**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**


___________________


**FORM
      10-K**





x
      Annual Report Pursuant
      to Section 13 or 15(d) of the Securities Exchange Act of 1934





For
      the
      fiscal year ended December 31, 2006





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
            (IRS
                Employer Identification Number)Incorporation
                or Organization)





**700
      Airport Blvd., Suite 300, Burlingame, California 94010**


(Address
      of principal executive offices including zip code)





**(650)
      931-0500**


(Registrant’s
      telephone number, including Area Code)





**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 registrant is a well-known seasoned issuer, as defined in Rule
      405
      of the Securities Act. Yes o No x





Check
      whether the registrant is not required to file reports pursuant to Section
      13 or
      15 (d) of the Exchange Act. Yes o No x





Check
      whether the registrant (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 o
      No





Check
      if
      disclosure of delinquent filers in pursuant to Item 405 of Regulation S-K
      (section 2229.405 of this chapter) is not contained herein and will not 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-K
      or any amendment to this Form 10-K. x





Check
      whether the registrant is a large accelerated filer, an accelerated filer or
      a
      non-accelerated filer (as defined in Rule 12b-2 of the Act). Large accelerated
      filer o
      Accelerated filer x Non-accelerated
      filer
o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      last sold, or average bid and asked price of such common equity, as of the
      last
      business day of the registrant’s most recently completed second fiscal quarter.
      As of June 30, 2006 the aggregate market value of the registrant’s common stock
      held by non-affiliates of the registrant was approximately $115 million based
      on
      the average bid and asked price of such common stock as reported on the NASD
      Bulletin Board system. Shares of common stock held by each officer and director
      and each person who owns more than 10% or more of the outstanding common stock
      have been excluded because these persons may be deemed to be affiliates. The
      determination of affiliate status for purpose of this calculation is not
      necessarily a conclusive determination for other purposes.





The
      issuer
      had shares of common stock outstanding as of March 1, 2007 of
      55,819,785.







**DOCUMENTS
      INCORPORATED BY REFERENCE**





Portions
      of the Proxy Statement for the 2007 Annual Meeting of Stockholders (the “Proxy
      Statement”), to be filed within 120 days of the end of the fiscal year ended
      December 31, 2006, are incorporated by reference in Part III hereof. Except
      with
      respect to information specifically incorporated by reference in this Form
      10-K,
      the Proxy Statement is not deemed to be filed as part hereof.





**TABLE
      OF CONTENTS**





PART
                IItem
                1.
            Business
            3Item
                1A.
            Risk
                Factors
            9Item
                1B.
            Unresolved
                Staff Comments
            13Item
                2.
            Properties
            13Item
                3.
            Legal
                Proceedings
            13Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            13PART
                IIItem
                5.
            Market
                for Common Equity and Related Stockholder Matters and
                Issuer Purchases of Equity Securities
            13Item
                6.
            Selected
                Financial Data
            14Item
                7.
            Management’s
                Discussion and Analysis of Financial
                Conditions and Results Operations.
            1515Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            23Item
                8.
            Financial
                Statements and Supplementary
                Data.
            23Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure24Item
                9A.
            Controls
                and Procedures
            24Item
                9B.
            Other
                Information.
            24PART
                IIIItem
                10.
            Directors,
                Executive Officers and Corporate Governance
            25Item
                11.
            Executive
                Compensation
            25Item
                12.
            Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters
            2525Item
                13.
            Certain
                Relationships and Related Transaction and Director
                Independence
            26Item
                14.
            Principal
                Accountant Fees and Services
            26PART
                IVItem
                15.
            Exhibits,
                Financial Statements and
                Schedules
            27Signatures.
            
            54Exhibits.
            
            56




2




*This
        Annual Report and the information incorporated herein by reference contain
        forward-looking statements that involve a number of risks and uncertainties,
        as
        well as assumptions that, if they never materialize or if they prove incorrect,
        would likely cause our results to differ materially from those expressed
        or
        implied by such forward-looking statements. Although our forward-looking
        statements reflect the good faith judgment of our management, these statements
        can only be based on facts and factors currently known by us. Consequently,
        forward-looking statements are inherently subject to risks and uncertainties,
        and actual results and outcomes may differ materially from results and outcomes
        discussed in the forward-looking statements.*
  *Forward-looking
        statements can be identified by the use of forward-looking words such as
        “believes,” “expects,” “hopes,” “may,” “will,” “plans,” “intends,” “estimates,”
“could,” “should,” “would,” “continue,” “seeks” or “anticipates,” or other
        similar words (including their use in the negative), or by discussions of
        future
        matters such as the development of new products, problems incurred in
        establishing sales and sales channels, technology enhancements, possible
        changes
        in legislation and other statements that are not historical. These statements
        include, but are not limited to, statements under the captions “Business,” “Risk
        Factors,” and “Management’s Discussion and Analysis of Financial Condition and
        Results of Operations,” as well as other sections in this Annual Report. You
        should be aware that the occurrence of any of the events discussed under
        the
        heading “Item 1A — Risk Factors” and elsewhere in this Annual Report
        could substantially harm our business, results of operations and financial
        condition. If any of these events occurs, the trading price of our common
        stock
        could decline and you could lose all or a part of the value of your shares
        of
        our common stock.*
  *The
        cautionary statements made in this Annual Report are intended to be applicable
        to all related forward-looking statements wherever they may appear in this
        Annual Report. We urge you not to place undue reliance on these forward-looking
        statements, which speak only as of the date of this Annual
        Report.* **
 
 
 **PART
        I**
 
 **ITEM
        1. BUSINESS**
 
 **The
        Company**
 
 ANTs
        software inc. develops, markets and supports the ANTs Data Server, a relational
        database management system that can dramatically reduce costs and can improve
        performance in a wide range of applications. Two proprietary technologies
        - the
        ANTs Concurrency Engine and compatibility with the proprietary extensions
        from
        other database vendors - together provide unique performance and
        consolidation/cost-saving advantages that make the ANTs Data Server an
        attractive alternative to other relational database management systems
        (“RDBMS’s”). End-users of RDBMS’s, independent software vendors who bundle an
        RDBMS with their products and other RDBMS vendors can use the ANTs Data Server
        or its technologies to lower costs and gain competitive advantage.
 
 **Corporate
        History**
 
 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.
 
 Research
        and development related to the ANTs Data Server (“ADS”) began in 2000, with the
        first beta version of the product released in late 2004 and the first commercial
        version released in 2005.
 
 **Technology
        and Intellectual Property**
 3
 **Overview**
 The
          ANTs
          Data Server is based on technologies that provide an advantage over other relational
          database management systems: Compatibility and the ANTs Concurrency
          Engine.
  **Compatibility**
 
 Applications
        written to work with one RDBMS are typically incompatible with other RDBMSs
        due
        to proprietary extensions developed and popularized by other RDBMS vendors.
        This
        has the effect of locking in customers to one RDBMS vendor because it will
        generally be cost-prohibitive and time-consuming to migrate an application,
        which currently works with one RDBMS to work with another RDBMS. ANTs has
        developed technology that allows the ANTs Data Server to natively process
        these
        proprietary extensions. This technology, which is tightly integrated into
        the
        ANTs Data Server, allows customers to migrate applications to the ANTs Data
        Server more easily and at less cost.
 
 **The
        ANTs Concurrency Engine**
 
 Applications
        which require access to rapidly changing, shared data often suffer from poor
        performance and scalability because of database locking. The ANTs
        Concurrency Engine (ACE), which comprises
        a highly efficient data-processing engine coupled with lock-free data
        structures, eliminates virtually all data locking. ACE is architected into
        the
        core of the ANTs Data Server and enables performance improvements over other
        RDBMS’s. The Company has applied for eleven patents on the concepts, which
        underlie ACE, six of which have been granted by the United States Patent
        and
        Trademark Office.
 
 ACE
        consists of two key components:
  ·
              A
                  highly efficient data processing
                  engine
 ·
              Lock-free
                  data structures, enabling concurrency
 
 **The
        Data Processing Engine**
 
 For
        many
        years, shared data manipulation due to locking in 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 patented and patent-pending
        designs for the implementation and deployment of lock-free data structures.
 
 **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. The
        Company filed eleven patent applications to obtain protection for its
        intellectual property. The Company has been granted six patents. The remaining
        five applications are pending and the Company awaits the Patent and Trademark
        Office’s action on those. The Company also claims 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 in the 1980’s and 1990’s 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.
 4
 **Product-The
        ANTs Data Server**
  The
        ANTs
        Data Server is an RDBMS that can dramatically reduce costs and can improve
        performance in a wide range of applications. Two proprietary technologies-the
        ANTs Concurrency Engine and compatibility with the proprietary extensions
        from
        other database vendors-together provide unique performance and
        consolidation/cost-saving advantages that make ADS an attractive alternative
        to
        other RDBMS’s. End-users of RDBMS’s, independent software vendors who bundle an
        RDBMS with their products and other RDBMS vendors can use ADS or its
        technologies to lower costs and gain competitive advantage.
 
 In
        addition to its unique compatibility and performance technologies,
        ADS incorporates features that make it suitable for a wide range of applications,
        including:
 
 ·
              It
                  can be deployed on off-the-shelf hardware
 ·
              It
                  can be deployed on the Linux, Windows, and Solaris operating
                  systems
 ·
              It
                  supports the SQL-92 language and popular features from
                  SQL-99
 ·
              Its
                  micro-threaded execution engine maximizes performance of multi-core
                  CPUs
                  and multi-processor servers
 ·
              Transactions
                  are durably recorded to disk logs for backup, failover and
                  recovery
 ·
              Automatic
                  failover and recovery are built in
 
 ADS
        contains many additional features and provides a platform on which the ANTs
        R&D team can build significant new features as the market
        demands.
 
 **Sales
        and Marketing**
 
 **The
        Market**
 
 The
        market
        for RDBMS products was $15 billion in 2005 growing to $21 billion in 2010
        (according to IDC Research). Oracle, Microsoft and IBM control approximately
        85%
        of this market. According to the numerous CTOs, database architects and
        application developers at the target Global 2000 enterprises with whom ANTs
        has
        spoken, database infrastructure costs have become one of the most expensive
        line
        items in the IT budget. These Global 2000 enterprises typically have annual
        database “spends” in excess of tens and, in some cases, hundreds of millions of
        dollars; and their database budgets are growing annually. The migration cost
        from one RDBMS to another, even to a low-cost open-source RDBMS, is extensive
        due to lack of compatibility between the products’ proprietary
        extensions.
 
 **Strategy**
 
 ANTs’
        go-to-market strategy adapts with changes in the competitive structure of
        the
        RDBMS market. The refinement of ANTs’ strategy is a continuous and iterative
        process, reflecting the company’s goal of providing a cost-effective solution
        across a wide variety of applications. A NT s’
        strategy has recently included:
 
 ·
              Focusing
                  on large enterprise customers who can realize significant savings
                  by
                  migrating applications away from expensive RDBMS’s and to the ANTs Data
                  Server.
 ·
              Focusing
                  on industry segments where high-performance applications demand
                  a
                  high-performance database.
 ·
              Selling
                  the ANTs Data Server through three sales
                  channels;
 o
              Direct
                  sales to end-users.
 o
              Through
                  independent software vendors who will incorporate the ANTs Data
                  Server
                  with their own product which they will sell to their
                  customers.
 o
              Through
                  selling partners such as value added resellers and system integrators
                  -
                  companies which generally have deep expertise in certain vertical
                  or
                  geographical markets and who integrate the best products to develop
                  complete solutions for their customers.
 
 5
 ANTs’
        compatibility technology provides a solution to the problem of RDBMS lock-in
        and
        cost escalation for major enterprises by enabling them to migrate applications
        from high-cost, proprietary vendors to the compatible, cost-effective ANTs
        Data
        Server. Just as corporations have lowered total cost of ownership by migrating
        from custom applications to packaged applications, from proprietary to
“open-standards” hardware, and from Unix to Linux, corporations can now
        consolidate their high-cost RDBMS’s to the ANTs Data Server.
 
 ANTs
        high-performance technology makes the ANTs Data Server suitable as an
        alternative for new and existing applications where database performance
        is
        critical. Such applications include:
 
 ·
              High
                  volume on-line transaction processing, in capital markets applications
                  for
                  example
 ·
              Telecom
                  - messaging applications
 ·
              Real-time
                  analytics for security and defense department
                  applications
 
 ANTs
        has
        established relationships with a number of partners with whom it is bringing
        the
        ANTs Data Server to market. These partners include selling partners, with
        whom
        ANTs is engaged as a means of gaining market distribution and access to
        customers, and independent software vendor (“ISV”) partners, who bundle the ANTs
        Data Server with their software products and sell a “turn-key” solution to
        customers. Following are select results of ANTs’ partnering
        strategy:
 
 IBM
        -
        through a multinational solutions engagement agreement, announced January
        2007,
        the ANTs Data Server (ADS) may be sold through IBM contracts to customers
        worldwide. First success: ADS selected for deployment on IBM blade servers
        in
        Raytheon, Inc.’s ship board computing platform for the U.S. Navy.
 
 Four
        Js
        Development Tools, Ltd.- selling a turnkey solution comprised of its application
        development tool, Genero, bundled with ADS (which is rebranded as Genero
        db).
        First success: Genero db selected by a Fortune 100 retailer in mid-2006 for
        in-store applications.
 
 Singlepoint,
        Inc. (formerly Wireless Services Corporation) - bundling ADS with Singlepoint’s
        text messaging platform to provide high performance for wireless carriers.
        First
        success: ADS replaces Microsoft SQL Server at Sprint, processing over 12
        million
        messages per day.
 
 The
        Company intends to generate revenue through licensing, maintenance, and
        integration/customization fees. The Company intends to license ADS to
        independent software vendors and others whom it expects will customize it
        for
        use with their applications and use it for database compatibility purposes.
        The
        Company also intends to license ADS to end-users and to sell ADS through
        re-sellers and system integrators. ANTs began selling the first commercial
        version of ADS in 2005, and has generated approximately $754,000 in revenues
        through December 31, 2006.
 
 **Competition**
 
 The
        Company operates in the RDBMS segment of the software market and competes
        against other compatible, high-performance and general-purpose RDBMS’s.
 
 ANTs
        has
        identified one competitor in the “compatibility” segment. Enterprise DB, an
        open-source RDBMS, claims compatibility with applications written for Oracle.
        The three major RDBMS vendors, Oracle, IBM and Microsoft also encourage
        migration from competitive products through use of their migration tools.
        These
        tools often require substantial investment related to rewriting applications,
        retraining developers and purchasing additional database licenses. Customers
        with whom ANTs has spoken are not receptive to migrating applications under
        such
        conditions with these tools.
 
 Competition
        in the high-performance segment comes from in-memory databases such as TimesTen
        (acquired by Oracle, June 2005) and Solid Information Technology, Inc., from
        specialty vendors such as Kx Systems, Inc. and FAME Information Systems,
        Inc.,
        and also from the traditional RDBMS vendors: Oracle, IBM, and Microsoft.
        The
        traditional vendors often encourage customers to solve their high-performance
        problem by upgrading hardware and by contracting with high-cost consulting
        services to develop work-arounds to the bottlenecks found in their products.
 
 General-purpose
        competitors include: Oracle, IBM, and Microsoft, MySQL AB, InterSystems
        Corporation and Sybase, Inc. Business conditions in the RDBMS market are
        highly
        competitive for a number of reasons, including: 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 and expect high levels of
        both
        features and service from an RDBMS vendor. 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 expect; making sales of ADS more challenging.
 
 6
 **Current
        Operations**
 
 The
        Company’s operations currently comprise marketing the ANTs Data Server, a
        relational database management system that can dramatically reduce costs
        and can
        improve performance in a wide range of applications, supporting customers
        and
        research and development. The Company is located in Burlingame, California
        with
        sales staff in a number of other states. The Company has a long-standing
        relationship with a contract development organization in India and has
        individual contractors who provide development and consulting services from
        Europe, Australia and India as well as other parts of the United
        States.
 
 The
        Company has financed operations through sales of its common stock and issuance
        of convertible promissory notes in private offerings to accredited investors.
        The Company expects to continue to raise capital for operations through such
        private offerings until such time as sales revenue offsets expenses. The
        Company
        believes it has sufficient funds to cover operations at the expected expense
        rate through fiscal year 2007. The Company anticipates its focus will be
        on
        continued marketing of ADS, supporting customers, and research and development.
 
 **Employees**
 
 As
        of
        March 1, 2007, the Company had 49 full-time employees, all based in the United
        States. Of the total number, 27 were engaged in research and development,
        10 in
        sales and marketing, 4 in support services and 8 in general, administrative
        and
        finance. ANTs has not experienced work stoppages, is not subject to any
        collective bargaining agreement and believes that its relationship with its
        employees is good.
 
 **Available
        Information**
 
 Our
        Annual
        Report on Form 10K, Quarterly Reports on Form 10Q, Current Reports on Form
        8K
        and amendments to reports filed or furnished pursuant to Sections 13(a) and
        15
        (d) of the Securities and Exchange Act of 1934, as amended, are available
        free
        of charge on our Investor Relations Web site at www.ants.com as soon
        as reasonably practicable after we electronically file such material with,
        or
        furnish it to, the SEC. The information posted on our website is not
        incorporated into this Annual Report on Form 10-K.
 
 **Executive
        Officers**
 
 **ANTs
        executive officers and principal employees as of December 31,
        2006:**
 **Name**
              **Age**
              **Position**Francis
                  K. Ruotolo
              69
              Chairman,
                  Class 3 Director, term expires in 2009Joseph
                  Kozak
              55
              President,
                  Chief Executive Officer, Class 1 Director, term expires in
                  2007Clifford
                  Hersh
              59
              Managing
                  Director and Chief ScientistKenneth
                  Ruotolo
              46
              Chief
                  Financial Officer, Executive Vice President, Finance and Administration,
                  and SecretaryJeffrey
                  R. Spirn, Ph.D.
              58
              Vice
                  President, Research and DevelopmentDavid
                  Segleau
              46
              Vice
                  President, Support ServicesRao
                  Yendluri
              55
              Vice
                  President, Engineering
 7
 **Francis
        K. Ruotolo - Chairman, Board of Directors**
 
 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 Company’s Board of Advisors. Before joining the
        Company, Mr. Ruotolo 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 Chief Financial Officer, Kenneth Ruotolo.
 
 **Joseph
        Kozak - Director, President and Chief Executive Officer**
  Joseph
        Kozak joined ANTs software inc. in June 2005 as President and was named Chief
        Executive Officer and appointed to the Board of Directors in August 2006.
        Mr.
        Kozak brings 25 years of front-line leadership experience in sales, marketing
        and business development. Mr. Kozak joined ANTs from Oracle Corporation,
        where
        he was Vice President of Industry Sales. While with Oracle he defined and
        executed global strategies for retail, distribution, life science, process
        manufacturing, and consumer packaged goods industries. He also managed Oracle's
        acquisition of Retek, Inc. a $630 million purchase in the retail applications
        space. Prior to Oracle, Mr. Kozak was CEO of Lombardi Software a manufacturer
        of
        business process management solutions. He was also a partner with Ernst and
        Young, LLP, in the retail and consumer packaged goods division; Vice President
        of Sales for SAP America, where he was responsible for the retail distribution
        and consumer goods business units for the Americas; and Mr. Kozak held numerous
        management positions with AT&T and IBM.
  **Clifford
        Hersh - Managing Director and Chief Scientist**
 
 Clifford
        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 - Executive Vice President Finance and Operations, Chief Financial
        Officer and Secretary**
 
 Kenneth
        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. an internet-based 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.
 
 **Jeffrey
        R. Spirn, Ph.D. - Vice President Research and Development**
 
 Jeffrey
        Spirn joined the Company in March 2000, 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.
 
 **David
        Segleau - Vice President Support Services**
 
 David
        Segleau joined the Company in July 2006. Prior to joining ANTs, Mr. Segleau was
        Senior
        Director of embedded databases at Oracle Corporation, responsible for a global
        engineering team focused on embedded database technologies. Prior to Oracle,
        he
        was Vice President of Engineering for Sleepycat Software, where he managed
        engineering, technical support, quality assurance, and technical publications
        teams. Mr. Segleau also held directorships of quality assurance, customer
        services, engineering services, technology consulting, datablade development,
        and technical support for Visto, Asta, Versata, Inc., Informix, and Illustra.
        He
        began his career in information systems and services for the energy industry
        where he led key projects in application development and optimization.
 
 8
 **Rao
        Yendluri - Vice President Engineering**
 
 Rao
        Yendluri joined the Company in September 2006. Prior to joining ANTs, he
        founded
        and was President of iNuCom, a software development firm specializing in
        data
        warehousing components. Prior to founding iNuCom, Mr. Yendluri was Director
        of
        Engineering for IBM. Mr. Yendluri was previously Vice President of Engineering
        for Solid Information Technology, where he managed a distributed R&D
        organization and was responsible for the Solid EmbeddedEngine database, Hot
        Standby option, and Solid Synchronet products. Prior to that, Mr. Yendluri
        was
        Director of Development at Prism Solutions, Inc., where he oversaw development
        of data warehouse extraction, transformation and loading tools and at Centura
        Software Corporation (now GUPTA Technologies, LLC), he was Director of
        Connectivity and Replication Development for the company’s database product. Mr.
        Yendluri also managed the SQL connectivity group at Tandem Computers, and
        was
        instrumental in forming the SQL Access Group, which developed the X/Open
        CLI
        API, an industry standard for database access.
 
 **ITEM
        1A. RISK FACTORS**
 
 In
        addition to other information in this 10-K, 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-K, 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.
 
 The
        Company faces significant risks, and the risks described below may not be
        the
        only risks we face. Additional risks that the Company does not know of or
        that
        it currently considers immaterial may also impair its business operations.
        If
        any of the events or circumstances described in the following risks actually
        occurs, the Company’s business, financial condition or results of operations
        could be harmed and the trading price of its common stock could
        decline.
 
 ***Market
        acceptance of the Company’s products and services is not
        guaranteed*** .
        The
        Company is at an early stage of development and its revenue will depend upon
        market acceptance and utilization of its products and services. The Company’s
        product is under constant development and is still maturing. Some customers
        may
        be reluctant to purchase products from a company with an unproven product,
        uncertain finances, or less-experienced support department. Also, due to
        economic conditions some potential customers may have tightened budgets for
        evaluating new products and technologies and the evaluation cycles may be
        much
        longer than in the recent past. There can be no assurance that the Company’s
        product and technology development or support efforts will result in new
        products and services, or that they will be successfully
        introduced.
 
 ***If
        the Company delivers products with defects, its credibility will be harmed
        and
        the sales and market acceptance of its products will
        decrease*** .
        The
        Company’s product and services are complex and have at times contained errors,
        defects and bugs. If the Company delivers products with errors, defects or
        bugs,
        its credibility and the market acceptance and sales of its products would
        be
        harmed. Further, if its products contain errors, defects or bugs, the Company
        may be required to expend significant capital and resources to alleviate
        such
        problems. The Company may agree to indemnify its customers in some circumstances
        against liability arising from defects in our products. Defects could also
        lead
        to product liability as a result of product liability lawsuits against the
        Company or against its customers. The Company carries product and information
        liability and errors and omissions insurance, but in the event that the
        Company is required to defend more than a few such actions, or in the event
        that
        it is found liable in connection with such an action, its business and
        operations may be severely and materially adversely affected.
 
 ***A
        failure to obtain financing could prevent the Company from executing its
        business plan*** .
        The
        Company anticipates that current cash resources will be sufficient for it
        to
        execute its business plan through fiscal year 2007. The Company believes
        that
        securing additional sources of financing to enable it to continue the
        development and commercialization of its proprietary technologies will be
        difficult and there is no assurance of its ability to secure such financing.
        A
        failure to obtain additional financing could prevent the Company from making
        expenditures that are needed to pay current obligations, allow it to hire
        additional personnel and continue development of its product and technology.
        If
        the Company raises additional financing by selling equity or convertible
        debt
        securities, the relative equity ownership of its existing investors could
        be
        diluted or the new investors could obtain terms more favorable than previous
        investors. If the Company raises additional funds through debt financing,
        it
        could incur significant borrowing costs and be subject to adverse consequences
        in the event of a default.
 
 9
 ***The
        Company’s four largest customers represented 73% of its revenue in 2006, and the
        loss of any of these customers could cause a significant drop in its
        revenue.***  The
        Company depends on a limited number of customers for a significant portion
        of its revenue. The Company's four largest customers represent
        approximately 73% of its revenue during the year ended December 31,
        2006. A decrease in revenue from any of its largest customers for any reason,
        including a decrease in pricing or activity, or a decision to either utilize
        another vendor or to no longer use some or all of the products and services
        it
        provides, could have a material adverse effect on its revenue.
 
 ***The
        Company competes with 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 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.
        The
        Company is aware of efforts by competitors to introduce doubt about the
        Company’s financial stability as it competes to make sales and win customers and
        business. Large competitors 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 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 lead in its product development, and is hopeful that its patents
        provide some protection, it will likely need significant additional capital
        in
        order to continue to enjoy such a technological lead over competitors with
        more
        resources.
 
 ***The
        Company relies upon Independent Software Vendors for product
        sales*** .
        A
        significant portion of the Company’s sales have been made through independent
        software vendors (“ISVs”). As a result, its success may depend on the continued
        sales efforts of these ISVs, and identifying and entering into agreements
        with
        additional ISVs. The use of these ISVs involves certain risks, including
        risks
        that they will not effectively sell or support the Company’s products, that they
        will be unable to satisfy their financial obligations with the Company, and
        that
        they will cease operations. Any reduction, delay or loss of orders from ISVs
        may
        harm the Company’s results. There can be no assurance that the Company will
        identify or engage qualified ISVs in a timely manner, and the failure to
        do so
        could have a material adverse affect on the Company’s business, financial
        condition and results of operations.
 
 ***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 eleven patent applications with the United States Patent
        and
        Trademark Office and intends to file more. Six patents have been granted;
        however, the Company does not know if the remaining applications will be
        granted
        or whether it will be successful in prosecuting any future patents. In addition,
        the laws of some foreign countries do not protect proprietary rights to the
        same
        extent, as do the laws of the United States. The Company’s means of protecting
        its proprietary rights may not be adequate and third parties may infringe
        or
        misappropriate its patents, copyrights, trademarks and similar proprietary
        rights. If the Company fails to protect its intellectual property and
        proprietary rights, its business, financial condition and results of operations
        would suffer. The Company believes that it does not infringe upon the
        proprietary rights of any third party, and no third party has asserted an
        infringement claim against it. It is possible, however, that such a claim
        might
        be asserted successfully against the Company in the future. The Company may
        be
        forced to suspend its operations to pay significant amounts to defend its
        rights, and a substantial amount of the attention of its management may be
        diverted from its ongoing business, all of which would materially adversely
        affect its business.
 
 ***The
        Company focuses on the research and development of its proprietary technologies
        and the marketing of its first product*** .
        The
        Company believes that these technologies are the basis for marketable commercial
        products. However, there can be no assurance of this, and it is possible
        that
        the Company’s proprietary technologies and products will have no commercial
        benefit or potential. In addition, from the Company’s inception to the present,
        it has not recognized any substantial operating revenues.
 
 10
 ***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
        Chief Executive Officer, Joseph Kozak 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 have to retain current
        employees. Competition for highly skilled employees with technical, management,
        marketing, sales, product development and other specialized training is intense.
        The Company may not be successful in retaining such qualified personnel.
        Specifically, the Company may experience increased costs in order to retain
        skilled employees. If the Company is unable to retain experienced employees
        as
        needed, it would be unable to execute its business plan.
 
 ***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 products
        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
        the Company experiences rapid growth, the Company will need to manage such
        growth well*** .
        The
        Company may experience substantial growth in the size of its staff and the
        scope
        of its operations, resulting in increased responsibilities for management.
        To
        manage this possible growth effectively, the Company will need to continue
        to
        improve its operational, financial and management information systems, will
        possibly need to create entire departments that do not now exist, and hire,
        train, motivate and manage a growing number of staff. Due to a competitive
        employment environment for qualified technical, marketing and sales personnel,
        the Company expects to experience difficulty in filling its needs for qualified
        personnel. There can be no assurance that the Company will be able to
        effectively achieve or manage any future growth, and its failure to do so
        could
        delay product development cycles and market penetration or otherwise have
        a
        material adverse effect on its financial condition and results of
        operations.
 
 ***The
        Company could face information and product liability risks and may not have
        adequate insurance*** .
        The
        Company’s product may be used to manage data from critical business
        applications. The Company may become the subject of litigation alleging that
        its
        product was ineffective or disruptive in its treatment of data, or in the
        compilation, processing or manipulation of critical business information.
        Thus,
        the Company may become the target of lawsuits from injured or disgruntled
        businesses or other users. The
        Company carries product and information liability and errors and omissions
        insurance, but in the event that the Company is required to defend more than
        a
        few such actions, or in the event that it is found liable in connection with
        such an action, its business and operations may be severely and materially
        adversely affected.
 
 ***Future
        profitability is not guaranteed*** .
        The
        Company has not recognized any substantial operating revenues to date. Assuming
        the Company can attract sufficient financing, and revenues increase, there
        is no
        assurance that the Company’s plans will be realized or that it will achieve
        break-even status or profitability in the future.
 
 ***Changes
        to financial accounting standards may affect the Company’s results of operations
        and cause it to change business practices*** .
        The
        Company prepares financial statements in conformity with U.S. generally accepted
        accounting principles. These accounting principles are subject to interpretation
        by the American Institute of Certified Public Accountants, the Public Company
        Accounting Oversight Board, the SEC and various other bodies formed to interpret
        and create appropriate accounting principles. A change in those principles
        can
        have a significant effect on the Company’s reported results and may affect its
        reporting of transactions completed before a change is announced. Changes
        to
        those rules or the questioning of current practices may adversely affect
        the
        Company’s reported financial results or the way it conducts business. For
        example, accounting principles affecting many aspects of the Company’s business,
        including rules relating to equity-related compensation, have recently been
        revised or are under review. The Financial Accounting Standards Board and
        other
        agencies have finalized changes to U.S. generally accepted accounting principles
        that required the Company, starting January 1, 2006, to record a charge to
        earnings for employee stock option grants and other equity incentives. The
        Company will have significant ongoing accounting charges resulting from option
        grant and other equity incentive expensing that could reduce net income or
        increase losses. In addition, since the Company historically used equity-related
        compensation as a component of its total employee compensation program, the
        accounting change could make the use of equity-related compensation less
        attractive and therefore make it more difficult to attract and retain
        employees.
 
 11
 ***There
        is a limited market for the Company’s common stock*** .
        The
        Company’s common stock is not listed on any exchange and trades in the
        over-the-counter (the “OTC”) market. As such, the market for the Company’s
        common stock is limited and is not regulated by the rules and regulations
        of any
        exchange. Further, the price of the Company’s common stock and its volume in the
        OTC market may be subject to wide fluctuations. The Company’s stock price could
        decline regardless of its actual operating performance, and stockholders
        could
        lose a substantial part of their investment as a result of industry or
        market-based fluctuations. The Company’s stock trades relatively thinly. If a
        more active public market for its stock is not sustained, it may be difficult
        for stockholders to sell shares of its common stock. Because the Company
        does
        not anticipate paying cash dividends on its common stock for the foreseeable
        future, stockholders will not be able to receive a return on their shares
        unless
        they are able to sell them. The market price of the Company’s common stock will
        likely fluctuate in response to a number of factors, including but not limited
        to, the following:
 
 ·  sales,
        sales cycle and market acceptance or rejection of the Company’s
        product;
 ·  economic
        conditions within the database industry;
 ·  the
        Company’s failure to meet performance estimates or the performance estimates of
        securities analysts;
 ·  the
        timing
        of announcements by the Company or its competitors of significant products,
        contracts or acquisitions or publicity regarding actual or potential results
        or
        performance thereof; and
 ·  domestic
        and international economic, business and political conditions.
 
 ***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 on the over-the-counter market.
        This
        was a result of the registration of the Company’s common stock pursuant to a
        merger with CHoPP Computer Corporation, a British Columbia corporation. During
        the period from mid-1987 through late 1999, the Company had few or no employees.
        The Company’s operating activities were limited and were largely administered
        personally by its former Chairman. Due to the passage of time and the poor
        condition of financial and other records, there can be no assurance that
        all
        matters have been addressed at this date.
 
 ***Failure
        to develop or maintain effective internal controls in accordance with
        Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse
        effect on the Company’s stock price*** .
        Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and
        regulations of the SEC require annual management assessments of the
        effectiveness of its internal control over financial reporting and a report
        by
        its independent registered public accounting firm attesting to and reporting
        on
        these assessments. If the Company fails to adequately maintain compliance
        with,
        or maintain, the adequacy of its internal control over financial reporting,
        as
        such standards are modified, supplemented or amended from time to time, the
        Company may not be able to ensure that it can conclude on an ongoing basis
        that
        it has effective internal control over financial reporting in accordance
        with
        Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and
        regulations of the SEC. If the Company cannot favorably assess, or its
        independent registered public accounting firm is unable to provide an
        unqualified attestation report on the Company’s assessment of the effectiveness
        of its internal control over financial reporting, investor confidence in
        the
        reliability of its financial reports may be adversely affected, which could
        have
        a material adverse effect on its stock price.
 
 ***The
        Company has indemnified its officers and directors*** .
        The
        Company has indemnified its Officers and Directors against possible monetary
        liability to the maximum extent permitted under Delaware law.
 
 ***Limitation
        on ability for control through proxy contest*** .
        The
        Company’s Bylaws provide for a Board of Directors to be elected in three
        classes. This classified Board may make it more difficult for a potential
        acquirer to gain control of the Company by using a proxy contest, since the
        acquirer would only be able to elect approximately one-third of the directors
        at
        each shareholders meeting held for that purpose.
 
 ***The
        Company’s actual results could differ materially from those anticipated in our
        forward-looking statements*** .
        This
        report contains forward-looking statements within the meaning of the federal
        securities laws that relate to future events or future financial performance.
        When used in this report, you can identify forward-looking statements by
        terminology such as “believes,” “anticipates,” “plans,” “predicts,” “expects,”
“estimates,” “intends,” “will,” “continue,” “may,” “potential,” “should” and
        similar expressions. These statements are only expressions of expectation.
        The
        Company’s actual results could, and likely will, differ materially from those
        anticipated in such forward-looking statements as a result of many factors,
        including those set forth above and elsewhere in this report and including
        factors unanticipated by the Company and not included herein. Although the
        Company believes that the expectations reflected in the Company’s
        forward-looking statements are reasonable, it cannot guarantee future results,
        levels of activity, performance or achievements. Neither the Company nor
        any
        other person assumes responsibility for the accuracy and completeness of
        these
        statements. The Company assumes no duty to update any of the forward-looking
        statements after the date of this report or to conform these statements to
        actual results. Accordingly, the Company cautions readers not to place undue
        reliance on these statements.
 
 12
 **ITEM
        1B. UNRESOLVED STAFF COMMENTS**
 
 None.
 
 **ITEM
        2. PROPERTIES**
 
 The
        Company’s headquarters are located at 700 Airport Blvd., Suite 300, Burlingame,
        California. The Company leases approximately 15,000 square feet.
 
 **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,
        2006 to December 31, 2006.
 
 **PART
        II**
 
 **ITEM
        5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
        MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**
 
 (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”.
 
 The
        following is the range of high and low closing bid 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
              
              LowQuarter
                  Ended December 31, 2006
              
              $
              2.85
              
              $
              1.99Quarter
                  Ended September 30, 2006
              
              
              2.29
              
              
              2.00Quarter
                  Ended June 30, 2006
              
              
              3.03
              
              
              2.11
 Quarter
                  Ended March 31, 2006
              
              
              2.65
              
              
              2.00Quarter
                  Ended December 31, 2005
              
              $
              2.90
              
              $
              1.80Quarter
                  Ended September 30, 2005
              
              
              3.10
              
              
              1.94Quarter
                  Ended June 30, 2005
              
              
              3.40
              
              
              2.10Quarter
                  Ended March 31, 2005
              
              
              4.05
              
              
              2.10Quarter
                  Ended December 31, 2004
              
              $
              2.02
              
              $
              1.04Quarter
                  Ended September 30, 2004
              
              
              2.17
              
              
              1.60Quarter
                  Ended June 30, 2004
              
              
              2.25
              
              
              1.80Quarter
                  Ended March 31, 2004
              
              
              2.95
              
              
              0.80
 
 The
        quotations reflect inter-dealer prices, without retail mark-up, markdown
        or
        commission and may not represent actual transactions.
 
 As
        of
        March 1, 2007 there were 55,819,785 shares of common stock issued and
        outstanding and 1,434 registered holders of record of the Company’s common
        stock.
 
 13
 (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
 
 In
        December 2006 the Company’s Board of Directors approved the terms of a private
        offering to raise working capital. The private offering consists of units
        (the
“J Units”) sold at a per unit price of $50,000 with each J Unit comprised of (i)
        14,285 shares of common stock of the Company (issued at a per share price
        of
        $1.75) and (ii) a convertible promissory note (the “Note”) with an initial face
        value of $25,000. In December 2006, the Company entered into agreements with
        accredited investors to purchase 40 J Units, raising $2,000,000. Pursuant
        to the
        sale, the Company issued 571,400 shares of common stock of the Company and
        issued Notes with an initial face value of $1,000,000. The Notes bear interest
        at the rate of 10% per annum (simple interest) due and payable at the end
        of
        each fiscal quarter. The Notes mature 24 months from the issuance date, and
        are
        convertible into shares of the Company’s common stock, at the election of the
        holder, at a per share price of $2.00. The Notes are prepayable without penalty
        upon 30 days notice. The Notes are convertible at the election of the Company
        upon a certain event, and if converted at the election of the Company, the
        Company has agreed to register the shares of stock issuable upon conversion.
        The
        Company paid $40,000 in cash commissions and will issue 10,380 shares of
        common
        stock of the Company to a placement agent for services related to the J Unit
        sales. The net proceeds will be used to fund operations. The
        sales
        of these securities were made in reliance upon Rule 506 and Section 4(2)
        of the
        Securities Act of 1933.
 
 In
        January
        2007, the Company sold an additional 180 J Units to accredited investors
        for an
        aggregate investment of $9,000,000. The terms and conditions of the additional
        180 J units are identical to those sold in December 2006 as noted above.
        Pursuant to the sales, the Company will issue investors (i) 2,571,300 shares
        of
        common stock of the Company, and (ii) Notes with an initial face value of
        $4,500,000. The Company paid $900,000 in cash commissions and will issue
        163,620
        shares of common stock of the Company to a placement agent for services related
        to the J Unit sales. The net proceeds will be used to fund operations. The
        sales
        of these securities were made in reliance upon Rule 506 and Section 4(2)
        of the
        Securities Act of 1933.
 
 In
        March
        2007, the Company sold an additional 14 J Units to accredited investors for
        an
        aggregate investment of $700,000. The terms and conditions of the additional
        14
        J units are identical to those sold in December 2006 as noted above. Pursuant
        to
        the sales, the Company will issue investors (i) 199,990 shares of common
        stock
        of the Company, and (ii) Notes with an initial face value of $350,000. The
        Company will pay $70,000 in cash commissions and will issue 12,726 shares
        of
        common stock of the Company to a placement agent for services related to
        the J
        Unit sales. The net proceeds will be used to fund operations. The
        sales
        of these securities were made in reliance upon Rule 506 and Section 4(2)
        of the
        Securities Act of 1933.
 
 **ITEM
        6. SELECTED FINANCIAL DATA**
 
 *The
        following selected financial data are derived from our financial statements.
        This data should be read in conjunction with the financial statements and
        notes
        and with Item 7, Management’s Discussion and Analysis of Financial Condition and
        Results of Operations.*
 **Fiscal
                      Years****2006**
                  
                  **2005**
                  
                  **2004**
                  
                  **2003**
                  
                  **2002**Operations:Revenue
                  
                  $
                  287,832
                  
                  $
                  466,620
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -Operating
                      expenses
                  
                  
                  15,532,252
                  
                  
                  9,154,979
                  
                  
                  5,060,292
                  
                  
                  3,616,351
                  
                  
                  4,322,755Net
                      income (loss)*
                  
                  
                  (15,125,903
                  )
                  
                  (8,704,497
                  )
                  
                  (5,060,061
                  )
                  
                  (3,587,340
                  )
                  
                  (4,304,891
                  )Basic
                      & diluted net loss per share*
                  
                  $
                  (0.30
                  )
                  $
                  (0.22
                  )
                  $
                  (0.16
                  )
                  $
                  (0.15
                  )
                  $
                  (0.22
                  )Financial
                      Position:Cash
                      and cash equivalents
                  
                  $
                  4,698,949
                  
                  $
                  6,381,932
                  
                  $
                  1,448,724
                  
                  $
                  541,725
                  
                  $
                  946,957Working
                      capital
                  
                  
                  3,882,199
                  
                  
                  5,525,616
                  
                  
                  1,196,604
                  
                  
                  (220,883
                  )
                  
                  851,355Total
                      assets
                  
                  
                  5,996,171
                  
                  
                  7,436,357
                  
                  
                  1,868,616
                  
                  
                  921,355
                  
                  
                  1,388,812Stockholder'
                      equity
                  
                  $
                  3,823,010
                  
                  $
                  6,412,586
                  
                  $
                  1,529,181
                  
                  $
                  (135,315
                  )
                  $
                  1,163,813
 
 *
        Fiscal
        2006 net loss includes $1,332,246 in non-cash compensation expense related
        to
        the vesting of stock-based awards as required by Statement of Financial
        Accounting Standards (“SFAS”) No. 123(R), *“Share-Based
        Payment”* .
        Included
        in the $1,332,246 is $79,087 for payments made to vendors. The total
        non-compensation expense increased the fiscal year 2006 net loss by $0.03
        per
        share.
 
 14
 **ITEM
        7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
 
 *The
        following discussion should be read in conjunction with our financial statements
        and notes hereto.*
 
 *This
        Annual Report and the information incorporated herein by reference contain
        forward-looking statements that involve a number of risks and uncertainties,
        as
        well as assumptions that, if they never materialize or if they prove incorrect,
        would likely cause our results to differ materially from those expressed
        or
        implied by such forward-looking statements. Although our forward-looking
        statements reflect the good faith judgment of our management, these statements
        can only be based on facts and factors currently known by us. Consequently,
        forward-looking statements are inherently subject to risks and uncertainties,
        and actual results and outcomes may differ materially from results and outcomes
        discussed in the forward-looking statements.*
  *Forward-looking
        statements can be identified by the use of forward-looking words such as
        “believes,” “expects,” “hopes,” “may,” “will,” “plans,” “intends,” “estimates,”
“could,” “should,” “would,” “continue,” “seeks” or “anticipates,” or other
        similar words (including their use in the negative), or by discussions of
        future
        matters such as the development of new products, problems incurred in
        establishing sales and sales channels, technology enhancements, possible
        changes
        in legislation and other statements that are not historical. These statements
        include, but are not limited to, statements under the captions “Business,” “Risk
        Factors,” and “Management’s Discussion and Analysis of Financial Condition and
        Results of Operations,” as well as other sections in this Annual Report. You
        should be aware that the occurrence of any of the events discussed under
        the
        heading “Item 1A — Risk Factors” and elsewhere in this Annual Report
        could substantially harm our business, results of operations and financial
        condition. If any of these events occurs, the trading price of our common
        stock
        could decline and you could lose all or a part of the value of your shares
        of
        our common stock.*
  *The
        cautionary statements made in this Annual Report are intended to be applicable
        to all related forward-looking statements wherever they may appear in this
        Annual Report. We urge you not to place undue reliance on these forward-looking
        statements, which speak only as of the date of this Annual
        Report.*
 
 **Critical
        Accounting Policies**
 
 ***Use
        of Estimates*** - The
        preparation of the financial statements in accordance with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect reported amounts of assets, liabilities,
        revenues and expenses and disclosure of contingent assets and liabilities.
        The
        Company evaluates such estimates and assumptions on an ongoing basis and
        bases
        its estimates on historical experience and on various other assumptions that
        are
        believed to be reasonable under the circumstances, the results of which form
        the
        basis for making judgments about the carrying values of assets and liabilities
        that are not readily apparent from other sources. Actual results may differ
        from
        these estimates and probably will differ from these estimates under different
        assumptions or conditions.
 
 ***Revenue
        Recognition*** *-* The
        Company recognizes revenue in accordance ** with
        the
        provisions of Statement of Position (“SOP”) 97-2 *,
        “Software Revenue Recognition”,* and SOP
        98-9, *“Modification
        of SOP 97-2, Software Revenue Recognition, With Respect to Certain
        Transactions”.* Revenue
        consists primarily of revenue earned under agreements for software licenses,
        maintenance and support (otherwise known as post-contract customer support
        or
“PCS”) and professional services.
 
 The
        company uses the residual method to recognize revenue when a license agreement
        includes one or more elements to be delivered at a future date. If there
        is an
        undelivered element under the license arrangement, the Company defers revenue
        based on vendor-specific objective evidence, or VSOE, of the fair value of
        the
        undelivered element, as determined by the price charged when the element
        is sold
        separately. If VSOE of fair value does not exist for all undelivered elements,
        the Company defers all revenue until sufficient evidence exists or all elements
        have been delivered. Under the residual method, discounts are allocated only
        to
        the delivered elements in a multiple element arrangement with any undelivered
        elements being deferred based on VSOE of fair values of such undelivered
        elements. Revenue from software license arrangements, which comprise prepaid
        license and maintenance support fees, is recognized when all of the following
        criteria are met:
 
 15
 
 ·
              Persuasive
                  evidence of an arrangement exists.
 ·
              Delivery
                  has occurred and there are no future deliverables except post-contract
                  customer support (“PCS”).
 ·
              The
                  fee is fixed and determinable. If we cannot conclude that a fee
                  is fixed
                  and determinable, then assuming all other criteria have been met,
                  revenue
                  is recognized as payments become due in accordance with paragraph
                  29 of
                  SOP 97-2.
 ·
              Collection
                  is probable.
 
 Revenue
        from professional fees, consisting primarily of consulting services, is
        recognized as services are provided and the revenues are earned.
  ***Stock-Based
        Compensation -*** On
        January 1, 2006, the Company adopted the provisions of Statement of Financial
        Accounting Standards (“SFAS”) 123(R), *“Share-Based
        Payment”* (the
“Statement or “SFAS 123(R)”), which require the Company to recognize expense
        related to the fair value of its stock-based compensation awards. The Company
        elected to use the modified prospective transition method as permitted by
        SFAS
        123(R) and therefore has not restated its financial results for prior periods.
        Under this transition method, stock-based compensation expense for the fiscal
        year ended December 31, 2006 includes compensation expense for all stock-based
        compensation awards granted prior to, but not fully vested, as of
        January 1, 2006, based on the grant date fair value estimated in accordance
        with the original provisions of SFAS 123, *“Accounting
        for Stock Compensation”* (“SFAS
        123”). Stock-based compensation expense for all stock-based compensation awards
        granted subsequent to January 1, 2006 is based on the grant date fair value
        estimated in accordance with the provisions of SFAS 123(R). The Company
        recognizes compensation expense for stock option awards on a straight-line
        basis
        over the requisite service period of the award, which is three
        years.
  In
        March
        2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”), which offers
        guidance on SFAS 123(R). SAB 107 was issued to assist preparers by simplifying
        some of the implementation challenges of SFAS 123(R) while enhancing the
        information that investors receive. SAB 107 creates a framework that is premised
        on two overarching themes: (a) considerable judgment will be required by
        preparers to successfully implement SFAS 123(R), specifically when valuing
        employee stock options; and (b) reasonable individuals, acting in good faith,
        may conclude differently on the fair value of employee stock options. Key
        topics
        covered by SAB 107 include valuation models, expected volatility and expected
        term. The Company is applying the principles of SAB 107 in conjunction with
        its
        adoption of SFAS 123(R).
  ***Income
        Taxe*** *s* - 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.
 
 The
        Company’s judgment, assumptions and estimates used for the current tax provision
        take into account the potential impact of FIN 48, its interpretation of current
        tax laws and possible future audits conducted by the U.S. tax authorities.
        FIN
        48 required the Company to examine the effects of its tax position, based
        on the
        use of its judgments, assumptions, and estimates when it is more likely than
        not, based on technical merits, that the Company’s tax position will be
        sustained if an examination is performed.
 
 **Results
        of Operations**
 
 The
        results of operations for the fiscal years ended December 31, 2006, 2005
        and
        2004 are summarized in the table below.
  16
 Summary
                    of Statements of Operationsfor
                    Years ending December 31,2006
                
                %
                    Change 2006 to 2005
                
                
                2005
                
                %
                    Change 2005 to 2004
                
                
                2004Revenues
                
                $
                287,832
                
                
                -38
                %
                
                $
                466,620
                
                
                N/A
                
                
                $
                -Cost
                    of goods sold
                
                
                23,893
                
                
                N/A
                
                
                
                -
                
                
                N/A
                
                
                
                -Gross
                    profit
                
                
                263,939
                
                
                -43
                %
                
                
                466,620
                
                
                N/A
                
                
                
                0Operating
                    expenses
                
                
                15,532,252
                
                
                70
                %
                
                
                9,154,979
                
                
                81
                %
                
                
                5,060,292Loss
                    from operations
                
                
                (15,268,313
                )
                
                76
                %
                
                
                (8,688,359
                )
                
                72
                %
                
                
                (5,060,292
                )Other
                    income (expense), net
                
                
                142,410
                
                
                982
                %
                
                
                (16,138
                )
                
                -7086
                %
                
                
                231Net
                    loss
                
                $
                (15,125,903
                )
                
                74
                %
                
                $
                (8,704,497
                )
                
                72
                %
                
                $
                (5,060,061
                )Net
                    loss per share -basic
                    and diluted
                
                $
                (0.30
                )
                
                36
                %
                
                $
                (0.22
                )
                
                38
                %
                
                $
                (0.16
                )Shares
                    used in computing basic anddiluted
                    net loss per share
                
                
                50,474,155
                
                
                25
                %
                
                
                40,418,575
                
                
                24
                %
                
                
                32,501,014
  **Revenues**
 
 The
        Company began marketing and selling the ANTs Data Server as a high-performance
        RDBMS during 2005. The first contracts occurred during the first quarter
        of 2005
        and the sales team began building a pipeline of prospective customers. In
        late
        2005, the Company modified its strategy to include development and marketing
        of
        the ANTs Data Server as a low-cost, compatible RDBMS in addition to marketing
        ADS as a high-performance RDBMS. This led to a shift in focus and in sales
        and
        marketing towards “compatibility” sales, with somewhat reduced emphasis on
        high-performance sales, resulting in a decrease in fiscal 2006 revenues.
  During
        2006, the Company recognized $287,832 in revenue, in accordance with its
        revenue
        recognition policy, of which:
 
 $157,958
        was license fees
 $105,792
        were maintenance and support fees from the current and prior periods
        and
 $24,082
        was professional services fees
 
 The
        Company deferred $56,819 of the maintenance and support fees invoiced in
        fiscal
        2006. These deferred fees are reflected on the balance sheets as deferred
        revenue.
 
 **Operating
        Expenses**
 
 Operating
        expenses for the fiscal years ending December 31, 2006, 2005 and 2004 were
        as
        follows:
 Operating
                    Expenses - Fiscal Years ended December 31,2006
                
                %
                    Change vs. Prior Period
                
                
                2005
                
                %
                    Change vs. Prior Period
                
                
                2004Sales
                    and marketing
                
                $
                5,164,937
                
                
                43
                %
                
                $
                3,618,324
                
                
                131
                %
                
                $
                1,564,424Research
                    and development
                
                
                6,736,381
                
                
                88
                %
                
                
                3,589,565
                
                
                70
                %
                
                
                2,109,452General
                    and administrative
                
                
                3,630,934
                
                
                86
                %
                
                
                1,947,090
                
                
                40
                %
                
                
                1,386,416Total
                    operating expenses
                
                $
                15,532,252
                
                
                70
                %
                
                $
                9,154,979
                
                
                81
                %
                
                $
                5,060,292
 
 17
 During
        fiscal 2004, the Company was in the early phase of its transition from basic
        product research and development (“R&D”) to sales and marketing (“S&M”),
        supported by ongoing R&D. In 2004, the Company’s S&M staff averaged 5;
        during fiscal 2005 the S&M staff averaged 12, an increase of 140%. Costs for
        all direct marketing and sales activities (travel and entertainment, lead
        generation programs, events & promotions, the use of outside consultants,
        advertising, public relations, printing, etc.) increased from $827 thousand
        in
        2004 to $1.5 million in 2005, an increase of $673 thousand, or 81%.
 
 From
        2004
        to 2005, S&M expense increased from 31% to 40% of total operating expenses,
        while over the same time period, R&D expense declined from 42% to 39% of
        total operating expenses. General and administrative (“G&A”) expenses also
        declined, from 27% to 21% of total operating expenses.
 
 All
        areas
        of the Company expanded in 2005 as the Company added personnel and relocated
        its
        offices to accommodate growth. Total average full-time staff increased from
        23
        in 2004 to 35 in 2005, an increase of 52%.
 
 During
        fiscal 2005 the Company completed a transition from heavy focus on research
        and
        development of the ANTs Data Server (“ADS”) to an expanding focus on sales,
        marketing and customer support. In addition, late in 2005 the Company changed
        strategic direction. While continuing to focus on the high-performance database
        market, the Company began pursuing a much larger legacy database replacement
        market by taking advantage of the compatibility technology in ADS to offer
        customers a lower-cost, compatible alternative to expensive legacy database
        products. These changes led to a sharp increase in sales and marketing costs
        compared to 2004. These strategic changes required increases in research
        and
        development to support the effort to enhance the compatibility features of
        ADS.
        G&A costs increased as infrastructure and staff were added.
 
 The
        Company continued to grow in 2006. Total average full-time staff increased
        to 47
        in 2006 from 35 in 2005, an increase of 34%. The bulk of the increase was
        in the
        R&D department, which grew 53%, from an average full-time staff of 17 in
        2005 to 26 in 2006.
 
 During
        fiscal 2006, pursuant to its change in strategy, the Company accelerated
        development efforts related to compatibility features and implemented an
        aggressive recruiting campaign to attract engineering resources. As a result,
        R&D expenses increased significantly compared to 2005. Additionally, the
        Company implemented an ambitious marketing and sales effort to build the
        infrastructure and develop programs aimed at Global 2000 companies as prospects
        for a low cost, compatible RDBMS. G&A expense increased substantially over
        2005 as the Company staffed up to handle more employees, and most significantly,
        as the Company was required to meet the extensive process and reporting
        requirements related to its first-time compliance with Section 404 of the
        Sarbanes-Oxley Act of 2002.
 
 **Sales
        and Marketing Expenses**
 
 Sales
        and
        marketing expenses consist primarily of employee salaries and benefits,
        consultants’ fees, travel, marketing programs (trade shows, public relations,
        lead generation programs), marketing and sales literature and presentations,
        and
        allocation of corporate overhead.
 Changes
                    to key sales and marketing expenses from 2004 to 2006:**2006**
                
                **%
                    Change vs. Prior Period**
                
                
                **2005**
                
                **%
                    Change vs. Prior Period**
                
                
                **2004**Marketing
                    programs
                
                $
                1,782,274
                
                
                56
                %
                
                $
                1,144,688
                
                
                85
                %
                
                $
                617,426Employee
                    compensation and benefits
                
                
                2,049,872
                
                
                23
                
                
                
                1,664,421
                
                
                177
                
                
                
                601,202Employee
                    stock-based compensation
                
                
                208,085
                
                
                N/A
                
                
                
                -
                
                
                ---
                
                
                
                -Sales-related
                    travel
                
                
                526,770
                
                
                53
                
                
                
                343,229
                
                
                116
                
                
                
                158,647
  18
 Total
        S&M expenses increased by $1.5 million in 2006 compared to 2005, due
        primarily to the following: 1) expenses related to direct marketing activities
        such as trade shows, advertising, lead generation and other marketing events
        increased significantly; 2) employee-related expenses increased as the prior
        year’s staffing increases were realized over the course of a full year; 3)
        recognition of employee stock-based compensation expense as required by SFAS
        123R which was implemented at the beginning of fiscal 2006; and 4) sales-related
        travel expense climbed as the Company continued to expand sales activity
        in
        international and domestic markets.
 
 Total
        S&M expenses increased by $2.0 million in 2005 compared to 2004, due
        primarily to the following: 1) increased S&M staffing levels led to an
        increase in salaries and benefits; 2) professional fees related to the execution
        of direct marketing and lead generation programs, web-site design and
        maintenance and printing and other ancillary costs grew and 3) sales-related
        travel expense rose as the Company increased sales activity in international
        and
        domestic markets.
 
 **Research
        and Development Expenses**
 
 Research
        and development expenses consist primarily of employee salaries and benefits,
        fees to consultants, depreciation on equipment and software, and allocation
        of
        corporate overhead. In 2005 R&D focused primarily on supporting sales
        activities by adding new features, and testing and refining ADS as a
        high-performance product. Significant increases in R&D expenses during
        fiscal 2006 were driven by changes in the Company’s overall strategic direction
        to include compatibility features in ADS. The strategy change required adding
        significant new engineering resources, in the form of employees and additional
        offshore consultants to support R&D operations.
 Changes
                    to key research and development expenses from 2004 to
                    2006:**2006**
                
                **%
                    Change vs. Prior Period**
                
                
                **2005**
                
                **%
                    Change vs. Prior Period**
                
                
                **2004**Employee
                    compensation and benefits
                
                $
                3,804,380
                
                
                56
                %
                
                $
                2,436,288
                
                
                44
                %
                
                $
                1,688,651On-
                    and off-shore contractors
                
                
                1,401,728
                
                
                168
                
                
                
                523,607
                
                
                547
                
                
                
                80,937Employee
                    stock-based compensation
                
                
                442,015
                
                
                N/A
                
                
                
                -
                
                
                ---
                
                
                
                -Depreciation
                    on equipment & computer supplies
                
                
                423,966
                
                
                44
                
                
                
                293,956
                
                
                68
                
                
                
                175,390
  Total
        R&D expenses increased by $3.1 million in 2006 compared to 2005, due
        primarily to the following: 1) employee-related expenses rose as R&D
        staffing increased from an average of 17 in 2005 to 26 in 2006; 2) greater
        use
        of on and off-shore consultants, and; 3) recognition of employee stock-based
        compensation expense as required by the implementation of SFAS 123R which
        was
        implemented at the beginning of fiscal 2006.
 
 Total
        R&D expenses increased by $1.5 million in 2005 compared to 2004, due
        primarily to the following: 1) employee-related expenses rose as a result
        of
        increased staffing levels and wage increases for R&D personnel; 2) increased
        use of on and off-shore consultants, and; 3) increased purchases of computer
        equipment (depreciation) and upgrades to facilities systems in the Company’s
        development lab.
 
 **General
        and Administrative Expenses**
 
 General
        and administrative expenses comprise primarily employee salaries and benefits,
        professional fees (legal, accounting, investor relations, and recruiting),
        facilities expenses and insurance.
  Changes
                    to key general and administrative expenses from 2004 to
                    2006:**2006**
                
                **%
                    Change vs. Prior Period**
                
                
                **2005**
                
                **%
                    Change vs. Prior Period**
                
                
                **2004**Employee
                    compensation and benefits
                
                $
                1,324,176
                
                
                31
                %
                
                $
                1,012,725
                
                
                99
                %
                
                $
                509,371Employee
                    stock-based compensation
                
                
                603,059
                
                
                N/A
                
                
                
                -
                
                
                ---
                
                
                
                -Professional
                    fees
                
                
                1,221,579
                
                
                91
                
                
                
                640,089
                
                
                29
                
                
                
                495,802Facilities
                
                
                460,084
                
                
                55
                
                
                
                296,526
                
                
                154
                
                
                
                116,710
  Total
        G&A expenses increased by $1.7 million in 2006 compared to 2005, due
        primarily to the following: 1) employee-related expense increases were driven
        in
        large part by increases in medical insurance premiums as well as an increase
        in
        headcount; 2) recognition of employee stock-based compensation expense as
        required by the implementation of SFAS 123R which was implemented at the
        beginning of fiscal 2006; 3) professional fees grew mainly due to compliance
        with section 404 of the Sarbanes-Oxley Act of 2002, and; 4) an increase in
        facilities expense as the Company realized a full year’s worth of expense in its
        new facility.
 
 Total
        G&A expenses increased by $500 thousand in 2005 compared to 2004, due
        primarily to the following: 1) an increase in employee-related expenses
        resulting from higher medical insurance premiums, and an increase in
        compensation related to the hiring of a new CEO and a new Controller; 2)
        increased professional fees related to increased capital raising activity
        in
        2005, and; 3) facilities expense grew as the Company relocated to larger
        facilities during the year.
 
 19
 In
        2006,
        the Company was required to implement the processes and procedures necessary
        to
        effect compliance with Section 404 of the Sarbanes-Oxley Act of 2002. In
        addition to consulting expenses, the Company incurred increased audit fees,
        as
        the external auditors issued an opinion on the effectiveness of the
        Company’s internal controls over the financial reporting process during 2006.
        The Company estimates the total cost of compliance with Section 404 in 2006
        will
        be between $400 thousand to $500 thousand.
 
 The
        majority of the Company’s operating expenses and costs over the next twelve
        months are expected to be for, and related to, marketing and selling the
        ANTs
        Data Server, continuing technical development, and supporting customers.
 
 **Other
        Income (Expense), Net**
 
 The
        components of Other Income (Expense), Net for the fiscal years ending December
        31, 2006, 2005 and 2004 are:
 Fiscal
                      Years ended December 31,%
                      Change vs.
                  
                  
                  
                  
                  %
                      Change vs.2006
                  
                  Prior
                      Period
                  
                  
                  2005
                  
                  Prior
                      Period
                  
                  
                  2004Other
                      income (expense):Income
                      earned from expired contract
                  
                  $
                  -
                  
                  
                  N/A
                  
                  
                  $
                  -
                  
                  
                  -100
                  %
                  
                  $
                  310,943Interest
                      income
                  
                  
                  203,133
                  
                  
                  740
                  %
                  
                  
                  24,170
                  
                  
                  40
                  %
                  
                  
                  17,214Gain
                      on legal settlement and other
                  
                  
                  4,337
                  
                  
                  -28
                  %
                  
                  
                  6,000
                  
                  
                  9
                  %
                  
                  
                  5,500Write
                      off note receivable fromformer
                      officer
                  
                  
                  -
                  
                  
                  N/A
                  
                  
                  
                  -
                  
                  
                  -100
                  %
                  
                  
                  (45,000
                  )Write
                      off assets related to office move, net
                  
                  
                  -
                  
                  
                  -100
                  %
                  
                  
                  (41,294
                  )
                  
                  N/A
                  
                  
                  
                  -Write
                      off of fixed assets related to impairment
                  
                  
                  (57,614
                  )
                  
                  N/A
                  
                  
                  
                  -
                  
                  
                  N/A
                  
                  
                  
                  -Interest
                      expense
                  
                  
                  (7,446
                  )
                  
                  49
                  %
                  
                  
                  (5,014
                  )
                  
                  -98
                  %
                  
                  
                  (288,426
                  )Other
                      income (expense), net
                  
                  $
                  142,410
                  
                  
                  982
                  %
                  
                  $
                  (16,138
                  )
                  
                  N/A
                  
                  
                  $
                  231
 
 Two
        factors drove the increase in interest income during fiscal 2006: 1) an average
        balance of approximately $6.3 million in invested funds during 2006 compared
        to
        an average balance of approximately $3.2 million in fiscal 2005 and 2) cash
        balances were invested in higher-yielding money market accounts in 2006 compared
        to minimum-yield bank investment products during 2005. Average cash funds
        available for investment have increased over time as the Company has raised
        increasingly larger amounts of equity capital.
 
 The
        changes from 2004 to 2005 resulted primarily from the following: 1) in 2004,
        the
        Company recognized $311 thousand in other income related to the expiration
        of a
        contract with Net Soft Systems, Inc. - a one-time event; 2) in 2004, a note
        receivable to a former officer in the amount of $45 thousand was written
        off; 3)
        in 2004, $288 thousand in non-cash interest expense related to two convertible
        promissory notes was recognized. Since these notes were converted to stock
        in
        July 2004, there was no corresponding expense in 2005; and 4) in 2005, the
        Company wrote off the net book value of leasehold improvements and security
        deposits related to the Company’s prior facilities in the net amount of $41
        thousand.
 
 **Off
        Balance Sheet Arrangements**
 
 On
        April
        27, 2005, the Company entered into a lease with Bayside Plaza, a partnership,
        for approximately 15,600 square feet of general commercial offices located
        at
        700 Airport Boulevard, Suite 300, Burlingame, California (the “Premises”). The
        Company moved its principal offices to these Premises on May 2, 2005. The
        Premises are used for the purposes of general office use and for software
        development. The lease has an initial term of three years, subject to the
        Company's right to extend the term of the lease for a total of six additional
        years. The base rent under this lease is $16,060 per month for the first
        year,
        $17,520 per month for the second year and $20,440 per month for the third
        year.
        The Company received abated rent for the period from May 1, 2005 to July
        30,
        2005. In the event that the Lease is not extended, the total obligations
        of the
        Company related to the lease amount to $600,060.
 
 20
 The
        Company is recognizing rent expense for this lease in accordance with FASB
        Financial Technical Bulletin 85-3 (“FTB 85-3”), “ *Accounting
        for Operating Leases with Scheduled Rent Increases* ”.
        The
        base rent, the effects of the scheduled rent increases, and the effects of
        the
        rent abatement are being recognized on a straight-line basis over the lease
        term, resulting in monthly rental expense of $16,668. During the fiscal years
        ended December 31, 2006, 2005 and 2004, the Company recognized a total of
        $200,020, $133,347 (incurred from May 1, 2005 through December 31, 2005),
        and $0
        respectively, in rental expense for this lease.
 
 **Recent
        Accounting Pronouncements**
  In
        February 2006, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 155 (“SFAS
        No. 155”), “ *Accounting
        for Certain Hybrid Financial Instruments — an Amendment of FASB Statements
        No. 133 and 140”* .
        SFAS
        No. 155 allows financial instruments that contain an embedded derivative
        and that otherwise would require bifurcation to be accounted for as a whole
        on a
        fair value basis, at the holders’ election. SFAS No. 155 also clarifies and
        amends certain other provisions of SFAS No. 133 and SFAS No. 140. This
        statement is effective for all financial instruments acquired or issued in
        fiscal years beginning after September 15, 2006 (January 1, 2007 for the
        Company). The adoption of SFAS No. 155 is not expected to have a material
        impact on the Company’s consolidated financial condition or results of
        operations.
 
 In
        June
        2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”) *,
        “Accounting for Uncertainty in Income Taxes, an Interpretation of SFAS No.
        109”* .
        FIN 48
        clarifies the accounting for uncertainty in income taxes recognized in an
        enterprise’s financial statements in accordance with SFAS No. 109, *“Accounting
        for Income Taxes”* ,
        by
        prescribing a recognition threshold and measurement attribute for the financial
        statement recognition and measurement of a tax position taken or expected
        to be
        taken in a tax return. Under FIN 48, the financial statement effects of a
        tax
        position should initially be recognized when it is more likely than not,
        based
        on the technical merits, that the position will be sustained upon examination.
        A
        tax position that meets the more-likely-than-not recognition threshold should
        initially and subsequently be measured as the largest amount of tax benefit
        that
        has a greater than fifty percent likelihood of being realized upon ultimate
        settlement with a taxing authority. FIN 48 is effective for fiscal years
        beginning after December 15, 2006. The cumulative effect, if any, of applying
        the provisions of FIN 48 will be reported as an adjustment to the opening
        balance of retained earnings in the period adopted. The adoption of FIN 48
        is
        not expected to have a material impact on the Company’s financial condition or
        results of operations.
 
 In
        September 2006, the U.S. Securities and Exchange Commission (SEC) issued
        Staff
        Accounting Bulletin No. 108 (“SAB 108”), *“Considering
        the Effects of Prior Year Misstatements when Quantifying Misstatements in
        Current Year Financial Statements”* .
        SAB 108
        addresses the diversity in practice of quantifying financial statement
        misstatements resulting in the potential build up of improper amounts on
        the
        balance sheet. SAB 108 provides interpretive guidance on how the effects
        of the
        carryover or reversal of prior year misstatements should be considered in
        quantifying a current year misstatement. The SEC staff believes that registrants
        should quantify errors using both a balance sheet and an income statement
        approach and evaluate whether either approach results in quantifying a
        misstatement that, when all relevant quantitative and qualitative factors
        are
        considered, is material. SAB 108 is effective for companies with fiscal years
        ending after November 15, 2006. SAB 108 allows a one-time transitional
        cumulative effect adjustment to beginning retained earnings, in the first
        year
        of adoption, for errors that were not previously deemed material, but are
        material under the guidance in SAB 108. The
        adoption of SAB 108 is not expected to have a material impact on the Company’s
        financial condition or results of operations.
  In
        September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), *“Fair
        Value Measurements* ”,
        which
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles (GAAP), and expands disclosures
        about
        fair value measurements. This Statement applies in conjunction with other
        accounting pronouncements that require or permit fair value measurements.
        This
        Statement shall be effective for financial statements issued for fiscal years
        beginning after November 15, 2007 and all fiscal periods within those fiscal
        years. The adoption of FAS 157 is not expected to have a material impact
        on the
        Company’s financial condition or results of operations.
 
 21
 **Capital
        and Liquidity Resources**
 
 From
        inception, the Company has reported negative cash flow from operations. During
        the periods from fiscal 2000 through fiscal 2004, the Company was focused
        primarily on research and development with its first sales occurring in the
        first quarter of 2005. Total revenues for 2005 and 2006 were approximately
        $754
        thousand. These revenues were less than the Company’s need for funds during
        these years.
 
 Throughout
        this seven year period, the Company has funded operations and investments
        in
        operating assets with cash raised through financing activities in the form
        of
        private offerings to accredited investors. The funds raised have been primarily
        in the form of sales of the Company’s common stock and, to a lesser degree,
        through the issuance of convertible promissory notes.
 
 The
        Company has offered several private offerings each year. The offerings typically
        consist of Units, which give the investor shares of restricted common stock
        at a
        discount to the then-current market price, and a warrant to purchase the
        same
        number of restricted shares of common stock at a fixed price set at a premium
        to
        the then-current market price. The warrants generally have a life of three
        years.
 
 In
        the
        latter part of 2006 and early 2007, the Company sold units comprised of common
        stock and a convertible promissory note (“Notes”), convertible into common
        stock. As of December 31, 2006, the Company had Notes with a face value of
        $1
        million outstanding. The Notes bear interest at the rate of 10% per annum
        (simple interest) due and payable at the end of each fiscal quarter. The
        Notes
        mature 24 months from the issuance date, and are convertible into shares
        of the
        Company’s common stock, at the election of the holder, at a per share price of
        $2.00. The Notes are prepayable without penalty upon 30 days notice. The
        Notes
        are convertible at the election of the Company upon a certain event, and
        if
        converted at the election of the Company, the Company has agreed to register
        the
        shares of stock issuable upon conversion. If the Notes are not converted,
        the
        Company will have an obligation to pay the noteholders the face value of
        $1
        million in December 2008.
 
 Sales
        of
        the Company’s securities in private offerings have been the Company’s primary
        source of operating capital. The Company has also raised funds as investors
        exercise warrants related to prior offerings, and as stock options are
        exercised. The Company’s investing activities have been focused almost entirely
        on the acquisition of computer equipment, and expansion of electrical and
        air-conditioning capacity in its development and testing laboratory. The
        funds
        used for investing have been significantly less than the funds provided by
        financing activities; the remainder of the capital raised has been used to
        support operations and increase cash balances on hand.
 
 For
        the
        fiscal years ended December 31, 2006, 2005 and 2004, operations used
        approximately $13.4 million, $7.6 million and $4.9 million in cash,
        respectively. Investing activities utilized another $620 thousand, $725 thousand
        and $182 thousand, respectively. Thus, total cash outflows for the fiscal
        years
        ended December 31, 2006, 2005 and 2004 were approximately $14 million, $8.3
        million and $5.1 million, respectively. During these fiscal years, the Company
        relied on cash flows from financing activities to fund operations and
        investments in capital equipment. Financing activities provided approximately
        $12.3 million, $13.3 million and $6 million in the fiscal years ended December
        31, 2006, 2005 and 2004, respectively. Cash on hand at December 31, 2006
        was
        $4.7 million, a decrease of $1.7 million from $6.4 million on December 31,
        2005.
 
 During
        January 2007, the Company raised an additional $8 million, net of a commission
        paid to the placement agent of $900 thousand, in equity securities and
        convertible promissory notes (“Notes”). The Notes have a face value of $4.5
        million. The Notes mature 24 months from the issuance date, and are convertible
        into shares of the Company’s common stock, at the election of the holder, at a
        per share price of $2.00. The Notes are prepayable without penalty upon 30
        days
        notice. The Notes are convertible at the election of the Company upon a certain
        event and, in the event of conversion at the election of the Company; the
        Company has agreed to register the shares of such stock issuable upon
        conversion **.** If
        the
        Notes are not converted, the Company will have an obligation to pay the note
        holders the face value of $4.5 million in January 2009.
 
 In
        March
        2007, the Company raised an additional $630 thousand, net of a commission
        to be
        paid to the placement agent of $70 thousand, in equity securities and
        convertible promissory notes (“Notes”). The Notes have a face value of $350
        thousand. The Notes mature 24 months from the issuance date, and are convertible
        into shares of the Company’s common stock, at the election of the holder, at a
        per share price of $2.00. The Notes are prepayable without penalty upon 30
        days
        notice. The Notes are convertible at the election of the Company upon a certain
        event and, in the event of conversion at the election of the Company; the
        Company has agreed to register the shares of such stock issuable upon
        conversion **.** If
        the
        notes are not converted, the Company will have an obligation to pay the note
        holders the face value of $700 thousand in March 2009.
 
 On
        March
        7, 2007, the Company had approximately $11.3 million in cash on hand to fund
        operations and equipment purchases. The Company anticipates that, at its
        current
        levels of revenues and expenditures, the $11.3 million cash balance will
        fund
        operations through fiscal 2007. The Company will consider a number of avenues
        to
        raise additional operating capital: 1) in the past the Company has been
        successful in raising funds through sales of its stock and the issuance of
        convertible notes to accredited investors through private offerings and
        anticipates that it will continue to raise funds through this method; 2)
        as the
        Company develops close relationships with large partners, it will pursue
        strategic investments from those partners, and; 3) the Company expects to
        continue generating revenue in 2007, 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.
 
 22
  **ITEM
        7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
        MARKET RISK**
 
 **Foreign
        Currency Exchange Risk**
  The
        majority of the Company’s revenue is realized in United States dollars. While
        some portion of the Company’s revenue is generated from international customers,
        payments are made in United States dollars, mitigating foreign exchange
        exposure. As a result, the Company’s financial results would not be materially
        affected by factors such as changes in foreign currency exchange rates or
        weak
        economic conditions in foreign markets. The Company does not enter into foreign
        currency hedging transactions to mitigate its exposure to foreign currency
        exchange risks.
 
 **Interest
        Rates**
 
 The
        Company’s exposure to market risk for changes in interest rates relates
        primarily to the increase or decrease in the amount of interest income it
        can
        earn on its investment portfolio. The Company’s investment portfolio consists of
        liquid investments that have maturities of three months or less. The Company’s
        risk associated with fluctuating interest income is limited to investments
        in
        interest rate sensitive financial instruments. Under the Company’s current
        policy, the Company does not use interest rate derivative instruments to
        manage
        this exposure to interest rate changes. The Company seeks to ensure the safety
        and preservation of its invested principal by limiting default risk, market
        risk, and reinvestment risk. The Company mitigates default risk by investing
        in
        short-term investment grade securities.
 
 **ITEM
        8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
        DATA**
 **2006****Quarter
                    Ended**
                
                **Year
                    Ended****March
                    31**
                
                **June
                    30**
                
                **September
                    30**
                
                **December
                    31**
                
                **December
                    31**Revenues
                
                $
                68,389
                
                $
                83,258
                
                $
                48,212
                
                $
                87,973
                
                $
                287,832Gross
                    profit
                
                
                68,389
                
                
                68,162
                
                
                46,212
                
                
                81,176
                
                
                263,939Net
                    loss *
                
                
                (2,750,979
                )
                
                (3,895,181
                )
                
                (4,392,656
                )
                
                (4,087,087
                )
                
                (15,125,903
                )Basic
                    and diluted net loss per common share*
                
                
                (0.06
                )
                
                (0.08
                )
                
                (0.08
                )
                
                (0.08
                )
                
                (0.30
                )Shares
                    used in computing basic and dilutednet
                    loss per share
                
                
                45,180,279
                
                
                51,775,813
                
                
                52,053,558
                
                
                52,786,035
                
                
                50,474,155
  **2005****Quarter
                    Ended**
                
                **Year
                    Ended****March
                    31**
                
                **June
                    30**
                
                **September
                    30**
                
                **December
                    31**
                
                **December
                    31**Revenues
                
                $
                86,767
                
                $
                134,500
                
                $
                95,233
                
                $
                150,120
                
                $
                466,620Gross
                    profit
                
                
                86,767
                
                
                134,500
                
                
                95,233
                
                
                150,120
                
                
                466,620Net
                    loss
                
                
                (1,798,171
                )
                
                (2,016,022
                )
                
                (2,355,362
                )
                
                (2,534,942
                )
                
                (8,704,497
                )Basic
                    and diluted net loss per common share
                
                
                (0.05
                )
                
                (0.05
                )
                
                (0.06
                )
                
                (0.06
                )
                
                (0.22
                )Shares
                    used in computing basic and dilutednet
                    loss per share
                
                
                37,176,396
                
                
                39,535,096
                
                
                41,492,402
                
                
                44,862,058
                
                
                40,418,575
  *
        Fiscal
        2006 net loss includes $1,332,246 in non-cash compensation expense related
        to
        the vesting of stock-based awards as required by Statement of Financial
        Accounting Standards (“SFAS”) No. 123(R), *“Share-Based
        Payment”* .
        Included
        in the $1,332,246 is $79,087 for payments made to vendors. The total
        non-compensation expense increased the fiscal year 2006 net loss by $0.03
        per
        share.
 
 23
 
 **ITEM
        9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE**
 
 None
 
 **ITEM
        9A. CONTROLS AND PROCEDURES**
 
 **(a)**
              **Disclosure
                  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.
 
 The
        Company’s management, including its Chief Executive Officer and Chief Financial
        Officer, does not expect that its disclosure controls and procedures or its
        internal controls will prevent all errors and all fraud. A control system
        no
        matter how well conceived and operated can provide only reasonable, not absolute
        assurance that the objectives of the control system are met. Further, the
        design
        of a control system must reflect the fact that there are resource constraints
        and the benefits of control systems must be considered relative to their
        cost.
        As a result of the inherent limitations in all control systems, no evaluation
        of
        controls can provide absolute assurance that all control issues of fraud,
        if any
        within ANTs have been detected.
 
 **(b)**
              **Management’s
                  Report on Internal Control over Financial
                  Reporting**
 
 The
        Company’s management is responsible for establishing and maintaining adequate
        internal control over financial reporting (as defined in rule 13a-15(f) under
        the Securities Exchange Act of 1934, as amended). Management assessed the
        effectiveness of the Company’s internal control over financial reporting as of
        December 31, 2006. In making this assessment, management used the criteria
        set
        forth by the Committee of Sponsoring Organizations of the Treadway Commission
        (“COSO”) in Internal Control - Integrated Framework. Management has concluded
        that as of December 31, 2006 the Company’s internal control over financial
        reporting is effective based on these criteria. The Company’s independent
        registered public accounting firm, Burr, Pilger & Mayer LLP, has issued an
        audit report on management’s assessment of the Company’s internal control over
        financial reporting. That audit report is included in this report Form
        10-K.
 
 **(c)**
              **Changes
                  in Internal Control over Financial
                  Reporting**
 
 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.
  **(d)**
              **Report
                  of Independent Registered Public Accounting
                  Firm**
 
 To
        the
        Board of Directors and Stockholders
 of
        ANTs
        software inc.:
  We
        have
        audited management’s assessment, included in the accompanying Management’s
        Report on Internal Control Over Financial Reporting included in Item 9A,
        that
        ANTs software inc. (the “Company”) maintained effective internal control over
        financial reporting as of December 31, 2006, based on criteria established
        in *Internal
        Control - Integrated Framework* issued by
        the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
        The
        Company’s management is responsible for maintaining effective control over
        financial reporting and for its assessment of the effectiveness of internal
        control over financial reporting. Our responsibility is to express an opinion
        on
        management’s assessment and an opinion on the effectiveness of the Company’s
        internal control over financial reporting based on our audit.
  We
        conducted our audit 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 effective
        internal control over financial reporting was maintained in all material
        respects. Our audit including obtaining an understanding of internal control
        over financial reporting, evaluating management’s assessment, testing and
        evaluating the design and operating effectiveness of internal control, and
        performing such other procedures as we considered necessary in the
        circumstances. We believe that our audit provides a reasonable basis for
        our
        opinion.
  24
 A
        company’s internal control over financial reporting is a process designed to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles. A company’s internal control over
        financial reporting includes those policies and procedures that (1) pertain
        to
        the maintenance of records that, in reasonable detail, accurately and fairly
        reflect the transactions and dispositions of the assets of the company; (2)
        provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the company
        are
        being made only in accordance with authorizations of management and directors
        of
        the company; and (3) provide reasonable assurance regarding prevention or
        timely
        detection of unauthorized acquisition, use, or disposition of the company’s
        assets that could have a material effect on the financial statements.
  Because
        of
        its inherent limitations, internal control over financial reporting may not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.
  In
        our
        opinion, management’s assessment that the Company maintained effective internal
        control over financial reporting as of December 31, 2006, is fairly stated,
        in
        all material respects, based on the COSO criteria. Also, in our opinion,
        the
        Company maintained, in all material respects, effective internal control
        over
        financial reporting as of December 31, 2006, based on the COSO criteria.
  We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the balance sheets as of December 31, 2006
        and
        2005 and the related statements of operations, stockholders' equity, and
        cash
        flows for each of the years in the three year period ended December 31, 2006
        of
        the Company and our report dated March 12, 2007 expressed an unqualified
        opinion.
  /s/
        Burr,
        Pilger & Mayer LLP
  San
        Francisco, California
 March
        12,
        2007
 
 **ITEM
        9B.      OTHER
        INFORMATION**
 
 None
 
 **PART
        III**
 
 **ITEM 10.      
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
        GOVERNANCE**
  The
        information required by this item is incorporated in this report by reference
        to
        the Company’s Proxy statement to be filed with the SEC in connection with its
        2007 Annual Meeting of Stockholders within 120 days after the end of our
        fiscal
        year ended December 31, 2006.
  **ITEM 11.         EXECUTIVE
        COMPENSATION**
  The
        information required by this item is incorporated in this report by reference
        to
        the Company’s Proxy statement to be filed with the SEC in connection with its
        2007 Annual Meeting of Stockholders within 120 days after the end of our
        fiscal
        year ended December 31, 2006.
  **ITEM 12.
        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
        STOCKHOLDER MATTERS**
  The
        information required by this item is incorporated in this report by reference
        to
        the Company’s Proxy statement to be filed with the SEC in connection with its
        2007 Annual Meeting of Stockholders within 120 days after the end of our
        fiscal
        year ended December 31, 2006.
  25
  **ITEM 13.   
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
        AND DIRECTOR
        INDEPENDENCE**
  The
        information required by this item is incorporated in this report by reference
        to
        the Company’s Proxy statement to be filed with the SEC in connection with its
        2007 Annual Meeting of Stockholders within 120 days after the end of our
        fiscal
        year ended December 31, 2006.
  **ITEM 14.   
PRINCIPAL ACCOUNTING FEES AND SERVICES**
  The
        information required by this item is incorporated in this report by reference
        to
        the Company’s Proxy statement to be filed with the SEC in connection with its
        2007 Annual Meeting of Stockholders within 120 days after the end of our
        fiscal
        year ended December 31, 2006.
  26
  **Part
        IV**
 
 **ITEM
        15.  EXHIBITS,
        FINANCIAL STATEMENT SCHEDULES**
 Documents
                    filed as part of this report:*Page*Report
                    of Independent Registered Public Accounting Firm
                
                
                28Balance
                    Sheets as of December 31, 2006 and 2005
                
                
                29Statements
                    of Operations for the years ended December 31, 2006, 2005 and
                    2004
                
                
                30Statements
                    of Stockholders’ Equity for the years ended December 31, 2006, 2005 and
                    2004
                
                
                31Statements
                    of Cash Flows for the years ended December 31, 2006, 2005 and
                    2004
                
                
                32Notes
                    to Financial Statements
                
                
                33Signatures
                    and Exhibits
                
                
                54
 
 
 27
  REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To
        the
        Board of Directors and Stockholders
 of
        ANTs
        software inc.
 
 We
        have
        audited the accompanying balance sheets of ANTs software inc. as of December
        31,
        2006, and 2005 and the related statements of operations, stockholders' equity,
        and cash flows for each of the three years in the three year period ended
        December 31, 2006. These financial statements are the responsibility of the
        Company's management. Our responsibility is to express an opinion on
        those financial statements based on our audits.
 
 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 ANTs software inc. as of December
        31, 2006, and 2005, and the results of their operations and their cash flows
        for
        each of the years in the three year period ended December 31, 2006, in
        conformity with accounting principles generally accepted in the United States
        of
        America.
 
 As
        discussed in Note 1 to the financial statements, the Company changed its
        method of accounting for share-based payment to conform to statement of
        Financial Accounting Standards No. 123(R), *Share-Based
        Payment* ,
        as of
        January 1, 2006 applying the modified prospective method.
 
 We
        have
        also audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of the Company's internal
        control over financial reporting as of December 31, 2006, based on the criteria
        established in *Internal
        Control -- Integrated Framework* issued by
        the Committee of Sponsoring Organizations of the Treadway Commission and
        our
        report dated March 12, 2007 expressed an unqualified opinion on management's
        assessment of, and the effective operation of, internal control over financial
        reporting.
 
 
 /s/
        Burr,
        Pilger & Mayer, LLP
 San
        Francisco, California
 
 March
        12,
        2007
  28
 **ANTS
                    SOFTWARE INC.****BALANCE
                    SHEETS****December
                    31,**
                
                **December
                    31,**ASSETS
                
                **2006**
                
                **2005**Current
                    assets:Cash
                    and cash equivalents
                
                $
                4,698,949
                
                $
                6,381,932Accounts
                    receivable, net of allowance for doubtful accounts of$0
                    and $16,000 in 2006 and 2005, respectively
                
                
                68,145
                
                
                45,228Prepaid
                    insurance and other expenses
                
                
                152,299
                
                
                73,560Total
                    current assets
                
                
                4,919,393
                
                
                6,500,720Restricted
                    cash
                
                
                190,958
                
                
                105,399Prepaid
                    expense from warrant issued to customer, net
                
                
                115,347
                
                
                173,021Property
                    and equipment, net
                
                
                736,053
                
                
                622,515Other
                    assets
                
                
                34,420
                
                
                34,702Total
                    assets
                
                $
                5,996,171
                
                $
                7,436,357LIABILITIES
                    AND STOCKHOLDERS' EQUITYCurrent
                    liabilities:Accounts
                    payable and other accrued expenses
                
                $
                626,011
                
                $
                548,178Accrued
                    bonuses and commissions payable
                
                
                179,127
                
                
                218,750Accrued
                    vacation payable
                
                
                175,237
                
                
                149,573Deferred
                    revenues
                
                
                56,819
                
                
                58,603Total
                    current liabilities
                
                
                1,037,194
                
                
                975,104Commitments
                    and contingencies (Note 9)
                
                
                -
                
                
                -Long-term
                    liabilities:Accrued
                    rent
                
                
                15,087
                
                
                48,667Convertible
                    promissory notes, includes debt premium of $120,880
                
                
                1,120,880
                
                
                -Total
                    liabilities
                
                
                2,173,161
                
                
                1,023,771Stockholders’
                    equity:Preferred
                    stock, $0.0001 par value; 50,000,000 shares authorized,no
                    shares issued and outstanding
                
                
                -
                
                
                -Common
                    stock, $0.0001 par value; 200,000,000 shares authorized;53,188,485
                    and 44,862,058 shares issued and outstanding, respectively
                
                
                5,319
                
                
                4,487Common
                    stock subscribed, not issued
                
                
                1
                
                
                243,608Additional
                    paid-in capital
                
                
                62,469,426
                
                
                49,690,324Accumulated
                    deficit
                
                
                (58,651,736
                )
                
                (43,525,833
                )Total
                    stockholders’ equity
                
                
                3,823,010
                
                
                6,412,586Total
                    liabilities and stockholders' equity
                
                $
                5,996,171
                
                $
                7,436,357See
                    Accompanying Notes to Financial
                    Statements
  29
  **ANTS
                    SOFTWARE INC.****STATEMENTS
                    OF OPERATIONS****Years
                    Ended****December
                    31,**
                
                **December
                    31,**
                
                **December
                    31,****2006**
                
                **2005**
                
                **2004**Revenues:Licenses
                    and royalties
                
                $
                157,958
                
                $
                397,500
                
                $
                -Maintenance
                
                
                105,792
                
                
                49,620
                
                
                -Professional
                    services
                
                
                24,082
                
                
                19,500
                
                
                -Total
                    revenues
                
                
                287,832
                
                
                466,620
                
                
                -Cost
                    of revenue:Licenses
                
                
                23,893
                
                
                -
                
                
                -Gross
                    profit
                
                
                263,939
                
                
                466,620
                
                
                -Operating
                    expenses:Sales
                    and marketing
                
                
                5,164,937
                
                
                3,618,324
                
                
                1,564,424Research
                    and development
                
                
                6,736,381
                
                
                3,589,565
                
                
                2,109,452General
                    and administrative
                
                
                3,630,934
                
                
                1,947,090
                
                
                1,386,416Total
                    operating expenses
                
                
                15,532,252
                
                
                9,154,979
                
                
                5,060,292Loss
                    from operations
                
                
                (15,268,313
                )
                
                (8,688,359
                )
                
                (5,060,292
                )Other
                    income (expense):Interest
                    income
                
                
                203,133
                
                
                24,170
                
                
                17,214Gain
                    on legal settlement and other
                
                
                4,337
                
                
                6,000
                
                
                5,500Income
                    earned from expired contract
                
                
                -
                
                
                -
                
                
                310,943Write-off
                    of note receivable from former officer
                
                
                -
                
                
                -
                
                
                (45,000
                )Write-off
                    of fixed assets
                
                
                (57,614
                )
                
                -
                
                
                -Disposal
                    of assets related to office move
                
                
                -
                
                
                (41,294
                )
                
                -Interest
                    expense
                
                
                (7,446
                )
                
                (5,014
                )
                
                (288,426
                )Other
                    income, net
                
                
                142,410
                
                
                (16,138
                )
                
                231Net
                    loss
                
                $
                (15,125,903
                )
                $
                (8,704,497
                )
                $
                (5,060,061
                )Basic
                    and diluted net loss per common share
                
                $
                (0.30
                )
                $
                (0.22
                )
                $
                (0.16
                )Shares
                    used in computing basic and dilutednet
                    loss per share
                
                
                50,474,155
                
                
                40,418,575
                
                
                32,501,014See
                    Accompanying Notes to Financial
                    Statements
  30
 **ANTS
                        SOFTWARE INC.****STATEMENTS
                        OF STOCKHOLDERS' EQUITY****Note****Receivable****Common**
                    
                    **from
                        Officer**
                    
                    **Additional****Common
                        Stock**
                    
                    **Stock**
                    
                    **for
                        Stock**
                    
                    **Paid
                        in**
                    
                    **Accumulated****Shares**
                    
                    **Amount**
                    
                    **Subscribed**
                    
                    **Purchases**
                    
                    **Capital**
                    
                    **Deficit**
                    
                    **Total**Balances
                        at December 31, 2003
                    
                    
                    26,381,004
                    
                    $
                    2,638
                    
                    $
                    -
                    
                    $
                    (45,000
                    )
                    $
                    29,668,322
                    
                    $
                    (29,761,275
                    )
                    $
                    (135,315
                    )Proceeds
                        from private placements, net of commissions of $334,100
                    
                    
                    7,263,159
                    
                    
                    726
                    
                    
                    -
                    
                    
                    -
                    
                    
                    5,602,552
                    
                    
                    -
                    
                    
                    5,603,278Common
                        stock subscribed, not issued
                    
                    
                    -
                    
                    
                    -
                    
                    
                    30,000
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    30,000Common
                        stock issued to finders and placement agent as commissions
                    
                    
                    437,269
                    
                    
                    44
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (44
                    )
                    
                    -
                    
                    
                    -Common
                        stock issued to replace escheated shares
                    
                    
                    66
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Options
                        exercised through cash consideration
                    
                    
                    354,019
                    
                    
                    35
                    
                    
                    -
                    
                    
                    -
                    
                    
                    388,717
                    
                    
                    -
                    
                    
                    388,752Common
                        stock issued in settlement of note payable to former
                        officer
                    
                    
                    60,000
                    
                    
                    6
                    
                    
                    -
                    
                    
                    -
                    
                    
                    74,994
                    
                    
                    -
                    
                    
                    75,000Officer
                        note forgiveness
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    45,000
                    
                    
                    -
                    
                    
                    -
                    
                    
                    45,000Discount
                        on convertible promissory note
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (46,373
                    )
                    
                    -
                    
                    
                    (46,373
                    )Beneficial
                        interest on convertible promissory note
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    280,000
                    
                    
                    -
                    
                    
                    280,000Conversion
                        of promissory convertible notes to common stock
                    
                    
                    800,000
                    
                    
                    80
                    
                    
                    -
                    
                    
                    -
                    
                    
                    289,070
                    
                    
                    -
                    
                    
                    289,150Stock
                        options issued as payments for services to vendor
                    
                    
                    3,300
                    
                    
                    1
                    
                    
                    -
                    
                    
                    -
                    
                    
                    59,749
                    
                    
                    -
                    
                    
                    59,750Net
                        loss and comprehensive net loss
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (5,060,061
                    )
                    
                    (5,060,061
                    )Balance
                        at December 31, 2004
                    
                    
                    35,298,817
                    
                    
                    3,530
                    
                    
                    30,000
                    
                    
                    -
                    
                    
                    36,316,987
                    
                    
                    (34,821,336
                    )
                    
                    1,529,181Common
                        stock issued for shares subscribed at December 31, 2004
                    
                    
                    30,000
                    
                    
                    3
                    
                    
                    (30,000
                    )
                    
                    -
                    
                    
                    29,997
                    
                    
                    -
                    
                    
                    -Proceeds
                        from private placements, net of cash commissions, $353,850
                    
                    
                    5,461,125
                    
                    
                    546
                    
                    
                    -
                    
                    
                    -
                    
                    
                    7,823,604
                    
                    
                    -
                    
                    
                    7,824,150Common
                        stock subscribed as payment to vendors for services
                    
                    
                    -
                    
                    
                    -
                    
                    
                    45,158
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    45,158Common
                        stock issued to finders and placement agent as commission
                    
                    
                    67,556
                    
                    
                    7
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (7
                    )
                    
                    -
                    
                    
                    -Common
                        stock subscribed as commission to placement agent
                    
                    
                    -
                    
                    
                    -
                    
                    
                    198,450
                    
                    
                    -
                    
                    
                    (198,450
                    )
                    
                    -
                    
                    
                    -Proceeds
                        from warrant exercises, net of cash commissions of
                        $193,800
                    
                    
                    3,878,970
                    
                    
                    388
                    
                    
                    -
                    
                    
                    -
                    
                    
                    5,343,139
                    
                    
                    -
                    
                    
                    5,343,527Options
                        exercised through cash consideration
                    
                    
                    103,704
                    
                    
                    11
                    
                    
                    -
                    
                    
                    -
                    
                    
                    125,581
                    
                    
                    -
                    
                    
                    125,592Stock
                        options issued as payment to vendor for services provided
                    
                    
                    12,886
                    
                    
                    1
                    
                    
                    -
                    
                    
                    -
                    
                    
                    51,921
                    
                    
                    -
                    
                    
                    51,922Warrants
                        issued as prepayment to vendor for services to be provided
                        in the
                        future
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    173,021
                    
                    
                    -
                    
                    
                    173,021Employee
                        compensation expense from exercise of stock option award
                    
                    
                    9,000
                    
                    
                    1
                    
                    
                    -
                    
                    
                    -
                    
                    
                    20,789
                    
                    
                    -
                    
                    
                    20,790Compensation
                        expense recognized on accelerated vesting of employee
                        options
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    3,742
                    
                    
                    -
                    
                    
                    3,742Net
                        loss and comprehensive net loss
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (8,704,497
                    )
                    
                    (8,704,497
                    )Balance
                        at December 31, 2005
                    
                    
                    44,862,058
                    
                    
                    4,487
                    
                    
                    243,608
                    
                    
                    -
                    
                    
                    49,690,324
                    
                    
                    (43,525,833
                    )
                    
                    6,412,586Proceeds
                        from private placements, net of cash commissions of
                        $769,250
                    
                    
                    7,398,129
                    
                    
                    740
                    
                    
                    -
                    
                    
                    -
                    
                    
                    10,031,513
                    
                    
                    -
                    
                    
                    10,032,253Allocation
                      of proceeds raised from private placementsto
                        premium on convertible promissory note
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (120,880
                    )
                    
                    -
                    
                    
                    (120,880
                    )Allocation
                        of certain commissions paid to placement agent to debt issuance
                        costs
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    33,645
                    
                    
                    -
                    
                    
                    33,645Common
                        stock issued for shares subscribed at December 31, 2005
                    
                    
                    137,230
                    
                    
                    14
                    
                    
                    (243,608
                    )
                    
                    -
                    
                    
                    243,594
                    
                    
                    -
                    
                    
                    -Common
                        stock subscribed as commission to placement agent at December
                        31,
                        2006
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1
                    
                    
                    -
                    
                    
                    (1
                    )
                    
                    -
                    
                    
                    -Proceeds
                        from warrant exercises, net of cash commissions of $39,125
                    
                    
                    302,500
                    
                    
                    30
                    
                    
                    -
                    
                    
                    -
                    
                    
                    529,179
                    
                    
                    -
                    
                    
                    529,209Options
                        exercised through cash consideration
                    
                    
                    477,902
                    
                    
                    47
                    
                    
                    -
                    
                    
                    -
                    
                    
                    713,807
                    
                    
                    -
                    
                    
                    713,854Common
                        stock issued as payment to vendor for services
                    
                    
                    10,666
                    
                    
                    1
                    
                    
                    -
                    
                    
                    -
                    
                    
                    15,999
                    
                    
                    -
                    
                    
                    16,000Stock
                        options and warrants issued as payments for services to
                        vendors
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    79,087
                    
                    
                    -
                    
                    
                    79,087Employee
                        compensation expense from vesting of stock options
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,253,159
                    
                    
                    -
                    
                    
                    1,253,159Net
                        loss and comprehensive net loss
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (15,125,903
                    )
                    
                    (15,125,903
                    )Balance
                        at December 31, 2006
                    
                    
                    53,188,485
                    
                    $
                    5,319
                    
                    $
                    1
                    
                    $
                    -
                    
                    $
                    62,469,426
                    
                    $
                    (58,651,736
                    )
                    $
                    3,823,010See
                        Accompanying Notes to Financial
                        Statements
  31
 **ANTS
                    SOFTWARE INC.****STATEMENTS
                    OF CASH FLOWS****Years
                    Ended****December
                    31,**
                
                **December
                    31,**
                
                **December
                    31,****2006**
                
                **2005**
                
                **2004**Cash
                    flows from operating activities:Net
                    loss
                
                $
                (15,125,903
                )
                $
                (8,704,497
                )
                $
                (5,060,061
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                
                
                363,062
                
                
                285,423
                
                
                181,656Amortization
                    of accrued rent, net of cash payments
                
                
                (4,380
                )
                
                53,047
                
                
                -Amortization
                    of warrant issued to customer
                
                
                57,674
                
                
                -
                
                
                -Amortization
                    of debt discount and beneficial conversion feature
                
                
                -
                
                
                -
                
                
                285,973Bad
                    debt expense, net of write-offs of uncollectible accounts
                
                
                28,738
                
                
                16,000
                
                
                -Stock
                    options , warrants and restricted stock issued to vendors for
                    services
                
                
                95,087
                
                
                97,080
                
                
                59,750Compensation
                    expense recognized on vesting of employee stock options
                
                
                1,253,159
                
                
                20,790
                
                
                -Compensation
                    expense recognized on accelerated vesting of employee stock
                    options
                
                
                -
                
                
                3,742
                
                
                -Write-off
                    of note receivable to officer for stock purchases
                
                
                -
                
                
                -
                
                
                45,000Write-off
                    of leasehold improvements and security deposits, net
                
                
                -
                
                
                36,194
                
                
                -Write-off
                    of unrecoverable security deposits related to prior office
                    facilities
                
                
                -
                
                
                8,818
                
                
                -Write-off
                    of fixed assets
                
                
                57,614
                
                
                -
                
                
                -Changes
                    in operating assets and liabilities:
                
                
                -
                
                
                -
                
                
                -Accounts
                    receivable
                
                
                (51,655
                )
                
                (61,228
                )
                
                -Prepaid
                    insurance and other expenses
                
                
                (78,739
                )
                
                13,107
                
                
                (39,638
                )Other
                    assets
                
                
                282
                
                
                (34,420
                )
                
                -Accounts
                    payable and other accrued expenses
                
                
                48,633
                
                
                416,273
                
                
                44,336Accrued
                    bonuses and commissions payable
                
                
                (39,623
                )
                
                65,571
                
                
                153,179Accrued
                    vacation
                
                
                25,664
                
                
                96,361
                
                
                53,212Deferred
                    salaries
                
                
                -
                
                
                -
                
                
                (340,505
                )Deferred
                    revenue
                
                
                (1,784
                )
                
                58,603
                
                
                (310,943
                )Net
                    cash used in operating activities
                
                
                (13,372,171
                )
                
                (7,629,136
                )
                
                (4,928,041
                )Cash
                    flows used in investing activities:Transfer
                    operating funds to restricted cash
                
                
                (85,559
                )
                
                (105,399
                )
                
                -Purchases
                    of office furniture, fixtures and equipment and security
                    deposits
                
                
                (534,214
                )
                
                (620,007
                )
                
                (182,280
                )Net
                    cash used in investing activities
                
                
                (619,773
                )
                
                (725,406
                )
                
                (182,280
                )Cash
                    flows from financing activities:Proceeds
                    from private placements, net of commission allocated to debt
                    issuance
                    costs
                
                
                10,065,898
                
                
                7,824,150
                
                
                5,603,278Proceeds
                    from convertible promissory note
                
                
                1,000,000
                
                
                -
                
                
                -Proceeds
                    from exercise of options
                
                
                713,854
                
                
                125,592
                
                
                388,752Proceeds
                    from exercise of warrants, net of commissions
                
                
                529,209
                
                
                5,343,527
                
                
                -Proceeds
                    from common stock subscribed for private placement units
                
                
                -
                
                
                -
                
                
                30,000Payments
                    on capital lease obligations
                
                
                -
                
                
                (5,519
                )
                
                (4,710
                )Net
                    cash provided by financing activities
                
                
                12,308,961
                
                
                13,287,750
                
                
                6,017,320Net
                    increase (decrease) in cash and cash equivalents
                
                
                (1,682,983
                )
                
                4,933,208
                
                
                906,999Cash
                    and cash equivalents at beginning of period
                
                
                6,381,932
                
                
                1,448,724
                
                
                541,725Cash
                    and cash equivalents at end of period
                
                $
                4,698,949
                
                $
                6,381,932
                
                $
                1,448,724Supplemental
                    disclosure of cash flow information:Cash
                    paid during the period for:Interest
                
                $
                4,295
                
                $
                5,014
                
                $
                2,454Non-cash
                    investing and financing activities:Common
                    stock issued for subscribed shares at end of prior year
                
                $
                198,450
                
                $
                30,000
                
                $
                -Allocation
                    of stockholders' equity to premium on convertible note
                
                
                120,880
                
                
                -
                
                
                -Alllocations
                    of commissions paid to placement agent to debt issuance costs,
                    net
                
                
                6,355Common
                    stock subscribed for private placement agent commission
                
                
                1
                
                
                198,450
                
                
                -Issuance
                    of warrant to customer
                
                
                -
                
                
                173,021
                
                
                -Conversion
                    of convertible promissory note into common stock, net
                
                
                -
                
                
                -
                
                
                289,150Issuance
                    of common stock in settlement of note payable to former
                    officer
                
                
                -
                
                
                -
                
                
                75,000Common
                    stock subscribed at end of fiscal year
                
                
                -
                
                
                -
                
                
                30,000See
                    Accompanying Notes to Financial
                    Statements
  32
 **1.
        The Company and its Significant Accounting Policies**
 
 **Nature
        of Operations**
 
 ANTs
        software inc. (ANTs) develops, markets and supports the ANTs Data Server,
        a
        relational database management system that can dramatically reduce costs
        and can
        improve performance in a wide range of applications. Two proprietary
        technologies-the ANTs Concurrency Engine and compatibility with the proprietary
        extensions from other database vendors-together provide unique performance
        and
        consolidation/cost-saving advantages that make the ANTs Data Server an
        attractive alternative to other relational database management systems
        (“RDBMS’s”). End-users of RDBMS’s, independent software vendors who bundle an
        RDBMS with their products and other RDBMS vendors can use the ANTs Data Server
        or its technologies to lower costs and gain competitive advantage.
 
 **Basis
        of Presentation**
  The
        accompanying financial statements are in accordance with generally accepted
        accounting principles of the United States of America and reflect the results
        of
        operations, financial position and cash flow of the Company.
 
 **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.
 
 **Revenue
        Recognition** **
 
 The
        Company recognizes license and royalty revenue in accordance with the provisions
        of Statement of Position (“SOP”) 97-2, “Software Revenue Recognition”, and SOP
        98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to
        Certain Transactions”. Revenue consists primarily of revenue earned under
        agreements for software licenses, maintenance and support (otherwise known
        as
        post-contract customer support or “PCS”) and professional services. Maintenance
        and support revenue is deferred and recognized over the related contract
        period,
        generally twelve months beginning with customer acceptance of the
        product.
 
 The
        Company uses the residual method to recognize revenue when a license agreement
        includes one or more elements to be delivered at a future date. If there
        is an
        undelivered element under the license arrangement, The Company defers revenue
        based on vendor-specific objective evidence, or VSOE, of the fair value of
        the
        undelivered element, as determined by the price charged when the element
        is sold
        separately. If VSOE of fair value does not exist for all undelivered elements,
        the Company defers all revenue until sufficient evidence exists or all elements
        have been delivered. Under the residual method, discounts are allocated only
        to
        the delivered elements in a multiple element arrangement with any undelivered
        elements being deferred based on VSOE of fair values of such undelivered
        elements. Revenue from software license arrangements, which comprise prepaid
        license and maintenance support fees, is recognized when all of the following
        criteria are met:
 
 ·
              Persuasive
                  evidence of an arrangement exists.
 ·
              Delivery
                  has occurred and there are no future deliverables except post-contract
                  customer support (“PCS”).
 ·
              The
                  fee is fixed and determinable. If The Company cannot conclude that
                  a fee
                  is fixed and determinable, then assuming all other criteria have
                  been met,
                  revenue is recognized, as payments become due in accordance with
                  paragraph
                  29 of SOP 97-2.
 ·
              Collection
                  is probable.
 
 Revenue
        from professional fees, consisting primarily of consulting services, is
        recognized as services are provided and the revenues are earned.
  33
  **Research
        and Development Expenses**
  The
        Company accounts for its research and development (“R&D”) costs in
        accordance with Financial Accounting Standards No. 86, *Accounting
        for the Costs of Computer Software to be Sold, Leased, or Otherwise
        Marketed* .
 
 The
        Company’s research and development (“R&D”) expenses consist primarily of
        personnel-related expenses, lab supplies and operational costs, and depreciation
        on equipment. To date, the Company has expensed all of its R&D costs in the
        periods in which they were incurred, as the Company’s process for developing its
        products has been essentially completed concurrent with the establishment
        of
        technological feasibility.
 
 **Advertising
        Costs**
 
 The
        Company expenses advertising expenses as incurred. The expense recognized
        for
        the years ended December 31, 2006, 2005 and 2004 was $242,882, $73,131 and
        $7,030, respectively.
 
 **Cash,
        Cash Equivalents and Restricted Cash**
  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.
 
 Restricted
        cash consists of a 365-day certificate of deposit in the principal amount
        of
        $190,958, held by Silicon Valley Bank, with an annual interest rate of 0.85%,
        maturing on July 22, 2007. The funds are pledged to collateralize the Company’s
        revolving credit card facility, which has a total credit limit of $190,958.
        Management intends to maintain the certificate of deposit as long as the
        revolving credit card facility is in place. Balances payable on the credit
        card
        facility are included in Accounts Payable on the balance sheet.
  The
        Company maintains an allowance for doubtful accounts to reserve for potentially
        uncollectible trade receivables. We review our trade receivables by aging
        category to identify significant customers with known disputes or collection
        issues.  For accounts not specifically identified, the Company provides a
        reserve based on the age of the receivable. In determining the reserve, the
        Company makes judgments about  the credit-worthiness of significant
        customers  based on  ongoing credit evaluations. The Company also
        considers its historical level of credit losses and current economic trends
        that
        might impact the level of future credit losses.
 
 **Accounts
        Receivable**
  Receivables
          are stated at net realizable value. As of December 31, 2006, accounts receivable
          includes interest income of $12,826 due from one of the Company’s
          banks.
 
 **Allowance
        for Doubtful Accounts**
 
 Charged/(Credited)
                    toBeginning
                
                Operating
                
                
                
                EndingBalance
                
                Expenses
                
                Deductions*****
                
                BalanceAllowance
                    for doubtful accounts:Year
                    Ended:December
                    31, 2006
                
                $
                16,000
                
                $
                28,738
                
                $
                (44,738
                )
                $
                -December
                    31, 2005
                
                
                -
                
                
                16,000
                
                
                -
                
                
                16,000December
                    31, 2004
                
                
                -
                
                
                -
                
                
                -
                
                
                -*
                    Deductions related to the allowance for doubtful accounts represent
                    amounts written off.
 
 **Property
        and Equipment**
  Property
        and equipment, which includes assets recorded under capital leases, are carried
        at cost and are depreciated using a straight-line method over their estimated
        useful lives of three years. The costs of leasehold improvements are amortized
        over the lesser of the lease term plus reasonably assured lease renewals,
        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 statements of operations.
 
 34
 **Deferred
        Revenues**
 
 As
        of
        December 31, 2006, deferred revenues consisted primarily of annual support
        and
        maintenance fees paid in advance by customers. The fees are amortized into
        revenue ratably over the related contract period, generally twelve months,
        beginning with customer acceptance of the product. Deferred revenue also
        includes license fees for any customer who has not signed the customer
        acceptance of delivery and acknowledgment form as required under the Company’s
        revenue recognition policy.
 
 **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.
        The
        valuation allowance increased in 2006, 2005 and 2004 by the following
        amounts:
 Charged/(Credited)
                    toBeginning
                
                Deferred
                    Tax
                
                
                
                EndingBalance
                
                Assets
                
                Deductions
                
                BalanceDeferred
                    Tax Allowance Accounts:Year
                    Ended:December
                    31, 2006
                
                $
                14,861,104
                
                $
                5,906,789
                
                $
                -
                
                $
                20,767,893December
                    31, 2005
                
                
                10,856,910
                
                
                4,004,194
                
                
                -
                
                
                14,861,104December
                    31, 2004
                
                
                8,835,023
                
                
                2,021,887
                
                
                -
                
                
                10,856,910
  **Long-Lived
        Assets**
 
 Long-lived
        assets such as property and equipment, and warrants, 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 is 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.
 
 During
        2006, $211,143, or 73%, of the Company’s total revenues was derived from four
        customers. Revenue from one of these customers was $69,000, or 24% of total
        revenues. Revenue from the second customer was $49,800, or 17% of total
        revenues.
 
 Of
        the
        Company’s total 2006 revenues of $287,832, $ 47,823, or 17%, was earned from
        international customers, while the remaining $240,009, or 83%, was earned
        from
        domestic customers.
 
 During
        2005, $384,500, or 82%, of the Company’s total revenues was derived from two
        customers. Revenue from one of these customers was $284,500, or 61% of total
        revenues. Revenue from the second customer was $100,000, or 21% of total
        revenues.
 
 35
 Of
        the
        Company’s total 2005 revenues of $466,620, $118,000, or 25%, was earned from
        international customers, while the remaining $348,620, or 75%, was earned
        from
        domestic customers.
 
 The
        Company had no revenues in fiscal 2004.
 
 **Stock-Based
        Compensation**
  The
        Company has a stock-based employee and director compensation plan (the ANTs
        software inc. 2000 Stock Option Plan or the “Plan”). Prior to January 1, 2006,
        the Company accounted for stock-based compensation awards issued under the
        Plan
        using the recognition and measurement principles of Accounting Principles
        Board
        (“APB”) Opinion No. 25, *“Accounting
        for Stock Issued to Employees”* and
        related Interpretations, in conjunction with the guidelines set out in Financial
        Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards
        (“SFAS”) No. 123, *“Accounting
        for Stock Compensation”* and SFAS
        148, *“Accounting
        for Stock-Based Compensation - Transition and Disclosure - An Amendment of
        FASB
        Statement No. 123”* .
        On
        January 1, 2006, the Company adopted the provisions of Statement of Financial
        Accounting Standards (“SFAS”) 123(R), *“Share-Based
        Payment”* (the
        “Statement or “SFAS 123(R)”), requiring us to recognize expense related to the
        fair value of our stock-based compensation awards. The Company elected to
        use
        the modified prospective transition method as permitted by SFAS 123(R) and
        therefore has not restated its financial results for prior periods. Under
        this
        transition method, stock-based compensation expense for the fiscal year ended
        December 31, 2006 includes compensation expense for all stock-based compensation
        awards granted prior to, but not fully vested, as of January 1, 2006, based
        on the grant date fair value estimated in accordance with the original
        provisions of SFAS 123, *“Accounting
        for Stock Compensation”* (“SFAS
        123”). Stock-based compensation expense for all stock-based compensation awards
        granted subsequent to January 1, 2006 is based on the grant date fair value
        estimated in accordance with the provisions of SFAS 123(R). The Company
        recognizes compensation expense for stock option awards on a straight-line
        basis
        over the requisite service period of the award, generally three years.
 
 In
        March
        2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”), which offers
        guidance on SFAS 123(R). SAB 107 was issued to assist preparers by simplifying
        some of the implementation challenges of SFAS 123(R) while enhancing the
        information that investors receive. SAB 107 creates a framework that is premised
        on two over arching themes: (a) considerable judgment will be required by
        preparers to successfully implement SFAS 123(R), specifically when valuing
        employee stock options; and (b) reasonable individuals, acting in good faith,
        may conclude differently on the fair value of employee stock options. Key
        topics
        covered by SAB 107 include valuation models, expected volatility and expected
        term. The Company is applying the principles of SAB 107 in conjunction with
        its
        adoption of SFAS 123(R).
 
 **Comprehensive
        Income (Loss)**
 
 Comprehensive
        income (loss) was the same as net income (loss) for the years ended December
        31,
        2006, 2005 & 2004.
 
 **Reclassifications**
 
 Certain
        reclassifications have been made to the prior year financial statements to
        conform them to the current year presentation.
 
 **Recent
        Accounting Pronouncements**
 
 In
        February 2006, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 155 (“SFAS
        No. 155”), “ *Accounting
        for Certain Hybrid Financial Instruments — an Amendment of FASB Statements
        No. 133 and 140* ”.
        SFAS
        No. 155 allows financial instruments that contain an embedded derivative
        and that otherwise would require bifurcation to be accounted for as a whole
        on a
        fair value basis, at the holders’ election. SFAS No. 155 also clarifies and
        amends certain other provisions of SFAS No. 133 and SFAS No. 140. This
        statement is effective for all financial instruments acquired or issued in
        fiscal years beginning after September 15, 2006 (January 1, 2007 for the
        Company). The adoption of SFAS No. 155 is not expected to have a material
        impact on the Company’s consolidated financial condition or results of
        operations.
 
 In
        June
        2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “ *Accounting
        for Uncertainty in Income Taxes, an Interpretation of SFAS No.
        109* ”.
        FIN 48
        clarifies the accounting for uncertainty in income taxes recognized in an
        enterprise’s financial statements in accordance with SFAS No. 109, “Accounting
        for Income Taxes”, by prescribing a recognition threshold and measurement
        attribute for the financial statement recognition and measurement of a tax
        position taken or expected to be taken in a tax return. Under FIN 48, the
        financial statement effects of a tax position should initially be recognized
        when it is more likely than not, based on the technical merits, that the
        position would be sustained upon examination. A tax position that meets the
        more-likely-than-not recognition threshold should initially and subsequently
        be
        measured as the largest amount of tax benefit that has a greater than fifty
        percent likelihood of being realized upon ultimate settlement with a taxing
        authority. FIN 48 is effective for fiscal years beginning after December
        15,
        2006. The cumulative effect, if any, of applying the provisions of FIN 48
        will
        be reported as an adjustment to the opening balance of retained earnings
        in the
        period adopted. The adoption of FIN 48 is not expected to have a material
        impact
        on the Company’s financial condition or results of operations.
 
 36
 In
        September 2006, the U.S. Securities and Exchange Commission (SEC) issued
        Staff
        Accounting Bulletin No. 108 (“SAB 108”), “ *Considering
        the Effects of Prior Year Misstatements when Quantifying Misstatements in
        Current Year Financial Statements* ”.
        SAB 108
        addresses the diversity in practice of quantifying financial statement
        misstatements resulting in the potential build up of improper amounts on
        the
        balance sheet. SAB 108 provides interpretive guidance on how the effects
        of the
        carryover or reversal of prior year misstatements should be considered in
        quantifying a current year misstatement. The SEC staff believes that registrants
        should quantify errors using both a balance sheet and an income statement
        approach and evaluate whether either approach results in quantifying a
        misstatement that, when all relevant quantitative and qualitative factors
        are
        considered, is material. SAB 108 is effective for companies with fiscal years
        ending after November 15, 2006. SAB 108 allows a one-time transitional
        cumulative effect adjustment to beginning retained earnings, in the first
        year
        of adoption, for errors that were not previously deemed material, but are
        material under the guidance in SAB 108. The adoption of SAB 108 is not expected
        to have a material impact on the Company’s financial condition or results of
        operations.
  In
        September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “ *Fair
        Value Measurements* ”,
        which
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles (GAAP), and expands disclosures
        about
        fair value measurements. This Statement applies in conjunction with other
        accounting pronouncements that require or permit fair value measurements.
        This
        Statement shall be effective for financial statements issued for fiscal years
        beginning after November 15, 2007 and all fiscal periods within those fiscal
        years. The adoption of FAS 157 is not expected to have a material impact
        on the
        Company’s financial condition or results of operations.
 
 **2.
        Basic and Diluted Net Loss per Share**
 
 Basic
        net
        loss per share is calculated in accordance with Statement of Financial
        Accounting Standards No. 128, *“Earnings
        per Share* ”
using
        the weighted-average number of common shares outstanding during the period.
        Diluted net loss per share is computed using the weighted-average number
        of
        common and dilutive common equivalent shares outstanding during the period.
 
 The
        following table presents the calculation of basic and diluted net loss per
        share
        for the fiscal years ended December 31, 2006, 2005 and 2004:
  Loss
              
              Shares
              
              Loss
                  per(Numerator)
              
              (Denominator)
              
              ShareYear
                  ended December 31, 2006Basic
                  and diluted net loss per share
              
              $
              (15,125,903
              )
              
              50,474,155
              
              $
              (0.30
              )Year
                  ended December 31, 2005Basic
                  and diluted net loss per share
              
              $
              (8,704,497
              )
              
              40,418,575
              
              $
              (0.22
              )Year
                  ended December 31, 2004Basic
                  and diluted net loss per share
              
              $
              (5,060,061
              )
              
              32,501,014
              
              $
              (0.16
              )
 
 At
        December 31, 2006, 2005 and 2004, stock options and warrants for the purchase
        of
        16,354,480, 21,182,381 and 16,414,176 shares of the Company’s common stock at
        prices ranging from $0.52 to $10.50 per share respectively, were antidilutive
        and therefore not included in the computation of diluted earnings per
        share.
  37
  **3.
        Property and Equipment**
  Property
        and equipment are summarized by major category as follows at
        December 31, 2006 and 2005:
 2006
                
                2005Computers
                    and software
                
                $
                1,810,942
                
                $
                1,437,068Furniture
                    and fixtures
                
                
                85,215
                
                
                85,215Leasehold
                    improvements
                
                
                96,804
                
                
                46,662Total
                    property and equipment
                
                
                1,992,961
                
                
                1,568,945Less:
                    accumulated depreciation and amortization
                
                
                (1,256,908
                )
                
                (946,430
                )Property
                    and equipment, net
                
                $
                736,053
                
                $
                622,515
  Depreciation
        expense for fiscal 2006, 2005 and 2004 was $363,062, $285,423 and $181,656,
        respectively. During 2006 the Company performed a physical inventory of its
        property and equipment and wrote off $110,092 in computer and related equipment
        and $52,478 in accumulated depreciation. This resulted in a loss on fixed
        assets
        of $57,614. In 2005 property and equipment included computer equipment under
        capital leases of $13,532. 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 $13,532, $11,874 and $5,159 at December 31, 2006, 2005 and 2004,
        respectively.
 
 **4.
        Prepaid Expenses**
 
 As
        of
        December 31, 2006, prepaid expenses were $152,299. The balance included $33,645
        in prepaid debt issuance costs and $118,654 in other prepaid expenses which
        included: Unamortized balances of prepaid insurance, prepaid marketing expenses
        related to 2007 subscriptions to industry analyst services and conferences,
        and
        other expenses that are prepaid in the ordinary course of business. The debt
        issuance costs will be amortized into expense ratably over the life of the
        associated debt, 24 months, starting in January 2007; all other prepaid expenses
        will be expensed during fiscal 2007. The prepaid debt issuance costs are
        discussed in greater detail in Note 8 to these financial statements.
 
 **5.
        Prepaid Expense from Warrant**
 
 Prepaid
        expense from warrant consists of the original charge of $173,021 related
        to the
        issuance of a warrant to a customer in 2005 to purchase 100,000 shares of
        the
        Company’s Common Stock, in exchange for a guarantee by that customer to provide
        maintenance and support services for the ANTs Data Server to the Company’s
        customers should the Company be unable to provide such services. The fair
        value
        of the warrant was calculated using the Black-Scholes valuation model. The
        warrant has an exercise price of $3.50 per share and may be exercised until
        July
        2008. The prepaid expense is being amortized into the statements of operations
        on a straight-line basis, over 36 months, commencing January 2006. Amortized
        expense for the fiscal year ended December 31, 2006 was $57,674, leaving
        a net
        balance in the prepaid expense account of $115,347 on December 31,
        2006.
 
 The
        prepaid expense is evaluated periodically for signs of impairment, and will
        be
        reduced as necessary, with a corresponding charge to the statement of
        operations.
 
 **6.
        Deferred Revenues**
 
 Deferred
        revenue is comprised of license fees and annual maintenance and support fees.
        License fees are recognized upon customer acceptance of the product. Annual
        maintenance and support fees are being amortized ratably into revenue on
        the
        statements of operations over the life of the contract, which is generally
        a
        12-month period beginning with customer acceptance of the product. During
        fiscal
        2006, the Company invoiced customers $290,849 for license fees, annual
        maintenance and support fees, and professional services. Of the total amount
        invoiced, $182,040 was recorded as revenue in the statements of operations,
        and
        $108,809 was recorded as deferred revenue on the balance sheet. The total
        amount
        of deferred revenue recognized in 2006 was $105,792. The amount of deferred
        revenue on the balance sheet at December 31, 2006 was $56,819, which is
        comprised of $26,087 in license fees and $30,732 in maintenance and support
        fees.
 
 38
 During
        fiscal 2005, the Company invoiced customers in the amount of $525,223 for
        license fees, annual maintenance and support fees, and professional services.
        Of
        the total amount invoiced, $417,000 was recorded as current revenue in the
        statements of operations, and $108,223 was recorded as deferred revenue on
        the
        balance sheet. The deferred revenue consists of annual maintenance and support
        fees, which are being amortized ratably into revenue on the statements of
        operations over the life of the contract, which is generally a 12-month period
        beginning with customer acceptance of the product. The total amortized in
        2005
        was $49,620. The amount of deferred revenues on the balance sheet at December
        31, 2005 was $58,603.
 
 **7.
        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, 2006, 2005 and
        2004, 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, 2006, 2005 and 2004 are as follows:
  **Fiscal
                    Years****2006**
                
                **2005**
                
                **2004****Deferred
                    Tax Assets:**Net
                    operating loss carryforward
                
                $
                18,765,178
                
                $
                13,412,485
                
                $
                9,909,028Research
                    tax credit carryforward
                
                
                1,922,882
                
                
                1,371,851
                
                
                945,858Expenses
                    deductible in later years
                
                
                79,833
                
                
                76,768
                
                
                2,024Gross
                    deferred tax assets
                
                
                20,767,893
                
                
                14,861,104
                
                
                10,856,910Less:
                    valuation allowance
                
                
                (20,767,893
                )
                
                (14,861,104
                )
                
                (10,856,910
                )**Net
                    deferred tax assets**
                
                $
                -
                
                $
                -
                
                $
                -
 
 At
        December 31, 2006 the Company had net operating loss carryforwards of
        approximately $46.5 million for federal tax purposes and $43.4 million for
        state
        tax purposes. If not earlier utilized, the federal net operating loss
        carryforwards will expire in various years from 2008 through 2026 and the
        state
        net operating loss carryforwards will expire in various years from 2007 through
        2016.
 
 At
        December 31, 2006, the Company also had research credit carryforwards of
        approximately $1.2 million for federal tax purposes and $1.0 million for
        state
        tax purposes. If not earlier utilized the federal research credit carryforwards
        will expire in various years from 2017 through 2026. The state research credit
        carries forward indefinitely until utilized.
 
 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 increased
        in
        2006, 2005 and 2004 by $5,906,789, $4,004,194 and $2,021,887, respectively.
 
 Federal
        and California regulations 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.
 
 In
        July
        2006, the FASB issued FASB Interpretation (“FIN”) No. 48, *“Accounting
        for Uncertainty in Income Taxes and Interpretation of FASB Statement No.
        109”* .
        This
        interpretation requires that realization of an uncertain income tax position
        must be “more likely than not” (i.e., greater than 50% likelihood of receiving a
        benefit) before it can be recognized in the financial statements. Further,
        this
        interpretation prescribes the benefit to be recorded in the financial statements
        as the amount most likely to be realized assuming a review by the tax
        authorities having all relevant information and applying current conventions.
        This interpretation also clarifies the financial statement classification
        of tax
        related penalties and interest and sets forth-new disclosures regarding
        unrecognized tax benefits. This interpretation is effective for fiscal years
        beginning after December 15, 2006 and The Company will be required to adopt
        this
        interpretation in the first quarter of 2007. Based on our evaluation as of
        December 31, 2006, The Company does not believe that FIN 48 will have a material
        impact on our financial statements.
 
 39
 **8.
        Convertible Promissory Notes**
 
 In
        December 2006 the Company’s Board of Directors approved the terms of a private
        offering to raise working capital. The private offering consists of units
        (the
“J Units”) sold at a per unit price of $50,000 with each J Unit comprised of (i)
        14,285 shares of common stock of the Company (issued at a per share price
        of
        $1.75) and (ii) a convertible promissory note (the “Note”) with an initial face
        value of $25,000. In December 2006, the Company entered into agreements with
        accredited investors to purchase 40 J Units, raising $2,000,000. Pursuant
        to the
        sale, the Company issued 571,400 shares of common stock of the Company and
        issued Notes with an initial face value of $1,000,000. The Notes bear interest
        at the rate of 10% per annum (simple interest) due and payable at the end
        of
        each fiscal quarter. The Notes mature 24 months from the issuance date, and
        are
        convertible into shares of the Company’s common stock, at the election of the
        holder, at a per share price of $2.00. The Notes are prepayable without penalty
        upon 30 days notice. The Notes are convertible at the election of the Company
        upon a certain event, and if converted at the election of the Company, the
        Company has agreed to register the shares of stock issuable upon conversion.
 
 In
        accordance with generally accepted accounting principles (“GAAP”), the Company
        applied the guidance in Accounting Principles Board (“APB”) No. 14 and Emerging
        Issues Task Force (“EITF”) 00-27 to allocate the proceeds between the common
        stock and the Notes based on their relative fair values. The allocation resulted
        in a total premium of $120,880 for the Notes. The premium is included in
        total
        notes payable on the balance sheet at December 31, 2006. The premium will
        be
        amortized over the two-year life of the Notes and will be recognized against
        interest expense on the Notes.
 
 At
        December 31, 2006, the Company owed $40,000 in cash commissions and 10,380
        shares of common stock of the Company to a placement agent for services related
        to sales of the J Units. The shares are contractually valued at $1.93 per
        share
        or $20,033. The total commission value of $60,033 was allocated between debt
        issuance costs, and additional paid-in capital as a cost of raising the equity
        portion of the offering, in the same proportion that was used to allocate
        the
        gross proceeds of the offering between notes payable, and stockholders’ equity.
        This resulted in debt issuance costs of $33,645, which are included in prepaid
        expenses on the balance sheet at December 31, 2006. The remaining $26,388
        was
        allocated to additional paid-in capital. The cash commission is included
        in
        accounts payable and other accrued expenses on the balance sheet as of December
        31, 2006 and was subsequently paid in January 2007. The 10,380 shares due
        to the
        placement agent is shown on the balance sheet in common stock subscribed
        at its
        par value of $1 and will be issued in the first quarter of 2007.
 
 **9.
        Commitments and Contingencies**
 
 **Lease
        Commitments**
 
 As
        of
        December 31, 2006, the Company leased office facilities under a non-cancelable
        operating lease. Future minimum lease payments required under the noncancelable
        leases are as follows:
 
 Years
                    Ending December 31,
                
                Operating
                    Leases2007
                
                $
                233,6002008
                
                
                81,760Total
                    minimum lease payments
                
                $
                315,360
  On
        April
        27, 2005, the Company entered into a lease with Bayside Plaza, a partnership,
        for approximately 15,000 square feet of general commercial offices located
        at
        700 Airport Boulevard, Suite 300, Burlingame, California (the “Premises”). The
        Company moved its principal offices to these Premises on May 2, 2005. The
        Premises are used for the purposes of general office use and for software
        development. The lease has an initial term of three years, subject to the
        Company's right to extend the term of the lease for a total of six additional
        years. The base rent under this lease is $16,060 per month for the first
        year,
        $17,520 per month for the second year and $20,440 per month for the third
        year.
        The Company received abated rent for the period from May 1, 2005 to July
        30,
        2005. In the event the Lease is not extended, the total obligations of the
        Company related to the lease amount to $600,060.
 
 40
 The
        Company is recognizing rent expense for this lease in accordance with FASB
        Financial Technical Bulletin 85-3 (“FTB 85-3”), “ *Accounting
        for Operating Leases with Scheduled Rent Increases* ”.
        The
        base rent, the effects of the scheduled rent increases, and the effects of
        the
        rent abatement are being recognized on a straight-line basis over the lease
        term. This resulted in monthly rental expense of $16,668 from January 1,
        2006
        through December 31, 2006. During the fiscal years ended December 31, 2006,
        2005
        and 2004 the Company recognized a total of $200,020, $133,344 and $0
        respectively, in rental expense for this lease.
 
 **Contingencies**
 
 As
        part of
        a License Agreement (“Agreement”) dated August 1, 2005 with a certain customer,
        the Company has agreed to issue a warrant to purchase 50,000 shares of
        restricted stock of the Company to the customer thirty (30) days after the
        Software Acceptance Date, subject to approval from the Company’s board of
        directors, compliance with applicable securities laws and regulations and
        Licensee representing that it is an accredited investor. The warrant has
        an
        exercise price of $3.50 per share and is exercisable for a period of three
        years
        from the Effective Date of the warrant. If the warrant is not granted within
        thirty days after the Software Acceptance Date without fault of Licensee,
        then
        Licensee will have the right to terminate the Agreement on notice to the
        Company, and the Company will immediately refund to Licensee all monies
        theretofore paid to the Company under this Agreement. To date the customer
        has
        not fully accepted the software, thus the warrant has not been
        issued.
 
 **10.
        Stockholders’ Equity**
 
 A
        table of
        transactions occurring in stockholders’ equity for the years ending December 31,
        2006, 2005 and 2004 is presented below.
 **Changes
                  in Stockholders' Equity****For
                  the Years ended****December
                  31,****2006**
              
              **2005**
              
              **2004**Total
                  stockholders' equity, beginning of period
              
              $
              6,412,586
              
              $
              1,529,181
              
              $
              (135,315
              )Cash
                  transactions:Proceeds
                  from private placements:Sales
                  of "D" Units at $0.75 per unit
              
              
              -
              
              
              -
              
              
              4,277,378Cash
                  commissions on sales of "D" units
              
              
              -
              
              
              -
              
              
              (269,100
              )Sales
                  of "E" Units at $1.25 per unit
              
              
              -
              
              
              -
              
              
              500,000Cash
                  commissions on sales of "E" units
              
              
              -
              
              
              -
              
              
              (65,000
              )Sales
                  of "F" Units at $1.00 per unit
              
              
              -
              
              
              933,000
              
              
              1,190,000Cash
                  commissions on sales of "F" units
              
              
              -
              
              
              (90,350
              )
              
              -Sales
                  of "G" Units at $1.60 per unit
              
              
              -
              
              
              3,042,000
              
              
              -Cash
                  commissions on sales of "G" units
              
              
              -
              
              
              (75,000
              )
              
              -Sales
                  of "H" units at $1.60 per unit
              
              
              204,000
              
              
              2,603,000
              
              
              -Cash
                  commissions on sales of "H" units
              
              
              (20,000
              )
              
              (188,500
              )
              
              -Sales
                  of restricted shares of common stock at $1.50 per share
              
              
              9,597,503
              
              
              -
              
              
              -Cash
                  commissions on sales of restricted stock
              
              
              (709,250
              )
              
              -
              
              
              -Sales
                  of "I" units at $1.60 per unit
              
              
              -
              
              
              1,600,000
              
              
              -Sales
                  of "J" units at $25,000 per unit (equity portion of units)
              
              
              1,000,000
              
              
              -
              
              
              -Cash
                  commissions on sales of "J" units
              
              
              (40,000
              )
              
              -
              
              
              -Net
                  proceeds from private placements
              
              
              10,032,253
              
              
              7,824,150
              
              
              5,633,278Proceeds
                  from warrant exercises:Warrants
                  with exercise price of $2.00 per share discounted to$1.50
                  and $1.50/$1.40 per share in 2006 and 2005, respectively
              
              
              109,998
              
              
              5,537,327
              
              
              -Warrants
                  with exercise price of $2.00 exercised at $2.00 per share
              
              
              458,336
              
              
              -
              
              
              -Cash
                  commissions on exercise of warrants
              
              
              (39,125
              )
              
              (193,800
              )
              
              -Net
                  proceeds from warrant exercises
              
              
              529,209
              
              
              5,343,527
              
              
              -Proceeds
                  from cash exercise of stock options
              
              
              713,854
              
              
              125,592
              
              
              388,752Total
                  cash transactions
              
              $
              11,275,316
              
              $
              13,293,269
              
              $
              6,022,030
  41
  **Changes
                  in Stockholders' Equity****For
                  the Years ended****December
                  31,****2006**
              
              **2005**
              
              **2004**Non-cash
                  transactions:Common
                  stock issued in settlement of note payable to former
                  officer
              
              
              -
              
              
              -
              
              
              75,000Forgiveness
                  of officer note receivable
              
              
              -
              
              
              -
              
              
              45,000Allocation
                  of portion of proceeds from "J" units to convertiblepromissory
                  note payable premium
              
              
              (120,880
              )
              
              -
              
              
              -Allocation
                  of portion of total commissions paid to placement agentfor
                  "J" units to debt issuance costs
              
              
              33,645
              
              
              -
              
              
              -Common
                  stock subscribed to placement agent for commission, net
              
              
              -
              
              
              -
              
              
              -Amortization
                  of discount on convertible promissory notes
              
              
              -
              
              
              -
              
              
              (46,373
              )Recognize
                  beneficial interest on convertible promissory notes
              
              
              -
              
              
              -
              
              
              280,000Conversion
                  of convertible promissory notes into common stock
              
              
              -
              
              
              -
              
              
              289,150Employee
                  compensation expense:Vesting
                  of stock options
              
              
              1,253,159
              
              
              -
              
              
              -Expense
                  recognized on accelerated vesting of certain employeestock
                  options
              
              
              -
              
              
              3,742
              
              
              -Exercise
                  and sale of employee stock options
              
              
              -
              
              
              20,790
              
              
              -Total
                  employee compensation expense
              
              
              1,253,159
              
              
              24,532
              
              
              -Non-employee
                  compensation expense:Restricted
                  stock/stock options issued to vendors
              
              
              16,000
              
              
              45,158
              
              
              6,204Prepaid
                  expense recognized from issuance of a warrant to a
                  customer
              
              
              -
              
              
              173,021
              
              
              -Stock
                  options expensed in 2004, exercised in 2005 by executiverecruiter
                  in payment for search for new president
              
              
              -
              
              
              3,526
              
              
              21,473Expense
                  incurred from extending exercise period on non-employeestock
                  option grants
              
              
              -
              
              
              30,130
              
              
              29,498Vesting
                  of stock options/warrants issued to consultants
              
              
              79,087
              
              
              18,266
              
              
              2,575Total
                  non-employee compensation expense
              
              
              95,087
              
              
              270,101
              
              
              59,750Total
                  non-cash transactions
              
              
              1,261,011
              
              
              294,633
              
              
              702,527Net
                  loss for fiscal period
              
              
              (15,125,903
              )
              
              (8,704,497
              )
              
              (5,060,061
              )Total
                  stockholders' equity, end of period
              
              $
              3,823,010
              
              $
              6,412,586
              
              $
              1,529,181
  Details
        of
        these transactions by quarter for the years ending December 31, 2006, 2005
        and
        2004 are presented below.
 
 **Fiscal
        Year 2006**
 
 **Funds
        raised through private offerings to accredited investors:**
 
 Pursuant
        to the terms of a private placement offering sold in December 2006, which
        is
        described more fully in Note 8 to these financial statements, the Company
        sold
        40 J Units to accredited investors. The Company received $2,000,000 in gross
        proceeds from the offering, of which $1,000,000 was the face value of the
        Notes
        and $1,000,000 was the face value of the 571,400 restricted shares of common
        stock of the Company issued. The transaction included a premium on the Notes
        of
        $120,880, which was allocated from stockholders’ equity to notes payable. At
        December 31, 2006, t he
        Company
        owed $40,000 in cash commissions and will issue 10,380 shares of common stock
        of
        the Company to a placement agent for services related to sales of the J Units.
        The shares are contractually valued at $1.93 per share or $20,033. The total
        commission value of $60,033 was allocated between debt issuance costs, and
        additional paid-in capital as a cost of raising the equity portion of the
        offering, in the same proportion that was used to allocate the gross proceeds
        of
        the offering between notes payable, and stockholders’ equity. This resulted in
        debt issuance costs of $33,645, which are included in prepaid expenses on
        the
        balance sheet at December 31, 2006. The remaining $26,388 was allocated to
        additional paid-in capital. The cash commission is included in accounts payable
        and other accrued expenses on the balance sheet as of December 31, 2006 and
        was
        subsequently paid in January 2007. The 10,380 shares due to the placement
        agent
        is shown on the balance sheet in common stock subscribed at its par value
        of $1
        and will be issued in the first quarter of 2007. The
        sales
        of these securities were made in reliance upon Rule 506 and Section 4(2)
        of the
        Securities Act of 1933.
 
 42
 During
        the
        quarter ended June 30, 2006, the Company sold to accredited investors, through
        a
        private offering, 6,398,335 restricted shares of the Company’s common stock at a
        price of one dollar and fifty cents ($1.50) per share. The Company received
        $9,597,503 in gross proceeds from the offering. The Company paid $709,250
        in
        cash commissions on these sales to the placement agent. Commissions paid
        in
        common stock to the placement agent totaled $496,475. The sales of these
        securities were made in reliance upon Rule 506 and Section 4(2) of the
        Securities Act of 1933.
 
 During
        the
        quarter ended March 31, 2006, the Company sold to accredited investors, through
        a private offering, 127,500 H Units at a price of one dollar and sixty cents
        ($1.60) per H Unit, with each H 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 three dollars
        and
        twenty-five cents ($3.25), exercisable until April 14, 2008. The Company
        received $204,000 in gross proceeds from the offering. No commissions were
        incurred for these sales. The sales of these securities were made in reliance
        upon Rule 506 and Section 4(2) of the Securities Act of 1933.
 
 During
        the
        quarter ended March 31, 2006, the Company paid cash commissions totaling
        $20,000
        in connection with the H Unit offering that occurred during the fourth quarter
        of 2005.
 
 **Funds
        raised through cash exercises of warrants:**
 
 During
        the
        quarter ended September 30, 2006, investors exercised warrants to purchase
        229,168 shares of the Company’s Common Stock (or “shares”) at $2.00 per share
        for a total of $458,336. The sale of these securities was made in reliance
        upon
        Rule 506 and Section 4(2) of the Securities Act of 1933.
 
 During
        the
        three months ended March 31, 2006, an investor exercised a warrant to purchase
        73,332 shares at $2.00 per share for a discounted price of $1.50 per share,
        resulting in gross proceeds to the Company of $109,998. The sale of these
        securities was made in reliance upon Rule 506 and Section 4(2) of the Securities
        Act of 1933. The Company paid $39,125 in cash commissions in connection with
        the
        warrant exercises that occurred during the fourth quarter of 2005.
 
 **Funds
        raised through cash exercises of stock options:**
 
 For
        the
        fiscal year ended December 31, 2006, stock options covering a total of 477,902
        shares were exercised, generating $713,854 in cash proceeds to the
        Company.
 
 **Other
        equity transactions:**
 
 For
        the
        fiscal year ended December 31, 2006, the Company recognized $1,253,159 in
        compensation expense related to vesting of employee stock options, and $79,087
        in professional fees related to the vesting of non-employee stock options
        in
        accordance with the accounting guidelines set forth in SFAS 123
        (R).
 
 During
        fiscal 2006, the Company recognized $16,000 in non-cash professional fee
        expense
        related to issuing 10,666 restricted shares of the Company’s common stock at a
        price of $1.50 per share to a vendor.
 
 **Fiscal
        Year 2005**
 
 **Funds
        raised through private offerings to accredited investors:**
 
 On
        or
        about November 15, 2005, the Company sold to one accredited investor, through
        a
        private offering, 1,000,000 I Units at a price of one dollar and sixty cents
        ($1.60) per I Unit, with each I 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 three dollars
        and
        twenty-five cents ($3.25), exercisable until November 9, 2009. The gross
        proceeds from the offering were $1,600,000. The sale of these securities
        was
        made in reliance upon Rule 506 and Section 4(2) of the Securities Act of
        1933.
 
 From
        November 1, 2005 through December 31, 2005, the Company sold to accredited
        investors, through a private offering, 848,750 H Units at a price of one
        dollar
        and sixty cents ($1.60) per H Unit, with each H 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
        three
        dollars and twenty-five cents ($3.25), exercisable until April 14, 2008.
        The
        gross proceeds from the offering were $1,358,000. In connection with this
        private offering, the Company paid cash commissions of $64,000 in 2005 and
        $20,000 in the first quarter of 2006, and issued 41,364 H Units, to a placement
        agent in February 2006. At December 31, 2005, the placement agent shares
        were
        recorded in common stock subscribed at a value of $72,801, or $1.76
        per share, the contractual value paid to the placement agent. The
        Company also issued 4,375 H Units as finders’ fees. The sales of these
        securities were made in reliance upon Rule 506 and Section 4(2) of the
        Securities Act of 1933.
 
 43
 From
        July
        1, 2005 through September 30, 2005, the Company sold to accredited investors,
        through a private offering, 778,125 H Units at a price of one dollar and
        sixty
        cents ($1.60) per H Unit, with each H 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 three dollars
        and twenty-five cents ($3.25), exercisable until April 14, 2008. The gross
        proceeds from the offering were $1,245,000. The Company paid cash commissions
        of
        $124,500, and issued 41,563 H Units in February 2006, to a placement agent
        in
        connection with this private offering. At December 31, 2005, these shares
        were
        recorded in Common Stock Subscribed at a value of $73,151.The sales of these
        securities were made in reliance upon Rule 506 and Section 4(2) of the
        Securities Act of 1933.
 
 On
        or
        about September 2, 2005, the Board of Directors of the Company agreed to
        reduce
        the warrant exercise price of the 1,901,250 outstanding G Units from three
        dollars and fifty cents ($3.50) per share to three dollars and twenty-five
        cents
        ($3.25) per share.
 
 From
        July
        1, 2005 through September 30, 2005, the Company sold to one accredited investor,
        through a private offering, 250,000 G Units at a price of one dollar and
        sixty
        cents ($1.60) per G Unit, with each G 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 three dollars
        and fifty cents ($3.50), exercisable until April 14, 2008. The gross proceeds
        from the offering were $400,000. The sales of these securities were made
        in
        reliance upon Rule 506 and Section 4(2) of the Securities Act of
        1933.
 
 From
        April
        14, 2005 through June 30, 2005, the Company sold to accredited investors,
        through a private offering, 1,651,250 G Units at a price of one dollar and
        sixty
        cents ($1.60) per G Unit, with each G 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 three dollars
        and fifty cents ($3.50), exercisable until April 14, 2008. The gross proceeds
        from the offering were $2,642,000. The Company paid cash commissions of $75,000,
        and issued 29,829 G Units to the placement agent 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
        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 $933,000 was received in January 2005.
        The
        Company issued 963,000 shares in January 2005, including 30,000 shares that
        had
        been recorded as common stock subscribed as of December 31, 2004. 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.
 
 **Funds
        raised through cash exercises of warrants:**
 
 From
        November 28, 2005 through December 31, 2005, the Company offered all
        shareholders who owned warrants with an exercise price of $2.00 the right
        to
        exercise their warrants at a discounted price of $1.50 per share. A total
        of
        1,067,687 warrants were exercised, resulting in gross proceeds to the Company
        of
        $1,601,531.  The
        Company paid cash commissions of $39,125 to a placement agent in connection
        with
        these warrants exercises in the first quarter of 2006.  The
        sales
        of these securities were made in reliance upon Rule 506 and Section 4(2)
        of the
        Securities Act of 1933.
 
 From
        April
        14, 2005 through May 31, 2005, the Company offered certain shareholders who
        owned warrants with an exercise price of $2.00 the right to exercise their
        warrants at a discounted price of $1.40 per share. A total of 671,000 warrants
        were exercised, resulting in gross proceeds to the Company of $939,400. The
        Company paid cash commissions of $84,000 in connection with these warrant
        exercises in May 2005. The sales of these securities were made in reliance
        upon
        Rule 506 and Section 4(2) of the Securities Act of 1933.
 
 44
 From
        February 1, 2005 through March 31, 2005, the Company offered all shareholders
        who owned warrants with an exercise price of $2.00 the right to exercise
        their
        warrants at a discounted price of $1.40 per share. Warrants covering a total
        of
        2,140,283 shares were exercised, resulting in gross proceeds to the Company
        of
        $2,996,396. The Company paid cash commissions of $109,800 in connection with
        the
        exercise of these warrants in March and April of 2005. The sales of these
        securities were made in reliance upon Rule 506 and Section 4(2) of the
        Securities Act of 1933.
 
 **Funds
        raised through cash exercises of stock options:**
 
 During
        the
        fiscal year ended December 31, 2005, a total of 103,704 shares of common
        stock
        of the Company were purchased through the exercise of stock options, resulting
        in cash proceeds to the Company of $125,592.
 
 **Other
        equity transactions:**
 
 For
        the
        fiscal year ended December 31, 2005, $18,266 in non-employee stock compensation
        expense was recognized related to the vesting of options held by continuing
        consultants. Also in fiscal 2005, a total of $20,790 related to an employee
        exercise of stock options was recorded as compensation expense.
 
 During
        fiscal 2005, the Company recognized $15,158 in expense related to issuing
        9,474
        H Units to a vendor for services. At
        December 31, 2005, the shares were in common stock subscribed. They were
        subsequently issued in February 2006.
 
 During
        fiscal 2005, the Company recognized $30,000 in investor relations expense
        related to issuing 15,000 restricted shares of the Company’s common stock to an
        investment firm for services. At December 31, 2005, the shares were in common
        stock subscribed. They were subsequently issued in February 2006.
 
 On
        December 29, 2005 the Company’s Board of Directors approved the acceleration of
        vesting for all unvested employee stock options granted under the ANTs software
        inc. 2000 Stock Option Plan, as amended, excluding those stock options held
        by
        non-employee directors whose options had an exercise price less than $2.10,
        and
        certain employees who did not consent to such acceleration. The closing sale
        price of ANTs’ common stock on December 29, 2005 was $2.10. This was the price
        used to determine which options were in or out of the money. The Company
        accelerated a total of 2,621,004 options, of which 687,866 were in the money,
        and 1,933,138 were out of the money. In accordance with APB No. 25, the Company
        calculated the expense associated with accelerating the options using the
        intrinsic value method. Also in accordance with APB No. 25, the Company recorded
        the compensation expense of $3,742 with vesting of in-the-money options in
        the
        statement of operations with a corresponding credit to additional
        paid-in-capital.
 
 As
        of
        December 31, 2005, prepaid expenses and additional paid-in-capital included
        $173,021 related to the issuance of a warrant to purchase 100,000 shares
        of the
        Company’s common stock to a customer in exchange for a guarantee by that
        customer to provide maintenance and support services for the ANTs Data Server
        to
        the Company’s customers should the Company be unable to provide such services.
        The fair value of the warrant was calculated using the Black-Scholes valuation
        model.
 
 On
        February 25, 2005, a prior consultant exercised an option for 12,886 shares,
        generating cash proceeds to the Company of $24,999. The cash proceeds are
        included in total funds raised through cash exercises of stock options in
        2005
        as described above. The option was granted in 2004 in lieu of cash compensation.
        Non-employee stock compensation expense of $3,526 related to the exercise
        was
        recognized during the six months ended June 30, 2005.
 
 In
        January
        2005 a sales consultant’s contract terminated, and as part of the termination
        agreement, the Company agreed to extend the period for exercising certain
        stock
        options from the standard 90 days allowed under the 2002 Stock Option Plan
        to
        one year. On May 1, 2005, the Company recognized non-employee stock compensation
        expense of $30,130 related to the extension.
 
 45
 **Fiscal
        Year 2004**
 
 **Funds
        raised through private offerings to accredited investors:**
 
 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 $1,190,000 was received by December 31,
        2004
        and $933,000 was received in January 2005. Of the total proceeds received
        in
        2004, $30,000 was shown as common stock subscribed At December 31, 2004.
        The
        shares were subsequently issued 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.
 
 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.
 
 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 expiration date was subsequently
        extended to September 30, 2006. The gross proceeds from the offering were
        $4,277,378. 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.
 
 **Funds
        raised through cash exercises of stock options:**
 
 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.
 
 **Other
        equity transactions:**
 
 For
        the
        fiscal year ended December 31, 2004, $2,575 in non-employee stock compensation
        expense was recognized related to the vesting of options held by continuing
        consultants.
 
 A
        vendor
        was awarded 3,300 options on August 19, 2004 as partial compensation for
        selling
        the sole and exclusive rights to the domain nam e, 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.
 
 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.
 
 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
        note holder 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. The conversion had a positive
        effect on shareholders’ equity, increasing it by a net amount of
        $522,777.
  On
        July 7,
        2004, the Company granted a stock option for 12,886 shares at an exercise
        price
        of $1.94 to a consultant who was retained to recruit and hire a new President
        for the Company. The Company recorded non-cash recruiting fee expense in
        the
        amount of $21,473, which was the intrinsic value of the option award. The
        option
        was subsequently exercised in the first quarter of fiscal 2005.
  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.
 
 46
 **11.
        Stock-Based Compensation Expense**
  The
        Company has a stock-based compensation program (the ANTs software inc. 2000
        Stock Option Plan or the “Plan”) which is intended to attract, retain and
        provide incentives for talented employees, officers, directors and consultants,
        and to align stockholder and employee interests. The Company considers
        stock-based compensation critical to its operation and productivity; essentially
        all of its employees and directors participate, as well as certain consultants.
        Under the Plan, the Company may grant incentive stock options and non-qualified
        stock options 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 value for non-qualified options. Options are granted at the discretion
        of
        the Board of Directors.
  Options
        granted under the Plan are generally vested within three years after the
        date of
        grant, and expire 10 years after issuance. Stock option vesting is generally
        time-based. Options granted to new hires vest 16.7% beginning six months
        after
        the employee’s date of hire, then at 2.78% each month thereafter such that the
        option is fully vested three years from date of hire. Options granted to
        existing employees generally start vesting monthly following their grant.
        These
        options vest evenly over 36 months, at which time they are fully vested.
        Following termination of employment or consulting status there is usually
        a
        grace period during which the vested portion of the option is exercisable.
        This
        period is typically three months, but may be shorter or longer depending
        on the
        terms of a given stock option agreement. Outside directors generally receive
        an
        option to purchase 50,000 shares of common stock for each 12 months of service,
        and an additional 10,000 shares for each 12 months of service as chairman
        of a
        Board committee, all vesting over the period of service. Directors generally
        serve for terms of three years. Options granted to directors may include
        a
        one-year lock-up provision following termination of their director status,
        during which period the option cannot be exercised.
  On
        August
        16, 2006, Mr. Boyd Pearce, the Company’s former CEO, resigned, and he and the
        Company entered into a separation agreement pursuant to which (i) a stock
        option
        granted to Mr. Pearce in April 2005, covering 750,000 shares of Company common
        stock was cancelled and replaced by a five-year warrant covering the same
        number
        of shares at the same exercise price; (ii) stock options granted in October
        2004
        covering a total of 750,000 shares of common stock were modified to have
        a
        five-year exercise period, and; (iii) restrictions were placed on Mr. Pearce’s
        ability to sell stock purchased under both the newly granted warrant and
        the
        modified options. The Company recorded no expense in its Statements of
        Operations related to the cancellation of the April 2005 option grant and
        the
        subsequent warrant grant since the exercise price of the warrant was greater
        than the market price of the Company’s common stock on the date of the warrant
        grant, and the fair value of the warrant, calculated using the Black-Scholes
        valuation model, was less than the fair value of the original option grant.
        The
        Company recorded compensation expense of $198,750 during the period ending
        September 30, 2006 related to the modification of the October 2004 option
        grants. No future expense is anticipated as both the warrant and options
        were
        fully vested at the date of modification.
  On
        August
        22, 2006, the Company entered into Cancellation and Regrant Agreements with
        directors Thomas Holt, Homer Dunn, John Gaulding, and Robert Henry Kite.
        Under
        these Agreements certain non-qualified options to purchase shares of the
        Company’s common stock were replaced with Warrants to purchase shares of the
        Company’s common stock. The exercise prices and terms of the warrants mirrored
        the exercise prices and terms of the non-qualified stock options. The exercise
        prices ranged from $2.60 per share to $6.38 per share for Thomas Holt, from
        $2.60 per share to $2.85 per share for John Gaulding, from $2.60 per share
        to
        $2.85 per share for Homer Dunn, and from $2.35 per share to $2.85 per share
        for
        Robert Henry Kite. The cancelled stock options and granted warrants covered
        an
        aggregate of 192,500 shares for Thomas Holt, 322,500 shares for John Gaulding,
        262,500 shares for Homer Dunn, and 245,000 shares for Robert Henry Kite.
        No
        financial benefit was conferred on the directors from the exchange of their
        stock options for warrants as the exercise prices and terms of the warrants
        mirrored the exercise prices and terms of the options. These option
        cancellations and warrant grants helped the Company through a period of heavy
        recruiting. The Company intends to reduce the number of shares in one or
        more
        future intended stock option or equity incentive plans by the aggregate number
        of shares covered by these warrants. The Company recorded no expense in its
        Statements of Operations for these transactions since the warrants all had
        exercise prices greater than the market price of the stock on the date of
        grant,
        and the fair value of the warrant awards calculated using the Black-Scholes
        valuation model was less than the fair value of the original option awards.
  47
 On
        September 8, 2006, Mr. Girish Mundada, the Company’s former vice president of
        engineering, resigned and he and the Company entered into a separation agreement
        pursuant to which: (i) stock options covering an aggregate of 410,000 shares
        of
        Company common stock were modified to extend the standard post-termination
        exercise period from three months following termination through June 8, 2008;
        (ii) restrictions were placed on Mr. Mundada’s ability to sell stock purchased
        under the stock options, and; (iii) stock options covering an aggregate of
        210,000 shares of Company common stock were cancelled. The Company recorded
        compensation expense of $66,000 during the period ending September 30, 2006
        related to the modification of Mr. Mundada’s options. No future expense is
        anticipated as the options were fully vested at the date of modification.
  The
        following table sets forth the total stock-based compensation expense for
        employees, outside directors and consultants for the fiscal year ended December
        31, 2006, resulting from both the vesting of unvested options for certain
        grants
        issued prior to January 1, 2006, and from the vesting of options awarded
        during
        the fiscal year ended December 31, 2006.
  Fiscal
                  YearEndedDecember
                  31, 2006Sales
                  and marketing
              
              $
              221,586Research
                  and development
              
              
              507,600General
                  and administrative
              
              
              603,060Stock-based
                  compensation before income taxes
              
              
              1,332,246Income
                  tax benefit
              
              
              -Total
                  stock-based compensation expense after income taxes
              
              $
              1,332,246
   The
        total
        stock-based compensation expense in the fiscal year ended December 31,
        2006, of $1,332,246 increased the Company’s net loss for the fiscal year by the
        same amount, and increased basic and diluted net loss per share for the same
        period by $0.03 per share. Stock-based compensation expense had no impact
        on
        cash flows used in operations or cash flows from financing activities for
        the
        fiscal year ended December 31, 2006.
  The
        total
        stock-based compensation expense, net of income taxes, for the fiscal year
        ended
        December 31, 2006 comprised $1,253,159 attributable to the vesting of employee
        and outside director (collectively referred to as “employee”) stock options, and
        $79,087 charged to research and development (“R&D”) and marketing
        professional fees attributable to vesting of options issued to non-employee
        R&D and marketing consultants. During the fiscal years ended December 31,
        2005 and 2004, the Company recognized $51,922 and $59,750, respectively,
        related
        to the vesting of stock options granted to non-employee
        consultants.
  Net
        cash
        proceeds from the exercise of stock options were $713,854 for the fiscal
        year
        ended December 31, 2006. No income tax benefit was realized from stock option
        exercises during the fiscal year, due to the Company’s net loss from operations
        for the period. In accordance with SFAS 123(R), The Company presents excess
        tax
        benefits from the exercise of stock options, if any, as financing cash flows
        rather than operating cash flows.
  Prior
        to
        the adoption of SFAS 123(R), The Company applied SFAS 123, *“Accounting
        for Stock-Based Compensation”* ,
        amended
        by SFAS 148, “ *Accounting
        for Stock-Based Compensation — Transition and Disclosure* ”
(“SFAS
        148”), which allowed companies to apply the existing accounting rules under
        Accounting Principles Board No. 25, “ *Accounting
        for Stock Issued to Employees* ,”
(“APB
        25”) and related Interpretations. In general, as the exercise price of options
        granted under these plans was equal to the market price of the underlying
        common
        stock on the grant date, no stock-based compensation cost was recognized
        in our
        statements of operations for periods prior to the adoption of SFAS 123(R).
        As
        required by SFAS 148 prior to the adoption of SFAS 123(R), the Company disclosed
        reported net loss, which included stock-based compensation expense of $0,
        calculated in accordance with APB 25, and then pro forma net loss as if the
        fair-value-based compensation expense calculated in accordance with SFAS
        123 had
        been recorded in the financial statements. The following table illustrates
        the
        effect on net loss after tax, and net loss per common share, as if the Company
        had applied the fair value recognition provisions of SFAS 123 to stock-based
        compensation during the fiscal years ended December 31, 2005 and 2004.
  48
 Fiscal
                  Years ended December 31,2005
              
              2004Net
                  loss as reported
              
              $
              (8,704,497
              )
              $
              (5,060,061
              )Less:
                  total stock-based compensation expense for employeesdetermined
                  under the SFAS 123 fair-value method, net
              
              
              (7,215,475
              )
              
              (1,118,888
              )Net
                  loss, pro forma
              
              $
              (15,919,972
              )
              $
              (6,178,949
              )Basic
                  and diluted net loss per share:As
                  reported
              
              $
              (0.22
              )
              $
              (0.16
              )Pro
                  forma
              
              $
              (0.40
              )
              $
              (0.19
              )
  The
        fair
        value of employee and non-employee stock-based awards was estimated using
        the
        Black-Scholes valuation model with the following weighted-average assumptions
        for the fiscal years ended December 31, 2006, 2005 and 2004.
  Fiscal
                    Years endedDecember
                    31,2006
                
                2005
                
                2004Employee
                    Stock Options:Expected
                    Life in Years
                3.00
                    - 6.00
                
                5.00
                
                5.00Volatility
                79%
                    - 96%
                
                116.40%
                
                116.22%Interest
                    Rate
                4.57%
                    - 5.00%
                
                4.02%
                
                3.37%Yield
                    Rate
                0.00%
                
                0.00%
                
                0.00%Non-Employee
                    Stock Options:Expected
                    Life in Years
                4.00
                
                5.00
                
                5.00Volatility
                81%
                    - 91%
                
                116.40%
                
                116.22%Interest
                    Rate
                4.55%
                    - 5.00%
                
                4.02%
                
                3.37%Yield
                    Rate
                0.00%
                
                0.00%
                
                0.00%
  The
        computation of expected volatility for the fiscal year ended December 31,
        2006
        is based on a combination of historical and market-based implied volatility.
        The
        computation of expected life is based on historical exercise patterns. The
        interest rate for periods within the contractual life of the award is based
        on
        the U.S. Treasury yield curve in effect at the time of grant.
  Prior
        to
        the adoption of SFAS 123(R), on December 29, 2005, the Company’s Board of
        Directors approved the acceleration of vesting for all unvested employee
        stock
        options granted under the ANTs software inc. 2000 Stock Option Plan (the
        “Plan”), as amended, excluding those stock options held by non-employee
        directors whose options had an exercise price less than $2.10, and certain
        employees who did not consent to such acceleration. The closing sale price
        of
        ANTs’ common stock on December 29, 2005 was $2.10. This was the price used to
        determine which options were “in” or “out of the money”. The Company accelerated
        a total of 2,621,004 options, of which 687,866 were in the money, and 1,933,138
        were out of the money. The vesting of the stock options was accelerated to
        December 29, 2005 so that the Company would not incur approximately $4.6
        million
        in compensation expense in the 2006-2008 fiscal years that otherwise would
        have
        been recorded under SFAS 123(R).
  49
  Stock
        option activity (including both employee and non-employee grants) for the
        fiscal
        year ended December 31, 2006 was as follows:
  WeightedShares
              
              
              
              Average
              
              AggregateAvailable
              
              Outstanding
              
              Exercise
              
              IntrinsicFor
                  Grant
              
              Stock
                  Options
              
              Price
              
              ValueTotal
                  at January 1, 2006
              
              
              1,818,940
              
              
              8,060,801
              
              $
              2.17
              
              
              N/AGranted
              
              
              (3,350,000
              )
              
              3,350,000
              
              $
              2.25
              
              
              N/AExercised
                  through cash consideration
              
              
              -
              
              
              (477,902
              )
              $
              1.49
              
              $
              444,449Retired
                  or forfeited
              
              
              2,841,330
              
              
              (2,841,330
              )
              $
              2.45
              
              
              N/ATotal
                  at December 31, 2006
              
              
              1,310,270
              
              
              8,091,569
              
              $
              2.14
              
              $
              2,265,639Exercisable
                  at December 31, 2006
              
              
              
              
              
              5,883,079
              
              $
              2.10
              
              $
              1,882,585
  The
        aggregate intrinsic value of total stock options outstanding and exercisable,
        and of total stock options exercised during the fiscal year ended December
        31,
        2006 in the table above, represents the total pretax intrinsic value (i.e.,
        the
        difference between the Company’s closing stock price on December 31, 2006 and
        the exercise price, times the number of shares) that would have been received
        by
        the option holders had all option holders exercised their options on December
        31, 2006. Aggregate intrinsic value changes as the fair market value of the
        Company’s stock changes. The closing market price of the stock on December 31,
        2006 was $2.42.
  Stock
        options outstanding and exercisable at December 31, 2006 are summarized in
        the
        table below (see Note 12 to these financial statements for similar disclosures
        for fiscal 2005 and 2004).
  Total
                  Options Outstanding as of December 31, 2006Weighted
              
              WeightedAverage
                  Exercise
              
              Average
                  RemainingOptions
              
              Price
                  per Share
              
              Contractual
                  LifeRange
                  of exercise prices:$0.52
                  - $0.99
              
              
              427,500
              
              $
              0.70
              
              
              6.49$1.00
                  - $1.99
              
              
              2,005,161
              
              $
              1.59
              
              
              5.56$2.00
                  - $2.99
              
              
              4,933,467
              
              $
              2.36
              
              
              7.74$3.00
                  - $3.99
              
              
              725,441
              
              $
              3.05
              
              
              6.43Total
                  stock options outstandingat
                  December 31, 2006
              
              
              8,091,569
              
              $
              2.14
              
              
              7.01
  Options
                  Exercisable at December 31, 2006Weighted
              
              WeightedAverage
                  Exercise
              
              Average
                  RemainingOptions
              
              Price
                  per Share
              
              Contractual
                  LifeRange
                  of exercise prices:$0.52
                  - $0.99
              
              
              427,500
              
              $
              0.70
              
              
              6.49$1.00
                  - $1.99
              
              
              1,937,680
              
              $
              1.58
              
              
              5.56$2.00
                  - $2.99
              
              
              2,792,458
              
              $
              2.44
              
              
              7.12$3.00
                  - $3.99
              
              
              725,441
              
              $
              3.05
              
              
              6.43Total
                  stock options exercisableat
                  December 31, 2006
              
              
              5,883,079
              
              $
              2.10
              
              
              6.48
  As
        of
        December 31, 2006, the Company had a total of 1,310,270 shares of common
        stock
        in the stock option reserve available for future grant awards.
  As
        of
        December 31, 2006, there was approximately $3.1 million of total unrecognized
        compensation cost, adjusted for forfeitures, related to non-vested stock-based
        payments granted to Company employees and contractors, which is expected
        to be
        recognized over a weighted-average period of approximately 2.2 years. Total
        unrecognized compensation cost will be adjusted for future changes in estimated
        forfeitures.
  50
 **12.** **Stock
        Options and Warrants**
  As
        of
        December 31, 2006, the Company had outstanding options to purchase up to
        8,091,569 shares of common stock, and warrants to purchase up to 8,262,911
        shares of common stock. These securities give the holder the right to purchase
        shares of the Company’s common stock in accordance with the terms of the
        instrument.
 
 StockOptions
              
              Warrants
              
              TotalBalance,
                  December 31, 2005
              
              
              8,060,801
              
              
              13,121,580
              
              
              21,182,381Granted
              
              
              3,350,000
              
              
              2,062,756
              
              
              5,412,756Exercised
              
              
              (477,902
              )
              
              (302,500
              )
              
              (780,402
              )Expired/forfeited/cancelled
              
              
              (2,841,330
              )
              
              (6,618,925
              )
              
              (9,460,255
              )Balance,
                  December 31, 2006
              
              
              8,091,569
              
              
              8,262,911
              
              
              16,354,480
 
 As
        of
        December 31, 2006, 1,310,270 options were available in the option reserve
        for
        future grants.
  The
        following table summarizes stock option plan activity for the years ended
        December 31, 2006, 2005 and 2004:
 
 Outstanding
                  OptionsWeightedShares
                  Available
              
              Number
                  of
              
              Averagefor
                  Grant
              
              Shares
              
              Exercise
                  PriceBalance
                  at December 31, 2003
              
              
              1,521,488
              
              
              3,841,162
              
              $
              2.26Granted
              
              
              (2,202,936
              )
              
              2,202,936
              
              
              1.44Exercised
                  through cash consideration
              
              
              -
              
              
              (354,019
              )
              
              1.11Exercised
                  through non-cash consideration
              
              
              -
              
              
              (3,300
              )
              
              1.88Expired/forfeited/cancelled
              
              
              717,331
              
              
              (717,331
              )
              
              1.47Balance
                  at December 31, 2004
              
              
              35,883
              
              
              4,969,448
              
              
              1.93Additional
                  shares reserved
              
              
              5,000,000
              
              
              -
              
              
              -Granted
              
              
              (3,671,500
              )
              
              3,671,500
              
              
              2.48Exercised
                  through cash consideration
              
              
              -
              
              
              (103,704
              )
              
              1.21Exercised
                  through non-cash consideration
              
              
              -
              
              
              (21,886
              )
              
              2.09Expired/forfeited/cancelled
              
              
              454,557
              
              
              (454,557
              )
              
              2.25Balance
                  at December 31, 2005
              
              
              1,818,940
              
              
              8,060,801
              
              
              2.17Granted
              
              
              (3,350,000
              )
              
              3,350,000
              
              
              2.25Exercised
                  through cash consideration
              
              
              -
              
              
              (477,902
              )
              
              1.49Expired/forfeited/cancelled
              
              
              2,841,330
              
              
              (2,841,330
              )
              
              2.45Balance
                  at December 31, 2006
              
              
              1,310,270
              
              
              8,091,569
              
              $
              2.14
 
 The
        weighted-average grant-date fair value of stock options granted during 2006,
        2005 and 2004 was $1.44, $2.05 and $1.19, respectively.
 
 The
        options vested as of December 31, 2006, 2005 and 2004 were 5,883,079, 7,328,472
        and 3,413,868 with a weighted average exercise price of $2.10, $2.17 and
        $2.11,
        respectively.
  The
        warrants outstanding as of December 31, 2006 are summarized in the table
        below:
 51
 
  ExercisePrices
              
              Year
                  ofWarrants
              
              per
                  Share
              
              ExpirationWarrants
                  purchased in privateplacements:1,558,181
              
              $
              2.00
              
              
              20073,782,230
              
              $
              3.25
              
              
              20081,000,000
              
              $
              3.25
              
              
              2009Subtotal
              
              
              6,340,411Warrants
                  issued to customer andvendor
                  for future services:100,000
              
              $
              3.50
              
              
              200850,000
              
              $
              1.99
              
              
              2009Subtotal
              
              
              150,000Warrants
                  issued to outside directorsand
                  former employee:50,000
              
              $
              6.38
              
              
              2010925,000
              
              $
              2.31
                  - $2.75
              
              
              2011327,500
              
              $
              2.35
                  - $2.60
              
              
              2015470,000
              
              $
              2.85
              
              
              2016Subtotal
              
              
              1,772,500Total
                  warrants outstanding atDecember
                  31, 2006
              
              
              8,262,911
 
  Of
        the
        total warrants outstanding at December 31, 2006, 7,916,763 were fully vested
        and
        exercisable, and 346,148 were not yet vested or exercisable. The unvested
        warrants, held by the outside directors, vest fully on dates ranging from
        January 4, 2007 through May 8, 2008, each at a price of $2.85
  **13.
        Concentration of Credit Risk**
  The
        Company maintains cash balances at two financial institutions in excess of
        the
        federally insured limit of $100,000 per institution. At December 31, 2006,
        the
        Company’s uninsured cash balances totaled $4,678,910. At December 31, 2006 the
        accounts receivable balance was $68,145 and one customer accounted for 44%
        or
        $30,000 of the outstanding accounts receivable balance. The collection of
        this
        amount is contingent upon the installation of the ANTs Data Server product
        and
        customer acceptance. It is the Company’s opinion the customer will provide
        acceptance of the product in 2007 and the $30,000 will be collected. The
        remaining $38,145 of outstanding accounts receivable has been collected as
        of
        March 1, 2007.
 
 **14.
        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, 2006, 2005 and 2004. Administrative fees for the
        plan
        totaled approximately $3,600, $3,200 and $2,900 for the years ended December
        31,
        2006 2005 and 2004, respectively.
 
 52
 **15.
        Subsequent Events**
  In
        January
        2007, the Company sold 180
        J Units (the Units and their terms and conditions are described more fully
        in
        Note 8 to these financial statements) to accredited investors for an aggregate
        investment of $9,000,000. Pursuant to the sales, the Company will issue
        investors (i) 2,571,300 shares of common stock of the Company, and (ii) Notes
        with an initial face value of $4,500,000. The Company paid $900,000 in cash
        commissions and will issue 163,620 shares of common stock of the Company
        to a
        placement agent for services related to the January 2007 J Unit sales. The
        net
        proceeds will be used to fund operations. The sales of these securities were
        made in reliance upon Rule 506 and Section 4(2) of the Securities Act of
        1933.
 
 In
        March
        2007, the Company sold 14 J
        Units (the Units and their terms and conditions are described more fully
        in Note
        8 to these financial statements) to accredited investors for an aggregate
        investment of $700,000. Pursuant to the sales, the Company will issue investors
        (i) 199,990 shares of common stock of the Company, and (ii) Notes with an
        initial face value of $350,000. The Company will pay $70,000 in cash commissions
        and will issue 12,726 shares of common stock of the Company to a placement
        agent
        for services related to the March 2007 J Unit sales. The net proceeds will
        be
        used to fund operations. The sales of these securities were made in reliance
        upon Rule 506 and Section 4(2) of the Securities Act of 1933.
  53
  SIGNATURES
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        as
        of the 15th day of March 2007 by the undersigned, thereunto duly
        authorized.
 
 ANTs
                  software inc.By
                /s/ Joseph KozakJoseph
                  Kozak,
                Chief
                  Executive Officer and President
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the Registrant and in
        the
        capacities and on the dates indicated.
 
 By/s/
                  Joseph KozakJoseph
                  Kozak,Chief
                  Executive Officer and PresidentDateMarch
                  15 , 2007By/s/
                  Kenneth RuotoloKenneth
                  Ruotolo, Secretary andChief
                  Financial OfficerDateMarch
                  15, 2007
   54
  DIRECTORSBy/s/
                  Francis K. RuotoloFrancis
                  K. Ruotolo, Chairman of the BoardOf
                  DirectorsDateMarch
                  15, 2007By/s/
                  Joseph KozakJoseph
                  Kozak, DirectorDateMarch
                  15, 2007By/s/
                  John R. GauldingJohn
                  R. Gaulding, DirectorDateMarch
                  15, 2007By/s/
                  Thomas HoltThomas
                  Holt, DirectorDateMarch
                  15, 2007By/s/
                  Robert H. KiteRobert
                  H. Kite, DirectorDateMarch
                  15, 2007
 
 55
  **(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.3.3
              2000
                  Stock Option Plan of the Company, amended April 5, 2005, as listed
                  in
                  Exhibit 10.1 to the Company’s 8-K filed on April 12, 2005, is hereby
                  incorporated by reference.10.1
              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.10.2
              Agreement
                  to Terminate Separation Agreement, between the Company and****Francis
                  K. Ruotolo, as listed in Exhibit 10.1 to the Company’s 8-K filed on
                  January 1, 2005, is hereby incorporated by reference.10.3
              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.10.4
              Termination
                  of Contingent Bonus Agreements, signed with officers and directors
                  of the
                  Company, as listed in Exhibits 10.9 through 10.14 to the Company’s 8-K
                  filed on April 29, 2005, are hereby incorporated by
                  reference.10.5
              Standard
                  Multi-Tenant Office Lease, as listed in Exhibit 10.6 to the Company’s
                  10-QSB filed on November 14, 2005, is hereby incorporated by
                  reference.14.
              Code
                  of Ethics, as listed in Exhibit 14 to the Company’s 10-KSB filed on March
                  30, 2004, is hereby incorporated by reference.20.
              Transcript
                  of disclosures made during a teleconference for shareholders held
                  October
                  18, 2005, as listed in the Company’s 8-K filed on October 19, 2005, is
                  hereby incorporated by reference.23.1
              Letter
                  of Consent from Independent Registered Accountants, 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 200231.2
              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 200232.1
              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
                  200232.2
              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 from October
        1, 2006 through December 31, 2006: 1) On October 18, 2006, the Company disclosed
        that it had approved an amendment and restatement of its Code of Ethics;
        2) On
        November 8, 2006, pursuant to Regulation FD, the Company disclosed certain
        information it had presented at a financial conference; 3) On December 20,
        2006,
        the Company disclosed that it had entered into agreements with accredited
        investors, whereby the Company would receive a total of $11 million in debt
        and
        equity financing during the last quarter of 2006 and the first quarter of
        2007.
   56