,328,549
Accumulated deficit (24,981,639) (23,411,152)
------------ ------------
Total stockholders' equity 455,756 784,071
------------ ------------
Total liabilities and stockholders' equity $ 1,069,545 $ 1,357,311
============ ============
The accompanying notes are an integral part of these financial statements.
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ANTs software inc.
CONDENSED STATEMENTS OF OPERATIONS
Three months ended March 31,
2002 2001
(Unaudited) (Unaudited)
------------ ------------
REVENUES
$ -- $ --
OPERATING EXPENSES:
General and administrative expenses 593,311 1,561,954
Research and development expenses 978,903 359,459
------------ ------------
Loss from operations (1,572,214) (1,921,413)
------------ ------------
OTHER INCOME:
Interest income, net 1,727 23,745
Other expenses -- (1,485)
------------ ------------
Other income, net 1,727 22,260
------------ ------------
NET LOSS $ (1,570,487) $ (1,899,153)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.09) $ (0.14)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 17,219,268 13,890,296
============ ============
The accompanying notes are an integral part of these financial statements.
4
ANTs software inc.
CONDENSED STATEMENTS OF CASH FLOWS
Three months ended March 31,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
-----------------------------
Net Loss $(1,570,487) $(1,899,153)
Adjustments to reconcile net loss
To net cash used by operating activities:
Depreciation 31,015 29,733
Common stock issued in settlement of litigation -- 137,195
Gain on sale of fixed assets -- 2,985
Compensation expense recognized in form of note payable to officer -- 300,000
Compensation expense on option and warrant extensions 525,635 --
Compensation expense on options granted to non-employees 52,498 --
Changes in operating assets and liabilities:
Prepaid expenses and interest receivable 120,125 50,491
Accounts payable and accrued expenses 3,134 (59,834)
Accrued legal fees (37,585) (70,403)
----------- -----------
Net cash used in operating activities (875,665) (1,508,986)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (18,077) (4,774)
----------- -----------
Net cash used in investing activities
(18,077) (4,774)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible promissory note 200,000 --
Proceeds from private placement, net of commissions 537,839 227,000
Proceeds from exercise of options 1,200 --
Proceeds from exercise of warrants -- 100,000
----------- -----------
Net cash provided by financing activities
739,039 327,000
----------- -----------
NET DECREASE IN CASH (154,703) (1,186,760)
CASH, BEGINNING OF PERIOD 734,319 2,609,084
----------- -----------
CASH, END OF PERIOD $ 579,616 $ 1,422,324
=========== ===========
NON-CASH FINANCING ACTIVITY:
In February 2002, the Company issued $125,000 in common stock previously held as
an Other current liability. See Note 3.
In February 2001, the Company issued 400,000 shares of stock as settlement of a
lawsuit claim. See Note 5.
The accompanying notes are an integral part of these financial statements.
5
ANTs software inc.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements are presented in accordance
with the requirements for Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all the disclosures normally required by
generally accepted accounting principles. Reference should be made to the ANTs
software inc. (the "Company") Form 10-KSB for the twelve months ended December
31, 2001, for additional disclosures including a summary of the Company's
accounting policies, which have not significantly changed.
The information furnished reflects all adjustments (all of which were of a
normal recurring nature) which, in the opinion of management, are necessary to
fairly present the financial position, results of operations, and cash flows on
a consistent basis. Operating results for the three months ended March 31, 2002,
are not necessarily indicative of the results that may be expected in the
future.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basic Net Loss Per Share - Basic net loss per share is calculated using the
weighted-average number of common shares outstanding during the period. Diluted
net loss per share is computed using the weighted-average number of common and
dilutive common equivalent shares outstanding during the period.
The following table presents the calculation of basic and diluted net loss
per share:
Three Months Ended March 31,
---------------------------
2002 2001
----------- -----------
Net loss (1,570,487) (1,899,153)
Weighted average shares of common stock
outstanding - basic and dilutive 17,219,268 13,890,296
---------------------------
Basic and diluted net loss per share (0.09) (0.14)
As of March 31, 2002 outstanding options and warrants for the purchase of
up to 6,044,554 shares of common stock at prices ranging from $0.25 to $11.63
were anti-dilutive, and therefore, not included in the computation of diluted
loss per share.
3. EQUITY TRANSACTIONS
From January 1, 2002 through March 31, 2002, we sold to accredited
investors, through a private offering, 726,644 units, at a price of $0.75 per
unit (the "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 One Dollar ($1.00),
exercisable until December 31, 2002. In connection with this offering, we paid
$7,150 and agreed to issue 31,498 Units in commissions and finder's fees. As of
March 31, 2002, 6,500 of the 31,498 Units were issued, with the remaining 24,998
Units to be issued in the second quarter of 2002. The gross proceeds of the
offering were $544,989. As of March 31, 2002, of the 726,644 Units sold, there
were 457,978 units subscribed but not yet issued. The proceeds will be used for
general working capital purposes.
On or about March 11 and March 14, 2002 we sold to an accredited investor,
through a private offering, two convertible promissory notes without interest in
aggregate principal face amount of $200,000, convertible at the option of the
holder into shares of Common Stock of the Company at a conversion price of $0.75
per share. Such notes are due and payable during the second quarter of 2002. We
expect that both notes will be converted to shares during the second quarter of
2002. The proceeds were used for general working capital purposes.
In January 2001, the British Columbia Securities Commission requested
information regarding the distribution of securities to British Columbia
residents to ensure that such distributions were made in compliance with the
British Columbia Securities Act. In April 2001, we received $125,000, for the
exercise of a warrant to purchase 500,000 shares of Common Stock, from a former
employee who we believed was a Canadian resident.
6
Due to the pending inquiry we did not issue the shares to the former employee.
Since April 2001, the $125,000 has been recorded as an Other current liability.
These shares were issued during the first quarter of 2002 when it was determined
that the former employee was not a Canadian resident.
During the first quarter of 2002, a former employee exercised an option to
purchase 600 shares of common stock in the amount of $1,200. Additionally, a
former consultant to the Company exercised an option to purchase 15,000 shares
of common stock. The exercise price was paid by services previously rendered. An
additional 3,333 shares were issued during the quarter in connection with the
fourth quarter 2001 private placement.
We agreed to extend the period during which a former officer could exercise
two options to purchase a total of 220,000 shares of our common stock and we
agreed to extend the period during which our current Chief Scientist could
exercise a warrant to purchase 400,000 shares of common stock. A non-cash R&D
expense totaling $525,635 was recognized.
4. WARRANTS AND STOCK OPTIONS
As of March 31, 2002, the Company had outstanding warrants to purchase up
to 3,333,632 shares of common stock and options to purchase up to 2,710,922
shares of common stock. These securities give the holder the right to purchase
shares of the Company's common stock in accordance with the terms of the
instrument.
Warrants Stock Options Total
--------- ------------- ---------
Outstanding at January 1, 2002 3,594,933 2,731,522 6,326,455
Granted 238,699 4,000 242,699
Retired -- (9,000) (9,000)
Expired -- -- --
Exercised through cash consideration -- (600) (600)
Exercised through non-cash consideration (500,000) (15,000) (515,000)
--------- --------- ---------
Outstanding at March 31, 2002 3,333,632 2,710,922 6,044,554
=======================================
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.
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
7
to alter its capital investment and other expenditures, which may also adversely
affect the Company's results of operations. In light of significant
uncertainties inherent in forward-looking information included in this quarterly
Report on Form 10-QSB, the inclusion of such information should not be regarded
as a representation by the Company that the Company's objectives or plans will
be achieved. The Company undertakes no obligation to revise or publicly release
the results of any revision to these forward-looking statements.
Overview
We are engaged in the development and marketing of a proprietary software
technology that is intended to significantly improve the speed at which
computers can manipulate data.
Plan of Operation
We anticipate that, if we are sufficiently funded, over the next six months
our focus will be threefold: continued development of our technology, marketing
our technology, and supporting customers. The development effort will be focused
on enhancing our technology and thereafter will be directed towards developing
initial customer applications utilizing our technology. General commercial
applications utilizing our technology are expected to be available by the end of
calendar 2002. There is no assurance that our plans will be realized.
The majority of our operating expenses and costs over the next six months
are expected to be for and in connection with existing and additional personnel
and equipment. We currently have sixteen full-time employees, two part-time
employees and one consultant. We view the recruitment of additional qualified
technical personnel as essential to the further development and
commercialization of our proprietary technologies. Should we be successful in
our recruitment efforts, we expect that our personnel and other operating costs
will increase over current levels.
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.
Technology Development
Over the next six months we intend to continue to improve and add
functionality both to the ANTs Concurrency Engine (ACE) and to the ANTs Data
Server (ADS). We have built out the basic functionality to the point where
virtually all additional functionality will be driven by partner or customer
demand. We are actively engaging prospective partners and customers in technical
discussions to determine what features are and will be most in demand for the
markets we are targeting. We intend to then mobilize our engineering resources
around developing those features. Once we are successful in developing partner
or customer relationships, we anticipate that the specific needs of the partner
or customer will drive the development of ACE and ADS functionality.
Marketing
Our product offering is comprised of two components, the core technology,
ACE, which represents our intellectual property and ADS, a relational database
which is the first implementation of ACE. ACE can be used as the engine for any
application that manipulates data. ADS can be applied to certain segments of the
database market. Target markets include: application server, wireless messaging,
high-end on-line transaction processing (OLTP) and storage. Our go-to-market
strategy includes potential OEM and co-marketing partnerships with leading
vendors in each market and limited sales directly to customers.
General and Administrative
General and administrative expenses decreased from $1,561,954 during the
three months ended March 31, 2001 to $593,311 for the three months ended March
31, 2002. Components of general and administrative expense for the three months
ended March 31, 2002 include: salaries and benefits (28%), legal (8%), other
professional services (37%) and other expenses (27%). We expect overall general
and administrative expenses to increase moderately over the next three to six
months.
8
Research and Development
Research and development expenses increased from $359,459 during the three
months ended March 31, 2001 to $978,903 for the three months ended March 31,
2002. 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 current Chief
Scientist. Salaries and benefits accounted for 91% and other expenses accounted
for 9% of the total for the three months ended March 31, 2002. We expect that
our research and development expenses will continue to increase moderately as
additional staff is recruited.
Capital and Liquidity Resources
We anticipate increasing expenditures over the coming months as we continue
to develop our technology. We expect to begin realizing revenues during calendar
year 2002. Our cash balance as of March 31, 2002 was $579,616, which, when added
to investments since then, we believe will be adequate to fund our activities
through July 2002 at our current rate of spending. There can be no assurance
that our continued product development and infrastructure development will not
require a much higher rate of spending. There can also be no assurance that we
will be able to obtain additional capital on acceptable terms.
To carry out our plan of operation, we anticipate that over the next six
months we will require approximately $2-4 million. We will pursue a number of
avenues to raise these operating funds: 1) in the past we have been successful
raising funds through a series of 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) this year we expect to begin generating
revenue, which will be a source of operating funds. We are currently seeking
investment from additional investors to support continued operations, although
there can be no assurance that we will be able to obtain such investment.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We were defendants in a case entitled Hubert P. Lauffs v. Mosaic Multisoft
Corporation, in which the plaintiff asserted a cause of action against us for
breach of fiduciary duty. The plaintiff purported to base his cause of action on
allegations that we and others caused the shareholders of Mosaic Multisoft
Corporation ("Mosaic") to elect outside directors to its board of directors who
subsequently voted to remove Mosaic's president from office, thus interfering
with Mosaic's ability to raise capital and causing Mosaic to be unable to repay
its debt to the plaintiff. In March 2000, we won this case on summary judgment.
In April 2000, the plaintiff filed an appeal of the summary judgment ruling. On
November 21, 2001, the Fourth District Court of Appeal ruled in our favor by
affirming the Superior Court's March 2000 summary judgment. Lauffs' time to
petition for hearing in the California Supreme Court has expired, and no further
review is now possible. In September 1999, we had filed an action for malicious
prosecution against the lawyer and the plaintiff in this case. Since May 4,
2000, the malicious prosecution action had been stayed pending resolution of the
appeal. On January 3, 2002, the stay was lifted. We are pursuing recovery of our
legal fees incurred in connection with the proceedings.
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
take formal enforcement action against us at this time in connection with our
breaches of the BC Act. On or about March 15, 2002, the B.C. Commission issued a
Revocation Order that revokes a long-standing Cease Trade Order and has the
Company deemed a "non-reporting company". This relieves us of any requirement to
file periodic reports with the B.C. Commission.
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 the
Company's stock from October 5,
9
1999, through March 23, 2001. The complaint claims violations of certain
provisions of the California Corporations Code in connection with the following
alleged misrepresentations: (i) we misrepresented that Dr. Peter Patton was a
member of our board of directors; (ii) we failed to disclose an effort by a
creditor to force us into involuntary bankruptcy; and (iii) Donald Hutton
falsely identified himself as a certified public accountant in an SEC filing. On
our about May 10, 2002 we were informed that the Superior Court of California in
Los Angeles has, with the agreement of plaintiffs' counsel, dismissed the
complaint without prejudice. We paid nothing to the plaintiffs or their
attorneys in connection with this dismissal.
The information is hereby incorporated by reference from the Form 10-KSB
filed on March 29, 2002. There have been no other material developments in the
period covered by this report.
ITEM 2. CHANGES IN SECURITIES
From January 1, 2002 through March 31, 2002, we sold to accredited
investors, through a private offering, 726,644 units, at a price of $0.75 per
unit (the "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 One Dollar ($1.00),
exercisable until December 31, 2002. In connection with this offering, we paid
$7,150 and agreed to issue 31,498 Units in commissions and finder's fees. As of
March 31, 2002, 6,500 of the 31,498 Units were issued, with the remaining 24,998
Units to be issued in the second quarter of 2002. The gross proceeds of the
offering were $544,989. As of March 31, 2002, of the 726,644 units sold, there
were 457,978 units subscribed but not yet issued. 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.
On or about March 11 and March 14, 2002, we sold to an accredited investor,
through a private offering, two convertible promissory notes without interest in
aggregate principal face amount of $200,000, convertible at the option of the
holder into shares of Common Stock of the Company at a conversion price of $0.75
per share. Such notes are due and payable during the second quarter of 2002. We
expect that both notes will be converted to shares during the second quarter of
2002. The proceeds were used for general working capital purposes. The sales of
these securities were made in reliance upon Rule 506 and Section 4(2) of the
Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No changes during the period covered by this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the period
covered by this report.
ITEM 5. OTHER MATTERS
No changes during the period covered by this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Company
as listed in Exhibit 3.1 to the Company's 10-KSB filed on March
22, 2001, is hereby incorporated by reference.
3.2 Amended and Restated Bylaws of the Company, as listed in Exhibit
3.2 to the Company's 10-KSB filed on March 22, 2001, are hereby
incorporated by reference.
10.1 2000 Stock Option Plan of the Company, as listed in Exhibit 10.1
to the Company's 10-KSB filed on March 28, 2002, is hereby
incorporated by reference.
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
10.4 Separation Agreement dated January 8, 2001, between the Company
and Francis K. Ruotolo, as listed in Exhibit 10.4 to the
Company's 10-KSB filed on March 22, 2001, is hereby incorporated
by reference.
10.5 Form of Indemnification Agreement signed with officers and
directors of the Company, as listed in Exhibit 10.5 to the
Company's 10-KSB filed on March 22, 2001, is hereby incorporated
by reference.
10.6 Registration Agreement between the Company and Karen Buechler and
Eric Scott Buechler dated September 15, 2000, as listed in
Exhibit 10.6 to the Company's 10-KSB filed on March 22, 2001, is
hereby incorporated by reference.
10.7 Registration Agreement between the Company and Arcade Investment
Limited dated September 7, 2000, as listed in Exhibit 10.7 to the
Company's 10-KSB filed on March 22, 2001, is hereby incorporated
by reference.
10.8 Amended Agreement between the Company and Arcade Investment dated
October 6, 2000, as listed in Exhibit 10.8 to the Company's
10-KSB filed on March 22, 2001, is hereby incorporated by
reference.
10.9 Form of Registration Agreement between the Company and each of
Discount Bank and Trust Company, Lemanik Sicav Convertible Bond,
and Pershing Keen Nominees, as listed in Exhibit 10.9 to the
Company's 10-KSB filed on March 22, 2001, is hereby incorporated
by reference.
99.1 Certification of ANTs software inc. pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 regarding Quarterly Report on Form
10-QSB/A (Amendment No. 1) for the quarter ended March 31, 2002
(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.
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
11
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
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
12
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 July 2002 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.
We focus on the research and development of our proprietary technologies.
Our present focus is on the research and development of our proprietary
technologies. We believe that these technologies will be the basis for the
development of highly marketable commercial products. However, there can be no
assurance of this and it is possible that our proprietary technologies have no
commercial benefit or potential. In addition, from our inception to the present,
we have had no commercial products and have not recognized any operating
revenues.
We have a long corporate existence and were inactive during much of our
corporate history. We were formed as the Sullivan Computer Corporation,
incorporated in Delaware in January 1979. We were privately owned until late
1986, at which time our common stock began trading in the over-the-counter
market. This was a result of the registration of our common stock pursuant to
the merger with CHoPP Computer Corporation, a British Columbia corporation.
During the period from mid-1987 through late 1999, we had few or no employees.
Our operating activities were limited and were largely administered personally
by our former Chairman, Donald R. Hutton. Due to the passage of time and the
poor condition of financial and other records, there can be no assurance that
all matters have been addressed at this date.
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, 2002 By: /s/ Francis K. Ruotolo
-------------------------------------
Francis K. Ruotolo, Chairman,
Chief Executive Officer and President
Date: November 14, 2002 By: /s/ Kenneth Ruotolo
-------------------------------------
Kenneth Ruotolo
Chief Financial Officer and Secretary
CERTIFICATIONS
I, Francis K. Ruotolo, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of ANTs
software inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report; and
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.
Date: November 14, 2002 /s/ Francis K. Ruotolo
----------------------------------------
Francis K. Ruotolo, Chairman,
Chief Executive Officer and President
I, Kenneth Ruotolo, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of ANTs
software inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report; and
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;
Date: November 14, 2002 /s/ Kenneth Ruotolo
----------------------------------------
Kenneth Ruotolo
Chief Financial Officer and Secretary
14