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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-KSB

|x | Annual Report Under to Section 13 or 15(d) of the   Securities Exchange Act of 1934     
|- | ----------------------------------------------------------------------------------------
|  |                                                                                         
|  | For   the fiscal year ended December 31, 2004                                           
|  |                                                                                         
|o | Transition Report Under to Section 13 or 15 (d) of the   Securities Exchange Act of 1934

Commission file number:  000-16299

|ANTS   SOFTWARE INC.                                    
|--------------------------------------------------------
|(Exact   name of registrant as specified in its charter)

|Delaware                                                           |  | 13-3054685                            
|------------------------------------------------------------------ |  | --------------------------------------
|(State or   other jurisdiction of   Incorporation or Organization) |  | (IRS   Employer Identification Number)

|801   Mahler Road, Suite G,   Burlingame, CA 94010           
|-------------------------------------------------------------
|(Address   of principal executive offices including zip code)

Issuers Telephone Number:  (650) 692-0240

Securities registered under Section 12(b) of the Act:  None

Securities Registered under Section 12(g) of the Act:  Common Stock, $0.0001 par value

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x  Yes     
oNo

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
x

Issuers revenues for its most recent fiscal year, ended December 31, 2004 were:  $0

The aggregate market value of the voting and non-voting common stock held by non-affiliates based upon the closing bid price for the common stock on February 23, 2005, as reported on the NASD Bulletin Board system, was approximately $77 million.  Shares of common stock held by each officer and director and each person who owns more than 5% of the outstanding common stock have been excluded based upon a determination that such persons are, or may be deemed to be, affiliates.  The determination of affiliate status is not necessarily a conclusive determination for other purposes.

The issuer had 36,559,997 shares of common stock outstanding of February 23, 2005.

Transitional Small Business Disclosure Format:  Yes
o    No 
x

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TABLE OF CONTENTS

|           | PART I                                                                                                             |   
|---------- | ------------------------------------------------------------------------------------------------------------------ | --
|           |                                                                                                                    |   
|Item 1.    | Description of Business                                                                                            | 3 
|Item 2.    | Description of Property                                                                                            | 7 
|Item 3.    | Legal Proceedings                                                                                                  | 7 
|Item 4.    | Submission of Matters to a Vote of   Security Holders                                                              | 7 
|           |                                                                                                                    |   
|           | PART   II                                                                                                          |   
|           |                                                                                                                    |   
|Item 5.    | Market for Common Equity and   Related Stockholder Matters                                                         | 7 
|Item 6.    | Managements Plan of Operation                                                                                     | 8 
|Item 7.    | Financial Statements.                                                                                              | 17
|Item 8.    | Changes in and Disagreements with   Accountants on Accounting and Financial Disclosure                             | 17
|Item 8A.   | Controls and Procedures.                                                                                           | 17
|Item 8B.   | Other Matters.                                                                                                     | 17
|           |                                                                                                                    |   
|           | PART   III                                                                                                         |   
|           |                                                                                                                    |   
|Item 9.    | Directors, Executive Officers, Promoters   and Control Persons; Compliance With Section 16(a) of the Exchange Act. | 17
|Item 10.   | Executive Compensation                                                                                             | 21
|Item 11.   | Security Ownership of Certain   Beneficial Owners and Management and Related Stockholder Matters                   | 24
|Item 12.   | Certain Relationships and Related   Transactions                                                                   | 27
|Item 13.   | Exhibits and Reports on Form 8-K                                                                                   | 27
|Item 14.   | Principal Accountant Fees and   Services                                                                           | 28
|Signatures | 30-31                                                                                                             

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Certain statements contained in this Form 10-KSB 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, that there will be no material adverse change in the Companys operations or business, and that the Company will be able to continue to attract and retain skilled employees necessary for its business, among other things. 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 of these assumptions are difficult or impossible to predict accurately and many 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 Annual Report on Form 10-KSB, 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.

PART I

Item 1. Description of Business

The Company

ANTs software inc. (sometimes referred to herein as ANTs or the Company) is a Delaware corporation headquartered in Burlingame, California.  The Companys shares trade on the OTC Bulletin Board under the stock symbol ANTS. The Company is the successor to Sullivan Computer Corporation, a Delaware corporation incorporated in January 1979, which, in 1986 changed its name to CHoPP Computer Corporation.   In 1997, the Company reincorporated from Delaware to Nevada, and in February 1999 changed its name from CHoPP Computer Corporation to ANTs software.com. In July 2000, Intellectual Properties and Technologies, Inc., a wholly owned subsidiary with no significant assets, merged into the Company. In December 2000, the Company reincorporated from Nevada to Delaware and changed its name from ANTs software.com to
ANTs software inc.

Current and Planned Operations

The Company is engaged in the development and marketing of proprietary software that it believes can dramatically improve performance in applications, which require high-speed access to shared, rapidly changing data. The Companys operations currently comprise active marketing of its product, and research and development related to testing and refining the product as requested by various potential customers.  The Company has not realized any revenue through December 31, 2004. As of the filing of this report, the Company believes it has funds for continued operations, at expected spending levels, through September 2005.  The Company anticipates that, if sufficiently funded over the next twelve months, its focus will be: marketing its first product, supporting customers, and research and development.

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The Company currently has 22 full-time employees and two part-time employees.  In order for the Company to execute its plans it will need to hire and retain additional personnel.  The Company plans to increase the number of its: technical personnel by five, sales, marketing and support personnel by twelve and administrative personnel by three by the end of 2005.

Technology and Intellectual Property

Overview

Applications which require access to rapidly changing, shared, data often suffer from poor performance and scalability because of database locking. The Companys core technology, the ANTs Concurrency Engine (ACE), which comprises a highly efficient data-processing engine coupled with lock-free data structures, eliminates virtually all data locking. The Companys first product based on ACE is the ANTs Data Server, a relational database management system (RDBMS). The ANTs Data Server has proven in testing to be five to fifteen times faster than other RDBMSs. The Company has applied for eight patents on the concepts which underlie ACE, two of which have been granted by the Patent and Trademark Office.

The ANTs Concurrency Engine (ACE)

ACE consists of two key components:

| |  | A highly efficient data processing engine     
| | - | ----------------------------------------------
| |  | Concurrency enabling lock-free data structures

The Engine

For many years, shared data manipulation due to locking at the database has been the bottleneck in application performance and scalability. ANTs studied this problem and developed a revolutionary way of organizing the work associated with manipulating data. The data processing engine at the heart of the ANTs Data Server reorganizes tasks so as to avoid locking. The result is an entirely new approach to the process by which data is managed.

Lock-Free Data Structures

Contention for shared data produces two significant performance bottlenecks in data-intensive applications:

| |  | The necessity of locking records, and in some cases   entire indexes, to ensure data integrity. This results in significant delays   due to lock waiting.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cache synchronization conflicts that occur when   shared data is distributed in multiple caches or multiple clients                                      

The Companys innovative lock-free data structure technology, which virtually eliminates index-locking, allows index operations which, to the Companys knowledge, are not possible with existing RDBMSs. Locks not only cause waiting, they also can cause severe cache synchronization conflicts, which ACE also eliminates. Operations that would significantly decrease performance in an index-dependent application, such as adding or modifying items, should, when using the ANTs Data Server, execute concurrently at maximum speed.

Using the ANTs Data Server, developers can design applications knowing that they will handle operations under loads that are now generally impossible, even when the data are rapidly changing. The Company has several patent-pending designs for the implementation and deployment of lock-free data structures.

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Combining the Technologies

The Company believes that the Engine processes work very efficiently, providing large performance gains over traditional data manipulation techniques. The lock-free data structures allow for massive parallelism of operations on data items.  Combined, they make up the ANTs Concurrency Engine.  ACE delivers high performance in normal operating situations, but in contentious high-volume situations, where other mechanisms simply fail, ACE achieves its greatest successes, scaling almost linearly with CPUs.

Patents

The Company has developed several proprietary technologies, all of which it believes must be present to achieve results comparable to the ANTs Data Server. During 2000 and 2001, the Company filed eight patent applications to obtain protection for its intellectual property. The Company has been granted two patents, U.S. Patent No. 6,760,726 (granted on July 6, 2004) on its System and Method of Managing Concurrent Operations on Linked Lists and U.S. Patent No. 6,763,447 (granted on July 13, 2004) on its Lock-Free List for Use with Computer System Utilizing FIFO Queue for Tracking Order of Various Sublists. The remaining six applications are pending and the Company awaits the Patent and Trademark Offices action and decision on those. The Company also claims certain copyright, trade secret and trademark protection in aspects of its business and
technology and new intellectual property is under development on an ongoing basis. The Company was granted three patents related to hardware designs developed during a time when the Company was producing a supercomputer: U.S. Patents No. 4,484,262 (granted on November 20, 1984) and No. 4,707,781 (granted on November 17, 1987) on its Shared Memory Computer Method and Apparatus, and U.S. Patent No. 5,438,680 (granted on August 1, 1995) on its Method and Apparatus for Enhancing Concurrency in a Parallel Digital Computer. In April 2001, U.S. Patent No. 4,484,262 expired, in January 2003, the Company chose not to pay the maintenance fee for U.S. Patent No. 5,438,680 and in November 2004, U.S. Patent No. No. 4,707,781 expired. These three patents were related to hardware and had no usefulness for any business activity the Company now conducts.

Product, Markets, Product Strategy and Market Entry

ANTs Data Server

The Companys first product is the ANTs Data Server (ADS) a standards-compliant SQL relational database management system (RDBMS). ADS, which incorporates the Companys lock-free data structure technology solves a fundamental problem that has compromised application performance for years  database locking of rapidly changing, shared data. ADS can be implemented standalone or as a helper database. In deploying ADS as a helper to another database, ADS acts as an application turbocharger, providing higher performance and scalability while at the same time requiring little change to the application, the existing database or the infrastructure. In internal performance testing and in testing performed for customers, ADS typically provides a five to fifteen times performance improvement. ADS can be deployed on hardware
running the Solaris operating system and various versions of the Linux, and Windows operating systems.

Please carefully consider the following only in connection with the section entitled Risk Factors Associated With The Companys Business and Future Operating Results under Item 6, the cautionary notes therein and the introductory paragraph regarding forward-looking statements on page 3 of this report.

Target Markets

The Company markets ADS to IT managers, Application Developers, Database Architects, CIOs, and CTOs, in industry sectors that have high-performance, high-volume application requirements. The Company believes that ADS offers an attractive cost/performance advantage for existing or new applications that process real-time operational data that businesses depend on. The Company focuses on sectors where performance demands dictate a willingness to look at new solutions. The Company has identified four market segments for which it believes ADS is well suited:

5



| | 1. | Financial Services-   Competitive and regulatory pressures to decrease turn around time for   settling trades, monitoring transactions through their life-cycle and gaining   competitive advantage lead to    applications that consistently push the database performance envelope.                                                                                     
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                           
| | 2. | Telecommunications - Wireless Data,   Messaging and Billing - The high-volume, high-contention   characteristics of wireless messaging make this market opportune. The market   is driven by a dramatic increase in digital text volume, the emergence of   high bandwidth rich media messaging and new billing revenue opportunities,   such as pre-paid mobile services.
| |    |                                                                                                                                                                                                                                                                                                                                                                           
| | 3. | On-line Retail & Hosted   Applications  Transaction-intensive web sites either   retail or with hosted applications put tremendous strain on existing database   products. The Company believes that ADS can provide faster response times for   customers.                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                           
| | 4. | Transportation/Logistics   - Shipping, logistics, travel and distribution are driven by the need to   utilize the huge base of customer data to lower costs and drive additional   revenues through new applications that depend on real time information.                                                                                                                

Competition

The Company operates in the RDBMS segment of the software market and competes against high-performance and general-purpose RDBMSs. High-performance competitors include: Kx Systems, Inc., FAME Information Systems, Inc., and TimesTen, Inc. General-purpose competitors include Oracle, Microsoft, IBM, MySQL AB, InterSystems Corporation and Sybase, Inc. Business conditions in the RDBMS market are highly competitive for a number of reasons, some of which include: the market is dominated by very large companies with extensive financial, marketing, and engineering resources; the market is well-established and some customers have built up extensive infrastructure around competitive RDBMS products; the Companys success will likely require that it win business from established competitors, and as a new entrant in the RDBMS market, the
Companys product may have less functionality than customers are accustomed to.

Revenue Model

The Company intends to generate revenue primarily through licensing, maintenance, and integration/customization fees. The Company intends to license ADS to Independent Software Vendors (ISVs) whom it expects will customize it for use with their applications. The Company also intends to license ADS to end-users and to sell ADS through re-sellers and system integrators.

Letter of Intent

On or about August 22, 2003 the Company signed a Letter of Intent (LOI) with Net Soft Systems, Inc. of Vancouver, British Columbia, Canada (Net Soft). The LOI included the following terms:

| |  | Net Soft agreed to pay the Company $400,000   (non-refundable)                                                                                                                                                    
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company agreed to negotiate only with Net Soft   for the exclusive rights to sell and distribute the ANTs Data Server (the   Rights) in Poland, Russia, the Czech Republic, and the European Common   Market
| |  | The negotiation process would determine what   additional payments would be required of Net Soft to obtain the Rights                                                                                             
| |  | If by November 30th, 2003 terms of a deal   regarding the Rights had not been agreed to, the Company could negotiate the   Rights with any other entity.                                                          
| |  | The LOI itself contained no grant of Rights                                                                                                                                                                       

On November 30, 2003 the Company and Net Soft agreed to extend the LOI through January 31, 2004 and on January 31, 2004 further agreed to extend the LOI through March 31, 2004. On March 31, 2004,

6



the LOI terminated and on that date, no future agreements between Net Soft and the Company were contemplated in connection with such LOI. As of March 31, 2004, the Company had received $310,943 of the $400,000 due pursuant to the LOI.  The remaining $89,057 was considered uncollectible.  In accordance with Generally Accepted Accounting Principles the Company did not consider the earnings process complete until collection was reasonably assured and all applicable revenue recognition conditions were met according to the Security and Exchange Commissions Staff Accounting Bulletin: No 104 -Revenue Recognition.  Therefore, the payments pursuant to the LOI were recorded in the financial statements prior to January 1, 2004 as deferred revenue.  With the termination of the LOI and no future agreements contemplated in connection with such LOI at the time of termination, the Company was under no obligation to return the monies to
Net Soft.  Since Net Soft did not receive either a license to use the Companys product or services related to the Companys product, in 2004 the Company recognized the $310,943 as other income in the statements of operations and eliminated the deferred revenue liability.

License Agreements

On March 12, 2003, the Company signed a license agreement with Wireless Services Corporation (WSC). WSCs Integrated Data eXchange platform provides data services and applications including SMS and Two-Way messaging for carriers supporting over 30 million subscribers worldwide. Under the terms of the license agreement, WSC can incorporate the ANTs Data Server into the Integrated Data eXchange platform.

On December 28, 2004, the Company signed a license agreement with Grupo S&C, Inc. (Grupo) a system integrator and application developer. Grupo has licensed the ANTs Data Server for use with two applications written and hosted by Grupo in its data center.

Item 2.  Description of Property.

The Companys headquarters are located at 801 Mahler Road, Suite G, Burlingame, California.  The Company now leases approximately 5000 square feet.  To accommodate expected growth, the Company anticipates that it will move into larger facilities, totaling 10,000-15,000 square feet, during the first half of 2005. The Company expects to incur costs associated with the move and anticipates that its rent will approximately triple.

Item 3.  Legal Proceedings.

The Company is not a party to any material pending legal proceeding and, to best of its knowledge, no such action by or against the Company has been threatened.

Item 4. Submission of Matters to a Vote of Security Holders.

There were no matters submitted to the Companys shareholders for a vote from October 1, 2004 to December 31, 2004.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

| | (a) | Price Range of Common Stock
| | --- | ---------------------------

The Companys common equity is traded on the Over-The-Counter Bulletin Board (OTCBB) under the symbol ANTS.

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The following is the range of high and low closing prices of the Companys stock, for the periods indicated below.  This information was obtained from Yahoo! Finance Historical Quotes, and can be found at the following Internet address: http://finance.yahoo.com/q/hp?s=ANTS.OB.

|                                 |  | High |      | Low |  
|-------------------------------- |  | ---- | ---- | --- | -
|                                 |  |      |      |     |  
|Quarter Ended December 31, 2004  |  | $    | 2.02 |     | $
|Quarter Ended September 30, 2004 |  |      | 2.17 |     |  
|Quarter Ended June 30, 2004      |  |      | 2.25 |     |  
|Quarter Ended March 31, 2004     |  |      | .80  |     |  
|Quarter Ended December 31, 2003  |  | $    | 1.40 |     | $
|Quarter Ended September 30, 2003 |  |      | 1.40 |     |  
|Quarter Ended June 30, 2003      |  |      | 1.20 |     |  
|Quarter Ended March 31, 2003     |  |      | 1.29 |     |  

The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.

As of February 23, 2005 there were 36,559,997 shares of common stock issued and outstanding and 8,001 holders of record of the Companys common stock.

| | (b) | Dividend Policy
| | --- | ---------------

The Company has not declared or paid cash dividends or made distributions in the past, and it does not anticipate that it will pay cash dividends or make distributions in the foreseeable future.

| | (c) | Recent Sales of Unregistered Securities
| | --- | ---------------------------------------

From November 12, 2004 through January 12, 2005, the Company sold to accredited investors, through a private offering, 2,123,000 F Units at a price of one dollar ($1.00) per F Unit, with each F 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 exercise price of two dollars ($2.00), exercisable until November 12, 2007. The gross proceeds from this offering were $2,123,000, of which $1,160,000 was received by December 31, 2004 and $963,000 was received in January 2005. The Company paid $90,350 in cash commissions and issued 63,181 F Units to the placement agent in January 2005 in connection with this private offering. The sales of these securities were made in reliance upon Rule 506 and Section 4(2) of the Securities
Act of 1933.

From February 1, 2005 through February 28, 2005, warrantholders exercised warrants for an aggregate of 1,987,782 shares of common stock of the Company. Gross proceeds from the exercises were $2,782,896. The Company paid $104,550 in cash commissions related to the warrant exercises to the placement agent in March 2005. The sales of these securities were made in reliance upon Rule 506 and Section 4(2) of the Securities Act of 1933.

Item 6. Managements Plan of Operation.

The Company is engaged in the development and marketing of the ANTs Data Server a software product that is intended to significantly improve the speed of applications connected to it. The Company anticipates that, if sufficiently funded, over the next twelve months its focus will be: marketing its first product, supporting customers, and research and development.

8



Technology Development

Over the next twelve months, assuming the Company is sufficiently funded, the Company intends to continue to improve and add functionality to the ANTs Data Server.  The Company has built out the basic functionality to the point where it believes that virtually all additional functionality will be driven by partner or customer demand.  The Company intends to actively engage prospective partners and customers in technical discussions to determine what features are and will be most in demand for the markets the Company is targeting.  The Company intends to mobilize its engineering resources around developing those features.

Marketing

In October 2003, the Company began marketing the first commercial version of the ANTs Data Server.  The Companys go-to-market strategies include:

| |  | Focus on industry segments where high-performance   applications demand a high-performance database.  Messaging will feature the high-performance, no compromise   value proposition.                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                      
| |  | Execute a compatible with, not a replacement of,   strategy for the leading RDBMSs such as: Oracle, IBMs DB2, and Microsofts   SQL Server, since the RDBMS market is mature and customers have substantial   investment in infrastructure, development, and support, in the leading RDBMS   vendors products.
| |   |                                                                                                                                                                                                                                                                                                                      
| |  | Sell the ANTs Data Server through three sales   channels;                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                      

Raising Capital

During 2004, the Company secured approximately $5.6 million in financing through three private offerings of Company securities and approximately $380,000 through exercises of stock options. To carry out its plan of operation, the Company anticipates that over the next twelve months it will require an additional $5 million. The Company will pursue a number of avenues to raise these additional operating funds: 1) in the past the Company has been successful in raising funds through private placements of its stock and anticipates that it will continue to raise funds through private placements, 2) as the Company develops close relationships with large partners, it will pursue strategic investments from those partners, and 3) the Company expects to begin generating revenue in 2005, and if successful, this will be a source of operating funds. The
Company is pursuing all three avenues, however, it believes, that due to an uncertain investment climate, securing additional investment will be difficult.

The majority of the Companys operating expenses and costs over the next twelve months are expected to be for and in connection with, marketing and selling the ANTs Data Server, continuing technical development, and supporting customers.  The Company currently has 22 full-time employees and two part-time employees. The Company views the recruitment of additional qualified sales, marketing, and technical personnel as essential to the further development and commercialization of its proprietary technologies.  The Company expects its personnel and other operating costs will increase moderately to substantially over current levels.

9



Operating Expenses

Operating expenses for the years ending December 31, 2004 and 2003 break out as follows:

|                           |  | Operating Expenses    Year Ended December 31, |      
|-------------------------- |  | ---------------------------------------------- | -----
|                           |  |                                                |      
|                           |  | 2004                                           |      
|                           |  |                                                |      
|                           |  | $ in 000s                                     |      
|                           |  |                                                |      
|Sales and marketing        |  | $                                              | 1,564
|Research and development   |  |                                                | 2,109
|General and administrative |  |                                                | 1,387
|                           |  |                                                |      
|Total operating   expenses |  | $                                              | 5,060
|                           |  |                                                |      

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of employee salaries and benefits, consultant fees, travel, marketing programs (trade shows, public relations, lead generation programs), marketing and sales literature and presentations and allocation of corporate overhead. Total marketing expenses increased by 154% from 2003 to 2004 as follows.

During 2004, there was a significant increase in sales and marketing expenses over the prior period ($948,000 or 154%), resulting primarily from: 1) a $505,000 increase in compensation and benefits expense related to an increase from one to seven sales and sales support personnel and fees paid to marketing consultants; 2) an increase of $155,000 in implementing marketing programs (trade shows, lead generation and public relations programs); 3) an increase of $135,000 in sales and marketing related travel; 4) an increase of $50,000 in recruiting expense related to the search for new sales personnel, and; 5) an increase of $103,000 in other sales and marketing expenses.

The Company expects that, if sufficiently funded, its marketing and sales expenses will continue to increase moderately to substantially as more marketing and sales staff are hired and more programs are implemented.

Research and Development Expenses

Research and development (R&D) expenses consist primarily of employee salaries and benefits, fees to consultants, depreciation on equipment and software, and allocation of corporate overhead. The overall increase in R&D expenses of $378,000 or 22%, was significantly lower than the increase in marketing expenses of 154%, reflecting the Companys shift in focus from pure R&D to marketing. The majority of the R&D efforts in 2004 were devoted to testing, and to refining the product in conjunction with feedback from potential customers.

During 2004, R&D compensation expense increased by $375,000 or 27%. Over the year, three new engineers were hired to support refinement and testing of the product.   Depreciation expense increased by $19,000 or 13%, as the Company purchased $182,000 of new equipment (primarily servers and air conditioning) to support the quality control testing.

The Company expects that, if sufficiently funded, its research and development expenses will increase moderately over the next twelve months as additional staff is recruited and additional hardware is purchased to add functionality to and test its product.

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General and Administrative Expenses

General and administrative expenses consist primarily of salaries and benefits, consultant fees, legal and investor relation fees, recruiting fees, facility rental and insurance. During 2004, the number of administrative personnel remained level at five people, despite a significant increase in the Companys overall activities.

Total expense increased by $185,000 or 15%.  The majority of the increase in 2004 arose from an increase of $105,000, or 50%, in legal and stock transfer agent fees, and an increase of $88,000, or 627%, in recruiting expense.  Legal and stock transfer agent fees were significantly higher in 2004 due to three private placement offerings as compared to one such offering in 2003.  Recruiting expense rose in 2004 from fees paid to an outside consultant to recruit the Companys current Chief Executive Officer.

The Company expects that, if sufficiently funded, its general and administrative expenses will increase moderately as the Company expands.

The majority of the Companys operating expenses and costs over the next twelve months are expected to be for, and related to, marketing, selling the ANTs Data Server, continuing technical development, and supporting customers.

Interest Expense

On or about August 15, 2003, the Company sold to two accredited investors, through a private offering, one convertible promissory note each, without interest, in principal face amount of $160,000 per note, each maturing on August 15, 2005, and each convertible at the option of the holder into shares of Common Stock of the Company, at a conversion price of $0.75 per share.  The Company had agreed to grant the holder of each note, upon conversion of the note, a warrant to purchase 213,333 shares of Common Stock of the Company at a per share price of $2.00, exercisable until March 31, 2006.  The stated conversion price of the notes was $0.75 per share; however, the Company had agreed to set the conversion price at $0.40 per share in the event an anticipated $5 million financing did not close shortly after the note financing, and, since the
intent of the agreement was for the conversion price to include one share of common stock and a warrant to purchase another share of common stock, the Company further agreed to increase the number of shares of Common Stock underlying each warrant to be granted upon conversion of the notes from 213,333 to 400,000. The $5 million financing did not close, and, accordingly, in July 2004, the Company entered into Amendment Agreements with each convertible promissory note holder, setting the conversion price at $0.40 per share and increasing the number of shares of Common Stock underlying the warrant to be granted upon conversion of each note from 213,333 to 400,000. Since, for accounting purposes, the active conversion price was $0.40 per share, the intrinsic value of the conversion option of $280,000 was recorded both in additional paid-in capital and as interest expense. A debt discount account in the amount of $50,662 was also recorded in additional paid-in capital, assuming the Companys market
rate of interest for this debt was 9%.

Interest expense related to the conversion option and interest-rate-related debt discounts totaled $285,973 and $13,839 in fiscal years 2004 and 2003, respectively.

On or about July 14, 2004, the noteholders elected to convert their convertible promissory notes. Pursuant to the terms of the notes, the company issued to each noteholder 400,000 shares of Common Stock of the Company and a warrant to purchase 400,000 shares of Common Stock of the Company at a per share exercise price of $2.00, exercisable until March 31, 2006.  In accordance with the guidance set out in Emerging Issues Task Force No. 98-5 (EITF 98-5), the Company charged the unamortized balance of $151,667 in the beneficial interest debt discount to interest expense when the notes were converted.  The unamortized balance of $30,851 in the interest-rate-related debt account was charged to additional paid-in capital upon conversion.

11



Income from Expired Contract

On or about August 22, 2003 the Company signed a Letter of Intent (LOI) with Net Soft Systems, Inc. of Vancouver, British Columbia, Canada (Net Soft). The LOI included the following terms:

| |  | Net Soft agreed to pay the Company $400,000   (non-refundable)                                                                                                                                                    
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company agreed to negotiate only with Net Soft   for the exclusive rights to sell and distribute the ANTs Data Server (the   Rights) in Poland, Russia, the Czech Republic, and the European Common   Market
| |  | The negotiation process would determine what   additional payments would be required of Net Soft to obtain the Rights                                                                                             
| |  | If by November 30th, 2003 terms of a deal   regarding the Rights had not been agreed to, the Company could negotiate the   Rights with any other entity.                                                          
| |  | The LOI itself contained no grant of Rights                                                                                                                                                                       

On November 30, 2003 the Company and Net Soft agreed to extend the LOI through January 31, 2004 and on January 31, 2004 further agreed to extend the LOI through March 31, 2004. On March 31, 2004, the LOI terminated and on that date, no future agreements between Net Soft and the Company were contemplated in connection with such LOI. As of March 31, 2004, the Company had received $310,943 of the $400,000 due pursuant to the LOI.  The remaining $89,057 was considered uncollectible.  In accordance with Generally Accepted Accounting Principles the Company did not consider the earnings process complete until collection was reasonably assured and all applicable revenue recognition conditions were met according to the Security and Exchange Commissions Staff Accounting Bulletin: No 104 -Revenue Recognition.  Therefore, the payments pursuant to the LOI were recorded in the financial statements prior to January 1, 2004 as deferred
revenue.  With the termination of the LOI and no future agreements contemplated in connection with such LOI at the time of termination, the Company was under no obligation to return the monies to Net Soft.  Since Net Soft did not receive either a license to use the Companys product or services related to the Companys product, in 2004 the Company recognized the $310,943 as other income in the statements of operations and eliminated the deferred revenue liability.

Off Balance Sheet Arrangements

During 2003, the Company entered into an operating lease for certain computer equipment used in the Companys development lab. The original lease obligation was $9,155 and is payable in monthly installments over a three-year period. The outstanding lease obligation is not reported on the balance sheet as title to the equipment remains with the lessor until the Company pays the total obligation and a buyout fee. On December 31, 2004 the outstanding obligation was $5,595. Should the Company default in its lease obligation, the lessor could choose to repossess the computer equipment. Should the lessor repossess, the Company believes it would not have a material effect on the Companys ability to maintain normal business operations.

Critical Accounting Policies

Use of Estimates - The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The company evaluates such estimates and assumptions on an ongoing basis and bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following represents its critical accounting policies:

| |  | Stock-based Compensation
| | - | ------------------------
| |  | Income Taxes            

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Stock-based Compensation  The Company uses the fair value recognition provisions of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation, to value stock options granted to employees and independent consultants. The values are derived from a model which requires historical assumptions and management judgment. Stock-based compensation for employees is disclosed in the pro-forma net loss statement in note 1 of the Companys annual financial statements. Stock-based compensation for independent consultants is expensed in the statement of operations.

Income Taxes  The carrying value of the Companys deferred tax assets are dependent upon the Companys ability to generate sufficient future taxable income in certain tax jurisdictions. Until such time as the Company establishes a taxable income in such jurisdictions, the total amount of the deferred tax assets shall be offset with a valuation allowance.

Recent Accounting Pronouncements- On December 17, 2003, the Staff of the Securities and Exchange Commission (SEC or the Staff) issued Staff Accounting Bulletin No. 104, Revenue Recognition, (SAB 104), which supersedes Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements(SAB 101).  SAB 104s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, which was effectively superseded as a result of the issuance of Emerging Issues Task Force Consensus No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables (EITF 00-21).  While the wording of SAB 104 has changed to reflect the issuance of EITF
00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104.  As the Company had no revenues during 2004 or 2003, SAB 104 had no effect on our financial position or operating results.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (Revised), Share-Based Payment (SFAS 123(R)).  SFAS 123(R) replaces SFAS 123 and supersedes APB 25.  SFAS 123(R) is effective as of the beginning of the first interim or annual reporting period that begins after December 15, 2005.  SFAS 123(R) requires that the costs resulting from all share-based payment transactions be recognized in the financial statements.  SFAS 123(R) applies to all awards granted after the required effective date and shall not apply to awards granted in periods before the required effective date, except if prior awards are modified, repurchased or cancelled after the effective date.  SFAS 123(R) also amends Statement of Financial Accounting Standards No. 95, Statement of Cash
Flows, to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid.

Notes Receivable from Officer

The Company entered into an agreement with a former officer, effective January 11, 2001, in which the Company agreed to forgive, on August 4, 2001 and on each year anniversary thereafter, $45,000 of the principal amount and all accrued interest on a loan made to the former officer in August 1999 in the original amount of $225,000. In August 2004 the Company forgave the final $45,000 of the loan balance pursuant to the terms of the agreement. There was no balance remaining on the note at December 31, 2004.

Capital and Liquidity Resources

The Company anticipates that if sufficiently funded, it will increase expenditures moderately to substantially over the next twelve months as it begins to actively market, sell and support the ANTs Data Server and hire additional sales, marketing, and technical personnel. The Companys cash balance as of March 7, 2004 was approximately $3.7 million which, it believes will be adequate to fund its activities through September 2005 at its expected rate of spending.  There can be no assurance that the Companys continued product development and infrastructure development will not require a much higher rate of spending. The Company will pursue a number of avenues to raise additional operating funds: 1) in the past the Company has been successful in raising funds through private placements of its stock and anticipates

13



that it will continue to raise funds through private placements, 2) as the Company develops close relationships with large partners, it will pursue strategic investments from those partners, and 3) the Company expects to begin generating revenue in 2005, and if successful, this will be a source of operating funds. The Company is pursuing all three avenues, however, it believes, that due to an uncertain investment climate, securing additional investment will be difficult.

Risk Factors Associated With The Companys Business and Future Operating Results

In addition to other information in this 10-KSB, the following risk factors should be carefully considered in evaluating the Companys business since it operates in a highly changing and complex business environment that involves numerous risks, some of which are beyond its control. The following discussion highlights a few of these risk factors, any one of which may have a significant adverse impact on the Companys business, operating results and financial condition.  As a result of the risk factors set forth below and elsewhere in this 10-KSB, and the risks discussed in the Companys other Securities and Exchange Commission filings, actual results could differ materially from those projected in any forward-looking statements.

A failure to obtain additional financing could prevent the Company from executing its business plan.  A failure to raise additional funding could prevent the Company from continuing its business after September 2005.  The Company anticipates that current cash resources will be sufficient to fund its operations only through September 2005 at its expected rate of spending.  The Company believes that, due to an uncertain investment climate, securing additional sources of financing to enable it to complete the development and commercialization of its proprietary technologies is uncertain and there is no assurance of its ability to secure such financing. A failure to obtain additional funding could prevent the Company from making expenditures that are needed to pay current obligations, allow it to hire additional
personnel, continue development of the technology or attract customers who are concerned about its ability to continue operations.  If the Company raises additional funds by selling equity securities, the relative equity ownership of its existing investors could be diluted or the new investors could obtain terms more favorable than previous investors. In the past, the Company has sold restricted shares of common stock in private offerings at a price discounted from that of the then current market price for freely tradable stock, which could increase this dilutive affect. If the Company raises additional funds through debt financing, it could incur significant borrowing costs.

If the Company is unable to protect its intellectual property, its competitive position would be adversely affected.  The Company relies on patent protection, as well as trademark and copyright law, trade secret protection and confidentiality agreements with its employees and others to protect its intellectual property.  Despite the Companys precautions, unauthorized third parties may copy its products and services or reverse engineer or obtain and use information that it regards as proprietary.  The Company has filed patent applications and intends to file more.  The Company has been granted two patents, however the Company does not know if the pending applications will be granted or whether it will be successful in prosecuting any future patents.  In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as do the laws of the United States.  The Companys means of protecting its proprietary rights may not be adequate and third parties may infringe or misappropriate its patents, copyrights, trademarks and similar proprietary rights.  If the Company fails to protect its intellectual property and proprietary rights, its business, financial condition and results of operations would suffer.  The Company believes that it does not infringe upon the proprietary rights of any third party, and no third party has asserted a patent infringement claim against it.  It is possible, however, that such a claim might be asserted successfully against the Company in the future.  In such an event, the Company may be forced to suspend its operations to pay significant amounts to defend its rights, and a substantial amount of the attention of its management may be diverted from its ongoing business, which can materially affect its
ability to attain and maintain profitability.

The Company focuses on the research and development of its proprietary technologies and the marketing of its first product. The Companys present focus is on the marketing and sales of its first product and on research and development of its proprietary technologies.  The Company believes that these technologies are the basis for highly marketable commercial products.  However, there can be no assurance

14



that a commercial market will develop in the future, and it is possible that the Companys proprietary technologies and products will have no commercial benefit or potential.  In addition, from the Companys inception to through December 31, 2004, it has not recognized any operating revenues.

The Company faces possible competition from large companies.  The Company operates in a highly competitive industry.  Although the Company believes that its technology is unique, can be protected, and, if adopted, will confer benefits that will be otherwise unavailable for some significant time, it faces very large competitors with greater resources who may adopt various strategies to block or slow its market penetration, thereby straining its more limited resources.  They may also seek to hinder the Companys operations through attempts to recruit key staff with exceptionally attractive terms of employment, including signing bonuses, or by offer of highly competitive terms to potential or newly acquired customers.

The Company depends on its key personnel and may have difficulty attracting and retaining the skilled staff it needs to execute its growth plans.  The Companys success will be dependent largely upon the personal efforts of its Chairman, Francis K. Ruotolo, Chief Executive Officer, Boyd Pearce and other senior managers.  The loss of key staff could have a material adverse effect on the Companys business and prospects.  To execute its plans, the Company will need to hire additional staff and retain current employees.  If sufficiently funded, the Company plans to increase its technical, marketing, and administrative personnel. Competition for highly skilled employees with technical, management, marketing, sales, product development and other specialized training is intense.  The Company may
not be successful in attracting or retaining such qualified personnel. Specifically, the Company may experience increased costs in order to attract and retain skilled employees.   If the Company is unable to hire, train and manage new skilled and experienced employees as needed, it would be unable to support its planned growth and future operations.

The Company faces rapid technological change.  The market for the Companys products and services is characterized by rapidly changing technologies, extensive research and the introduction of new products and services. The Company believes that its future success will depend in part upon its ability to continue to enhance its existing products and to develop, manufacture and market new products and services. As a result, the Company expects to continue to make a significant investment in engineering, research and development.  There can be no assurance that the Company will be able to develop and introduce new products and services or enhance its initial intended products and services in a timely manner to satisfy customer needs, achieve market acceptance or address technological changes in its target
markets. Failure to develop products and services and introduce them successfully and in a timely manner could adversely affect the Companys competitive position, financial condition and results of operations.

If growth occurs, The Company will need to manage it well.  The Company may experience substantial growth in the size of its staff and the scope of its operations, resulting in increased responsibilities for management.  To manage this possible growth effectively, the Company will need to continue to improve its operational, financial and management information systems and to hire, train, motivate and manage a growing number of staff.  Due to a competitive employment environment for qualified technical, marketing and sales personnel, the Company expects to experience difficulty in filling its needs for qualified personnel.  The Company expects that during the next six months, it will need to move into a larger office and there may be significant cost associated with the move and with improvements that may
be needed. There can be no assurance that the Company will be able to effectively achieve or manage any future growth, and its failure to do so could delay product development cycles and market penetration or otherwise have a material adverse effect on its financial condition and results of operations.

The Company could face information and product liability risks and may not have adequate insurance.  The Companys product may be used to manage data from critical business applications. The Company may become the subject of litigation alleging that its product was ineffective or disruptive in its treatment of data, or in the compilation, processing or manipulation of critical business information.  Thus, the Company may become the target of lawsuits from injured or disgruntled businesses or other users.  The Company does not presently carry product or information liability or errors and omissions insurance, and

15



although it intends to acquire such insurance prior to commencing substantial sales, such insurance may not be available in an acceptable or affordable form.  In the event that the Company is required to defend more than a few such actions, or in the event that it was found liable in connection with such an action, its business and operations would be severely and materially adversely affected.

The Company is dependent on new demand for its products and services.The success of the Companys business depends upon demand for and use of its technology, products and services in general and the demand for additional computing power, cost effectiveness and speed in particular.  The Companys product is new and the Company may encounter substantial market resistance.  In the event sufficient demand does not develop, the Companys business and results of operations would be materially adversely affected.  The Company believes that there appears to be increased demand for computing power, cost effectiveness and speed, but if general economic conditions decline or hardware and memory advances make such power, cost effectiveness and speed more readily available, then adoption, use and sales of the
Companys products and services may be materially adversely affected.

The Company will need to continue its product development efforts.The Company believes that its market will be characterized by increasing technical sophistication.  The Company also believes that its eventual success will depend on its ability to continue to provide increased and specialized technical expertise.  There is no assurance that the Company will not fall technologically behind competitors with greater resources.  Although the Company believes that it enjoys a significant lead in its product development and introduction, and is hopeful that its patents provide some protection, it will likely need significant additional capital in order to continue to enjoy such a technological lead over competitors with more resources.

Market acceptance of the Companys products and services is not guaranteed. The Company is at an early stage of development and its earnings will depend upon market acceptance and utilization of its intended products and services. Due to economic conditions potential customers have significantly tightened budgets for evaluating new products and technologies and the evaluation cycles are much longer than in the recent past. There can be no assurance that the Companys product and technology development efforts will result in new products and services, or that they will be successfully introduced.

Future profitability is not guaranteed.   The Company has not recognized any operating revenues as of December 31, 2004. There is no assurance that the Companys plans will be realized, that it will be able to generate revenues or that it will achieve profitability in the future.

Limited market for the Companys common stock.  The Companys common stock is not listed on any exchange and trades in the over-the-counter (the OTC) market.  As such, the market for the Companys common stock is limited and is not regulated by an exchange. Further, the price of the Companys common stock and its volume in the OTC market may be subject to wide fluctuations.

The Company has a long corporate existence and was inactive during much of its corporate history.   The Company was formed as the Sullivan Computer Corporation, incorporated in Delaware in January 1979.  The Company was privately owned until late 1986, at which time its common stock began trading in the over-the-counter market.  This trading was a result of the registration of the Companys common stock pursuant to the merger with CHoPP Computer Corporation, a British Columbia corporation.  During the period from mid-1987 through late 1999, the Company had few or no employees. The Companys operating activities were limited and were largely administered personally by its former Chairman. Due to the passage of time and the poor condition of financial and other records, there can be no assurance
that all matters which should have received attention during this period of inactivity have been addressed at this date.

The Company has indemnified its officers and directors.  The Company has indemnified its Officers and Directors against, and has limited their exposure to, possible monetary liability, all to the maximum extent permitted under Delaware law.

16



Limitation on ability for control through proxy contest.  The Companys Bylaws provide for a Board of Directors to be elected in three classes.  This classified Board may make it more difficult for a potential acquirer to gain control of the Company by using a proxy contest, since the acquirer would only be able to elect two or three directors, of the seven directors currently serving, at each shareholders meeting held for that purpose.

Item 7. Financial Statements.

See the Financial Statements annexed hereto.

Item 8.  Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

None

Item 8A. Controls and Procedures

The effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) was evaluated under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this annual report. Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are effective in providing reasonable assurance that the information required to be disclosed in this annual report is recorded, processed, summarized and reported within the time period required for the filing of this annual report.

There was no change in the Companys internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended) identified in connection with the evaluation of the Companys internal control performed during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.

Item 8B. Other Information

None

PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act.

The following table sets forth information with respect to the Companys current executive officers, principal employees, consultants and directors.

|Name               |  | Age |  | Position                                                                    
|------------------ |  | --- |  | ----------------------------------------------------------------------------
|                   |  |     |  |                                                                             
|Francis K. Ruotolo |  | 67  |  | Chairman, Class 3 Director, term expires in 2006                            
|                   |  |     |  |                                                                             
|Boyd Pearce        |  | 60  |  | President, Chief Executive Officer, Class 1   Director, term expires in 2007
|                   |  |     |  |                                                                             
|Homer G. Dunn      |  | 64  |  | Class 2 Director, term expires in 2005                                      
|                   |  |     |  |                                                                             
|John R. Gaulding   |  | 59  |  | Class 3 Director, term expires in 2006                                      
|                   |  |     |  |                                                                             
|Thomas Holt        |  | 59  |  | Class 1 Director, term expires in 2007                                      

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|Robert Henry Kite       |  | 50 |  | Class 2 Director, term expires in 2005                                                        
|----------------------- |  | -- |  | ----------------------------------------------------------------------------------------------
|                        |  |    |  |                                                                                               
|Richard LaBarbera       |  | 56 |  | Class 1 Director, term expires in 2007                                                        
|                        |  |    |  |                                                                                               
|Clifford Hersh          |  | 57 |  | Managing Director and Chief Scientist                                                         
|                        |  |    |  |                                                                                               
|Kenneth Ruotolo.        |  | 44 |  | Chief Financial Officer, Executive Vice President,   Finance and Administration, and Secretary
|                        |  |    |  |                                                                                               
|Jeffrey R. Spirn, Ph.D. |  | 56 |  | Vice President, Research and Development                                                      
|                        |  |    |  |                                                                                               
|Girish Mundada.         |  | 37 |  | Vice President, Engineering                                                                   

Francis K. Ruotolo, Age 67

Francis Ruotolo is Chairman of the Board of the Company.  Mr. Ruotolo became Chairman of the Board, Chief Executive Officer and President in January 2001.  Prior to that time, he was a member of the Board of Advisors.  Most recently, he was a director in the consulting practice of Deloitte & Touche.  Prior to working at Deloitte Consulting Mr. Ruotolo was CEO of The Futures Group, a long term strategic planning consultancy whose clients included: IBM, American Airlines, Monsanto, Ford Motor Co., Pfizer, and numerous departments of the federal government.  Mr. Ruotolo was Senior Vice President of Macys California for seven years and held the same position at Lord & Taylor in New York.  Mr. Ruotolo holds a BA degree in English/Journalism from Northeastern University, Boston, MA.  Mr. Ruotolo resigned
as President of the Company in March 2003 and resigned as the Companys Chief Executive Officer effective January 31, 2005.  Mr. Ruotolo is the father of the Corporate Secretary and CFO, Kenneth Ruotolo.

Boyd Pearce, Age 60

Boyd Pearce joined the Companys Board of directors in January 2005.  Mr. Pearce also serves as the Companys President and Chief Executive Officer.  Prior to joining the Company in October 2004, Mr. Pearce was an Independent Consultant from October 2002 through October 2004; Chief Sales and Marketing Officer at CoVia from October 2001 through September 2002; CEO of eSOLD.com from March-September 2001; VP and General Manager USA, Hitachi Data Systems from March 1999 through February 2001.  Mr. Pearce completed a Bachelor of Arts from the University of Kansas in 1967, majoring in Chemistry and Mathematics.  He has also attended executive management programs at Harvard, Dartmouth and Penn State Universities.  Mr. Pearce resigned as the Companys Chief Operating Officer effective February 1, 2005.

Homer G. Dunn, Age 64

Homer G. Dunn joined the Companys Board of Directors in January 2001. Mr. Dunn has almost 35 years of business experience encompassing sales, marketing, product management, and consulting.  At present, he is Chairman and Founder of Evant Inc. (previously NONSTOP Solutions), a leading provider of demand chain optimization technology, information and services solutions to manufacturers, wholesale distributors and retailers.

John R. Gaulding, Age 59

John R. Gaulding joined the Companys Board of Directors in January 2001.  Mr. Gaulding is a private investor and consultant in the fields of strategy and organization. He is an independent director and serves on the audit and compensation committees of Monster Worldwide, Inc. Mr. Gaulding also serves on the board of Yellow Pages Group, Inc., a publicly held company listed on the Toronto Stock Exchange, where he is chairman of the Nominating and Governance Committee. Most recently, Mr. Gaulding served as a Senior Advisor to Deloitte Consulting specializing in e-Business strategy with responsibility for advising such clients as Hewlett Packard, 3Com, Bergen Brunswig, Longs Drugstores, SCE, and PG&E. From 1990-1996, Mr. Gaulding served as President and CEO of ADPs Claims Solutions Group where he

18



was also a member of the Corporate Executive Committee.  From 1983-1985 Mr. Gaulding was Corporate Vice President, Strategy and Development, also serving on the Corporate Executive Committee of Pacific Telesis, Inc. From 1985-1990 Mr. Gaulding was President and CEO of Pacific Bell Directory, the yellow pages publishing unit of Pacific Telesis, Inc.

Thomas Holt, Age 59

Thomas Holt joined the Companys Board of Directors in November 2000. Mr. Holt is currently Vice President IT Architecture and Strategy for Lucents Services organization.  Mr. Holt was VP of Information Services and Chief Information Officer at International Network Services (INS) from May 1997 before its merger with Lucent.  He has also acted as VP of MIS and CIO at Informix and held senior positions at Motorola after starting his career with IBM.

Robert Henry Kite, Age 50

Mr. Kite joined the Companys Board of directors in January 2005.  Since 1981, Mr. Kite has been President and C.O.O. of Kite Family Co., Inc. and the Managing General Partner of KFT LLLP, a family owned company whose assets and operations include, but are not limited to, commercial and industrial buildings, land holdings, stocks, bonds, commodities, MRI clinics, hotel and retail development.  Mr. Kite currently is a member of the Board of Directors of National Energy Group, a publicly traded oil and gas company in Dallas TX; and Locate Plus, a publicly traded internet-accessible database of public information in Boston, Massachusetts.  Mr. Kite is also a director of E2020, a privately held internet education company in Scottsdale, AZ, Financialz, a privately held accounting software company in Tempe, AZ, and Child Help USA, a
charitable organization.  Mr. Kite graduated from Southern Methodist University (SMU) in 1977, with Bachelor of Science, Political Science and Psychology Minor in Business.

Richard LaBarbera, Age 56

Richard LaBarbera joined the Companys Board of directors in November 2004.  Mr. LaBarbera currently serves as an advisor and executive consultant to numerous technology companies including Xinify, Value Stream Group, Front Range Solutions and Echopass.  Previously Mr. LaBarbera was president of Niku Corporation, a leading provider of IT management and governance solutions and winner of the Gartner Best Vendor award for excellence in Project Portfolio Management.  Mr. LaBarbera served as Sybases senior vice president and general manager for its enterprise solutions division, with direct responsibility for product development, worldwide sales, support, education and global professional services functions.  Prior to Niku, Mr. LaBarbera held positions at IBM, Storage Technology, Siemens/Siemens Pyramid and
Amdahl where he served as vice president, worldwide services with responsibility for support, education and consulting services.  Mr. LaBarbera holds an MBA from Georgia State University.

Clifford Hersh, Age 57 Managing Director and Chief Scientist

Mr. Hersh joined the Company in March 1997.  Previously, he was a founder and Chief Executive Officer of Move Resources, Inc.   He was also Vice President of Engineering for Array Technologies, Inc. and Director of Advanced Development at Genigraphics Corporation.  Mr. Hersh received a bachelor degree in mathematics from the University of California at Berkeley, and a Master of Science degree in engineering from the Federal Institute of Technology, Zurich, Switzerland.

Kenneth Ruotolo, Age 44 Chief Financial Officer, Executive Vice President, Finance and Administration, and Secretary

Mr. Ruotolo joined the Company in June 2001. Before joining the Company, Mr. Ruotolo was a founder and served as Vice President of Finance and Operations for eStar, Inc. a content developer and syndicator. Prior to eStar, Mr. Ruotolo was a partner for twelve years with era2, an interactive design and internet consulting agency. Mr. Ruotolo holds a B.A. degree in Economics from the University of California at Davis and an M.B.A. from Northeastern University.

19



Jeffrey R. Spirn, Ph.D., Age 56 Vice President, Research and Development

Dr. Spirn joined ANTs software inc. March 2000, and became Director of Engineering in February 2001 and was promoted to Vice President of Research and Development in September 2001. Before joining ANTs, Dr. Spirn was a software architect at Oracle, where he worked on application server, naming, and multithreading issues. Prior to that, Dr. Spirn worked for Sun Microsystems and in the HP and DEC research labs. Before his industrial career, Dr. Spirn was a Computer Science Professor at Brown and Penn State Universities, and held visiting positions at Bell Laboratories and the University of Hawaii. During this period, he published one book and many technical articles on network and operating system design and performance modeling. Dr. Spirn holds a Ph.D. in Electrical Engineering/Computer Science from Princeton University, and a B.S. in Electrical
Engineering from M.I.T.

Girish Mundada, Age 37 Vice President, Engineering

Mr. Mundada joined the Company in September 2001.  Prior to joining ANTs, he was a Senior Vice President and General Manager at NetSol International. Mr. Mundada has also held positions at Informix Corporation, including those in development, management and senior management.  Mr. Mundada completed a bachelor degree in Computer Science from the University of Pune, India, and obtained an MBA from the University of California at Berkeley.

Board of Directors

The Companys Bylaws provide that the Board of Directors is divided into three classes, each nearly as equal in number as possible, so that each director will serve for three years, with one class of directors being elected each year. The Board is currently comprised of three Class 1 Directors, two Class 2 Directors and two Class 3 Directors.  The terms of the Class 1, Class 2 and Class 3 Directors expire at the end of each respective three-year term and upon the election and qualification of successor directors at annual meetings of stockholders held at the end of each fiscal year.  The term of the present Class 2 Directors ends at the annual meeting of the stockholders for the year ending December 31, 2004.

Board Committees

The Company has an Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, which consists of Thomas Holt and John R. Gaulding.  John R. Gaulding is the chairperson of the committee.  This committee, among other things, reviews the annual audit with the Companys independent accountants.  In addition, the audit committee has the sole authority and responsibility to select, evaluate, and, where appropriate, replace the independent auditors or nominate the independent auditors for shareholder approval.  The Companys Board of Directors has determined that the Company has at least one audit committee financial expert on its Audit Committee.  Mr. John Gaulding, the audit committee financial expert, is independent as that term is used in Item 7(d)(3)(iv) of Schedule
14A under the Securities Exchange Act of 1934.

The Company also has a Compensation Committee, which was formed in June 2001 and consists of Homer G. Dunn and John R. Gaulding.  This committee, among other things, reviews the compensation policies applicable to the Companys senior officers.

Compliance with Section 16(a) of the Exchange Act of 1934

To the best of the Companys knowledge, all the Companys officers, directors and 10% shareholders timely filed the reports required to be filed under Section 16(a) of the Securities Exchange Act of 1934, as amended, during the fiscal year ended December 31, 2004, with one exception.

20



Code of Ethics

The Company has adopted a Code of Ethics that applies to the Companys employees, directors and officers, including the Companys principal executive officer, principal financial officer, controller and persons deemed to be performing similar critical financial and accounting functions. Our Code of Ethics is posted on our website at www.ants.com/coe.pdf

Item 10.  Executive Compensation

Summary Compensation Table

This Table sets forth the annual compensation for the three most recent completed fiscal years of the named executive officers that were serving as executive officers during the last completed fiscal year or at the end of the last completed fiscal year.

|                                                                                                                |  | Annual   compensation |      | Long term   compensation |        
|--------------------------------------------------------------------------------------------------------------- |  | --------------------- | ---- | ------------------------ | -------
|                                                                                                                |  |                       |      |                          |        
|                                                                                                                |  |                       |      |                          |        
|                                                                                                                |  |                       |      |                          |        
|Name and principal position                                                                                     |  | Year                  |      | Salary                   |        
|                                                                                                                |  |                       |      |                          |        
|Francis K. Ruotolo (3) Chairman of the board                                                                    |  |                       | 2004 |                          | $      
|                                                                                                                |  | 2003                  |      | $                        | 183,333
|                                                                                                                |  | 2002                  |      | $                        | 194,950
|Boyd Pearce (2) Chief Executive Officer and Director                                                            |  |                       | 2004 |                          | $      
|                                                                                                                |  | 2003                  |      |                          |        
|                                                                                                                |  | 2002                  |      |                          |        
|Clifford Hersh Managing Director and Chief Scientist                                                            |  |                       | 2004 |                          | $      
|                                                                                                                |  | 2003                  |      | $                        | 110,000
|                                                                                                                |  | 2002                  |      | $                        | 128,683
|Kenneth Ruotolo Secretary, Chief Financial Officer   and Executive Vice President of Finance and Administration |  |                       | 2004 |                          | $      
|                                                                                                                |  | 2003                  |      | $                        | 108,333
|                                                                                                                |  | 2002                  |      | $                        | 118,389
|                                                                                                                |  |                       |      |                          |        
|                                                                                                                |  |                       |      |                          |        
|                                                                                                                |  |                       |      |                          |        
|Jeffrey   Spirn Vice President, Research and Development                                                        |  |                       | 2004 |                          |        
|                                                                                                                |  | 2003                  |      | $                        | 87,500 
|                                                                                                                |  | 2002                  |      | $                        | 104,883
|Girish   Mundada Vice President, Engineering                                                                    |  |                       | 2004 |                          | $      
|                                                                                                                |  | 2003                  |      | $                        | 124,323
|                                                                                                                |  | 2002                  |      | $                        | 135,379

21



|   
|---
|(1)
|(2)
|(3)

Option/SAR grants in the Last Fiscal Year

The following table sets forth certain information concerning grants of options and warrants to purchase shares of Common Stock of the Company made during the last completed fiscal year to the executive officers named in the Summary Compensation Table.

|Name               |  | Number of   securities   underlying   options/ SARs   granted |         | Percent of   total   options/ SARs   granted to employees   in fiscal year (1
) |  | Per share   exercise price   (2
) |  | Expiration   date |     
|------------------ |  | ------------------------------------------------------------- | ------- | ------------------------------------------------------------------------------- |  | --------------------------------- |  | ----------------- | ----
|                   |  |                                                               |         |                                                                                 |  |                                   |  |                   |     
|Francis K. Ruotolo |  |                                                               | 20,000  |                                                                                 |  | 1.03                              |  | $                 | 0.81
|Boyd Pearce        |  |                                                               | 750,000 |                                                                                 |  | 38.76                             |  | $                 | 1.45
|Clifford Hersh     |  |                                                               | 20,000  |                                                                                 |  | 1.03                              |  | $                 | 0.81
|Kenneth Ruotolo    |  |                                                               | 20,000  |                                                                                 |  | 1.03                              |  | $                 | 0.81
|Kenneth Ruotolo    |  |                                                               | 110,000 |                                                                                 |  | 5.68                              |  | $                 | 1.22
|Jeffrey Spirn      |  |                                                               | 20,000  |                                                                                 |  | 1.03                              |  | $                 | 0.81
|Girish Mundada     |  |                                                               | 20,000  |                                                                                 |  | 1.03                              |  | $                 | 0.81
|Girish Mundada     |  |                                                               | 110,000 |                                                                                 |  | 5.68                              |  | $                 | 1.60

|   
|---
|(1)
|(2)

Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values

The following table sets forth information concerning the exercise of options and warrants during 2004 and the number and value of shares of common stock underlying unexercised options and warrants held by the named executive officers as of December 31, 2004.  The table sets forth the aggregate dollar value realized upon the exercise of stock options and warrants during the last fiscal year, which is calculated by multiplying (i) the number of shares exercised by (ii) the fair market value of the Companys common stock on the date of exercise, as determined by the closing price of its common stock as traded on the Over-The-Counter Bulletin Board, less the exercise price paid for the shares.  The value of unexercised in-the-money options and warrants is calculated by multiplying the number of shares underlying each exercisable
option and warrant by the positive spread between its exercise price and $2.00 (which was the fair market value of the Companys common stock as of December 30, 2004).

22



Aggregated Option/Warrant Exercises in 2004 and Fiscal Year-End Option/Warrant Values

|                   |  | Shares   Acquired   On   Exercise   (#) |   | Value   Realized($) |  | Number of Securities   Underlying Unexercised Options   & Warrants at Year-End(#) |  | Value of Unexercised   In-the-Money Options &   Warrants at Year-End($) |          
|------------------ |  | --------------------------------------- | - | ------------------- |  | --------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------- | ---------
|                   |  |                                         |   |                     |  |                                                                                   | 
|Name               |  |                                         |   | Exercisable         |  | Unexercisable                                                                     |  | Exercisable                                                             |          
|                   |  |                                         |   |                     |  |                                                                                   |  |                                                                         |          
|Francis K. Ruotolo |  |                                         |  |                     |  |                                                                                  |  |                                                                         | 1,047,500
|Boyd Pearce        |  |                                         |  |                     |  |                                                                                  |  |                                                                         | 755,000  
|Kenneth Ruotolo    |  |                                         |  |                     |  |                                                                                  |  |                                                                         | 434,000  
|Clifford Hersh .   |  |                                         |  |                     |  |                                                                                  |  |                                                                         | 304,000  
|Jeff Spirn         |  |                                         |  |                     |  |                                                                                  |  |                                                                         | 250,000  
|Girish Mundada     |  |                                         |  |                     |  |                                                                                  |  |                                                                         | 450,000  

Director Compensation

Directors who are employees of the Company do not receive any compensation for service on the Board.  The Company does not currently pay any cash compensation to non-employee directors.  The Company generally grants options to purchase up to 125,000 shares of Common Stock to its non-employee directors, subject to a two-year vesting schedule. The Company granted options to purchase 35,000 shares of Common Stock each to its continuing non-employee directors Mr. Dunn, Mr. Gaulding and Mr. Holt and 125,000 shares of Common Stock to it new non-employee director, Mr. LaBarbera during the fiscal year ended December 31, 2004.

Separation Agreements

On January 8, 2001, the Company entered into a Separation Agreement with Mr. Francis K. Ruotolo pursuant to which it agreed to pay Mr. Ruotolo his salary for a period of six months following the termination of his employment in the event Mr. Ruotolo terminates his employment for Good Cause or in the event the Company terminates Mr. Ruotolos employment without Cause.  The Company also agreed to continue to pay Mr. Ruotolo his salary for a period of 24 months in the event of a Corporate Transaction (a merger or acquisition in which it is not the surviving entity, the sale of all or substantially all of its assets, or any reverse merger in which it remains the surviving entity) where the consideration received by it is less than five dollars ($5.00) per share on a full dilution and full conversion basis and where the successor company
does not offer Mr. Ruotolo a position of similar title, office and responsibilities and equal salary, to the position held and salary received by Mr. Ruotolo with the Company immediately prior to such Corporate Transaction.   Under this Agreement Good Cause is defined as (i) a decrease in Mr. Ruotolos compensation of greater than twenty-five percent (25%) of his compensation (x) immediately prior to such decrease or (y) in the aggregate over a period not exceeding two years (not including any decrease in compensation that is applied to each of the Companys executive officers equally), (ii) a material change in Mr. Ruotolos corporate position, title or responsibilities, or (iii) the relocation of its principal offices more than 80 miles from their present location without Mr. Ruotolos consent.  Termination of Mr. Ruotolos employment is deemed to be for Cause in the event that Mr. Ruotolo (i) violates any material provisions of the Letter
Agreement by which he was employed, the Separation Agreement or the Companys standard form of Proprietary Information and Inventions Agreement, (ii) is charged with or indicted for a felony, any criminal act other than minor traffic violations, or (iii) commits any act of willful misconduct, gross negligence, or dereliction of his duties under the Separation Agreement. The Company and Mr. Ruotolo mutually agreed to terminate this Separation Agreement, effective as of January 31, 2005.

On January 14, 2004, the Company entered into a Separation and Settlement Agreement and Full Release of All Claims with Mr. Gary Ebersole in connection with Mr. Ebersoles resignation as President, Chief Operating Officer, officer and a director and agent of the Company.  Each party agreed to release the other of all claims and the Company agreed to (i) waive its rights under Section 14 (non-compete provision) of the Employment Agreement entered into between the parties on or about March 24, 2003 and (ii) pay Mr. Ebersole Forty-nine Thousand, Seven Hundred and Fifty dollars ($49,750).  Such amount is equal to Mr. Ebersoles deferred salary, which had been accruing since June 1, 2003.

23



Item 11.  Security Ownership of Certain Beneficial Owners Management and Related Stockholder Matters.

Security Ownership by Beneficial Owners

The following table sets forth, as of February 23, 2005, information regarding ownership of the Companys common stock by any person or entity, known by the Company to be the beneficial owner of more than five percent of the outstanding shares of common stock.  The percentages are calculated on the basis of the number of outstanding shares of common stock on February 23, 2005 which was 36,559,997 plus, for each person, any securities that person has the right to acquire within 60 days following February 23, 2005 pursuant to options or warrants.

|Name and Address of Beneficial Owner  |  | Amount and   Nature   of Beneficial   Ownership |           | Percent of   Class | 
|------------------------------------- |  | ----------------------------------------------- | --------- | ------------------ | 
|                                      |  |                                                 |           |                    | 
|Donald R. Hutton, 10995 Boas Road     |  |                                                 |           |                    | 
|Sidney, B. C. Canada V8L 5J1          |  |                                                 | 3,502,500 | (1)                | 
|Alison B. Hicks, 10995 Boas Road      |  |                                                 |           |                    | 
|Sidney, B. C. Canada V8L 5J1          |  |                                                 | 3,502,500 | (2)                | 
|Whistler Design, 94 Dowdeswell Street |  |                                                 |           |                    | 
|Box N-75-71, Nassau                   |  |                                                 | 2,502,500 |                    | 
|Perry Logan, PO Box 30370,            |  |                                                 |           |                    | 
|Las Vegas, NV    89173-370            |  |                                                 | 3,285,000 | (3)                | 

|   
|---
|(1)
|   
|(2)
|   
|(3)

Security Ownership by Directors and Executive Officers

The following table sets forth certain information regarding the beneficial ownership of the shares of Common Stock as of February 23, 2005, by each of the Companys directors and executive officers.  The table also shows the beneficial ownership of the Companys stock by all directors and executive officers as a group.  The table includes the number of shares subject to outstanding options and warrants to purchase shares of Common Stock.  The percentages are calculated on the basis of the amount of outstanding shares of Common Stock on February 23, 2005 which was 36,559,997 plus, for each person, any securities that the person has the right to acquire within 60 days following February 23, 2005, pursuant to options or warrants.

24



|Name and Address of Beneficial Owner (1)         |  | Shares of    Common   Stock   Beneficially   Owned |           | Percent   of Class | 
|------------------------------------------------ |  | -------------------------------------------------- | --------- | ------------------ | 
|                                                 |  |                                                    |           |                    | 
|Directors and Nominees for Director              |  |                                                    |           |                    | 
|Francis K. Ruotolo                               |  |                                                    | 1,067,500 | (2)                | 
|Boyd Pearce                                      |  |                                                    | 760,000   | (3)                | 
|Homer G. Dunn                                    |  |                                                    | 125,000   | (4)                | 
|John R. Gaulding                                 |  |                                                    | 125,000   | (5)                | 
|Thomas Holt                                      |  |                                                    | 125,000   | (6)                | 
|Robert Henry Kite                                |  |                                                    | 625,000   | (7)                | 
|Richard LaBarbera                                |  |                                                    | 125,000   | (8)                | 
|Executive Officers                               |  |                                                    |           |                    | 
|Clifford Hersh                                   |  |                                                    | 566,000   | (9)                | 
|Kenneth Ruotolo                                  |  |                                                    | 439,000   | (10)               | 
|Jeffrey Spirn                                    |  |                                                    | 290,000   | (11)               | 
|Girish Mundada                                   |  |                                                    | 450,000   | (12)               | 
|                                                 |  |                                                    |           |                    | 
|11 directors and   executive officers as a group |  |                                                    | 4,735,500 |                    | 

|   
|---
|   
|(1)
|   
|(2)
|   
|(3)
|   
|(4)

25



|(5)  | Includes Options to purchase up to 125,000 shares of   Common Stock. Pursuant to his Option agreements, Mr. Gaulding can acquire   125,000 shares of Common Stock in the next 60 days. The address of Mr.   Gaulding is: 115 Margarita Dr., San Rafael, CA 94901.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(6)  | Includes Options to purchase up to 125,000 shares of   Common Stock. Pursuant to his Option agreements, Mr. Holt can acquire 125,000   shares of Common Stock in the next 60 days. The address of Mr. Holt is: c/o   Lucent Technologies, 600 Mountain Ave, Murray Hill, NJ  07059.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(7)  | Includes 250,000 shares of Common Stock purchased through   a private offering, approved by the Companys board of directors and directed   to certain accredited investors, Warrants to purchase 250,000 shares of   Common Stock, and an Option to purchase up to 125,000 shares of Common Stock.   Pursuant to his Warrant agreements, Mr. Kite can acquire 250,000 shares of   Common Stock. Pursuant to his Option agreement, Mr. Kite can acquire 125,000   unvested shares of Common Stock in the next 60 days, however purchase of   unvested shares would be subject to the Companys right to repurchase. On   February 28, 2005, Mr. Kite exercised warrants to purchase 125,000 shares of   Common Stock. The address of Mr. Kite is, 6910 East Fifth Avenue Scottsdale,   Arizona 85251.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(8)  | Includes an Option to purchase up to 125,000 shares   of Common Stock. Pursuant to his Option agreement, Mr. LaBarbera can acquire   125,000 unvested shares of Common Stock in the next 60 days, however purchase   of unvested shares would be subject to the Companys right to repurchase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(9)  | Includes 262,000 shares of Common Stock owned as a   result of a warrant exercise during 2003 and includes Options to purchase up   to 304,000 shares of Common Stock. Pursuant to his Option agreements, Mr.   Hersh can acquire up to 304,000 shares of Common Stock in the next 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(10) | Includes 5,000 shares of Common Stock purchased   through a private offering, approved by the Companys board of directors and   directed to certain accredited investors, a Warrant to purchase up to 5,000   shares of Common Stock, and Options to purchase up to 434,000 shares of   Common Stock. Pursuant to his Warrant agreement, Mr. Ruotolo can acquire   5,000 shares of Common Stock and pursuant to his Option agreements, Mr.   Ruotolo can acquire 339,304 fully vested shares and 94,696 unvested shares of   Common Stock in the next 60 days, however purchase of unvested shares would   be subject to the Companys right to repurchase.                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(11) | Includes 40,000 shares of Common Stock purchased   through a private offering, approved by the Companys board of directors and   directed to certain accredited investors, a Warrant to purchase 40,000 shares   of Common Stock, a Warrant to purchase 50,000 shares of Common Stock and   Options to purchase up to 160,000 shares of Common Stock. Pursuant to his   Warrant agreements, Mr. Spirn can acquire up to 90,000 shares of Common Stock   in the next 60 days and pursuant to his Option agreements, Mr. Spirn can   acquire up to 160,000 shares of Common Stock in the next 60 days. On February   25, 2005, Mr. Spirn exercised a warrant to purchase 40,000 shares of Common   Stock.                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(12) | Includes Options to purchase up to 450,000 shares of   Common Stock. Pursuant to his Option agreements, Mr. Mundada can acquire   361,414 fully vested shares and 88,586 unvested shares of Common Stock in the   next 60 days, however purchase of unvested shares would be subject to the   Companys right to repurchase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

26



Securities authorized for issuance under equity compensation plans as of December 31, 2004.

|Plan category                                                |  | Number of   securities to be   issued upon exercise of   outstanding options,   warrants, and rights |           | Weighted   average exercise   price of outstanding options,   warrants and rights |   | Number of   securities   remaining available for   issuance | 
|------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------- | --------- | --------------------------------------------------------------------------------- | - | ----------------------------------------------------------- | 
|                                                             |  |                                                                                                      |           |                                                                                   |   |                                                             | 
|Equity compensation plans   Approved by security holders     |  |                                                                                                      | 4,969,448 |                                                                                   | $ | 1.93                                                        | 
|Equity compensation plans not   Approved by security holders |  |                                                                                                      | 139,606   |                                                                                   | $ | 5.79                                                        | 
|                                                             |  |                                                                                                      |           |                                                                                   |   |                                                             | 
|Total                                                        |  |                                                                                                      | 5,109,054 |                                                                                   |   |                                                             | 

Item 12.  Certain Relationships and Related Transactions.

On January 11, 2001, the Company entered into an agreement with Mr. Frederick D. Pettit, its former President and Chief Executive Officer, 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 in the original amount of $225,000 and the Company agreed to pay Mr. Pettit the sum of $300,000, payable $75,000 per year for four (4) years on August 4 of each year. In August 2004 the Company forgave the final $45,000 of the loan balance pursuant to the terms of the agreement. There was no balance remaining on the note at December 31, 2004.

Item 13.  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-QSB filed on August   14, 2003, is hereby incorporated by reference.                                                         
|    | 3.2      | Amended and Restated Bylaws of the Company, as   listed in Exhibit 3.2 to the Companys 10-KSB filed on March 22, 2001, are   hereby incorporated by reference.                                                                               
|    | 10.1     | 2000 Stock Option Plan of the Company, as amended,   attached as Exhibit 4 to the Companys Form S-8 filed on May 23, 2003, 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.         

27



| | 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, as listed in Exhibit 10.10 to the Companys   10-QSB filed on May 8, 2003, is hereby incorporated by reference.                                                                              
| | 10.11 | Separation and Settlement Agreement and Full Release   of All Claims dated January 14, 2004, between the Company and Gary Ebersole,   as listed in Exhibit 10.11 to the Companys 10-KSB filed on March 30, 2004,   is hereby incorporated by reference.                         
| | 23.1  | Letter of Consent from Auditor Burr, Pilger &   Mayer, LLP.                                                                                                                                                                                                                      
| | 31.1  | Certification of the Chief Executive Officer   required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as   amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                             
| | 31.2  | Certification of the Chief Financial Officer required   by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as   adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                             
| | 32.1  | Certification of the Chief Executive Officer   pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the   Sarbanes-Oxley Act of 2002                                                                                                                         
| | 32.2  | Certification of the Chief Financial Officer   pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the   Sarbanes-Oxley Act of 2002                                                                                                                         

(b)        Reports on Form 8-K

The Company filed the following reports on Form 8-K during the period starting October 1, 2004 through December 31, 2004: On October 20, 2004 the Company announced the appointment of Boyd Pearce as President and Chief Operating Officer; on November 1, 2004 the Company disclosed agreements with the Companys officers in which the officers agreed to a salary reduction and became eligible for a bonus, in the amount of the accrued reduced salary, contingent on the Company raising a certain amount of financing; on November 2, 2004 the Company announced that Mr. Girish Mundada, the Companys Vice President of Engineering had been appointed an officer of the Company; and on November 15, 2004 the Company announced that Mr. Richard LaBarbera had been appointed a member of the Companys Board of Directors.

Item 14. Principal Accountant Fees and Services

Auditors Fees

The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the Companys annual financial statements and review of financial statements included in its quarterly reports or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are as follows:

For the fiscal year ended December 31, 2003: $33,000 Expected billing for the fiscal year ended December 31, 2004: $34,500

28



Audit-Related Fees

Audit-Related Fees include review of interim financial statements, Form 10-QSB and related financial information. The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the Companys financial statements and are not reported above under Audit Fees are as follows:

For the fiscal year ended December 31, 2003: $14,390 For the fiscal year ended December 31, 2004: $16,995

Tax Fees

Tax Fees include preparation of Federal and State income tax returns for fiscal years ended December 31, 2003 and 2004. The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are as follows:

For the fiscal year ending December 31, 2003: $7,750 Expected billing for the fiscal year ending December 31, 2004: $8,350

All Other Fees

All Other Fees include research, consultation and discussions related to various accounting and tax issues. The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported above under Audit Fees, Audit Related Fees and Tax Fees are as follows:

For the fiscal year ending December 31, 2003: $7,969 For the fiscal year ending December 31, 2004: $3,708

The Companys Audit Committee pre-approved the principal types of services (audit, audit assurance and tax preparation) provided by the principal accountant during the year ended December 31, 2004. 100% of Audit-Related Fees, 100% of Tax Fees and 100% of All Other Fees were approved by the Companys Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X. The Companys Audit Committee has considered whether the provision of services rendered by its accountants are compatible with maintaining the accountants independence. The Audit Committee reviews in advance, and grants any appropriate pre-approvals of (i) all auditing services to be provided by the principal accountant and (ii) all non-audit services to be provided by the principal accountant as permitted by Section 10A of the Securities Exchange Act of 1934, and not specifically prohibited under the Sarbanes-Oxley Act of 2002, and in
connection therewith approves all fees and other terms of engagement.

29



SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf as of the 14th day of March 2005 by the undersigned, thereunto duly authorized.

| | ANTS SOFTWARE INC.
| | ------------------
| |                   
| | By                
| |                   
| |                   

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

| | By   | /s/ BOYD PEARCE                                           
| | ---- | ----------------------------------------------------------
| |      |                                                           
| |      | Boyd Pearce,
Chief   Executive Officer and President      
| |      |                                                           
| | Date | March 14, 2005                                            
| |      |                                                           
| |      |                                                           
| | By   | /s/ KENNETH RUOTOLO                                       
| |      |                                                           
| |      | Kenneth   Ruotolo, Secretary and   Chief Financial Officer
| |      |                                                           
| | Date | March 14, 2005                                            

30



| | DIRECTORS
| | ---------
| |          
| | By       
| |          
| |          
| |          
| | Date     
| |          
| |          
| | By       
| |          
| |          
| |          
| | Date     
| |          
| |          
| | By       
| |          
| |          
| |          
| | Date     
| |          
| |          
| | By       
| |          
| |          
| |          
| | Date     
| |          
| |          
| | By       
| |          
| |          
| |          
| | Date     
| |          
| |          
| | By       
| |          
| |          
| |          
| | Date     
| |          
| |          
| | By       
| |          
| |          
| |          
| | Date     

31



ANTsSOFTWARE INC.

---

REPORT ON AUDITS OF FINANCIAL STATEMENTSfor the years ended December 31, 2004 and 2003



ANTsSOFTWARE INC.

C O N T E N T S

|                                                          | Page
|--------------------------------------------------------- | ----
|                                                          |     
|Report of Independent Registered   Public Accounting Firm | 1   
|                                                          |     
|Balance Sheets                                            | 2   
|                                                          |     
|Statements of Operations                                  | 3   
|                                                          |     
|Statements of Stockholders Equity   (Deficit)            | 4   
|                                                          |     
|Statements of Cash Flows                                  | 5   
|                                                          |     
|Notes to Financial Statements                             | 6   



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of ANTs software inc.

We have audited the balance sheets of ANTs software inc. (the Company), a Delaware corporation, as of December 31, 2004 and 2003 and the related statements of operations, stockholders equity (deficit), and cash flows for the years then ended.  These financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting standards generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has incurred losses since inception and expects to fully utilize its existing cash prior to December 31, 2005.  These conditions raise substantial doubt about its ability to continue as a going concern. Managements plans regarding those matters are also described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

|BURR, PILGER & MAYER LLP  | 
|------------------------- | 
|                          | 
|San Francisco, California | 
|March 7, 2005             | 

1



ANTS SOFTWARE INC.BALANCE SHEETS December 31, 2004 and 2003

|                                                                                                                                          |  | 2004 |             | 2003 |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | -
|                                                                                                                                          |  |      |             |      |  
|ASSETS                                                                                                                                    |  |      |             |      |  
|Current assets:                                                                                                                           |  |      |             |      |  
|Cash                                                                                                                                      |  | $    | 1,448,724   |      | $
|Prepaid insurance                                                                                                                         |  |      | 21,375      |      |  
|Prepaid expenses                                                                                                                          |  |      | 65,292      |      |  
|                                                                                                                                          |  |      |             |      |  
|Total current assets                                                                                                                      |  |      | 1,535,391   |      |  
|                                                                                                                                          |  |      |             |      |  
|Computers and software                                                                                                                    |  |      | 949,046     |      |  
|Office furniture and   fixtures                                                                                                           |  |      | 29,386      |      |  
|Leasehold improvements                                                                                                                    |  |      | 16,675      |      |  
|Less accumulated   depreciation                                                                                                           |  |      | (670,982    | )    |  
|                                                                                                                                          |  |      |             |      |  
|Property and equipment,   net                                                                                                             |  |      | 324,125     |      |  
|                                                                                                                                          |  |      |             |      |  
|Other assets - security deposits                                                                                                          |  |      | 9,100       |      |  
|                                                                                                                                          |  |      |             |      |  
|Total assets                                                                                                                              |  | $    | 1,868,616   |      | $
|                                                                                                                                          |  |      |             |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                            |  |      |             |      |  
|Current liabilities:                                                                                                                      |  |      |             |      |  
|Accounts payable and   accrued expenses                                                                                                   |  | $    | 333,916     |      | $
|Deferred salaries                                                                                                                         |  |      |            |      |  
|Deferred revenues                                                                                                                         |  |      |            |      |  
|Capital lease payable,   current portion                                                                                                  |  |      | 4,871       |      |  
|Note payable - former   officer, current portion                                                                                          |  |      |            |      |  
|                                                                                                                                          |  |      |             |      |  
|Total current   liabilities                                                                                                               |  |      | 338,787     |      |  
|                                                                                                                                          |  |      |             |      |  
|Long-term liabilities:                                                                                                                    |  |      |             |      |  
|Capital lease payable                                                                                                                     |  |      | 648         |      |  
|Convertible promissory   note, net of unamortized beneficial interest and debt discount of $83,196 in   2003                              |  |      |            |      |  
|                                                                                                                                          |  |      |             |      |  
|Total liabilities                                                                                                                         |  |      | 339,435     |      |  
|                                                                                                                                          |  |      |             |      |  
|Commitment and contingencies                                                                                                              |  |      |             |      |  
|Stockholders equity (deficit):                                                                                                           |  |      |             |      |  
|Preferred stock,   $0.0001 par value; 50,000,000 shares authorized, no shares issued and   outstanding in 2004 and 2003, respectively     |  |      |            |      |  
|Common stock, $0.0001   par value; 100,000,000 shares authorized; 35,298,817 and 26,381,004 shares   issued and outstanding, respectively |  |      | 3,530       |      |  
|Common stock   subscribed, not issued                                                                                                     |  |      | 30,000      |      |  
|Notes receivable from   officer for stock purchases                                                                                       |  |      |            |      |  
|Additional paid-in   capital                                                                                                              |  |      | 36,316,987  |      |  
|Accumulated deficit                                                                                                                       |  |      | (34,821,336 | )    |  
|                                                                                                                                          |  |      |             |      |  
|Total stockholders   equity (deficit)                                                                                                    |  |      | 1,529,181   |      |  
|                                                                                                                                          |  |      |             |      |  
|Total liabilities and stockholders equity (deficit)                                                                                      |  | $    | 1,868,616   |      | $
|                                                                                                                                          |  |      |             |      |  

The accompanying notes are an integral part of these financial statements.

2



ANTS SOFTWARE INC.STATEMENTS OF OPERATIONS for the years ended December 31, 2004 and 2003

|                                                                |  | 2004 |            | 2003 |  
|--------------------------------------------------------------- |  | ---- | ---------- | ---- | -
|                                                                |  |      |            |      |  
|Sales and marketing expenses                                    |  | $    | 1,564,424  |      | $
|Research and development expenses                               |  |      | 2,109,452  |      |  
|General and administrative expenses                             |  |      | 1,386,416  |      |  
|                                                                |  |      |            |      |  
|Loss from operations                                            |  |      | (5,060,292 | )    |  
|                                                                |  |      |            |      |  
|Other income (expense):                                         |  |      |            |      |  
|Income earned from   expired contract                           |  |      | 310,943    |      |  
|Interest income                                                 |  |      | 17,214     |      |  
|Gain on legal   settlement                                      |  |      | 5,500      |      |  
|Losses on   extinguishment of debt                              |  |      |           |      |  
|Write-off of officers   note receivable for stock purchases    |  |      | (45,000    | )    |  
|Interest expense                                                |  |      | (288,426   | )    |  
|                                                                |  |      |            |      |  
|Other income (expense),   net                                   |  |      | 231        |      |  
|                                                                |  |      |            |      |  
|Net loss                                                        |  | $    | (5,060,061 | )    | $
|                                                                |  |      |            |      |  
|Basic and diluted net loss per common share                     |  | $    | (0.16      | )    | $
|                                                                |  |      |            |      |  
|Shares used in computing basic and diluted net loss   per share |  |      | 32,501,014 |      |  
|                                                                |  |      |            |      |  

The accompanying notes are an integral part of these financial statements.

3



ANTS SOFTWARE INC.STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)For the years ended December 31, 2004 and 2003

|                                                                              |  | Common   Stock |            | Common   Stock   Subscribed |   | Notes    Receivable   from Officer   for Stock   Purchases |  | Additional   Paid-in    Capital |        | Accumulated   Deficit |   | Total    | 
|----------------------------------------------------------------------------- |  | -------------- | ---------- | --------------------------- | - | ---------------------------------------------------------- |  | ------------------------------- | ------ | --------------------- | - | -------- | 
|                                                                              |  |                |            |                            
|                                                                              |  | Shares         |            | Amount                      |   |                                                           
|                                                                              |  |                |            |                             |   |                                                            |  |                                 |        |                       |   |          | 
|Ending balance, December   31, 2002                                           |  |                | 23,240,788 |                             | $ | 2,324                                                      |  | $                               |       |                       | $ | (90,000) | 
|Proceeds from private   placements, net of commissions of $136,792            |  |                | 2,571,751  |                             |   | 257                                                        |  |                                 |       |                       |   |         | 
|Warrants exercised through   cash consideration                               |  |                | 367,500    |                             |   | 37                                                         |  |                                 |       |                       |   |         | 
|Options exercised through   cash consideration                                |  |                | 28,750     |                             |   | 3                                                          |  |                                 |       |                       |   |         | 
|Stock issued in settlement   of note payable to former officer                |  |                | 172,215    |                             |   | 17                                                         |  |                                 |       |                       |   |         | 
|Non-cash expense recognized   on settlement of note payable to former officer |  |                |           |                             |   |                                                           |  |                                 |       |                       |   |         | 
|Officer note forgiveness                                                      |  |                |           |                             |   |                                                           |  |                                 |       |                       |   | 45,000   | 
|Discount on convertible   promissory note                                     |  |                |           |                             |   |                                                           |  |                                 |       |                       |   |         | 
|Share-based compensation to   non-employees                                   |  |                |           |                             |   |                                                           |  |                                 |       |                       |   |         | 
|Net loss and comprehensive   net loss                                         |  |                |           |                             |   |                                                           |  |                                 |       |                       |   |         | 
|                                                                              |  |                |            |                             |   |                                                            |  |                                 |        |                       |   |          | 
|Ending balance, December   31, 2003                                           |  |                | 26,381,004 |                             |   | 2,638                                                      |  |                                 |       |                       |   | (45,000) | 
|Proceeds from private   placements, net of commissions of $334,100            |  |                | 7,263,159  |                             |   | 726                                                        |  |                                 |       |                       |   |         | 
|Common stock subscribed,   not issued                                         |  |                |           |                             |   |                                                           |  |                                 | 30,000 |                       |   |         | 
|Common stock issued to   finders and placement agent                          |  |                | 437,269    |                             |   | 44                                                         |  |                                 |       |                       |   |         | 
|Common stock issued to replace   escheated shares                             |  |                | 66         |                             |   |                                                           |  |                                 |       |                       |   |         | 
|Options exercised through   cash consideration                                |  |                | 354,019    |                             |   | 35                                                         |  |                                 |       |                       |   |         | 
|Common stock issued in   settlement of note payable to former officer         |  |                | 60,000     |                             |   | 6                                                          |  |                                 |       |                       |   |         | 
|Officer note forgiveness                                                      |  |                |           |                             |   |                                                           |  |                                 |       |                       |   | 45,000   | 
|Discount on convertible   promissory note                                     |  |                |           |                             |   |                                                           |  |                                 |       |                       |   |         | 
|Beneficial conversion   feature  convertible promissory  notes               |  |                |           |                             |   |                                                           |  |                                 |       |                       |   |         | 
|Conversion of promissory   convertible notes to common stock                  |  |                | 800,000    |                             |   | 80                                                         |  |                                 |       |                       |   |         | 
|Share-based compensation to   non-employees                                   |  |                | 3,300      |                             |   | 1                                                          |  |                                 |       |                       |   |         | 
|Net loss and comprehensive   net loss                                         |  |                |           |                             |   |                                                           |  |                                 |       |                       |   |         | 
|                                                                              |  |                |            |                             |   |                                                            |  |                                 |        |                       |   |          | 
|Ending balance, December   31, 2004                                           |  |                | 35,298,817 |                             | $ | 3,530                                                      |  | $                               | 30,000 |                       | $ |         | 
|                                                                              |  |                |            |                             |   |                                                            |  |                                 |        |                       |   |          | 

The accompanying notes are an integral part of these financial statements.

4



ANTS SOFTWARE INC.STATEMENTS OF CASH FLOWS for the years ended December 31, 2004 and 2003

|                                                                                    |  | 2004 |            | 2003 |  
|----------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | -
|                                                                                    |  |      |            |      |  
|Cash flows from operating activities:                                               |  |      |            |      |  
|Net loss                                                                            |  | $    | (5,060,061 | )    | $
|Adjustments to   reconcile net loss to net cash used in operating activities:       |  |      |            |      |  
|Depreciation and   amortization                                                     |  |      | 181,656    |      |  
|Amortization of debt   discount                                                     |  |      | 5,973      |      |  
|Beneficial conversion   feature  convertible notes                                 |  |      | 280,000    |      |  
|Compensation expense   recognized on options granted to non-employees               |  |      | 59,750     |      |  
|Loss on extinguishment   of debt                                                    |  |      |           |      |  
|Write-off of note   receivable to officer for stock purchases                       |  |      | 45,000     |      |  
|Changes in operating   assets and liabilities:                                      |  |      |            |      |  
|Prepaid insurance and   expenses                                                    |  |      | (39,638    | )    |  
|Other assets - security   deposits                                                  |  |      |           |      |  
|Accounts payable and   other accrued expenses                                       |  |      | 250,727    |      |  
|Deferred salaries                                                                   |  |      | (340,505   | )    |  
|Deferred revenue                                                                    |  |      | (310,943   | )    |  
|                                                                                    |  |      |            |      |  
|Net cash used in   operating activities                                             |  |      | (4,928,041 | )    |  
|                                                                                    |  |      |            |      |  
|Cash flows used in investing activities--purchases   of property and equipment, net |  |      | (182,280   | )    |  
|                                                                                    |  |      |            |      |  
|Cash flows from financing activities:                                               |  |      |            |      |  
|Proceeds from private   placements net of commissions                               |  |      | 5,603,278  |      |  
|Proceeds from common   stock subscribed, not issued                                 |  |      | 30,000     |      |  
|Proceeds from exercise   of options                                                 |  |      | 388,752    |      |  
|Proceeds from exercise   of warrants                                                |  |      |           |      |  
|Proceeds from   convertible promissory note                                         |  |      |           |      |  
|Payments on capital   lease obligations                                             |  |      | (4,710     | )    |  
|                                                                                    |  |      |            |      |  
|Net cash provided by   financing activities                                         |  |      | 6,017,320  |      |  
|                                                                                    |  |      |            |      |  
|Net increase (decrease) in cash                                                     |  |      | 906,999    |      |  
|                                                                                    |  |      |            |      |  
|Cash at beginning of period                                                         |  |      | 541,725    |      |  
|                                                                                    |  |      |            |      |  
|Cash at end of period                                                               |  | $    | 1,448,724  |      | $
|                                                                                    |  |      |            |      |  
|Supplemental disclosures of cash flow information:                                  |  |      |            |      |  
|Cash paid during the   period for:                                                  |  |      |            |      |  
|Interest                                                                            |  | $    | 2,454      |      | $
|Taxes                                                                               |  |      |           |      |  
|Non-cash investing and financing activities:                                        |  |      |            |      |  
|Purchase of property   and equipment with capital lease                             |  | $    |           |      | $
|Conversion of   convertible promissory note into common stock, net                  |  |      | 289,070    |      |  
|Issuance of common   stock in settlement of note payable to former officer          |  |      | 75,000     |      |  

The accompanying notes are an integral part of these financial statements

5



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|1. | The   Company and its Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Nature of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company is engaged in the   development and marketing of proprietary software that it believes can   dramatically improve performance in applications which require high-speed   access to shared, rapidly changing data.    The Companys first product, the ANTs Data Server, is a   standards-compliant relational database management system (RDBMS) based on   a high-performance SQL query execution engine that incorporates innovative   lock-free operations. The Company intends to market the ANTs Data Server in   industries that require a high-performance RDBMS. The Company has initially   identified financial services, telecommunications, on-line retail, and   transportation/logistics as potential markets for its product.                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Basis   of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Companys financial statements have been   presented on a going-concern basis, which contemplates the realization of   assets and the satisfaction of liabilities in the normal course of   business.  As of December 31, 2004 and   2003 and for the fiscal years then ended, the Company had a net loss of   $5,060,061 and $3,587,340 and accumulated capital deficit of $34,821,336 and   $29,761,275, respectively.  These   conditions raise substantial doubt about its ability to continue as a going   concern.                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | To carry out the Companys plan of operation, it   anticipates that over the next twelve months it will require approximately $5   million. The Company will pursue a number of avenues to raise these operating   funds: 1) in the past the Company has been successful in raising funds   through private placements of its stock and it anticipates that it will   continue to raise funds through private placements, 2) as the Company   develops close relationships with large partners, it will pursue strategic   investments from those partners, and 3) the Company expects to begin   generating revenue in 2005, and if successful, this will be a source of   operating funds. The Company is pursuing   all three avenues, however, it believes, that due to an uncertain investment   climate, securing additional investment will be difficult.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The financial statements do   not include any adjustments relating to the recoverability of assets and   classifications of liabilities that might be necessary should the Company be   unable to continue as a going concern.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Use of   Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The preparation of the financial statements in   accordance with accounting principles generally accepted in the United States   of America requires management to make estimates and assumptions that affect   reported amounts of assets and liabilities and disclosure of contingent   assets and liabilities at the date of the financial statements and the   reported amounts of revenues and expenses during the reporting period. Actual   results could differ from those and other estimates.                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Property   and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Property and equipment, which includes assets   recorded under capital leases, are carried at cost and are depreciated on the   straight-line basis over their estimated useful lives of three to five   years.  The costs of leasehold   improvements are amortized over the lesser of the lease term or the life of   the improvement.  Expenditures for   improvement or expansion of property and equipment are capitalized.  Repairs and maintenance are charged to   expense as incurred.  When the assets   are sold or retired, their cost and related accumulated depreciation are   removed from the accounts with the resulting gain or loss reflected in the   statement of operations.                                                                                                                                                             

6



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|1. | The   Company and its Significant Accounting Policies, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Research   and Development Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In accordance with Financial Accounting Standards   No. 86, Accounting   for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,   it has been determined that technological feasibility of the Companys   software under development has not yet been established and, accordingly, all   software development costs have been charged to research and development   expense in the accompanying statements of operations.                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Cash   and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company considers all highly liquid investments   having original maturities of three months or less to be cash equivalents.   The Companys cash equivalents consist of short-term money market   instruments.                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Income   Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company accounts for income taxes using the   asset and liability method.  Under   this method, deferred tax assets and liabilities are recognized for operating   loss and tax credit carryforwards and for the future tax consequences   attributable to differences between financial statement carrying amounts of   existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are   measured using enacted tax rates expected to apply to taxable income in the   years in which those temporary differences are expected to be recovered or   settled.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | A valuation allowance is recorded to reduce the   carrying amounts of deferred tax assets unless it is more likely than not   that such assets will be realized.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Long-Lived   Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Long-lived assets such as property and equipment are   evaluated for impairment when events or changes in circumstances indicate   that the carrying amount of the assets may not be recoverable.  When the indicators of impairment are   present and the estimated undiscounted future cash flows from the use of   these assets are less than the assets carrying value, the related assets   will be written down to fair value.                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Operating   Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company operates in a single industry segment,   computer software. Substantially all of the Companys assets and employees   are located at the corporate headquarters in Burlingame, California.                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Stock-Based   Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | At December 31, 2004, the Company has a stock-based   employee compensation plan, which is described more fully in Note 14.  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.                                                                                                                                                                                                                                                             

7



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|1. | The   Company and its Significant Accounting Policies, continued                                                                                                                                                                                   
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | The following table illustrates the effect on net   loss had the Company applied the fair value recognition provisions of   Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation,   to stock-based employee compensation.

|                                                                                               |  | Year ended   December 31, |           
|---------------------------------------------------------------------------------------------- |  | ------------------------- | ----------
|                                                                                               |  |                           |           
|                                                                                               |  | 2004                      |           
|                                                                                               |  |                           |           
|Net loss, as reported                                                                          |  | $                         | (5,060,061
|Less: Stock-based employee compensation expense   determined under the fair-value based method |  |                           | (1,118,888
|                                                                                               |  |                           |           
|Net loss, pro forma                                                                            |  | $                         | (6,178,949
|                                                                                               |  |                           |           
|Basic and diluted loss per share:                                                              |  |                           |           
|As reported                                                                                    |  | $                         | (0.16     
|                                                                                               |  |                           |           
|Pro forma                                                                                      |  | $                         | (0.19     
|                                                                                               |  |                           |           

The weighted average fair value of options granted during the periods ended December 31, 2004 and 2003 were $1.19 and $0.99 respectively.  The pro forma amounts were estimated using the Black-Scholes option-pricing model with the following assumptions for the periods ended December 31, 2004 and 2003, respectively.

|                       |  | December   31, |     
|---------------------- |  | -------------- | ----
|                       |  |                |     
|                       |  | 2004           |     
|                       |  |                |     
|Interest rate          |  |                | 3.37
|Dividend yield         |  |                | 0.00
|Expected volatility    |  |                | 116 
|Expected life in years |  |                | 5.00

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.  Since common equivalent shares outstanding during the periods were antidilutive, basic and diluted loss per share are the same.

Reclassification

Certain reclassifications have been made to the prior year financial statements to conform them to the current year presentation.

8



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|1. | The   Company and its Significant Accounting Policies, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Recent   Accounting Pronouncements -  On December 17, 2003, the Staff of the Securities and Exchange   Commission (SEC or the Staff) issued Staff Accounting Bulletin No. 104, Revenue   Recognition, (SAB 104), which supersedes Staff Accounting   Bulletin No. 101, Revenue Recognition in Financial Statements(SAB   101).  SAB 104s primary purpose is to rescind   accounting guidance contained in SAB 101 related to multiple element revenue   arrangements, which was effectively superseded as a result of the issuance of   Emerging Issues Task Force Consensus No. 00-21, Accounting for Revenue Arrangements   with Multiple Deliverables (EITF 00-21).  While the wording of SAB 104 has changed   to reflect the issuance of EITF 00-21, the revenue recognition principles of   SAB 101 remain largely unchanged by the issuance of SAB
104.  As the Company had no revenues during 2004   or 2003, SAB 104 had no effect on our financial position or operating   results.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In December 2004, the FASB issued Statement of   Financial Accounting Standards No. 123 (Revised), Share-Based Payment   (SFAS 123(R)).  SFAS 123(R) replaces   SFAS 123 and supersedes APB 25.  SFAS 123(R)   is effective as of the beginning of the first interim or annual reporting   period that begins after December 15, 2005.    SFAS 123(R) requires that the costs resulting from all share-based   payment transactions be recognized in the financial statements.  SFAS 123(R) applies to all awards granted   after the required effective date and shall not apply to awards granted in   periods before the required effective date, except if prior awards are   modified, repurchased or cancelled after the effective date.  SFAS 123(R) also amends Statement of   Financial Accounting Standards No. 95, Statement of Cash Flows, to require   that excess tax benefits be reported as a financing cash inflow
rather than   as a reduction of taxes paid.                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|2. | Related   Party TransactionsNote Receivable and Payable to Former Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company entered into an agreement (the   Agreement) with a former officer, effective as of January 11, 2001, in   which the Company agreed to forgive, on August 4, 2001 and on each year   anniversary thereafter, $45,000 of the principal amount and all accrued   interest on a loan made to the former officer in August 1999 in the original   amount of $225,000. During 2004 and 2003, the Company forgave $45,000 of the   loan balance each year and $0 and $4,350, respectively, in accrued interest   receivable. The aggregate amount receivable at December 31, 2004 and 2003 was   $0 and $45,000 respectively, and is reflected in the stockholders equity   section of the balance sheets.                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In August 2004, the former officer subscribed for   60,000 units with each unit comprised of (i) one share of common stock of the   Company and (ii) a warrant to purchase one share of common stock at a per   share price of two dollars ($2.00), exercisable until March 31, 2006 (the   Unit). The Units were issued in lieu of a $75,000 cash payment due on a   note payable to the former officer. There was no gain or loss on the   transaction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In August 2003, the former officer subscribed for   172,215 units with each unit comprised of (i) one share of common stock of   the Company and (ii) a warrant to purchase one share of common stock at a per   share price of two dollars ($2.00), exercisable until March 31, 2006 (the   Unit). The Units were issued in lieu of a $75,000 cash payment due on a   note payable to the former officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

9



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|2. | Related   Party TransactionsNote Receivable and Payable to Former Officer,   continued                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | This transaction resulted in a loss of approximately   $54,000 on extinguishment of the debt payment and has been classified as   other income (expense) on the statement of operations for the fiscal year   ended December 31, 2003. The loss was calculated as the difference between   the price of the then-current private placement offering ($.75 per D Unit)   and the price paid by the former officer ($.435 per Unit) times the 172,215   Units subscribed by the former officer.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The aggregate amounts payable at December 31, 2004   and 2003 were $0 and $75,000 respectively.                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3. | Property   and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Property and equipment are summarized by major   category as follows at December 31, 2004 and 2003:                                                                                                                                                                                                                                                                                                                                                                                          

|                                                |  | 2004 |          | 2003 |  
|----------------------------------------------- |  | ---- | -------- | ---- | -
|                                                |  |      |          |      |  
|Computers and software                          |  | $    | 949,046  |      | $
|Furniture and fixtures                          |  |      | 29,386   |      |  
|Leasehold improvements                          |  |      | 16,675   |      |  
|                                                |  |      |          |      |  
|Less: accumulated depreciation and amortization |  |      | (670,982 | )    |  
|                                                |  |      |          |      |  
|Property and equipment, net                     |  | $    | 324,125  |      | $
|                                                |  |      |          |      |  

|   | Depreciation included in the statements of   operations amounted to $181,656, and $162,616 for the years ended December   31, 2004 and 2003, respectively. Included in property and equipment is   computer equipment under capital leases of $13,532, expiring in various years   through 2006. The assets and liabilities under capital leases are recorded at   the lower of the present value of the minimum lease payments or the fair   value of the asset. The implicit interest rate of the leases ranged from 16%   to 20%. The assets are amortized over the lesser of their related lease terms   or their estimated useful lives.    Accumulated depreciation on capital leases was $5,159 and $4,205 at   December 31, 2004 and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4. | Convertible   Promissory Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | On or about August 15, 2003, the Company sold to two   accredited investors, through a private offering, one convertible promissory   note each, without interest, in principal face amount of $160,000 per note,   each maturing on August 15, 2005, and each convertible at the option of the   holder into shares of Common Stock of the Company, at a conversion price of   $0.75 per share.  The Company had   agreed to grant the holder of each note, upon conversion of the note, a   warrant to purchase 213,333 shares of Common Stock of the Company at a per   share price of $2.00, exercisable until March 31, 2006.  The stated conversion price of the notes   was $0.75 per share; however, the Company had agreed to set the conversion   price at $0.40 per share in the event an anticipated $5 million financing did   not close shortly after the note financing, and, since the intent of the   agreement was for the conversion price to include one share of common stock   and
a warrant to purchase another share of common stock, the Company further   agreed to increase the number of shares of Common Stock underlying each warrant   to be granted upon conversion of the notes from 213,333 to 400,000.

10



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|4. | Convertible   Promissory Notes, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The $5 million financing did not close, and,   accordingly, in July 2004, the Company entered into Amendment Agreements with   each convertible promissory note holder, setting the conversion price at   $0.40 per share and increasing the number of shares of Common Stock   underlying the warrant to be granted upon conversion of each note from   213,333 to 400,000. Since, for accounting purposes, the active conversion   price was $0.40 per share, the intrinsic value of the conversion option of   $280,000 was recorded both in additional paid-in capital and as interest   expense. A debt discount account in the amount of $50,662 was also recorded   in additional paid-in capital, assuming the Companys market rate of interest   for this debt was 9%.           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Interest expense related to the conversion option   and interest-rate-related debt discounts totaled $285,973 and $13,839 in   fiscal years 2004 and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On or about July 14, 2004, the noteholders elected   to convert their convertible promissory notes. Pursuant to the terms of the   notes, the company issued to each noteholder 400,000 shares of Common Stock   of the Company and a warrant to purchase 400,000 shares of Common Stock of   the Company at a per share exercise price of $2.00, exercisable until March   31, 2006.  In accordance with the   guidance set out in Emerging Issues Task Force No. 98-5 (EITF 98-5), the   Company charged the unamortized balance of $151,667 in the beneficial   interest debt discount to interest expense when the notes were converted.  The unamortized balance of $30,851 in the   interest-rate-related debt account was charged to additional paid-in capital   upon conversion.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|5. | Commitments   and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Lease Commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | As of December 31, 2004, the Company leases certain   computer equipment under various noncancelable capital and operating   leases.  Future minimum lease payments   required under the noncancelable leases are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|Year Ending December 31,                             |  | Operating   Leases |       | Capital   Leases |  
|---------------------------------------------------- |  | ------------------ | ----- | ---------------- | -
|                                                     |  |                    |       |                  |  
|2005                                                 |  | $                  | 3,052 |                  | $
|2006                                                 |  |                    | 2,543 |                  |  
|                                                     |  |                    |       |                  |  
|Total minimum lease payments                         |  | $                  | 5,595 |                  | $
|                                                     |  |                    |       |                  |  
|Less amount   representing interest                  |  |                    |       |                  |  
|                                                     |  |                    |       |                  |  
|Present value of future   net minimum lease payments |  |                    |       |                  | $
|                                                     |  |                    |       |                  |  

| | The Company leases office space on a month-to-month   basis at $6,000 per month.  Total   rental expense for all operating leases for the years ended December 31, 2004   and 2003 amounted to $60,600 and $63,000, respectively.                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                          
| | Contingencies                                                                                                                                                                                                                                                                                                            
| | The Company was a defendant in a case entitled Hubert P.   Lauffs v. Mosaic Multisoft Corporation, in   which the plaintiff asserted a cause of action against the Company for breach   of fiduciary duty.  The plaintiff   purported to base his cause of action on allegations that the Company and   others caused the

11



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|5. | Commitments   and Contingencies, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | shareholders of Mosaic Multisoft Corporation   (Mosaic) to elect outside directors to its board of directors who   subsequently voted to remove Mosaics president from office, thus interfering   with Mosaics ability to raise capital and causing Mosaic to be unable to   repay its debt to the plaintiff.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In March 2000, the Company won this case on summary   judgment.  In April 2000, the   plaintiff filed an appeal of the summary judgment ruling.  On November 21, 2001, the Fourth District   Court of Appeal ruled in the Companys favor by affirming the Superior   Courts March 2000 summary judgment. In September 1999, the Company had filed   an action for malicious prosecution against Lauffs and his attorney seeking   recovery of the Companys legal fees incurred in connection with the   proceedings.  The Company entered into   Settlement Agreements in December 2002, pursuant to which the plaintiffs   agreed to pay the Company an aggregate of $400,000. Per an agreement the   Company entered into with the Companys attorneys on or about September 27,   2002, almost all of the money recovered will be paid to the Companys   attorneys. Pursuant to the agreement, the Company received $5,500 and $20,500   as its portion of the
settlement in the fiscal years ended December 31, 2004   and 2003, respectively.  These   payments are reflected on the statements of operations as a gain from legal   settlement.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | On October 29, 2004, the   Company entered into a Salary Agreement with each of the following persons:   Francis K. Ruotolo, the Companys then current Chief Executive Officer and   Chairman, Boyd Pearce, the Companys then current President and Chief   Operating Officer, Kenneth Ruotolo, the   Companys Chief Financial Officer and Secretary, Clifford Hersh, the   Companys Chief Scientist, Girish Mundada, the Companys Vice President,   Engineering and Jeffrey R. Spirn, Ph.D., the Companys Vice President of   Research and Development (each an Officer). Pursuant to the Salary   Agreements, each Officers salary (the Original Salary) was reduced 50   percent and the Company agreed to pay each Officer a bonus, equal to the   aggregate amount that such Officers salary had been reduced, should the   Company raise a certain amount of financing between October 16, 2004 and   February 1, 2005. Effective
January 1, 2005, each Officers salary was   increased to 75 percent of the Original Salary pursuant to an Amendment   Agreement. The Company did not raise the required financing by February 1,   2005 and no bonus was paid to the Officers.    On February 1, 2005, the Company and the Officers agreed that if the   Company raised a certain amount of financing between February 1, 2005 and   June 30, 2005, the Officers would be paid a bonus, equal to the aggregate   amount that such Officers salaries had been reduced since October 16, 2004.   The total amount of contingent bonus as of February 28, 2005 was $174,000.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|6. | Deferred   Salaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | During 2003 and 2002, to conserve cash, all   employees agreed to reduce their salary to 85% of their then-current salary   (New Salary) and the employees further agreed to defer part of their New   Salary. In addition, as of January 16, 2004, Francis K. Ruotolo agreed to   reduce his salary to 50% of his starting salary  (such new salary shall be referred to herein as Salary) and   defer part of his Salary.  In   connection with these deferrals the Company agreed to accrue the difference   between the New Salary or the Salary, as applicable, and the employees   actual pay, until the Company received sufficient funding to repay the   liability, which totaled $340,505 as of December 31, 2003.  During February and March 2004, the   Company raised approximately $4 million (net of placement agent fees and   commissions).  On March 1, 2004, the   salary accruals and deferrals were discontinued, and salaries were
restored   to their pre-existing levels. As of June 30, 2004, all accrued salaries had   been fully repaid.  The total amount   paid in salary deferrals during the year ended December 31, 2004 was   $478,655.                                                                                                                                                                                                                                                                                                                                                                                                                 

12



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|7. | Deferred   Revenues                                                                                                                                                                                 
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                     
|   | On or about August 22, 2003 the Company signed a   Letter of Intent (LOI) with Net Soft Systems, Inc. of Vancouver, British   Columbia, Canada (Net Soft). The LOI included the following terms:

| |  |  | Net Soft agreed to pay the Company $400,000 (non-refundable)                                                                                                                                                      
| |  | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | The Company agreed to negotiate only with Net Soft   for the exclusive rights to sell and distribute the ANTs Data Server (the   Rights) in Poland, Russia, the Czech Republic, and the European Common   Market
| |  |  | The negotiation process would determine what   additional payments would be required of Net Soft to obtain the Rights                                                                                             
| |  |  | If, by November 30, 2003, terms of a deal regarding   the Rights had not been agreed to, the Company could negotiate the Rights   with any other entity                                                           
| |  |  | The LOI itself contained no grant of Rights                                                                                                                                                                       

|   | On November 30, 2003 the Company and Net Soft agreed   to extend the LOI through January 31, 2004 and on January 31, 2004 further   agreed to extend the LOI through March 31, 2004. On March 31, 2004, the LOI   terminated and on that date, no future agreements between Net Soft and the   Company were contemplated in connection with such LOI. As of March 31, 2004,   the Company had received $310,943 of the $400,000 due pursuant to the   LOI.  The remaining $89,057 was   considered uncollectible.  In   accordance with Generally Accepted Accounting Principles the Company did not   consider the earnings process complete until collection was reasonably   assured and all applicable revenue recognition conditions were met according   to the Security and Exchange Commissions Staff Accounting Bulletin: No 104 -Revenue   Recognition.  Therefore,   the payments pursuant to the LOI were recorded in the financial statements   prior to
January 1, 2004 as deferred revenue.  With the termination of the LOI and no future agreements   contemplated in connection with such LOI at the time of termination, the   Company was under no obligation to return the monies to Net Soft.  Since Net Soft did not receive either a   license to use the Companys product or services related to the Companys   product, in 2004 the Company recognized the $310,943 as other income in the   statements of operations and eliminated the deferred revenue liability.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|8. | Income   Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The Company accounts for income taxes in accordance   with SFAS 109, Accounting for Income Taxes.  Due to the Companys loss position for the periods ended   December 31, 2004 and 2003, there was no provision for income taxes during   these periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | A valuation allowance has been recorded for the   total deferred tax assets as a result of uncertainties regarding realization   of the asset based upon the lack of profitability and the uncertainty of   future profitability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The tax effects of significant temporary differences   representing deferred tax assets as of December 31, 2004 and 2003 are as   follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

13



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|8. | Income   Taxes, continued
|-- | -------------------------

Deferred tax assets:

|                                   |  | 2004 |             | 2003 |  
|---------------------------------- |  | ---- | ----------- | ---- | -
|                                   |  |      |             |      |  
|Net operating loss carryforward    |  | $    | 9,909,022   |      | $
|Research tax credit carryforward   |  |      | 945,857     |      |  
|Expenses deductible in later years |  |      | 2,024       |      |  
|                                   |  |      |             |      |  
|Gross deferred tax assets          |  |      | 10,856,903  |      |  
|Less: valuation allowance          |  |      | (10,856,903 | )    |  
|                                   |  |      |             |      |  
|Net deferred tax assets            |  | $    |            |      | $
|                                   |  |      |             |      |  

|   | At December 31, 2004 the Company had net operating   loss carryforwards of approximately $24.4 million for federal tax purposes   and $23.7 million for state tax purposes.    If not earlier utilized, the federal net operating loss carryforwards   will expire in various years from 2008 through 2024, and the state net   operating loss carryforwards will expire in various years from 2005 through   2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | At December 31, 2004, the Company also had research   credit carryforwards of approximately $0.6 million for federal tax purposes,   and $0.5 million for state tax purposes.    If not earlier utilized, the federal research credit carryforwards   will expire in various years from 2017 through 2024.  The state research credit carries forward   indefinitely until realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The effective rate applied to net losses in   calculating the gross deferred tax assets is higher than the Federal   statutory rate due to the recognition of state income tax benefits and an   increase in the valuation allowance with respect to federal and state   deferred tax assets.  The valuation   allowance was increased in 2004 and 2003 by $2,022,000 and $2,075,000,   respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Federal and California impose substantial   restrictions on the utilization of net operating loss and tax credit   carryforwards in the event of an ownership change for tax purposes, as   defined in Section 382 of the Internal Revenue Code.  If such ownership change has occurred,   utilization of the net operating losses and tax credits could be subject to   an annual limitation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|9. | Stockholders   Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | From January 1, 2004 through March 31, 2004, the   Company sold to accredited investors, through a private offering, 5,703,159 D   Units at a price of seventy-five cents ($0.75) per D Unit, with each D Unit   consisting of (i) one (1) share of common stock of the Company, and (ii) a   warrant to purchase up to one (1) share of common stock of the Company at a   per share price of two dollars ($2.00), exercisable until March 31, 2006. The   gross proceeds from the offering were $4,277,379. In connection with this   offering, the Company issued 33,666 D Units to finders and paid $269,100 in   cash commissions. The Company issued an aggregate of 367,240 D Units to the   placement agent in connection with the private offering of D Units that   commenced in the first quarter of 2003 and closed at the end of the first   quarter of 2004. The sales of these securities were made in reliance upon Rule   506 and Section 4(2) of the Securities Act of 1933.

14



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|9. | Stockholders   Equity, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On or about February 17, 2004, the Company sold to   an accredited investor 66 shares of common stock at a price of $.75 per   share. The accredited investor paid for the shares by assigning all rights in   certain shares of common stock of the Company, which shares had been   escheated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On or about April 23, 2004, the Company and Gary   Ebersole, its former President and Chief Operating Officer, agreed to amend   Mr. Ebersoles Stock Option Agreements to extend the period during which Mr.   Ebersole could exercise the vested portion of his stock options from April   30, 2004 to June 30, 2004. The Company recognized non-employee compensation   expense of $29,498 in the statement of operations (included in general and   administrative expenses) related to this transaction. As of June 30, 2004,   Mr. Ebersole had exercised all his vested stock options.                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On or about May 31, 2004, the Company sold to one   accredited investor, through a private offering, 400,000 E units at a price   of one dollar and twenty-five cents ($1.25) per E unit for gross proceeds of   $500,000, with each E Unit consisting of (i) one (1) share of common stock of   the Company, and (ii) a warrant to purchase up to one (1) share of common   stock of the Company at a per share price of two dollars and fifty cents   ($2.50), exercisable until May 31, 2007. In connection with this offering,   the Company paid $65,000 in cash commissions and issued 36,363 E Units to the   placement agent. The sale of these securities was made in reliance upon Rule   506 and Section 4(2) of the Securities Act of 1933.                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On or about July 14, 2004, the holders of two   convertible promissory notes elected to convert such notes. Pursuant to the   terms of the notes, the company issued each noteholder 400,000 shares of   Common Stock of the Company and a warrant to purchase 400,000 shares of   Common Stock of the Company at a per share exercise price of $2.00,   exercisable until March 31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In August 2004, a former officer purchased 60,000 E   Units. The E Units were issued in lieu of a $75,000 cash payment due on   August 4, 2004 on a note payable to the former officer. The sale of these   securities was made in reliance upon Rule 506 and Section 4(2) of the   Securities Act of 1933.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | From November 12, 2004 through January 12, 2005, the   Company sold to accredited investors, through a private offering, 2,123,000 F   Units at a price of one dollar ($1.00) per F Unit, with each F 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 exercise price of two dollars ($2.00), exercisable until November   12, 2007. The gross proceeds from the offering were $2,123,000, of which   $1,160,000 was received by December 31, 2004 and $963,000 was received in   January 2005. The Company paid cash commissions totaling $90,350 and issued   63,181 F Units to the placement agent in January 2005 in connection with this   private offering. The sales of these securities were made in reliance upon   Rule 506 and Section 4(2) of the Securities Act of 1933.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | During the fiscal year ended December 31, 2004,   354,019 shares of common stock of the Company were purchased through the   exercise of stock options that resulted in cash proceeds to the Company of   $388,752. A vendor was awarded 3,300 options on August 19, 2004 as partial   compensation for selling the sole and exclusive rights to the domain name,   www.ants.com to the Company.  The   vendor exercised the options on the same date they were granted at an   exercise price of $1.88, resulting in non-cash consideration of $6,204 in the   third quarter of 2004, which was charged to marketing expense.  The total number of shares purchased   through the exercise of stock options for cash and services in 2004 was   357,319.                                                                                                                                                       

15



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|9. | Stockholders   Equity, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | During the first quarter of 2003, the Company 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. The C Unit   offering was closed in January 2003.                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | During the first quarter of 2003, the Company 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 finders   fees, and issued 15,151 D Units to the placement agent. The gross proceeds   from the offering were $301,875.                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | During the second quarter of 2003 the Company sold,   to accredited investors, through the same private offering, 929,733 D Units   at a price of seventy-five cents ($0.75) per D Unit. In connection with this   offering, the Company paid $51,024 in cash commissions and finders fees and   issued 47,573 D Units to the placement agent. The gross proceeds from the   offering were $697,304.                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | During the third quarter of 2003 the Company sold to   accredited investors, through the same private offering, 393,833 D Units. In   connection with this offering, the Company paid $20,768 in cash commissions   and finders fees and issued 19,361 D Units to the placement agent. The gross   proceeds from the offering were $295,375.                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | In August 2003, a former officer subscribed for   172,215 units with each unit comprised of (i) one share of common stock of   the Company and (ii) a warrant to purchase one share of common stock at a per   share price of two dollars ($2.00), exercisable until March 31, 2006 (the   Unit). The Units were issued in lieu of a $75,000 cash payment due on a   note payable to the former officer. This transaction resulted in a loss of   approximately $54,000 on extinguishment of the debt payment. The loss was calculated   as the difference between the price of the then-current private placement   offering ($.75 per D Unit) and the price paid by the former officer ($.435   per Unit) times the 172,215 Units subscribed by the former officer.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | During the fourth quarter of 2003 the Company sold   to accredited investors, through the same private offering, 823,688 D Units.   In connection with this offering, the Company paid $48,750 in cash   commissions and finders fees and issued 45,450 D Units to the placement   agent. The gross proceeds from the offering were $617,765.                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On or about August 4, 2003, the board of directors   of the Company extended the expiration date of 1,561,083 warrants from August   31, 2003 to December 31, 2003.  Such   warrants had been issued by the Company in private offerings in reliance upon   Rule 506 and Section 4(2) of the Securities Act of 1933                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | During the fiscal year ended December 31, 2003,   367,500 shares of common stock of the Company were purchased through the   exercise of warrants resulting in cash proceeds to the Company of $108,750.   An additional 28,750 shares were purchased through the exercise of stock   options, resulting in cash proceeds to the Company of $17,565.  A total of 396,250 shares were purchased   through these exercises, resulting in total cash proceeds to the Company of   $126,315 in 2003.                                                                                                                                                                                                                                                                       

16



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|10. | Per   Share Data                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Basic net loss per share is computed using the   weighted-average number of shares of common stock outstanding during the   periods. Diluted earnings per share is computed using the weighted-average   number of common shares and common share equivalents outstanding during the   period.  The Company excluded all   common share equivalents from the calculation because all such securities are   antidilutive for the two periods presented.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The computation of the basic and diluted net loss   per share was as follows:                                                                                                                                                                                                                                                                                                                                                                         

|                                       |  | Loss   (Numerator) |            | Shares   (Denominator) |  | Per Share    Amount | 
|-------------------------------------- |  | ------------------ | ---------- | ---------------------- |  | ------------------- | 
|                                       |  |                    |            |                        |  |                     | 
|Year ended December 31, 2004           |  |                    |            |                        |  |                     | 
|Basic and diluted net   loss per share |  | $                  | (5,060,061 | )                      |  | 32,501,014          | 
|Year ended December 31, 2003           |  |                    |            |                        |  |                     | 
|Basic and diluted net   loss per share |  | $                  | (3,587,340 | )                      |  | 24,692,782          | 

|    | At December 31, 2004 and 2003, options and warrants   for the purchase of 16,414,176 and 7,325,462 common shares at prices ranging   from $0.52 to $10.50, and $0.52 to $11.65 per share, were antidilutive,   respectively and therefore not included in the computation of diluted   earnings per share.                                                                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|11. | Concentration   of Credit RiskCash                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company maintains cash balances at two major   financial institutions in excess of the federally insured limit of $100,000   per institution.  At December 31,   2004, the Companys uninsured cash balances totaled $1,209,776.                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|12. | Employee   Benefit Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Company has a 401(k) Income Deferral Plan (the   Plan) immediately open to all employees regardless of age or tenure with the   Company.  The Company may make a   discretionary contribution to the Plan each year, allocable to all Plan   participants.  However, the Company   elected to make no contributions for the years ended December 31, 2004 and   2003.  Administrative fees for the   plan totaled $2,906 and $3,793 for the years ended December 31, 2004 and   2003, respectively.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|13. | Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | As of December 31, 2004, the Company had warrants to   purchase 11,444,728 common shares outstanding. These securities give the   holder the right to purchase shares of the Companys restricted common stock   in accordance with the terms of the instrument as follows:                                                                                                                                                                                                                            

|Number of   Warrants Issued |  | Exercise   Price per Share |               | Year of   Expiration | 
|--------------------------- |  | -------------------------- | ------------- | -------------------- | 
|                            |  |                            |               |                      | 
|35,833                      |  |                            | $0.75         |                      | 
|10,786,561                  |  |                            | $2.00         |                      | 
|400,000                     |  |                            | $2.50         |                      | 
|119,000                     |  |                            | $5.50         |                      | 
|30,000                      |  |                            | $7.25 - $7.44 |                      | 
|23,334                      |  |                            | $8.25         |                      | 
|50,000                      |  |                            | $10.50        |                      | 
|                            |  |                            |               |                      | 
|11,444,728                  |  |                            |               |                      | 
|                            |  |                            |               |                      | 

17



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|14. | Stock   Compensation Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | In September 2000, the Companys shareholders   approved a stock option plan under which incentive stock options and   non-qualified stock options are granted to employees, directors or   consultants at not less than the fair market value on the date of grant for   incentive stock options and 85% of fair market for non-qualified options.   Options granted under the plan are generally vested within three years after   the date of grant and expire 10 years after issuance. Options are granted at   the discretion of the Board of Directors.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The following table summarizes stock option plan   activity for the years ended December 31, 2004 and 2003:                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                                         |  |                                  |            |                     | Outstanding   Options |                                      
|---------------------------------------- |  | -------------------------------- | ---------- | ------------------- | --------------------- | -------------------------------------
|                                         |  |                                  |            |                     |                       |                                      
|                                         |  | Shares    Available    For Grant |            | Number of    Shares |                       | Weighted    Average    Exercise Price
|                                         |  |                                  |            |                     |                       |                                      
|Balance at December 31, 2002             |  |                                  | 507,334    |                     |                       | 3,384,066                            
|Additional shares reserved               |  |                                  | 1,500,000  |                     |                       |                                     
|Granted                                  |  |                                  | (1,025,000 | )                   |                       | 1,025,000                            
|Exercised through cash consideration     |  |                                  |           |                     |                       | (28,750                              
|Retired and other                        |  |                                  | 539,154    |                     |                       | (539,154                             
|                                         |  |                                  |            |                     |                       |                                      
|Balance at December 31, 2003             |  |                                  | 1,521,488  |                     |                       | 3,841,162                            
|                                         |  |                                  |            |                     |                       |                                      
|Granted                                  |  |                                  | (2,202,936 | )                   |                       | 2,202,936                            
|Exercised through cash consideration     |  |                                  |           |                     |                       | (354,019                             
|Exercised through non-cash consideration |  |                                  |           |                     |                       | (3,300                               
|Retired and other                        |  |                                  | 717,331    |                     |                       | (717,331                             
|                                         |  |                                  |            |                     |                       |                                      
|Balance at December 31, 2004             |  |                                  | 35,883     |                     |                       | 4,969,448                            
|                                         |  |                                  |            |                     |                       |                                      

| |                                                                                                                 | The options vested at December 31, 2004 and 2003   were 3,413,868 and 3,058,280, with an average weighted exercise price of   $2.11 and $2.18, respectively.
| | --------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                 |                                                                                                                                                             
| |                                                                                                                 | The weighted average fair value of options granted   during the years ended December 31, 2004 and 2003 were $1.19 and $0.99,   respectively.                
| |                                                                                                                 |                                                                                                                                                             
| | The following table summarizes employee information   regarding stock options outstanding at December 31, 2004:

|Exercise   Price |  | Number   Outstanding |           | Weighted   Average   Remaining Life |  | Weighted   Average   Exercise Price |  | Number   Vested   at 12/31/04 |      | Weighted   Average Exercise   Price | 
|---------------- |  | -------------------- | --------- | ----------------------------------- |  | ----------------------------------- |  | ----------------------------- | ---- | ----------------------------------- | 
|                 |  |                      |           |                                     |  |                                     |  |                               |      |                                     | 
|$0.52 - $0.96    |  |                      | 545,500   |                                     |  | 8.46 years                          |  | $                             | 0.73 |                                     | 
|$1.00 - $1.98    |  |                      | 2,289,047 |                                     |  | 9.19 years                          |  |                               | 1.52 |                                     | 
|$2.00 - $2.91    |  |                      | 1,708,460 |                                     |  | 5.73 years                          |  |                               | 2.38 |                                     | 
|$3.00 - $6.38    |  |                      | 426,441   |                                     |  | 6.17 years                          |  |                               | 3.49 |                                     | 
|                 |  |                      |           |                                     |  |                                     |  |                               |      |                                     | 
|                 |  |                      | 4,969,448 |                                     |  | 7.66 years                          |  | $                             | 1.93 |                                     | 
|                 |  |                      |           |                                     |  |                                     |  |                               |      |                                     | 

18



ANTs SOFTWARE INC.NOTES TO FINANCIAL STATEMENTS

|15. | Subsequent   Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | From November 12, 2004 through January 12, 2005, the   Company sold to accredited investors, through a private offering, 2,123,000 F   Units at a price of one dollar ($1.00) per F Unit, with each F 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 November 12, 2007. The   gross proceeds from the offering were $2,123,000, of which $1,160,000 was   received by December 31, 2004 and $963,000 was received in January 2005. The   Company paid $90,350 in cash commissions and issued 63,181 F Units to the   placement agent in January 2005 in connection with this private offering. The   sales of these securities were made in reliance upon Rule 506 and Section   4(2) of the Securities Act of 1933.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | From February 1, 2005 through February 28, 2005,   warrantholders exercised warrants for an aggregate of 1,987,782 shares of   common stock of the Company. Gross proceeds from the exercises were   $2,782,896. The Company paid $104,550 in cash commissions related to the warrant   exercises to the placement agent in March 2005. The sales of these securities   were made in reliance upon Rule 506 and Section 4(2) of the Securities Act of   1933.  The net proceeds of the warrant   exercises, totaling $2,678,346, exceeded the amount set by the Companys   Board of Directors to trigger payment of a bonus to each of the Companys   Officers, with such bonus representing the salary foregone by each Officer   from October 16, 2004 through February 28, 2005. The total of the bonuses is   $174,000. The Company expects to pay the bonuses in March 2005.              

19