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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2004
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________
Commission file number: 000-16299
________________
ANTS SOFTWARE INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3054685
(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
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:
34,137,717 shares of common stock as of September 30, 2004
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PART I. Financial Information
Item 1. Financial Statements .............................................3-10
Item 2. Management's Plan of Operation ..................................10-14
Item 3. Controls and Procedures ............................................14
PART II. Other Information
Item 1. Legal Proceedings ..................................................15
Item 2. Unregistered Sales of Equity Securities ............................15
Item 3. Defaults Upon Senior Securities ....................................15
Item 4. Submission of Matters to a Vote of Security Holders ................16
Item 5. Other Information ..................................................16
Item 6. Exhibits ...........................................................16
Risk Factors .............................................................16-19
Signatures ..................................................................19
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANTS SOFTWARE INC.
CONDENSED BALANCE SHEETS
Sept. 30, Dec. 31,
2004 2003
ASSETS (Unaudited) (Audited)
------------- -------------
Current assets:
Cash $ 1,500,221 $ 541,725
Prepaid insurance 42,750 46,229
Prepaid expenses 33,676 800
------------- -------------
Total current assets 1,576,647 588,754
------------- -------------
Computers and software 912,015 774,441
Office furniture and fixtures 29,386 29,386
Leasehold improvements 16,675 9,000
Less accumulated depreciation (623,913) (489,326)
------------- -------------
Property and equipment, net 334,163 323,501
------------- -------------
Other assets - security deposits 9,100 9,100
------------- -------------
Total assets $ 1,919,910 $ 921,355
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses $ 146,823 $ 83,189
Deferred salaries - 340,505
Deferred revenues - 310,943
Capital lease payable, current portion 2,100 2,310
Note payable - former officer, current portion - 75,000
------------- -------------
Total current liabilities 148,923 811,947
------------- -------------
Long-term liabilities:
Capital lease payable 5,121 7,919
Convertible promissory note, net of unamortized
beneficial interest and debt discount of
$83,196 in 2003 - 236,804
------------- -------------
Total liabilities 154,044 1,056,670
------------- -------------
Commitment and contingencies
Stockholders' equity:
Preferred stock, $0.0001 par value; 50,000,000
shares authorized, no shares issued and
outstanding in 2004 and 2003, respectively - -
Common stock, $0.0001 par value; 100,000,000
shares authorized; 34,137,717 and 26,381,004
shares issued and outstanding, respectively. 3,414 2,638
Notes receivable from officer for stock
purchases - (45,000)
Additional paid-in capital 34,981,049 29,668,322
Accumulated deficit (33,218,597) (29,761,275)
------------- -------------
Total stockholders' equity 1,765,866 (135,315)
------------- -------------
Total liabilities and stockholders' equity $ 1,919,910 $ 921,355
============= =============
The accompanying notes are an integral part of these condensed financial
statements.
3
ANTS SOFTWARE INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
Cost of goods sold $ - $ - $ - $ -
General and administrative
expenses 317,770 326,421 1,078,294 938,300
Sales and marketing 477,659 156,335 933,824 478,854
Research and development
expenses 560,646 450,549 1,594,884 1,253,753
------------ ------------ ------------ ------------
Loss from operations (1,356,075) (933,305) (3,607,002) (2,670,907)
------------ ------------ ------------ ------------
Other income (expense):
Income earned from expired
contract - - 310,943 -
Interest income 5,289 4,190 14,435 6,668
Gain on legal settlement 1,500 500 5,000 17,500
Loss on extinguishment of
debt - (53,386) - (53,386)
Write-off of officer's note
receivable for stock
purchases - - (45,000) -
Interest expense (7,067) - (135,698) -
------------ ------------ ------------ ------------
Other income, net (278) (48,696) 149,680 (29,218)
------------ ------------ ------------ ------------
Net loss $(1,356,353) $ (982,001) $(3,457,322) $(2,700,125)
============ ============ ============ ============
Basic and diluted net loss
per common share $ (0.04) $ (0.04) $ (0.11) $ (0.11)
============ ============ ============ ============
Shares used in computing
basic and diluted net loss
per share 33,891,287 25,065,098 31,819,854 24,213,116
============ ============ ============ ============
The accompanying notes are an integral part of these condensed financial
statements.
4
ANTS SOFTWARE INC.
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended Sept. 30,
2004 2003
(Unaudited) (Unaudited)
------------- -------------
Cash flows from operating activities:
Net loss $ (3,457,322) $ (2,700,125)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 134,587 121,242
Amortization of debt discount and beneficial
interest 134,306 -
Compensation expense recognized on options
granted to non-employees 36,560 98,913
Loss on extinguishment of debt - 53,386
Write-off of note receivable to officer for
stock purchases 45,000 45,000
Changes in operating assets and liabilities:
Prepaid insurance and expenses (29,397) (36,471)
Accounts payable and other accrued expenses 63,635 57,288
Deferred salaries (340,505) 281,323
Deferred revenue (310,943) 100,000
------------- -------------
Net cash used in operating activities (3,724,079) (1,979,444)
Cash flows used in investing activities:
Purchase of property and equipment, net (145,249) (63,935)
Cash flows from financing activities:
Proceeds from private placements net of
commissions 4,443,279 1,141,512
Common stock subscribed, not issued 75,000
Proceeds from exercise of options 387,553 13,565
Proceeds from exercise of warrants - 108,750
Proceeds from convertible promissory note 320,000
Payments on capital lease obligations (3,008) -
------------- -------------
Net cash provided by financing activities 4,827,824 1,658,827
------------- -------------
Net increase (decrease) in cash 958,496 (384,552)
------------- -------------
Cash at beginning of period 541,725 946,957
------------- -------------
Cash at end of period $ 1,500,221 $ 562,405
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,393 $ -
Taxes - -
Non-cash investing and financing activities:
Purchase of property and equipment with capital
lease $ - $ 11,809
Conversion of convertible promissory note into
common stock, net 182,518 -
Issuance of common stock in settlement of note
payable to former officer 75,000 75,000
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, 2003, 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
make the financial statements not misleading and to fairly present the financial
position, results of operations, and cash flows on a consistent basis. Operating
results for the three and nine month periods ended September 30, 2004 and 2003
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 2004 and possibly thereafter. Should the Company be
unsuccessful in raising additional funds, it is unlikely that the Company will
continue operations beyond December 31, 2004.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basic And Diluted Net Loss Per Share - Basic net loss per share is
calculated in accordance with FASB 128 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
September 30, September 30,
---------------------------------- ----------------------------------
2004 2003 2004 2003
---------------------------------- ----------------------------------
Net loss $ (1,356,353) $ (982,001) $ (3,457,322) $ (2,700,125)
Weighted average shares of common stock
outstanding - basic and dilutive 33,891,287 25,065,098 31,819,854 24,213,116
---------------------------------- ---------------------------------
Basic and diluted net loss per share $ (0.04) $ (0.04) $ (0.11) $ (0.11)
================================== =================================
As of September 30, 2004 and 2003, outstanding options and warrants for the
purchase of up to 13,043,192 shares of common stock at prices ranging from $0.52
to $11.63 per share, and 8,496,160 shares of common stock at prices ranging from
$0.25 to $11.63 per share, 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 provisions of SFAS 148 have been
incorporated into these financial statements and accompanying footnotes.
6
At September 30, 2004, 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.
Three Months ended Nine Months ended
September 30, September 30,
------------------------------------- ----------------------------------
2004 2003 2004 2003
------------------------------------- ----------------------------------
Net loss, as reported $ (1,356,353) $ (982,001) $ (3,457,322) $ (2,700,125)
Less: Stock-based employee compensation
expense determined under the fair-
value based method (173,147) (100,827) (787,047) (755,218)
--------------- --------------------- ----------------- ----------------
Net loss, pro forma $ (1,529,500) $ (1,082,828) $ (4,244,369) $ (3,455,343)
=============== ===================== ================= ==============
Basic and diluted net loss per share:
As reported $ (0.04) $ (0.04) $ (0.11) $ (0.11)
=============== ===================== ================= ================
Pro forma $ (0.05) $ (0.04) $ (0.13) $ (0.14)
Employee options for the purchase of up to an aggregate of 396,186 and 0
shares of common stock were granted during the three-month periods ended
September 30, 2004 and 2003, respectively. The weighted average fair value of
employee options granted during the three-month period ended September 30, 2004
was $1.55.
Employee options for the purchase of up to an aggregate of 1,107,936 and
1,000,000 shares of common stock were granted during the nine-month periods
ended September 30, 2004 and 2003, respectively. The weighted average fair value
of employee options granted during the nine-month periods ended September 30,
2004 and 2003 was $1.27 and $0.96 per share, respectively.
The pro forma amounts for net loss per share in the table above were
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions for the periods ended September 30, 2004 and 2003,
respectively.
Three Months ended Nine Months ended
September 30, September 30,
------------------------------- ------------------------------
2004 2003 2004 2003
------------------------------- ------------------------------
Interest rate 3.85% 1.95% 1.91% 2.11%
Dividend yield 0.00% 0.00% 0.00% 0.00%
Expected volatility 121.59% 97.98% 107.06% 117.51%
Expected life in years 5.00 2.57 2.56 3.56
Recent Accounting Pronouncements - The Financial Accounting Standards Board
(FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities, in January 2003 and amended the Interpretation in December 2003. This
Interpretation requires the consolidation of Variable Interest Entities in which
a company holds a qualifying variable interest. The provisions of this
Interpretation do not have a significant effect on the Company's financial
position or operating results. In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. SFAS No. 150 establishes standards for how a company
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after September 15, 2003. The
provisions of this Standard do not have a significant effect on the Company's
financial position or operating results.
7
Certain reclassifications have been made to conform the prior year
financial statements to the presentation of the current period.
3. EQUITY TRANSACTIONS
From January 1, 2004 through March 31, 2004, the Company sold to accredited
investors, through a private offering, 5,703,159 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. The gross proceeds from the offering
were $4,277,379. In connection with this offering, the Company issued 33,666 D
Units to finders and paid $269,100 in cash commissions. The Company issued an
aggregate of 367,240 D Units to the placement agent in connection with the
private offering of D Units that commenced in the first quarter of 2003 and
closed at the end of the first quarter of 2004. 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 February 17, 2004, the Company sold to an accredited investor
66 shares of common stock at a price of $.75 per share. The accredited investor
paid for the shares by assigning all rights in certain shares of common stock of
the Company, which shares had been escheated.
On or about May 31, 2004, the Company sold to one accredited investor,
through a private offering, 400,000 E units at a price of one dollar and
twenty-five cents ($1.25) per E unit for gross proceeds of $500,000, with each E
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 and fifty cents ($2.50), exercisable until May 31,
2007. In connection with this offering, the Company paid $65,000 in cash
commissions and issued 36,363 E Units to the placement agent. The sale of these
securities was made in reliance upon Rule 506 and Section 4(2) of the Securities
Act of 1933.
On or about April 23, 2004, the Company and Gary Ebersole, its former
President and Chief Operating Officer, agreed to amend Mr. Ebersole's Stock
Option Agreements to extend the period during which Mr. Ebersole could exercise
the vested portion of his stock options from April 30, 2004 to June 30, 2004.
The Company recognized non-employee compensation expense of $29,498 in the
statement of operations (included in general and administrative expenses)
related to this transaction. As of June 30, 2004, Mr. Ebersole had exercised all
his vested stock options.
On or about July 14, 2004, the holders of two convertible promissory notes
elected to convert such notes. Pursuant to the terms of the notes, the company
issued each noteholder 400,000 shares of Common Stock of the Company and a
warrant to purchase 400,000 shares of Common Stock of the Company at a per share
exercise price of $2.00, exercisable until March 31, 2006.
In August 2004, a former officer purchased 60,000 E Units. The E Units were
issued in lieu of a $75,000 cash payment due on August 4, 2004 on a note payable
to the former officer. The sale of these securities was made in reliance upon
Rule 506 and Section 4(2) of the Securities Act of 1933.
During the nine months ended September 30, 2004, a total of 356,219 shares
of common stock of the Company were purchased through the exercise of stock
options resulting in proceeds to the Company of $387,553.
4. WARRANTS AND STOCK OPTIONS
As of September 30, 2004, the Company had outstanding warrants to purchase
up to 9,146,125 shares of common stock and options to purchase up to 3,897,067
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.
8
Stock
Warrants Options Total
-------- ------- -----
Outstanding at December 31, 2003 3,484,300 3,841,162 7,325,462
Granted 6,136,825 1,107,936 7,244,761
Retired/forfeited - (695,812) (695,812)
Expired (475,000) - (475,000)
Exercised - (356,219) (356,219)
--------------------------------------------------
Outstanding at September 30, 2004 9,146,125 3,897,067 13,043,192
==================================================
5. LEGAL SETTLEMENT
The Company was a defendant in a case entitled Hubert P. Lauffs et al. v.
Mosaic Multisoft Corporation, in which the plaintiff asserted a cause of action
against the Company for breach of fiduciary duty. The plaintiff purported to
base his cause of action on allegations that the Company 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, the Company 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 the Company's favor by affirming
the Superior Court's March 2000 summary judgment. In September 1999, the Company
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. The Company entered into Settlement Agreements in December 2002,
pursuant to which the plaintiffs agreed to pay the Company an aggregate of
$400,000. Per an agreement the Company entered into with the Company's attorneys
on or about September 27, 2002, almost all of the money recovered will be paid
to the Company's attorneys. From January 1, 2004 through September 30, 2004, the
Company received $5,000 as its portion of the settlement, which was recognized
as a gain from legal settlement.
6. DEFERRED REVENUES
On or about August 22, 2003 the Company signed a Letter of Intent ("LOI")
with Net Soft Systems, Inc. of Vancouver, British Columbia, Canada ("Net Soft").
The LOI included the following terms:
o Net Soft agreed to pay the Company $400,000 (non-refundable)
o The Company agreed to negotiate only with Net Soft for the exclusive
rights to sell and distribute the ANTs Data Server (the "Rights") in
Poland, Russia, the Czech Republic, and the European Common Market
o The negotiation process would determine what additional payments would
be required of Net Soft to obtain the Rights
o If, by November 30, 2003, terms of a deal regarding the Rights had not
been agreed to, the Company could negotiate the Rights with any other
entity
o The LOI itself contained no grant of Rights
On November 30, 2003 the Company and Net Soft agreed to extend the LOI
through January 31, 2004 and on January 31, 2004 the Company and Net Soft agreed
to extend the LOI through March 31, 2004. On March 31, 2004, the LOI terminated
and on that date, no future agreements between Net Soft and the Company were
contemplated in connection with such LOI. As of March 31, 2004, the Company had
received $310,943 of the $400,000 due pursuant to the LOI. The remaining $89,057
was considered uncollectible. In accordance with Generally Accepted Accounting
Principles the Company did not consider the earnings process complete until
collection was reasonably assured and all applicable revenue recognition
conditions were met according to the Security and Exchange Commission's Staff
Accounting Bulletin: No 104 -"Revenue Recognition." Therefore, the payments
pursuant to the LOI were recorded in the financial statements prior to January
1, 2004 as deferred revenue. With the termination of the LOI and no future
agreements contemplated in connection with such LOI at the time of termination,
the Company was under no obligation to return the monies to Net Soft. Since Net
Soft did not receive either a license to use the Company's product or services
related to the Company's product, the Company has recognized the $310,943 as
other income in the statements of operations and has eliminated the deferred
revenue liability.
9
7. CONVERTIBLE PROMISSORY NOTES
On or about August 15, 2003, the Company sold to two accredited investors,
through a private offering, one convertible promissory note each, without
interest, in principal face amount of $160,000 per note, each maturing on August
15, 2005, and each convertible at the option of the holder into shares of Common
Stock of the Company, at a conversion price of $0.75 per share. The Company had
agreed to grant the holder of each note, upon conversion of the note, a warrant
to purchase 213,333 shares of Common Stock of the Company at a per share price
of $2.00, exercisable until March 31, 2006. The stated conversion price of the
notes was $0.75 per share, however, the Company had agreed to set the conversion
price at $0.40 per share in the event an anticipated $5 million financing did
not close shortly after the note financing, and, since the intent of the
agreement was for the conversion price to include one share of common stock and
a warrant to purchase another share of common stock, the Company further agreed
to increase the number of shares of Common Stock underlying each warrant to be
granted upon conversion of the notes from 213,333 to 400,000. The $5 million
financing did not close, accordingly, the Company entered into Amendment
Agreements with each convertible promissory note holder, setting the conversion
price at $0.40 per share and increasing the number of shares of Common Stock
underlying the warrant to be granted upon conversion of each note from 213,333
to 400,000. Since, for accounting purposes, the active conversion price was
$0.40 per share, the intrinsic value of the conversion option of $280,000 was
recorded both in additional paid-in capital and as a beneficial interest debt
discount to the convertible debt. For the nine month period ended September 30,
2004, beneficial interest discount amounting to $128,334, and imputed interest
of $5,972 attributable to the interest-rate-related debt discount, were both
amortized to interest expense. The proceeds of the private offering 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. On or
about July 14, 2004, the noteholders elected to convert their convertible
promissory notes. Pursuant to the terms of the notes, the company issued each
noteholder, 400,000 shares of Common Stock of the Company and a warrant to
purchase 400,000 shares of Common Stock of the Company at a per share exercise
price of $2.00, exercisable until March 31, 2006.
8. NOTE RECEIVABLE FROM OFFICER
The Company entered into an agreement with a former officer, effective
January 11, 2001, in 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. In August 2003 the Company forgave $45,000 of the
loan balance pursuant to the terms of the agreement. In light of the fact that
the remaining loan balance of $45,000 has been deemed to be uncollectible as of
March 31, 2004, the Company has elected to charge the entire $45,000 to general
and administrative expense as of March 31, 2004.
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.
10
The Company is engaged in the development and marketing of the ANTs Data
Server, a software product that is intended to significantly improve the speed
at which computers can manipulate data. The Company anticipates that, if
sufficiently funded, over the next twelve months its focus will be marketing its
first product, supporting customers, and continued research and development.
Technology Development
Over the next twelve months, assuming the Company is sufficiently funded,
the Company intends to continue to improve and add functionality to the ANTs
Data Server. The Company has built out the basic functionality to the point
where it believes that virtually all additional functionality will be driven by
partner or customer demand. The Company intends to actively engage prospective
partners and customers in technical discussions to determine what features are
and will be most in demand for the markets the Company is targeting. The Company
intends to mobilize its engineering resources around developing those features.
Marketing
In October 2003, the Company began marketing the first commercial version
of the ANTs Data Server. The Company's go-to-market strategies include:
o Focus on the high-performance, high-volume, transaction intensive
industry segments where cost constraints and performance demands might
dictate a willingness to adopt new technology. Messaging will feature
the "high-performance, no compromise" value proposition.
o Execute a "compatible with," not a "replacement of," strategy for the
leading RDBMS's such as: Oracle, IBM's DB2, and Microsoft's SQL
Server, since the RDBMS market is mature and customers have
substantial investment in infrastructure, development, and support, in
the leading RDBMS vendors' products.
o Sell the ANTs Data Server through three sales channels;
o Direct sales to end-users
o Through Independent Software Vendors ("ISV's") who will
incorporate the ANTs Data Server with their own product which
they will sell to their customers
o Through Value Added Resellers ("VARs") - companies which
generally have deep expertise in certain vertical markets and who
integrate the best products to develop complete solutions for
their customers.
Raising Capital
To carry out its plan of operations, the Company anticipates that, over the
next twelve months, it will require an additional $5 million. The Company
intends to pursue a number of avenues to raise these additional operating funds:
1) in the past the Company has been successful in raising funds through private
placements of its stock and anticipates that it will continue to raise funds
through private placements, 2) as the Company develops close relationships with
large partners, it will pursue strategic investments from those partners, and 3)
the Company expects to begin generating revenue during the next twelve months
and, if successful, this should be a source of some operating funds. The Company
intends to pursue all three avenues, but believes that securing additional
capital will be difficult.
11
Personnel and Appointment of Officers
The Company currently has 24 full-time employees, 1 full-time and 3
part-time consultants. The Company views the recruitment of additional qualified
marketing, sales, and technical personnel as essential to the further
development and commercialization of its proprietary technologies. If the
Company is sufficiently funded and it is successful in its recruitment efforts,
the Company expects that its personnel and other operating costs will increase
moderately over current levels.
As previously reported by the Company on Form 8-K filed on October 20, 2004
and November 2, 2004 respectively, the Company appointed Mr. Boyd Pearce as
President and Chief Operating Officer of the Company effective October 18, 2004
and designated Mr. Girish Mundada, the Company's Vice President of Engineering,
as an officer of the Company effective November 1, 2004.
On October 29, 2004, the Company entered into a Salary Agreement with each
of the following persons: Francis K. Ruotolo, the Company's Chief Executive
Officer and Chairman, Boyd Pearce, the Company's President and Chief Operating
Officer, Kenneth Ruotolo, the Company's Chief Financial Officer and Secretary,
Clifford Hersh, the Company's Chief Scientist, Girish Mundada, the Company's
Vice President, Engineering and Jeffrey R. Spirn, Ph.D., the Company's Vice
President of Research and Development (each an "Officer"). Pursuant to such
Salary Agreements, each Officer's salary was reduced, effective October 16,
2004, to 50 percent of his then current salary. The Company agreed to pay each
Officer a contingent bonus equal to such Officer's new monthly salary times the
number of full months from October 16, 2004 until the date of payment of such
bonus, in the event the Company raises $2.5 million (net of commissions) between
November 1, 2004 and February 1, 2005 and in the event such Officer is still
employed by the Company at such time. As of October 31, 2004 the aggregate total
of the contingent bonuses was approximately $25,000.
Patents
On July 6, 2004, the United States Patent and Trademark Office ("PTO")
issued patent 6,760,726 for the ANTs System and Method of Managing Concurrent
Operations on Linked Lists and on July 13, 2004, the PTO issued patent 6,763,447
for the ANTs Lock-Free List for use with Computer System Utilizing FIFO Queue
for Tracking Order of Various Sublists. The Company is awaiting the PTO's
response regarding an additional five patent applications, which were filed at
approximately the same time as the two issued patents. During the quarter ending
September 30, 2004, the Company filed an additional patent application bringing
the total number of applications pending to six.
Operating Expenses
Operating expenses for the three and nine-month periods ending September
30, 2004 and 2003 break out as follows:
Operating Expenses - Three Months ended September 30,
2004 2003
---- ----
% Change vs.
$ in 000's % of Total Prior Period $ in 000's % of Total
---------- ------------ ----------
Sales and marketing $ 478 35% 206% $ 156 17%
Research and development 561 41% 24% 451 48%
General and administrative 317 24% (3)% 326 35%
----------------------------------------------------------------------------
Total operating expenses $ (1,356) 100% 45% $ (933) 100%
============================================================================
12
Operating Expenses - Nine Months ended September 30,
2004 2003
---- ----
% Change vs.
$ in 000's % of Total Prior Period $ in 000's % of Total
Sales and marketing $ 934 26% 95% $ 479 18%
Research and development 1,595 44% 27% 1,254 47%
General and administrative 1,078 30% 15% 938 35%
----------------------------------------------------------------------------
Total operating expenses $ (3,607) 100% 35% $ (2,671) 100%
============================================================================
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of employee salaries and
benefits, consultant fees, travel, marketing programs (trade shows, public
relations, lead generation programs) and marketing and sales literature and
presentations. As shown in the tables above, there was a significant increase in
sales and marketing expenses over the prior periods resulting primarily from an
increase in marketing programs, an increase in sales and marketing related
travel and the addition of personnel.
The Company expects that, if sufficiently funded, its marketing and sales
expenses will continue to increase moderately to substantially as more marketing
and sales programs are implemented.
Research and Development Expenses
Research and development expenses consist primarily of employee salaries
and benefits, fees to consultants, depreciation on equipment and software, and
allocation of corporate overhead. As shown in the tables above, there was a
moderate increase in research and development expenses over the prior periods
resulting primarily from the addition of personnel and an increase in
depreciation expense related to new equipment purchased for the Company's
development lab.
The Company expects that, if sufficiently funded, its research and
development expenses will increase moderately as additional staff is recruited
to customize its product for potential customers.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and
benefits, consultant fees, legal and investor relation fees, recruiting fees,
facility rental and insurance. As shown in the tables above, there was a small
to moderate increase in general and administrative expenses over the prior
periods resulting primarily from an increase in legal and investor relations
fees related to capital raising activity in the first quarter of 2004 and an
increase in recruiting expense related to the hiring of personnel in the
research and development and general and administrative functions.
The Company expects that, if sufficiently funded, its general and
administrative expenses will increase moderately as the Company expands.
The majority of the Company's operating expenses and costs over the next
twelve months are expected to be for, and related to, marketing and selling the
ANTs Data Server, continuing technical development, and supporting customers.
Off-Balance Sheet Arrangements
During 2003, the Company entered into an operating lease for certain
computer equipment used in the Company's development lab. The total original
lease obligation was $9,155 and is payable in monthly installments of $254 over
a three-year period. The outstanding lease obligation is not reported on the
balance sheet, as title to the equipment remains with the lessor until the
Company pays the total obligation and a buyout fee. As of September 30, 2004,
the total outstanding obligation was $5,841. Should the Company default in its
lease obligation, the lessor could choose to repossess the computer equipment.
Should the lessor do so, it would not have a material effect on the Company's
ability to maintain normal business operations.
13
Critical Accounting Policies
Use of Estimates - The preparation of the financial statements in
accordance with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
reported amounts of assets, liabilities, revenues and expenses and disclosure of
contingent assets and liabilities. The Company evaluates such estimates and
assumptions on an ongoing basis and bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates and probably will
differ from these estimates under different assumptions or conditions.
The Company believes the following represents its critical accounting
policies:
o Stock-based compensation
o Income taxes
Stock-based Compensation - The Company uses the fair value recognition
provisions of Financial Accounting Standard No. 123, Accounting for Stock-Based
Compensation, to value stock options granted to employees and independent
consultants. The values are derived from a model, which requires historical
assumptions and management judgment. Stock-based compensation for employees is
disclosed in the pro-forma net loss statement in note 1 of the Company's annual
financial statements. Stock-based compensation for independent consultants is
expensed in the statement of operations.
Income Taxes - The carrying value of the Company's deferred tax assets are
dependent upon the Company's ability to generate sufficient future taxable
income in certain tax jurisdictions. Until such time as the Company establishes
a taxable income in such jurisdictions, the total amount of the deferred tax
assets shall be offset with a valuation allowance.
Capital and Liquidity Resources
If sufficiently funded, the Company intends to increase expenditures
moderately to substantially over the next twelve months as it actively markets
and sells the ANTs Data Server and hires additional sales, marketing, and
technical personnel. The Company's cash balance as of September 30, 2004 was
approximately $1.5 million, which it believes will be adequate to fund its
activities through 2004 at its expected rate of spending. There can be no
assurance that the Company's continued product development and infrastructure
development will not require a much higher rate of spending. The Company is
involved in discussions from time to time with prospective investors in order to
raise capital to support its continued operations, although there can be no
assurance that it will be able to obtain investment proceeds on acceptable
terms, or at all.
ITEM 3. CONTROLS AND PROCEDURES
The effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as amended) was evaluated under the supervision
and with the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer, as of the end of the period
covered by this quarterly report. Based on that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures are effective in providing reasonable
assurance that the information required to be disclosed in this quarterly report
is recorded, processed, summarized and reported within the time period required
for the filing of this quarterly report.
There was no change in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities
Exchange Act of 1934, as amended) identified in connection with the evaluation
of the Company's internal control performed during its last fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceeding and, to
the best of its knowledge, no such action by or against the Company, has been
threatened.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
From January 1, 2004 through March 31, 2004, the Company sold to accredited
investors, through a private offering, 5,703,159 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. The gross proceeds from the offering
were $4,277,379. In connection with this offering, the Company issued 33,666 D
Units to finders and paid $269,100 in cash commissions. The Company issued an
aggregate of 367,240 D Units to the placement agent in connection with the
private offering of D Units that commenced in the first quarter of 2003 and
closed at the end of the first quarter of 2004. The proceeds of the private
offering are being used for sales, marketing and 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 May 31, 2004, the Company sold to one accredited investor, through a
private offering, 400,000 E units at a price of one dollar and twenty-five cents
($1.25) per E unit, with each E 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 and fifty cents
($2.50), exercisable until May 31, 2007. In connection with this offering, the
Company paid $65,000 in cash commissions and issued 36,363 E Units to the
placement agent. The gross proceeds from the offering were $500,000. The
proceeds are being used for sales, marketing and general working capital
purposes. The sale of these securities was made in reliance upon Rule 506 and
Section 4(2) of the Securities Act of 1933.
On or about August 15, 2003, the Company sold to two accredited investors,
through a private offering, one convertible promissory note each, without
interest, in principal face amount of $160,000 per note, each maturing on August
15, 2005, and each convertible at the option of the holder into shares of Common
Stock of the Company at a conversion price of $0.75 per share. The Company had
agreed to grant the holder of each note, upon conversion of the note, a warrant
to purchase 213,333 share of Common Stock of the Company at a per share price of
$2.00, exercisable until March 31, 2006. The stated conversion price of the
notes was $0.75 per share, however, the Company had agreed to set the conversion
price at $0.40 per share in the event an anticipated $5 million financing did
not close shortly after the note financing, and, since the intent of the
agreement was for the conversion price to include one share of common stock and
a warrant to purchase another share of common stock, the Company further agreed
to increase the number of shares of Common Stock underlying each warrant to be
granted upon conversion of the notes from 213,333 to 400,000. The $5 million
financing did not close, accordingly, the Company entered into Amendment
Agreements with each convertible promissory noteholder, setting the conversion
price at $0.40 per share and increasing the number of shares of Common Stock
underlying each warrant to be granted upon conversion of each note from 213,333
to 400,000. The proceeds of the private offering 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. On or about July 14, 2004,
the holders of the two convertible promissory notes elected to convert such
notes. Pursuant to the terms of the notes, the company issued each noteholder
400,000 shares of Common Stock of the Company and a warrant to purchase 400,000
shares of Common Stock of the Company at a per share exercise price of $2.00,
exercisable until March 31, 2006.
In August 2004, a former officer purchased 60,000 E Units. The E Units were
issued in lieu of a $75,000 cash payment due on August 4, 2004 on a note payable
to the former officer. The sale of these securities was 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.
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
period covered by this report.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of the Company,
as listed in Exhibit 3.1 to the Company's 10-QSB filed on August
14, 2003, 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 Letter Agreement between the Company and Boyd Pearce, as listed
in Exhibit 10.1 to the Company's Form 8-K filed on October 20,
2004, is hereby incorporated by reference.
10.2 Salary Agreement between the Company and Francis K. Ruotolo, as
listed in Exhibit 10.1 to the Company's Form 8-K filed on
November 1, 2004, is hereby incorporated by reference.
10.3 Salary Agreement between the Company and Boyd Pearce, as listed
in Exhibit 10.2 to the Company's Form 8-K filed on November 1,
2004, is hereby incorporated by reference.
10.4 Salary Agreement between the Company and Kenneth Ruotolo, as
listed in Exhibit 10.3 to the Company's Form 8-K filed on
November 1, 2004, is hereby incorporated by reference.
10.5 Salary Agreement between the Company and Clifford Hersh, as
listed in Exhibit 10.4 to the Company's Form 8-K filed on
November 1, 2004, is hereby incorporated by reference.
10.6 Salary Agreement between the Company and Jeffrey R. Spirn, Ph.D,
as listed in Exhibit 10.5 to the Company's Form 8-K filed on
November 1, 2004, is hereby incorporated by reference.
10.7 Salary Agreement between the Company and Girish Mundada, as
listed in Exhibit 10.1 to the Company's Form 8-K filed on
November 2, 2004, is hereby incorporated by reference
14. Code of Ethics, as listed in Exhibit 14 to the Company's 10-KSB
filed on March 30, 2004, is hereby incorporated by reference.
31.1 Certification of the Chief Executive Officer required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification of the Chief Financial Officer required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
RISK FACTORS
In addition to other information in this 10-QSB, the following risk factors
should be carefully considered in evaluating the Company's business since it
operates in a highly changing and complex business environment that involves
numerous risks, some of which are beyond its control. The following discussion
highlights a few of these risk factors, any one of which may have a significant
adverse impact on the Company's 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 the Company's 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 the Company from
executing its business plan. A failure to raise additional funding could prevent
the Company from continuing its business after 2004. The Company anticipates
that current cash resources will be sufficient to fund its operations only
through 2004 at its expected rate of spending. The Company believes that, due to
an uncertain investment climate, securing additional sources of financing to
enable it to complete the development and commercialization of its proprietary
technologies is uncertain and there is no assurance of its ability to secure
such financing. A failure to obtain additional funding could prevent the Company
from making expenditures that are needed to pay current obligations, allow it to
hire additional personnel, continue development of the technology or attract
customers who are concerned about its ability to continue operations. If the
Company raises additional funds by selling equity securities, the relative
equity ownership of its existing investors could be diluted or the new investors
could obtain terms more favorable than previous investors. If the Company raises
additional funds through debt financing, it could incur significant borrowing
costs.
16
The Company will need to continue its product development efforts. The
Company believes that its market will be characterized by increasing technical
sophistication. The Company also believes that its eventual success will depend
on its ability to continue to provide increased and specialized technical
expertise. There is no assurance that the Company will not fall technologically
behind competitors with greater resources. Although the Company believes that it
enjoys a significant lead in its product development, and is hopeful that its
patents provide some protection, it will likely need significant additional
capital in order to continue to enjoy such a technological lead over competitors
with more resources.
If the Company is unable to protect its intellectual property, its
competitive position would be adversely affected. The Company relies on patent
protection, as well as trademark and copyright law, trade secret protection and
confidentiality agreements with its employees and others to protect its
intellectual property. Despite the Company's precautions, unauthorized third
parties may copy its products and services or reverse engineer or obtain and use
information that it regards as proprietary. The Company has filed patent
applications with the United States Patent and Trademark Office and intends to
file more. Two patent applications have been granted and issued; however, the
Company does not know if the remaining applications will be granted or whether
it will be successful in prosecuting any future 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. The Company's means of protecting its
proprietary rights may not be adequate and third parties may infringe or
misappropriate its patents, copyrights, trademarks and similar proprietary
rights. If the Company fails to protect its intellectual property and
proprietary rights, its business, financial condition and results of operations
would suffer. The Company believes that it does not infringe upon the
proprietary rights of any third party, and no third party has asserted a patent
infringement claim against it. It is possible, however, that such a claim might
be asserted successfully against the Company in the future. The Company may be
forced to suspend its operations to pay significant amounts to defend its
rights, and a substantial amount of the attention of its management may be
diverted from its ongoing business, which can materially affect its ability to
attain and maintain profitability.
The Company focuses on the research and development of its proprietary
technologies and the marketing of its first product. The Company's present focus
is on the research and development of its proprietary technologies and the
marketing of its first product. The Company believes that these technologies are
the basis for highly marketable commercial products. However, there can be no
assurance of this and it is possible that the Company's proprietary technologies
and products will have no commercial benefit or potential. In addition, from the
Company's inception to the present, it has not recognized any operating
revenues.
The Company faces possible competition from large companies. The Company
operates in a highly competitive industry. Although the Company believes that
its technology is unique, can be protected, and, if adopted, will confer
benefits that will be otherwise unavailable for some significant time, it faces
very large competitors with greater resources who may adopt various strategies
to block or slow its market penetration, thereby straining its more limited
resources. They may also seek to hinder the Company's 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.
The Company depends on its key personnel and may have difficulty attracting
and retaining the skilled staff it needs to execute its growth plans. The
Company's success will be dependent largely upon the personal efforts of its
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
the Company's business and prospects. To execute its plans, the Company will
need to hire additional staff and retain current employees. Competition for
highly skilled employees with technical, management, marketing, sales, product
development and other specialized training is intense. The Company may not be
successful in attracting or retaining such qualified personnel. Specifically,
the Company may experience increased costs in order to attract and retain
skilled employees. If the Company is unable to hire, train and manage new
skilled and experienced employees as needed, it would be unable to support its
planned growth and future operations.
The Company faces rapid technological change. The market for the Company's
products and services is characterized by rapidly changing technologies,
extensive research and the introduction of new products and services. The
Company believes that its future success will depend in part upon its ability to
continue to enhance its existing products and to develop, manufacture and market
new products and services. As a result, the Company expects to continue to make
a significant investment in engineering, research and development. There can be
no assurance that the Company will be able to develop and introduce new products
and services or enhance its initial intended products and services in a timely
manner to satisfy customer needs, achieve market acceptance or address
technological changes in its target markets. Failure to develop products and
services and introduce them successfully and in a timely manner could adversely
affect the Company's competitive position, financial condition and results of
operations.
17
In the event that the Company experiences growth, the Company will need to
manage such growth well. The Company may experience substantial growth in the
size of its staff and the scope of its operations, resulting in increased
responsibilities for management. To manage this possible growth effectively, the
Company will need to continue to improve its operational, financial and
management information systems and to hire, train, motivate and manage a growing
number of staff. Due to a competitive employment environment for qualified
technical, marketing and sales personnel, the Company expects to experience
difficulty in filling its needs for qualified personnel. There can be no
assurance that the Company will be able to effectively achieve or manage any
future growth, and its failure to do so could delay product development cycles
and market penetration or otherwise have a material adverse effect on its
financial condition and results of operations.
The Company could face information and product liability risks and may not
have adequate insurance. The Company's product may be used to manage data from
critical business applications. The Company may become the subject of litigation
alleging that its product was ineffective or disruptive in its treatment of
data, or in the compilation, processing or manipulation of critical business
information. Thus, the Company may become the target of lawsuits from injured or
disgruntled businesses or other users. The Company does not presently carry
product or information liability or errors and omissions insurance, and although
it intends 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 the Company is required to defend more than a few such actions, or in the
event that it was found liable in connection with such an action, its business
and operations would be severely and materially adversely affected.
The Company is dependent on new demand for its products and services. The
success of the Company's business depends upon demand for and use of its
technology, products and services in general and the demand for additional
computing power, cost effectiveness and speed in particular. The Company's
product is new and the Company may encounter substantial market resistance. In
the event sufficient demand does not develop, the Company's business and results
of operations would be materially adversely affected. The Company believes 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 the Company's products and services may be
materially adversely affected.
Market acceptance of the Company's products and services is not guaranteed.
The Company is at an early stage of development and its earnings will depend
upon market acceptance and utilization of its 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 assurance that the
Company's product and technology development efforts will result in new products
and services, or that they will be successfully introduced.
Future profitability is not guaranteed. The Company has not recognized any
operating revenues to date. There is no assurance that the Company's plans will
be realized, that it will be able to generate revenues or that it will achieve
profitability in the future.
Limited market for the Company's common stock. The Company's common stock
is not listed on any exchange and trades in the over-the-counter (the "OTC")
market. As such, the market for the Company's common stock is limited and is not
regulated by the authorities of any exchange. Further, the price of the
Company's common stock and its volume in the OTC market may be subject to wide
fluctuations.
The Company has a long corporate existence and was inactive during much of
its corporate history. The Company was formed as the Sullivan Computer
Corporation, incorporated in Delaware in January 1979. The Company was privately
owned until late 1986, at which time its common stock began trading in the
over-the-counter market. This was a result of the registration of the Company's
common stock pursuant to the merger with CHoPP Computer Corporation, a British
Columbia corporation. During the period from mid-1987 through late 1999, the
Company had few or no employees. The Company's operating activities were limited
and were largely administered personally by its former Chairman. 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.
18
The Company has indemnified its officers and directors. The Company has
indemnified its Officers and Directors against possible monetary liability to
the maximum extent permitted under Delaware law.
Limitation on ability for control through proxy contest. The Company's
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 four directors at each shareholders
meeting held for that purpose.
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANTs software inc.
Date: November 12, 2004 By: /s/ Francis K. Ruotolo
--------------------------------
Francis K. Ruotolo, Chairman and
Chief Executive Officer
Date: November 12, 2004 By: /s/ Kenneth Ruotolo
--------------------------------
Kenneth Ruotolo
Chief Financial Officer and Secretary
19