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