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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission file number: 0000796655
----------------
ANTS SOFTWARE INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3054685
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
801 Mahler Rd, Suite G, Burlingame, CA 94010
(Address of principal executive offices) (Zip Code)
(650) 692-0240
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of Common stock, as of the latest practicable date:
23,685,035 shares of common stock as of March 31, 2003
Transitional Small Business Disclosure Format: Yes |_| No |X|
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TABLE OF CONTENTS
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PART I. Financial Information
Item 1. Financial Statements ..................................................3-8
Item 2. Management's Plan of Operation ......................................8-10
Item 3. Controls and Procedures ...............................................10
PART II. Other Information
Item 1. Legal Proceedings .....................................................10
Item 2. Changes in Securities ...............................................10-11
Item 3. Defaults Upon Senior Securities.........................................11
Item 4. Submission of Matters to a Vote of Security Holders.....................11
Item 5. Other Matters...........................................................11
Item 6. Exhibits and Reports on Form 8-K.....................................11-12
Risk Factors.................................................................12-14
Signatures......................................................................14
Certifications...............................................................15-16
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANTs software inc.
CONDENSED BALANCE SHEETS
March 31, 2003 December 31, 2002
(Unaudited) (Audited)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 574,992 $ 946,957
Prepaid insurance 7,500 53,597
Prepaid expenses 800 800
------------ ------------
Total current assets 583,292 1,001,354
------------ ------------
Property and equipment
Computers and software 709,754 670,682
Office furniture and fixtures 29,386 29,386
Leasehold improvements 9,000 9,000
Less accumulated depreciation (364,914) (326,710)
------------ ------------
Property and equipment, net 383,226 382,358
------------ ------------
Other assets - security deposits 5,100 5,100
------------ ------------
Total assets $ 971,618 $ 1,388,812
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 75,721 $ 36,263
Accrued legal fees 14,016 38,736
Notes payable - former officer, current portion 75,000 75,000
------------ ------------
Total current liabilities 164,737 149,999
------------ ------------
Long-term note payable - former officer, net of
current portion 75,000 75,000
------------ ------------
Total liabilities 239,737 224,999
------------ ------------
Commitment and contingencies
Stockholders' equity:
Common stock, $0.0001 par value; 100,000,000
shares authorized;
23,685,035 and 23,240,788 shares issued and
outstanding, respectively 2,368 2,324
Notes receivable from officers for stock purchases (90,000) (90,000)
Additional paid-in capital 27,771,223 27,425,424
Accumulated deficit (26,951,710) (26,173,935)
------------ ------------
Total stockholders' equity 731,881 1,163,813
------------ ------------
Total liabilities and stockholders' equity $ 971,618 $ 1,388,812
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
3
ANTs software inc.
CONDENSED STATEMENTS OF OPERATIONS
Three months ended March 31,
2003 2002
(Unaudited) (Unaudited)
------------ ------------
Operating expenses:
General and administrative expenses $ 430,022 $ 593,311
Research and development expenses 365,438 978,903
------------ ------------
Loss from operations (795,460) (1,572,214)
------------ ------------
Other income:
Interest income 1,685 1,727
Gain on legal settlement 16,000 --
------------ ------------
Other income 17,685 1,727
------------ ------------
Net loss $ (777,775) $ (1,570,487)
============ ============
Basic and diluted net loss per common share $ (0.03) $ (0.09)
============ ============
Shares used in computing basic and diluted,
net loss per share 23,381,440 17,219,268
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
4
ANTs software inc.
CONDENSED STATEMENTS OF CASH FLOWS
Three months ended March 31,
2003 2002
(unaudited) (unaudited)
----------- -----------
Cash flows from operating activities:
Net loss $ (777,775) $(1,570,487)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation/Amortization 38,204 31,015
Compensation expense recognized on option and
warrant extensions -- 525,635
Compensation expense recognized on options granted
to non-employees 38,733 52,498
Changes in operating assets and liabilities:
Prepaid insurance and expenses 46,100 120,125
Accounts payable 39,454 3,134
Accrued legal fees (24,720) (37,585)
----------- -----------
Net cash used in operating activities (640,004) (875,665)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (39,071) (18,077)
----------- -----------
Net cash used in investment activities (39,071) (18,077)
----------- -----------
Cash flows from financing activities:
Proceeds from private placements net of commissions 295,625 537,839
Proceeds from exercise of options 11,485 1,200
Proceeds from issuance of convertible promissory note -- 200,000
----------- -----------
Net cash provided by financing activities 307,110 739,039
----------- -----------
Net decrease in cash (371,965) (154,703)
Cash at beginning of period 946,957 734,319
----------- -----------
Cash at end of period $ 574,992 $ 579,616
=========== ===========
Non - cash financing activity:
Conversion of other current liability to common stock 125,000
The accompanying notes are an integral part of these condensed financial
statements.
5
ANTs software inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements are presented in
accordance with the requirements for Form 10-QSB and Item 310(b) of Regulation
S-B. Accordingly, they do not include all the disclosures normally required by
generally accepted accounting principles. Reference should be made to the ANTs
software inc. (the "Company") Form 10-KSB for the twelve months ended December
31, 2002, for additional disclosures including a summary of the Company's
accounting policies, which have not significantly changed.
The information furnished reflects all adjustments (all of which were of a
normal recurring nature), which, in the opinion of management, are necessary to
fairly present the financial position, results of operations, and cash flows on
a consistent basis. Operating results for the three months ended March 31, 2003
and 2002, are not necessarily indicative of the results that may be expected in
the future.
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplates continuation of the Company as a going concern.
Management has evaluated the Company's current financial position and its
available resources and plans to raise additional funds through the issuance of
equity securities during 2003 and possibly thereafter. Should the Company be
unsuccessful in raising additional funds, it is unlikely that the Company will
continue operations beyond June 2003.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basic Net Loss Per Share - Basic net loss per share is calculated using
the weighted-average number of common shares outstanding during the period.
Diluted net loss per share is computed using the weighted-average number of
common and dilutive common equivalent shares outstanding during the period.
The following table presents the calculation of basic and diluted net loss
per share:
Three Months Ended March 31,
-------------------------------
2003 2002
-------------------------------
Net loss $ (777,775) $ (1,570,487)
Weighted average shares of common
stock outstanding - basic and dilutive 23,381,440 17,219,268
-------------------------------
Basic and diluted net loss per share $ (0.03) $ (0.09)
As of March 31, 2003 and 2002, outstanding options and warrants for the
purchase of up to 7,426,390 shares of common stock at prices ranging from $0.25
to $14.00, and 6,044,554 shares of common stock at prices ranging from $0.25 to
$11.63, respectively, were anti-dilutive, and therefore, not included in the
computation of diluted loss per share.
Stock-Based Compensation--In December 2002, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure."
This Statement amends SFAS No. 123, "Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company follows APB 25 in accounting for
its employee stock options. The disclosure provision of SFAS 148 is effective
for years ending after December 15, 2002 and have been incorporated into these
financial statements and accompanying footnotes.
6
At March 31, 2003, the Company had a stock-based employee compensation
plan. The Company accounts for this plan under the recognition and measurement
principles of Accounting Principles Board (APB) Opinion 25, Accounting for Stock
Issued to Employees, and related Interpretations.
The following table illustrates the effect on net loss if the Company had
applied the fair value recognition provisions of Financial Accounting Standard
No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.
March 31, 2003 March 31, 2002
-------------- ---------------
Net loss, as reported $ (777,775) $ (1,570,487)
Less: Stock-based employee compensation expense determined
under the fair-value based method (328,599) (765,899)
Net loss, pro forma $ (1,106,374) $ (2,336,386)
============= =============
Basic and diluted loss per share:
As reported $ (0.03) $ (0.09)
============= =============
Pro forma $ (0.05) $ (0.14)
============= =============
The weighted average fair value of options granted during the periods
ended March 31, 2003 and March 31, 2002 were $1.19 and $1.58, respectively. The
pro forma amounts were estimated using the Black-Scholes option pricing model
with the following assumptions for the periods ended March 31, 2003 and 2002,
respectively.
March 31, 2003 March 31, 2002
------------------------- -------------------------
Interest rate 3.83% - 3.98% 4.92%
Dividend yield 0% 0%
Expected volatility 141.58% - 143.05% 148.12%
Expected life in years 1 - 10 years 1 - 10 years
3. EQUITY TRANSACTIONS
From January 1, 2003 through March 31, 2003 we sold, to accredited
investors through a private offering 20,000 C Units, at a price of fifty cents
($.50) per C Unit, with each C Unit consisting of (i) one (1) share of common
stock of the Company, and (ii) a warrant to purchase up to one (1) share of
common stock of the Company at a per share price of seventy-five cents ($0.75),
exercisable until August 30, 2003. In connection with this offering the Company
issued 2,000 C Units in commissions and finder's fees. The gross proceeds of the
offering were $10,000. We also sold to accredited investors, through a private
offering, 402,497 D Units at a price of seventy-five cents ($0.75) per D Unit,
with each D Unit consisting of (i) one (1) share of common stock of the Company,
and (ii) a warrant to purchase up to one (1) share of common stock of the
Company at a per share price of two dollars ($2.00), exercisable until March 31,
2006. In connection with this offering, the Company paid $16,250 in cash
commissions and finder's fees and incurred 15,151 D units in commissions and
finder's fees. The gross proceeds from the offering were $301,875.
From January 1, 2003 through March 31, 2003 two consultants exercised
options to purchase an aggregate of 19,750 shares of common stock for the
aggregate amount of $11,485.
4. WARRANTS AND STOCK OPTIONS
As of March 31, 2003, the Company had outstanding warrants to purchase up
to 3,692,074 shares of common stock and options to purchase up to 3,734,316
shares of common stock. These securities give the holder the right to purchase
shares of the Company's common stock in accordance with the terms of the
instrument.
7
Warrants Stock Options Total
--------- ------------- ---------
Outstanding at January 1, 2003 3,267,577 3,384,066 6,651,643
Granted 424,497 375,000 799,497
Retired -- -- --
Expired -- (5,000) (5,000)
Exercised through cash consideration -- (19,750) (19,750)
Exercised through non-cash consideration -- -- --
--------- ---------- ----------
Outstanding at March 31, 2003 3,692,074 3,734,316 7,426,390
5. LEGAL SETTLEMENT
We were a defendant in a case entitled Hubert P. Lauffs v. Mosaic
Multisoft Corporation, in which the plaintiff asserted a cause of action against
us for breach of fiduciary duty. The plaintiff purported to base his cause of
action on allegations that we and others caused the shareholders of Mosaic
Multisoft Corporation ("Mosaic") to elect outside directors to its board of
directors who subsequently voted to remove Mosaic's president from office, thus
interfering with Mosaic's ability to raise capital and causing Mosaic to be
unable to repay its debt to the plaintiff. In March 2000, we won this case on
summary judgment. In April 2000, the plaintiff filed an appeal of the summary
judgment ruling. On November 21, 2001, the Fourth District Court of Appeal ruled
in our favor by affirming the Superior Court's March 2000 summary judgment. In
September 1999, we had filed an action for malicious prosecution against Lauffs
and his attorney seeking recovery of the Company's legal fees incurred in
connection with the proceedings. We entered into Settlement Agreements in
December 2002, pursuant to which the plaintiffs agreed to pay us an aggregate of
$400,000. Per an agreement we entered into with our attorneys on or about
September 27, 2002, almost all of the money recovered will be paid to our
attorneys. From January 1, 2003 through March 31, 2003, we received $16,000 as
our portion of the settlement which was recognized as a gain from legal
settlement.
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
Certain statements contained in this Form 10-QSB constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. Such forward-looking statements herein are based on current
expectations that involve a number of risks and uncertainties. Such
forward-looking statements are based on assumptions that the Company will have
adequate financial resources to fund the development and operation of its
business, and there will be no material adverse change in the Company's
operations or business. The foregoing assumptions are based on
judgments with respect to, among other things, information available to the
Company, future economic, competitive and market conditions and future business
decisions. All are difficult or impossible to predict accurately and many of
which are beyond the Company's control. Accordingly, although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any such assumption could prove to be inaccurate and therefore there
can be no assurance that the results contemplated in the forward-looking
statements will be realized. There are a number of risks presented by the
Company's business and operations, which could cause the Company's financial
performance to vary markedly from prior results, or results contemplated by the
forward-looking statements. Such risks include failure of the ANTs technology to
work properly, failure to develop commercially viable products or services from
the ANTs technology, delays or failure in fundraising efforts, delays in or lack
of market acceptance, failures to recruit adequate personnel, and problems with
protection of intellectual property, among others. Management decisions,
including budgeting, are subjective in many respects and periodic revisions must
be made to reflect actual conditions and business developments, the impact of
which may cause the Company to alter its capital investment and other
expenditures, which may also adversely affect the Company's results of
operations. In light of significant uncertainties inherent in forward-looking
information included in this quarterly Report on Form 10-QSB, the inclusion of
such information should not be regarded as a representation by the Company that
the Company's objectives or plans will be achieved. The Company undertakes no
obligation to revise or publicly release the results of any revision to these
forward-looking statements.
Overview
We are engaged in the development and marketing of proprietary software
that we believe can significantly improve performance in applications which
require high-speed access to shared, rapidly changing data. Our first product,
the ANTs Data Server is an industry-standard database management system based on
a high-performance SQL query execution engine that incorporates innovative,
lock-free operations.
8
Plan of Operation
We anticipate that, if we are sufficiently funded, over the next twelve
months our focus will be threefold: continued development of the ANTs Data
Server ("ADS"), marketing ADS, and supporting customers. The development effort
will be focused on enhancing the core technology underlying ADS and developing
features that will broaden ADS's market appeal. We expect to begin realizing
revenues during the second or third quarter of 2003. There is no assurance that
our plans will be realized.
The majority of our operating expenses and costs over the next twelve
months are expected to be for and in connection with sales and marketing and
existing and additional personnel and equipment. We currently have fourteen
full-time employees, two part-time employees and three full-time consultants. We
view the recruitment of additional qualified marketing, sales, and technical
personnel as essential to the further development and commercialization of our
proprietary technologies. If we are sufficiently funded and we are successful in
our recruitment efforts, we expect that our personnel and other operating costs
will increase over current levels.
We believe that due to a poor investment climate, securing additional
sources of financing which would enable us to complete the development and
commercialization of our proprietary technologies will be difficult, and there
is no assurance of our ability to secure such financing.
Technology Development
Over the next twelve months we intend to continue to improve and add
functionality to ADS, assuming we are sufficiently funded. We are actively
engaging prospective customers in technical discussions and testing to determine
what features are most in demand for the markets we are targeting. ADS can be
deployed on hardware running either Sun's Solaris operating system or Microsoft
Windows 2000 operating system. We intend to port ADS to the Linux operating
system by mid-summer 2003. We have mobilized our engineering resources around
developing those features.
Marketing
Our product, the ANTs Data Server, is a standards-compliant SQL relational
database server. ADS, which incorporates our proprietary lock-free data
structure technology solves a fundamental problem that has compromised
application performance for years - database locking of rapidly changing, shared
data. In internal benchmark testing of key database operations, ADS performed up
to 80 times the number of operations as one of the industry's leading database
servers (for a full description of the benchmark please visit our web site:
www.antssoftware.com).
Target markets include: Telecommunications, Financial Services and
Logistics/Transportation. Our go-to-market strategy includes establishing OEM
relationships with leading vendors in each market and limited sales directly to
customers.
Selling, General and Administrative
Selling, general and administrative expenses decreased from $593,311
during the three months ended March 31, 2002 to $430,022 for the three months
ended March 31, 2003. Components of selling, general and administrative expense
for the three months ended March 31, 2003 include: salaries and benefits (31%),
professional services (45%) and other expenses (24%). The year-over-year
decrease resulted from an approximate $34,000 reduction in salaries and
benefits, a $72,000 decrease in legal and other professional fees, and a $74,000
decrease in insurance expense. The decrease was offset by a $20,000 increase in
travel expense. We expect that if we are sufficiently funded, selling, general
and administrative expenses will increase moderately over the next twelve months
as sales and marketing programs are implemented and additional staff is
recruited to sell and support our products.
Research and Development
Research and development expenses decreased from $978,903 during the three
months ended March 31, 2002 to $365,438 for the three months ended March 31,
2003. These expenses are related to the research, testing and product
development of our proprietary software. Of the $978,903 expensed through March
31, 2002, $525,635 was a non-cash expense related to the extension of certain
options and warrants granted to a former officer and our
9
current Chief Scientist. Salaries and benefits accounted for 74% and other
expenses accounted for 26% of the total for the three months ended March 31,
2003. We expect that if we are sufficiently funded, our research and development
expenses will increase moderately as additional staff is recruited to customize
our products and develop new ones.
Appointment of Officer
On March 24, 2003, the Company appointed Mr. Gary Ebersole as President
and Chief Operating Officer. Mr. Francis K. Ruotolo remains Chairman and Chief
Executive Officer.
Capital and Liquidity Resources
We anticipate that if we are sufficiently funded, we will increase
expenditures moderately to substantially over the next twelve months as we begin
to sell product and as we continue to develop our technology. We expect to begin
realizing revenues in 2003. Our cash balance as of March 31, 2003 was
approximately $575,000, which, together with funds received from a current
private placement offering, we believe will be adequate to fund our activities
into June 2003 at our current rate of spending. There can be no assurance that
our continued product development and infrastructure development will not
require a much higher rate of spending. There can also be no assurance that we
will be able to obtain additional capital on acceptable terms.
To carry out our plan of operation, we anticipate that over the next
twelve months we will require approximately $5 million. We will pursue a number
of avenues to raise these operating funds: 1) in the past we have been
successful raising funds through private placements of our stock, we anticipate
that we will continue to raise funds through private placements, 2) as we
develop close relationships with large partners, we will pursue strategic
investments from those partners, and 3) we expect to begin generating revenue
this year, which will be a source of operating funds if we are successful. We
are pursuing all three avenues, however, we believe, that due to a poor
investment climate, securing additional investment will be difficult.
ITEM 3. CONTROLS AND PROCEDURES
As of February 12, 2003, an evaluation was performed under the supervision
and with the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer, of the design and operation of
the Company's disclosure controls and procedures (as defined in Sections
13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended).
Based on that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of February 12, 2003. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect the internal controls subsequent to February 12,
2003.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information is hereby incorporated by reference from the Form 10-KSB
filed on March 21, 2003. There have been no other material developments in the
period covered by this report.
ITEM 2. CHANGES IN SECURITIES
From January 1, 2003 through March 31, 2003 we sold, to accredited
investors through a private offering 20,000 C Units, at a price of fifty cents
($.50) per C Unit, with each C Unit consisting of (i) one (1) share of common
stock of the Company, and (ii) a warrant to purchase up to one (1) share of
common stock of the Company at a per share price of seventy-five cents ($0.75),
exercisable until August 30, 2003. In connection with this offering the Company
issued 2,000 C Units in commissions and finder's fees. The gross proceeds of the
offering were $10,000. We also sold to accredited investors, through a private
offering, 402,497 D Units at a price of seventy-five cents ($0.75) per D Unit,
with each D Unit consisting of (i) one (1) share of common stock of the Company,
and (ii) a warrant to purchase up to one (1) share of common stock of the
Company at a per share price of two dollars ($2.00), exercisable until March 31,
2006. In connection with this offering, the Company paid $16,250 in cash
commissions and finder's fees and incurred 15,151 D units in commissions and
finder's fees. The gross proceeds from the offering were $301,875. The proceeds
of the private offering will be used for general working capital purposes. The
sales of these securities were made in reliance upon Rule 506 and Section 4(2)
of the Securities Act of 1933.
10
From January 1, 2003 through March 31, 2003 two consultants exercised
options to purchase an aggregate of 19,750 shares of common stock for the
aggregate amount of $11,485.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No changes during the period covered by this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the period
covered by this report.
ITEM 5. OTHER MATTERS
No changes during the period covered by this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the
Company as listed in Exhibit 3.1 to the Company's 10-KSB filed
on March 22, 2001, is hereby incorporated by reference.
3.2 Amended and Restated Bylaws of the Company, as listed in
Exhibit 3.2 to the Company's 10-KSB filed on March 22, 2001,
are hereby incorporated by reference.
10.1 2000 Stock Option Plan of the Company, as listed in Exhibit
10.1 to the Company's 10-KSB filed on March 28, 2002, is
hereby incorporated by reference.
10.2 Agreement and Plan of Merger dated December 8, 2000 between
ANTs software inc. and ANTs software.com, as listed in Exhibit
10.2 to the Company's 10-KSB filed on March 22, 2001, is
hereby incorporated by reference.
10.3 Settlement Agreement and Full Release of All Claims dated
January 11, 2001, between the Company and Frederick D. Pettit,
as listed in Exhibit 10.3 to the Company's 10-KSB filed on
March 22, 2001, is hereby incorporated by reference.
10.4 Separation Agreement dated January 8, 2001, between the
Company and Francis K. Ruotolo, as listed in Exhibit 10.4 to
the Company's 10-KSB filed on March 22, 2001, is hereby
incorporated by reference.
10.5 Form of Indemnification Agreement signed with officers and
directors of the Company, as listed in Exhibit 10.5 to the
Company's 10-KSB filed on March 22, 2001, is hereby
incorporated by reference.
10.6 Registration Agreement between the Company and Karen Buechler
and Eric Scott Buechler dated September 15, 2000, as listed in
Exhibit 10.6 to the Company's 10-KSB filed on March 22, 2001,
is hereby incorporated by reference.
10.7 Registration Agreement between the Company and Arcade
Investment Limited dated September 7, 2000, as listed in
Exhibit 10.7 to the Company's 10-KSB filed on March 22, 2001,
is hereby incorporated by reference.
10.8 Amended Agreement between the Company and Arcade Investment
dated October 6, 2000, as listed in Exhibit 10.8 to the
Company's 10-KSB filed on March 22, 2001, is hereby
incorporated by reference.
10.9 Form of Registration Agreement between the Company and each of
Discount Bank and Trust Company, Lemanik Sicav Convertible
Bond, and Pershing Keen Nominees, as listed in Exhibit 10.9 to
the Company's 10-KSB filed on March 22, 2001, is hereby
incorporated by reference.
10.10 Employment Agreement dated March 24, 2003, between the Company
and Gary Ebersole.
99.1 Certification of ANTs software inc. pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 regarding Quarterly Report on
Form 10-QSB for the quarter ended March 31, 2003.
(b) Reports on Form 8-K
11
On March 26, 2003, we filed on Form 8-K a letter addressed to our
shareholders introducing Gary Ebersole, our President and Chief Operating
Officer, and bringing the shareholders up to date on our progress and plans.
RISK FACTORS
In addition to other information in this 10-QSB, the following risk
factors should be carefully considered in evaluating our business since we
operate in a highly changing and complex business environment that involves
numerous risks, some of which are beyond our control. The following discussion
highlights a few of these risk factors, any one of which may have a significant
adverse impact on our business, operating results and financial condition. As a
result of the risk factors set forth below and elsewhere in this 10-QSB, and the
risks discussed in our other Securities and Exchange Commission filings, actual
results could differ materially from those projected in any forward-looking
statements.
A failure to obtain additional financing could prevent us from executing
our business plan. A failure to raise additional funding could prevent us from
continuing our business after June 2003. We anticipate that current cash
resources will be sufficient to fund our operations into June 2003 at our
current rate of spending. We believe that, due to a poor investment climate,
securing additional sources of financing to enable us to complete the
development and commercialization of our proprietary technologies will be
difficult and there is no assurance of our ability to secure such financing. A
failure to obtain additional funding could prevent us from making expenditures
that are needed to pay current obligations, allow us to hire additional
personnel and continue development of the technology. If we raise additional
funds by selling equity securities, the relative equity ownership of our
existing investors could be diluted or the new investors could obtain terms more
favorable than previous investors. If we raise additional funds through debt
financing, we could incur significant borrowing costs.
If we are unable to protect our intellectual property, our competitive
position would be adversely affected. We rely on patent protection, as well as
trademark and copyright law, trade secret protection and confidentiality
agreements with our employees and others to protect our intellectual property.
Despite our precautions, unauthorized third parties may copy our products and
services or reverse engineer or obtain and use information that we regard as
proprietary. We have also filed patent applications and intend to file more. We
do not know if any of our intended future patents will be issued or whether we
will be successful in prosecuting any additional patents. In addition, the laws
of some foreign countries do not protect proprietary rights to the same extent
as do the laws of the United States. Our means of protecting our proprietary
rights may not be adequate and third parties may infringe or misappropriate our
patents, copyrights, trademarks and similar proprietary rights. If we fail to
protect our intellectual property and proprietary rights, our business,
financial condition and results of operations would suffer. We believe that we
do not infringe upon the proprietary rights of any third party, and no
third party has asserted a patent infringement claim against us. It is possible,
however, that such a claim might be asserted successfully against us in the
future. We may be forced to suspend our operations to pay significant amounts to
defend our rights, and a substantial amount of the attention of our management
may be diverted from our ongoing business, which can materially affect our
ability to attain and maintain profitability.
We focus on the research and development of our proprietary technologies
and the marketing of our first product. Our present focus is on the research and
development of our proprietary technologies and the marketing of our first
product. We believe that these technologies are the basis for highly marketable
commercial products. However, there can be no assurance of this and it is
possible that our proprietary technologies and products will have no commercial
benefit or potential. In addition, from our inception to the present, we have
not recognized any operating revenues.
We face possible competition from large companies. The industry that we
are in is highly competitive. Although we believe that our technology is unique,
can be protected, and, if adopted, will confer benefits that will be otherwise
unavailable for some significant time, we face very large competitors with
greater resources who may adopt various strategies to block or slow our market
penetration, thereby straining our more limited resources. They may also seek to
hinder our operations through attempts to recruit key staff with exceptionally
attractive terms of employment, including signing bonuses, or by offer of highly
competitive terms to potential or newly acquired customers.
We depend on our key personnel and may have difficulty attracting and
retaining the skilled staff we need to execute our growth plans. Our success
will be dependent largely upon the personal efforts of our Chairman and Chief
Executive Officer, Francis K. Ruotolo, as well as other senior managers. The
loss of key staff could have
12
a material adverse effect on our business and prospects. To execute our plans,
we will need to hire additional staff and retain current employees. If we are
sufficiently funded, we plan to increase our technical, sales, marketing, and
administrative personnel. Competition for highly skilled employees with
technical, management, marketing, sales, product development and other
specialized training is intense. We may not be successful in attracting or
retaining such qualified personnel. Specifically, we may experience increased
costs in order to attract and retain skilled employees. If we are unable to
hire, train and manage new skilled and experienced employees as needed, we would
be unable to support our planned growth and future operations.
We face rapid technological change. The market for our products and
services is characterized by rapidly changing technologies, extensive research
and the introduction of new products and services. We believe that our future
success will depend in part upon our ability to continue to enhance our existing
products and to develop, manufacture and market new products and services. As a
result, we expect to continue to make a significant investment in engineering,
research and development. There can be no assurance that we will be able to
develop and introduce new products and services or enhance our initial intended
products and services in a timely manner to satisfy customer needs, achieve
market acceptance or address technological changes in our target markets.
Failure to develop products and services and introduce them successfully and in
a timely manner could adversely affect our competitive position, financial
condition and results of operations.
We may need to manage growth well. In the event we are sufficiently
funded, we may experience substantial growth in the size of our staff and the
scope of our operations, resulting in increased responsibilities for management.
To manage this possible growth effectively, we will need to continue to improve
our operational, financial and management information systems and to hire,
train, motivate and manage a growing number of staff. We expect to experience
difficulty in filling our needs for qualified engineers and other personnel.
There can be no assurance that we will be able to effectively achieve or manage
any future growth, and our failure to do so could delay product development
cycles and market penetration or otherwise have a material adverse effect on our
financial condition and results of operations.
We could face information and product liability risks and may not have
adequate insurance. Because we intend to provide database products for critical
business and Internet applications, we may become the subject of litigation
alleging that our products were ineffective or disruptive in their treatment of
data, or in the compilation, processing or manipulation of critical business
information. Thus, we may become the targets of lawsuits from injured or
disgruntled businesses or other users. We do not presently carry product or
information liability or errors and omissions insurance, however we intend to
acquire such insurance prior to commencing substantial sales. In the event that
we are required to defend more than a few such actions, or in the event that we
were found liable in connection with such an action, our business and operations
would be severely and materially adversely affected.
We are dependent on new demand for our products and services. The success
of our business depends upon demand for and use of our technology, products and
services in general and the demand for additional computing power, cost
effectiveness and speed in particular. The technology underlying our product is
new and although we have thoroughly tested it internally we may encounter
substantial market resistance. In the event sufficient demand does not develop,
our business and results of operations would be materially adversely affected.
We believe that there appears to be increased demand for computing power, cost
effectiveness and speed, but if general economic conditions decline or hardware
and memory advances make such power, cost effectiveness and speed more readily
available, then adoption, use and sales of our products and services may be
materially adversely affected.
We will need to continue our product development efforts. We believe that
our market will be characterized by increasing technical sophistication. We also
believe that our eventual success will depend on our ability to continue to
provide increased and specialized technical expertise. There is no assurance
that we will not fall technologically behind competitors with greater resources.
Although we believe that we enjoy a significant lead in our product development
and introduction, and are hopeful that our patents provide some protection, we
will likely need significant additional capital in order to continue to enjoy
such a technological lead over competitors with more resources.
Market acceptance of our products and services is not guaranteed. We are
at an early stage of development and our earnings will depend upon market
acceptance and utilization of our intended products and services. Due to
economic conditions potential customers have significantly tightened budgets for
evaluating new products and technologies and the evaluation cycles are much
longer than in the recent past. There can be no
13
assurance that our product and technology development efforts will result in new
products and services, or that they will be successfully introduced.
Future profitability is not guaranteed. We have not recognized any
operating revenues to date. Assuming we are able to secure sufficient financing,
we expect to begin recognizing revenues from the sale of products and services
in calendar 2003. There is no assurance that our plans will be realized, that we
will be able to generate revenues in 2003 or that we will achieve profitability
in the future.
Limited market for our common stock. Our common stock is not listed on any
exchange and trades in the over-the-counter (the "OTC") market. As such, the
market for our common stock is limited and is not regulated by the authorities
of any exchange. Further, the price of our common stock and its volume in the
OTC market may be subject to wide fluctuations.
We have a long corporate existence and were inactive during much of our
corporate history. We were formed as the Sullivan Computer Corporation,
incorporated in Delaware in January 1979. We were privately owned until late
1986, at which time our common stock began trading in the over-the-counter
market. This was a result of the registration of our common stock pursuant to
the merger with CHoPP Computer Corporation, a British Columbia corporation.
During the period from mid-1987 through late 1999, we had few or no employees.
Our operating activities were limited and were largely administered personally
by our former Chairman, Donald R. Hutton. Due to the passage of time and the
poor condition of financial and other records, there can be no assurance that
all matters have been addressed at this date.
We have indemnified our officers and directors. We have indemnified our
Officers and Directors against possible monetary liability to the maximum extent
permitted under Delaware law.
Limitation on ability for control through proxy contest. Our Bylaws
provide for a Board of Directors to be elected in three classes. This classified
Board may make it more difficult for a potential acquirer to gain control of the
Company by using a proxy contest, since the acquirer would only be able to elect
one or two directors out of five directors at each shareholders meeting held for
that purpose.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANTs software inc.
Date: May 8, 2003 By: /s/ Francis K. Ruotolo
----------- -----------------------------------
Francis K. Ruotolo, Chairman
and Chief Executive Officer
Date: May 8, 2003 By: /s/ Kenneth Ruotolo
----------- -----------------------------------
Kenneth Ruotolo
Chief Financial Officer
and Secretary
14
CERTIFICATIONS
I, Francis K. Ruotolo, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ANTs
software inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 8, 2003 /s/ Francis K. Ruotolo
----------- ----------------------------------------
Francis K. Ruotolo, Chairman and
Chief Executive Officer
15
I, Kenneth Ruotolo, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ANTs
software inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 8, 2003 /s/ Kenneth Ruotolo
----------- ----------------------------------------
Kenneth Ruotolo
Chief Financial Officer
and Secretary
16